Speaker #1: Welcome to this third quarter presentation for Borgstad. First, an introduction of ourselves: with me today as previous quarters as well, we have Benic Pers Andersen, the CEO of Haugans Borgstad Group.
Speaker #1: My name is Pål Fen Larsen, and I'm the CEO of Borgstad ASA. Before we start, I would like to inform you that Q&A session will be held after the presentation, and you may enter your questions through the chat function.
Speaker #1: The presentation deck is also available at borgstad.no, and in a more extended version than we will present here today. This quarter represents another strong quarter for Borgstad Group.
Speaker #1: Hauganes Borgstad continue to deliver solid operational performance, reflecting good underlying operation across underlying business. At the same time, Agora Bytum continued its positive development, further supporting the overall performance for the group.
Speaker #1: September also marked an important milestone for Borgstad: after a long process, the group finally received the decision from the Swedish Supreme Administrative Court regarding the sale-lease-back transaction of the two production properties in Bjuv.
Speaker #1: The court decided to grant to not grant leave to appeal; thereby removing the outstanding condition for completing the transaction. Following the decision, the final transaction agreement was signed in the beginning of October, and closed the transaction was closed mid of October this year.
Speaker #1: With the Bjuv transaction completed, Hauganes Borgstad will now continue its works to determine the optimal long-term setup for group's production. Several alternatives have previously been assessed, and the objective is to identify a solution that supports efficient operations competitiveness and the group's long-term development.
Speaker #1: Importantly, the lease-back arrangement in Bjuv provides Hauganes Borgstad with the flexibility to continue production at the existing facilities up to 5 years. This provides sufficient time to evaluate alternatives carefully, and implement the preferred long-term solution in a controlled manner.
Speaker #1: The strong operational performance, combined with a solid financial position and completion of the sale-lease-back transaction, has further strengthened the group's financial flexibility. Considering this development, I'm particularly pleased that the board of directors has resolved to distribute a dividend of NOK 1.5 per share, this represents an important milestone for Borgstad and allows us to return capital to our shareholders while maintaining a strong financial position.
Speaker #1: Including the dividend announced today, Borgstad has distributed a total dividend of 2.8 NOK per share since May 2025, corresponding to approximately 100 million in return to shareholders over the last 1.5 years.
Speaker #1: If the current operations performance continues, Borgstad expects to continue distributing excess cash to shareholders through dividends. For third quarter, Borgstad Group delivered a result before tax of 48 million, compared to 47 million in third quarter 2025.
Speaker #1: Year-to-date revenues ended at 886 million, compared to 876, and EBITDA at 121 million, compared to adjusted 103 for first 9 months in 2025. Last 12 months, adjusted EBITDA margin for the group ended at 12.1%.
Speaker #1: Hauganes Borgstad has increased EBITDA margin from 7.5% fiscal year 2025 to 9.9% last 12 months 2026. Agora Bytum stabilized EBITDA margin last quarters above 50% and achieved an EBITDA margin of 54% in the quarter.
Speaker #1: Both segments are performing well financially. Interest-bearing debt and net interest-bearing debt decreases per 30th of September 2026, compared to same date in 2025. Available liquidities due at 138 million, and this is before the sale-lease-back transaction was completed in actually four quarter, or mid of October.
Speaker #1: To sum up, Borgstad Group remains solid and fully financed. Let's go into Agora Bytum details. Rental income in NOK decreased by 0.7% in third quarter 2026, year on year.
Speaker #1: Reflecting a negative currency effect from the depreciation of the euro against the Norwegian krone. Measured in euro, growth remained positive, and with rental income up 8.4% in third quarter, year over year.
Speaker #1: The trend for Agora Bytum is positive, and we review a positive trend month by month, both in revenue and EBITDA. Agora Bytum had a debt of as of September 30th at EUR 28.2 million, in June 2024 Agora Bytum entered into an interest hedging covering 70% of the outstanding loan amount.
Speaker #1: As EUR interest rates rises these days, Agora Bytum remains well positioned with 70% of its outstanding debt hedged until maturity end of December 2028.
Speaker #1: As of September 30th 2026, occupancy based on signed leases was 96.8%, a decrease of 0.6% from June 30th. Agora Bytum has a leasable area of 34,200 square meters, as shown in the graph.
Speaker #1: Agora Bytum has developed occupancy rate strongly in recent years, including increasing leasable area with 1,100 square meters by reducing common area. The occupancy rate is expected to stabilize going forward.
