Interim Report January – September 2015
THIRD QUARTER 2015
Sales increased by 5% compared to the same period last year. Normally, flooding or other weather events during the summer and early autumn boost sales in the third quarter, which was not the case in 2015. An increase in fire and large loss damage, in addition to last year’s gain of major contracts in the UK, compensated for the slow growth in water damage. Order intake in the third quarter was 1% below last year, which included flooding in Germany, the UK, Sweden and Denmark.
- Operating profit before amortisation and non-recurring items (EBITA before NRI) amounted to EUR 4.7 million (3.2). This trend is attributable to operational improvement programs in several countries and restructuring projects in Germany and the US. During the second quarter, Polygon in the US discontinued its activities in the Property Damage Restoration (PDR) business and decided to focus on the more profitable Temporary Climate Solution (TCS) business. Both Germany and the US improved their results and efficiency through the programs. Operating profit in Europe was doubled and in North America the result turned from negative to a surplus.
- Operating profit (EBITA) amounted to EUR 4.4 million (1.4).
JANUARY – SEPTEMBER 2015
- Sales increased by 8% compared to the same period of last year, due to increased fire and large loss damages.
- Operating profit before amortisation and non-recurring items (EBITA before NRI) amounted to EUR 12.5 million (7.2). The increase in profit is attributable to leverage on the sales growth.
- The country presidents in Germany and the US were replaced during the second quarter, at the same time that both countries initiated restructuring programs. The Group Management at Polygon’s head-office in Stockholm has been reduced from five to three members. Restructuring charges, mainly attributable to Germany and the US, amounted to EUR 4.8 million. Last year the restructuring charges amounted to EUR 6.2 million
- Lars-Ove Håkansson, previously CEO and Chairman of Skanska, and Petter Darin from Triton Advisers (Sweden) AB were elected as board members during Q2.
Group Key Figures
For Group Key Figures table, please refer to attached file below.
Comments from the CEO
The positive trend continues to increase pace
What encourages me most is the quality improvement in our current earnings. In 2015 we have not been aided by weather conditions to the same extent as last year. We have worked hard on what we refer to as “the basics” of the Polygon model, meaning improvements in our structure and our processes, while focusing on tapping the full potential of our people. So far this has proven to be a successful way to improve the business.
The countries that have come furthest in implementing the Polygon Model are now focusing on introducing new services and concepts. Examples of this include emergency services and construction climate control. In the latter case we control the moisture levels, perform live video streaming from policyholders homes and provide construction drying (heat).
In late 2014 and early 2015, we acquired a company in Austria that is active in property management and a document business in the UK in order to broaden our services in Property Damage Control. Making acquisitions and initiating major projects are at the most advanced stage of our step-by-step philosophy, and are only sanctioned for counties where the base is strong.
During the third quarter alone, we raised our operating EBITA level by close to 50%, and for the entire period we improved the operating profit over 70%. This development is favourable, considering the below average effect of external events. The rolling twelve-months operating profit is now at EUR 17 million.
The above mentioned restructuring programs have been key drivers to improve the profit, as they were executed in two of the largest operations in the Group. In Germany, the structure has been streamlined resulting in lower costs. In the US, we have focused the business towards TCS and, as in Germany, have reduced the indirect expenses. The managements in the Nordic countries and the UK have struggled with a market characterised by a declining numbers of claims, but have nevertheless managed to improve the results through operational improvements.
The recently appointed country presidents have continued to demonstrate improved performance. We are striving to grow the business, boost our operational efficiency and achieve leverage through an optimal indirect structure.
New framework agreements and effects from productivity measurements should partly compensate for the lack of order intake from normal weather events. If the absence of weather-related events continues, we expect to see some unfavourable effects during the fourth quarter. In the corresponding quarter last year, order intake from water damages was strong following several floods. Indirect costs were reduced after the restructuring projects in the US and Germany.
There are several market trends in the property damage restoration market that are benefiting larger players like Polygon, such as the centralisation of procurement, the customer preference for one-stop-shops and the more complex requirements for front-end IT systems. Global warming is gradually increasing rainfall levels and extreme weather, which will consequently increase water damages.
Net sales and profit for the third quarter of 2015
Consolidated sales amounted to EUR 105.3 million, an increase of 5% compared to the same quarter of last year. Organic growth, excluding foreign exchange and acquisition effects, amounted to 4%. Growth in Europe was 7% while North America was 14% below last year’s sales in local currency. The lack of weather events that normally occur in the third quarter, resulted in an unfavourable sales mix with an increasing share of non-water-related jobs, which have lower margins. Order intake in the third quarter was on the same level as last year.
Consolidate operating profit before amortisation and non-recurring items (EBITA before NRI) amounted to EUR 4.7 million (3.2). Earnings in most markets have been positively impacted compared to last year as an effect of restructuring programs in previous periods, in addition to the restructuring initiated and executed during the second quarter of this year. The programs in both Germany and the US had positive effects in the third quarter.
Restructuring costs in the third quarter decreased to EUR 0.3 million and consisted mainly of redundancy costs. Operating profit (EBITA) amounted to EUR 4.4 million (1.4).
Administrative closing of the large NYCHA project in the US is ongoing. The project is expected to be closed during the fourth quarter.
Net financial expenses for the period amounted to EUR 3.2 million (0.8), including a foreign exchange loss of EUR 1.0 million. Last year the foreign echanges differences were positive at EUR 1.5 million. The loss before tax for the period amounted to EUR 0.1 million (0.7), and net profit was EUR 0.0 million (loss 0.8).
Net sales and profit for the first nine months of 2015
Consolidated sales amounted to EUR 325.4 million, an increase of 8% compared to the same period of last year. Organic growth excluding foreign exchange and acquisition effects amounted to 7.5%. Europe had a growth rate of 9%, while North America was 6% below last year’s sales in local currency due to a decline in Canada and NYCHA sales booked in the third quarter. Due to the lack of events and a mild winter, water-related sales, which carry a higher gross margin, have grown at a slower pace than other service lines.
Consolidated operating profit before amortisation and non-recurring items (EBITA before NRI) amounted to EUR 12.5 million (7.2), an improvement of 74% compared to the same period of last year. The improvement is mainly attributable to the second and third quarters. The first quarter of 2014 was satisfactory, while the second quarter was weak. The pace of activity last year started to rise towards the end of the third quarter and activity in the fourth quarter was high. The improved result is explained by the effects of previous restructuring and new initiatives. Twelve out of thirteen countries have improved their results compared to last year.
Restructuring costs amounted to EUR 4.8 million (6.2), of which nearly all was recognised in the second quarter. Operating profit (EBITA) amounted to EUR 7.7 million (1.0).
Net financial expenses for the period amounted to EUR 5.1 million (7.5), including foreign exchange gains of EUR 0.8 million (1.9). The loss before tax for the period amounted to EUR 1.6 million (10.7), and the net loss was EUR 1.6 million (10.3).
Cash flow and financing
Cash flow from operating activities during the third quarter of 2015 amounted to EUR 4.7 million (neg: 1.8) and cash flow before financing activities amounted to EUR 1.9 million (neg: 4.0). Due to the NYCHA project and work in progress, as part of the business activity in the quarter, working capital has increased since year-end 2014.
Total interest-bearing net debt amounted to EUR 107.4 million (December 2014: 101.7).
Equity amounted to EUR 40.1 million (December 2014: 42.4).
The Group’s liquidity buffer amounted to EUR 26.0 million (December 2014: 31.9), consisting of cash and cash equivalents of EUR 16.6 million (December 2014: 21.5) and unutilised contracted loan commitments of EUR 9.4 million. (December 2014: 10.4)
Capital expenditure during the third quarter of 2015 amounted to EUR 2.8 million (2.2).
The consolidated figures in this report are presented at the consolidated level for Polygon AB. The Parent Company, Polygon AB (corporate identity number 556816-5855), directly and indirectly holds 100% of the shares in all subsidiaries in the Group, except for the company in Denmark, in which the non-controlling interest is 24.2%. Net result for Polygon AB for the third quarter amounted to a loss of EUR 62 thousand (loss 89).
Significant risks and uncertainties
Around 75% of Polygons business consists of property damage control, which follows a seasonal pattern of predictable demand. The remaining 25% is related to more extreme and less predictable events caused by weather and fire. The frequency of property damage can vary depending on circumstances beyond Polygon’s control, the outdoor temperature and the weather. Since part of Polygon’s cost structure is fixed, the proceeds of the operations are unpredictable to some degree and vary from time to time.
Polygon is to a large extent dependent on its key customers, the insurance companies, and must maintain mutually beneficial relationships with them in order to compete effectively. Our top ten customers represent about 30% of Polygon’s sales, with the newest customer on the top-ten list having a seven-year relationship.
For further details about the Group’s risks and uncertainties, please refer to the 2014 Annual Report.
Polygon’s view is that there have not been any significant changes during the reporting period with regard to the risks and uncertainties that were presented in the Annual Report.
The Group is under the controlling influence of Polygon Holding AB, the Parent Company of Polygon AB. Polygon Holding AB is under the controlling influence of MuHa No2 LuxCo S.á.r.l. There have been no material transactions with companies in which MuHa No2 LuxCo S.á.r.l has significant or controlling influence.
The interim report for the Group has been prepared in accordance with IAS 34 Interim Reporting. The interim report for the Parent Company has been prepared in accordance with the Swedish Annual Accounts Act.
The Group applies the International Financial Reporting Standards (IFRS) as adopted by the EU, and the Swedish Annual Accounts Act.
The accounting policies applied in this interim report are the same as those applied in the consolidated annual accounts for 2014. More detailed accounting policies can be found on pages 10-16 of the Annual Report for 2014.
A number of standards and changes in standards are effective from 1 January, 2016. Polygon does not intend to apply these in advance and the overall assessment is that they will have no major impact on the Group’s result or position.
The term “IFRS” used in this document refers to the application of IAS and IFRS as well as the interpretations of these standards published by the IASB’s Standards Interpretation Committee (SIC) and the International Reporting Interpretations Committee (IFRIC).
The undersigned gives his assurance that this interim report provides a true and fair overview of the business activities, financial position and results of the Parent Company and the Group and describes the significant risk and uncertainties to which the Parent Company and its subsidiaries are exposed.
Stockholm, 13 November 2015
Evert Jan Jansen
President and CEO
For more information please contact:
Mats Norberg, CFO, + 46 70 331 65 71
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