Interim Report January – December 2015

FOURTH QUARTER 2015

• Sales decreased as expected compared to the same period last year with 3.8% due to lack of weather events during the autumn and the closure of PDR activity in the US. An increase in fire, effects from contracts signed in the UK in the late 2014 and growth from large loss projects in Germany compensated for the low level of reported damages. Order intake increased late in the quarter driven by floods in the UK.
• Operating profit before amortisation and non-recurring items (EBITA before NRI) amounted to EUR 7.6 million (4.6). Q4 2014 was affected by a cost of EUR 1.9 million after revaluation of the legacy NYCHA project in the US. Germany and the US continued to improve their performance following the restructuring in Q2.
• The operating profit (EBITA) was EUR 4.8 million (3.7). This included a write down of EUR 3.0 million on IT-systems.

JANUARY – DECEMBER 2015

• Sales increased by 4.7% compared to the same period of last year. Organic growth excluding the effects of two acquisitions, FX changes and the closure of PDR activity in the US was 4.0%.
• Operating profit before amortisation and non-recurring items (EBITA before NRI) amounted to EUR 20.1 million (11.8). The increase in profit is attributable to leverage on the sales growth connected as well as cost reductions from restructuring in Germany and in the US, and optimisation programs. The gross margin was negatively affected by reduced WDR activity due to the lack of flooding’s and other weather events. In total eleven out of thirteen countries improved their results compared to last year.
• The country presidents in Germany and the US were replaced during the second quarter, at the same time that both countries initiated restructuring programmes. 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, and the depreciation of IT-systems amounted to EUR 7.6 million (7.1).
• Cash flow improved as a result of the improved profitability. Net debt was reduced by EUR 5.6 million.
• Lars-Ove Håkansson and Petter Darin were elected as board members during Q3. Additionally Ole Skov joined the board in Q1 2016.

Group Key Figures
For Group Key Figures table, please refer to attached file below.

Comments from the CEO

2015 - a turning point after a period of disappointments

The list of accomplishments in 2015 is long, but perhaps most noteworthy are the effects of the restructuring programmes in Germany and in the US. They both demonstrated strong performance during the autumn following the implementation of new structures in May, and in the US also a strategy shift which involved closing down PDR activities and focusing on TCS.

The improvement is even better than the figures show as 2015 was a year with almost no significant weather events. This statement is confirmed by several large insurance companies, which have reported a reduction in the number of claims. In the previous few years, we had both large floods and more harsh winter weather. Organic growth excluding currency effects, acquisitions and the effects from the new structure in the US was 4%.

The simple conclusion from this is that the quality of our earnings has improved. We have developed our organisation and begun the implementation of the Polygon model. The most significant driver was the change in management philosophy to one that is truly decentralised, with a bottom-up approach that provides clear accountability. This was even clearer after the reorganisation of the headquarters in Stockholm.

The figures for the full year show an improvement in the results before restructuring of close to 70%. Although Q4 in the previous year was boosted by weather effects (floods in Germany, the Nordic area and the UK) Polygon made a strong improvement. The effects from restructuring in Germany and the US are the main drivers for the improvement in 2015 but it is notable that only two countries performed below previous year. This confirms the strong management set-up we now have in the Group.

In late 2014, we made an acquisition in Austria followed by an acquisition in the UK in early 2015 (total sales of EUR 4 million). Making acquisitions and taking on major projects is the last step in our model and is only sanctioned in countries where the base is strong.

As we enter 2016, we will continue to focus on our people first, based on a strong conviction that happy employees lead to satisfied customers and, as a result, healthy profits. We conduct annual employee surveys and we work intensively with CSR within an initiative we call Our Responsibility. This important programme has the purpose of encouraging as well as protecting our employees. The Polygon model will be rolled out on a wider scale boosted by the Polygon Model Academy with the goal of broadening the number of ambassadors to spread the important message of the Polygon Model throughout the whole organisation.

Another important focus is to implement a new mobile field force system - Metrix. We will start piloting the system in Austria and the Netherlands in Q2 2016. 

Short-term outlook
The effects from business optimisation projects and the strategy shift in the US should contribute positively in 2016. Weather-related events in 2016 should also contribute positively as 2015 was a year with almost no weather events.