Speaker #1: Management is currently evaluating the conversion of approximately 800 square meters to reduce the space occupied by existing tenant and create new office space in the center.
Speaker #1: If completed, the project is expected to generate approximately EUR 100,000 in additional annual rental income. Agora Bytum benefits from a diverse tenant base and a healthy weighted average and expired lease term of about 3.5 to 4 years, ensuring low contract duration risk and high visibility for years ahead.
Speaker #1: Contract durations are well spread over time, with the first due top 10 tenants in first quarter 2028, and more than 60% of contract measured by number of square meters is due in 2030 or later.
Speaker #1: Tenant turnover at Agora Bytum increased 1.5% in third quarter 2026, compared to the same period in 2025. Last 12 months turnover increased by 1.2%.
Speaker #1: Number of visitors are stable at 4.7 million visitors per year. Bennick, then let's go into Hauganes Borgstad.
Speaker #2: Yeah, thank you, Paul. First of all, it's a pleasure reporting the figures for the third quarter for Hauganes Borgstad. We delivered revenues of 354 million NOK and an EBIT of 56.3, compared to 333 and 49.6 in last year's third quarter, respectively.
Speaker #2: This improvement reflects the positive impact of cost reduction measures improved operational efficiency and ongoing internal improvement initiatives. But also the fact that we once again completed several really successful projects thanks to great project management and efforts by everyone involved.
Speaker #2: Market conditions are, as we communicated in our Q2 presentation, slightly showing signs of improvements following an extended period in which customers have postponed maintenance and investments.
Speaker #2: While this is obviously encouraging, customers remain highly cost sensitive and competitive environment continues to be characterized by significant price pressure. We therefore remain cautious about the pace of the recovery, but see a gradually improving underlying market.
Speaker #2: Internally, we have continued to strengthen the business during the quarter, several targeted initiatives have been implemented to improve governance, project execution, and cost control.
Speaker #2: These measures are already contributing to a more disciplined organization, although we still see further improvements and will continue this work going forward. And as part of our ongoing efforts to streamline the group and focus our resources on the core business, we have decided to discontinue a loss-making subsidiary in Sweden during the fourth quarter.
Speaker #2: While this is a relatively limited part of the group today, the decision reflects our continued focus on simplifying the organization, addressing underperforming activities, and improving profitability.
Speaker #2: Overall, we remain cautiously positive. Market conditions are gradually moving in the right direction, while the measures we are taking internally should further strengthen the business and provide a solid foundation for improved performance going forward.
Speaker #2: As previously highlighted, the Nordic refractory business has a clear seasonal pattern, with the majority of projects taking place during the warmer periods and this is evident in the second and third quarter, which historically represent around 26 and 31% of our annual revenues.
Speaker #2: Combined with the relatively high fixed cost in our operations, these fluctuations naturally have a meaningful impact on our quarterly profitability. With that backdrop, we delivered a somewhat weaker than expected first quarter, but which was cost partly by a slower market, but also the fact that we had some project-related issues which was highlighted in the first quarter presentation.
Speaker #2: Since then, the development has been very strong. We delivered a record strong second quarter, followed by an even stronger third quarter. So this quarter, which was the best quarter that we have ever delivered as a group.
Speaker #2: At the same time, the impact of our commercial efforts should be viewed over a longer horizon. The sales cycles in our industry is typically long, with a minimum 6 to 12 months and in many cases also several years, between the initial customer dialogue and actual project execution.
Speaker #2: Consequently, initiatives being pursued today will not necessarily translate into revenues immediately. But should increasingly contribute to activity and growth through 2027 and 2028. Looking at our trailing 12 months performance, the EBIT margin has improved to 7.5%, up from 5.6% at the end of the first quarter and 6.2% for the full year 2025.
Speaker #2: This reflects the continued focus on profitability, cost control, and operational efficiency combined with strengthened commercial efforts in all three countries. While quarterly results will continue to fluctuate due to project timing and seasonality, the underlying development is positive and we remain committed to our medium-term target of an EBIT margin of 10%.
Speaker #2: As part of this work, as I mentioned in the intro, we are currently discontinuing one of our subsidiaries, which has been loss-making for several years.
Speaker #2: The decision reflects a broader ambition to exit activities where we do not have a clear competitive advantage and create a more focused and profitable group.
Speaker #2: The subsidiary in question has negatively impacted our trailing 12 months EBIT by approximately 12 million, and its discontinuation together with the resulting sharper operational focus is therefore expected to have a meaningful positive impact on group profitability from 2027 and onwards.
Speaker #2: As previously communicated, and as mentioned by Paul in the introduction, the sale leaseback of our two properties in view was delayed for almost three years due to the legal process surrounding the municipality's approval of the transaction.
Speaker #2: In September, the Supreme Administrative Court declined the grant to leave appeal, which brought the legal process to an end and allowed the allowed us to move forward with the transaction.
Speaker #2: The sale leaseback was subsequently completed now in mid-October, which means that the properties had now been sold to the municipality while Høganes Borgestad will continue to lease and operate the properties for the time being.
Speaker #2: The completion removes a longstanding uncertainty for the group and represents an important milestone as we move forward with the longer-term production setup. Now, with the transaction completed, let me briefly summarize the key terms of the transaction.
Speaker #2: The properties were sold for approximately 139 million SEK, resulting in an estimated accounting gain of around 130 million SEK, which will be recognized in the fourth quarter.
Speaker #2: The proceeds are paid in three installments with 60% received at closing in October, and at the remaining 40% over the following two years. At closing, we also used parts of the proceeds to reduce interest-bearing debt by 10 million SEK.
Speaker #2: From an operational perspective, we will continue to lease the production facilities in Bu. The lease initially covers the full 52,000 square meters, for the first two years rent-free, before decreasing to around 35,000 square meters after two years.
Speaker #2: Importantly, the agreement provides us with the significant flexibility the lease has a maximum term of five years, but we can terminate whenever we have a solution for long-term production ready.
Speaker #2: At any time, with six months notice time. Overall, the transaction strengthened our financial position while giving us the flexibility and time needed to determine and implement the future production setup.
Speaker #1: Let's look at the financials for Borgestad as a whole. Revenue increased by 5.8% in the third quarter 2026, and 1.1% year to date, compared to same period last year.
Speaker #1: EBIT in third quarter ended at 60.7 million, compared to EBIT of 54 in Q3 2024. Reflecting improved profitability within Høganes Borgestad group, as the main contributor.
Speaker #1: EBIT in first nine months 2026 ended at 85.7 million, compared to adjusted same period 2025 at 51 million. Included in EBIT year to date 2026, at right time of fixed assets in connection with attendant change, in Agora Bytom is implemented.
Speaker #1: Net financials are stable year over year, both for a quarter and year to date, except for our foreign currency loss in third quarter of 5.7 million.
Speaker #1: It's also worth mentioning that the sale leaseback transaction is not included in the figures, as communicated both by Bendik and myself. The transaction were closed in mid of October, and will have a positive impact of 112.767 million in fourth quarter.
Speaker #1: Working capital stands at 281.2 million, compared to 352.1 as of September 30th, 2025. Mainly driven by decrease in trade receivables and inventory within Høganes Borgestad.
Speaker #1: First September 30th, total interest-bearing debt stood at 453.8 million, while net interest-bearing debt was at 348.2 million. Reducing working capital has been a key priority for the group, and meaningful progress was achieved during Høganes Borgestad's high season this year, for improvements are targeted for 2027, supported by specific initiatives that have already been identified.
Speaker #1: Net cash flow from operating activities for third quarter was positive by 16 million, compared to a positive 29.3 at the same period last year.
Speaker #1: Year to date cash flow from operating activities were positive with 11.3 and negative with 63.4 same period last year. Cash flow from investment activities during the first nine months is negative with 20.2 million, and is a 50-50 split between investments in Agora Bytom and Høganes Borgestad.
Speaker #1: Net cash flow from financial activities is negative with 38.1 million, first nine months. Compared to a positive 4.6 year to date in 2025. The main difference is the utilization of bank overdraft, that is lower in the first nine months of 2026.
Speaker #1: Per September 30th, available liquidity stood at 137.8 million, including undrawn credit facilities, meaning that Borgestad has a good financial and liquidity situation. The graph shows the composition of gross debt including lease liabilities.
Speaker #1: Borgestad maintains a sound and balanced debt position, with Agora Bytom's loan-to-value ratio below 50%. Høganes Borgestad's debt is at 43.3 million at end of September, but as Bendik mentioned, the debt was further reduced by 10 million SEK, upon completion of the sale leaseback transaction in mid of October.
Speaker #1: A blended leverage ratio of 2.5 represents a strong level for Borgestad, particularly given that most of the group's debt is linked to Agora Bytom and property.
Speaker #1: Borgestad remains confident in the long-term perspective of its assets. In addition to continuing the operational development of Høganes Borgestad and Agora Bytom, the group will actively evaluate consolidation opportunities within the refractory business.
Speaker #1: Borgestad believes that selective acquisitions may strengthen market positions, expand capabilities, and increase scale, and contribute to long-term shareholder values. The fragmented nature of parts of the refractory market may present attractive opportunities, for strategic growth through acquisition.
Speaker #1: Borgestad remains committed to execute its strategy for both Høganes Borgestad and Agora Bytom, which holds both a strong market positions in its local markets.
Speaker #1: The group's ongoing focus is improving profitability, and further strengthening operational performances. Borgestad has not changed its position that has been communicated over a while.
Speaker #1: Agora Bytom is an asset which is going to be sold when board and management believe that timing is correct. But with increased interest rates in the eurozone, we do not believe that timing is at this point in time.
Speaker #1: Then Bendik, I think we leave over to the Q&A session.
Speaker #2: Yep, we have four questions. Starting with a question on Høganes Borgestad. The presentation describes Høganes Borgestad as on track to deliver on the medium-term 10% EBIT target.
Speaker #2: What do you see as the most important drivers on that path, and how much of it is within your own control rather than dependent on the market recovery?
Speaker #2: I would say that this target of 10% is based on the current market conditions. We strongly believe that this is fully in our own control.
Speaker #2: We should be able to achieve 10% by continuing our internal improvements. We discontinuation of the loss-making subsidiary in Sweden is obviously one. Of those efforts, but in addition to that, we have quite varying profitability on project execution.
Speaker #2: Somewhat person-dependent project execution, which we continue to improve. So I would say that, of course, the market is affecting our profitability to a large degree, but this is also to a large degree within our own control.
Speaker #2: Yeah. Then the next question. What are the plans regarding the sale of Agora Bytom?
Speaker #1: Yeah, I think actually I just did in the Outlooks, but Agora is to be sold. The decision to exit Agora Bytom has been taken, but we will wait until we have information that liquidity and the market position is good, and that we can have a good and comfortable sales process.
Speaker #1: So at the time being, it's not been executed.
Speaker #2: Then we have two more questions on Høganes Borgestad. Starting with the leaseback gives you up to five years to decide on the long-term production setup.
Speaker #2: What are the main criteria you will weigh when choosing between the alternatives? If we take a step back, look in our back mirror, we closed down our main bricks production.
Speaker #2: In 2021, production of commodity bricks, so. Standard which we are currently sourcing. The production we have today is highly specialized, and both special tailored bricks and monolithics.
Speaker #2: So unshaped products. These product categories are vital to our current business, and we therefore see it vital to find a long-term good setup for this production.
Speaker #2: On the main criteria, I would say that we need to find a good solution efficient with to find an efficient logistics and also maintain key competence.
Speaker #2: We have high competence within the group, and that will be key criteria. And so I would say those two will be the main criterias when choosing between the alternatives.
Speaker #2: Next you note that the market conditions are showing signs of improvements after a period of response postponed projects. The order books to that 186 million look at the end of the quarter compared to compared with 145 million look a year ago.
Speaker #2: In which customer segments or geographics is the important improvement most visible, and how should we interpret the lower order book in that light? I would actually say that what's really I'm really pleased about with this improvement over the last few quarters is that it's a general improvement in all three countries.
Speaker #2: So we are showing good signs across the boards. So and we also see that it's a positive development across several I would say most of our segments in which we operate.
Speaker #2: Of course, the lower order book is a good question. The order book only. Reflects the signed orders, and it is not necessarily a good representation of the business going forward.
Speaker #2: As a lot of our business is, let's say, highly we know that it's coming, but it's not necessarily signed orders. So I wouldn't put too much emphasis on the order backlog.
Speaker #1: Which is also shown in the history.
Speaker #2: In the history, yeah. We have let me just go to new question. When the sale of Agora Bytom is completed, what are your plans with the cash generated from the sale?
Speaker #1: I think then I can recall and communicate what the chair of the board actually communicated a while ago. When Agora Bytom is sold, the cash is and again is planned to be distributed to shareholders.
Speaker #1: As dividend, and if or when we are going to make new investments in the future, we will do that through fundraising or yeah, capital raise.
Speaker #1: Capital raise after that, yeah.
Speaker #2: That was all the questions.