Market development
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 fourth quarter of 2015
Consolidated sales amounted to EUR 113.4 million, a decrease of 3.8% compared to the same quarter of last year. The decrease was expected due to the strong quarter last year after the weather events in Q2 and Q3. The Nordic area in particular suffered from the warm weather in 2015. The decline in Europe was 0.7%, while North America was approximately 40% below last year’s sales in local currency. The strategy shift in the US is the main explanation behind the sharp sales decrease.

The lack of weather events has resulted in an unfavourable sales mix with an increasing share of non-water-related jobs, which have lower margins. Order intake improved late in the period mainly as a result of floods in the UK. Sales from this event will occur in Q1 and Q2 2016.

Consolidate operating profit before amortisation and non-recurring items (EBITA before NRI) amounted to EUR 7.6 million (4.6). The improvement is to a large extent attributable to the US. Germany improved from a relatively strong quarter last year.

Restructuring costs was EUR 2.8 (0.9) million connected to a write-down on IT investments. The operating profit (EBITA) was EUR 4.8 million (3.7).

The administrative closure of the large NYCHA project in the US is almost finished. The remaining issues are small.

Net financial expenses for the period amounted to EUR 1.7 million (4.0). A large extent of this difference is attributable to foreign exchange losses in 2014.

The profit before tax for the period amounted to EUR 1.8 million (loss 2.0), and net profit was EUR 1.8 million (loss 0.2).

Net sales and profit for the full year of 2015
Sales amounted to EUR 438.7 million, an increase of 4.7% compared to the same period of last year. Organic growth excluding foreign exchange, the closure of the PDR activity in the US and acquisition effects was 4.0%. Europe had a growth rate of 6.1%, while North America was 24.2% below last year’s sales in local currency due to the new strategy in the US, NYCHA sales booked in 2014 and a decline in Canada. 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.

Operating profit before amortisation and non-recurring items (EBITA before NRI) amounted to EUR 20.1 million (11.8), an improvement close to 70% compared to the same period of last year. The improvement is attributable to the three last quarters. The first quarter of 2015 was on the level with a relatively good first quarter in 2014, while the improvements in the three last quarters have been strong due to the effects from restructuring and optimisation projects. Eleven out of thirteen countries improved their results compared to last year.

Restructuring costs amounted to EUR 7.6 million (7.1), of which EUR 4.5 million was recorded in the second quarter relating mainly to the restructuring in Germany and the US. The central functions were scaled back in Germany and the US business was focused on TCS, moving out of the PDR segment. EUR 3.0 million was booked as a write down on IT systems in the fourth quarter.

The operating profit (EBITA) was EUR 12.5 million (4.7).

Net financial expenses for the period amounted to EUR 6.8 million (11.5). The main part of the difference between the years is attributable to lower foreign exchange losses during 2015 and extra cost in connection with the refinancing of the group in 2014.

The profit before tax for the period amounted to EUR 0.2 million (loss 12.6), and the net profit was EUR 0.2 million (loss 10.5).

Cash flow and financing
Cash flow from operating activities during the fourth quarter of 2015 amounted to EUR 15.0 million (10.9) and cash flow before financing activities was EUR 12.4 million (5.2). Working capital was slightly below last year due to lower business activity. Large part of NYCHA receivables was resolved in the last quarter.

Total interest-bearing net debt amounted to EUR 96.2 million (December 2014: 101.8).

Equity amounted to EUR 44.0 million (December 2014: 42.4).

The Group’s liquidity buffer amounted to EUR 36.5 million (December 2014: 31.9), consisting of cash and cash equivalents of EUR 26.5 million (December 2014: 21.5) and unutilised contracted loan commitments of EUR 10.0 million. (December 2014: 10.4)

Capital expenditure
Capital expenditure during the fourth quarter of 2015 amounted to EUR 2.7 million (5.5).

Parent Company
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 profit for Polygon AB for the fourth quarter amounted to EUR 8.1 million (5.4).

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.

Related-party transactions
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.

Accounting policies
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 is 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, 11 February 2016

Evert Jan Jansen
President and CEO

For more information please contact:
Mats Norberg, CFO, + 46 70 331 65 71
Email address: ir@polygongroup.com

Tags: