Q3 19/20

Feb 5, 2020

Ladies and gentlemen, welcome to the ADTEC Presentation of the Third Quarter. For the first part of this webcast, all participants will be in a listen only mode. And afterwards, there will be a question and answer session over the telephone. Today, I'm pleased to present Nicola Steinberg, CEO and Malin Inarson, CFO. I will now hand over to Niklas Steinberg. Please go ahead. Hi, everyone, and welcome to this presentation of Alteryx's 3rd quarter. And as you already heard, it's with me and our CFO, Marlin Enarson. As you understand, this was a very different quarter for us. It started up very good with good momentum in the group in October, but then we were hit by this cyber attack on October 30. With that in mind, this is actually a report that we are proud of. As you can see, we still managed to grow organically with 5%, which I believe is a good proof of the resilience that our decentralized structure brings. When I present AdTech to investors, I usually say that culture always beats strategy. And this outcome in this report is the result of a great culture. A few words around the cyber attack. I will not spend so much time on that. If you have more questions, we can take it after in the Q and A. As you might have seen, we have been as transparent and open as possible around the attacks during the whole process. This was a ransomware attack, but for us it was never a discussion to pay in a ransom. That's not in our philosophy of doing business. And we don't want to seize a criminal system like this. The financial impact of the attack on the Q3 was SEK 90,000,000, which is a mix of direct costs and also lost business. But I would really like to emphasize that this attack has only hurt us in the short term, and we have really got fantastic help and understanding from both customers and partners. If you look on the revenue, given the IC attack and the fact that there were a lot of days off this December, we, as I said, feel it's a solid report, 5% organic and also acquisitions have added. Our calculations show that we have lost about SEK 130,000,000 in sales during Q3 due to the effect. So it's a mix of not being able to deliver some lost projects and also some of our companies have asked their customers to postpone projects. And if you put back this sale figure of $130,000,000 we land on an organic growth of about the double, so 10%. And all business areas grows organically to varying degrees. Scrubber business accounted for a great part of organic growth also this quarter. I will talk more about the scrubber business later, but we it's important to note that we're having a solid organic growth also without that niche. If we look at the underlying demand, I would say that the general feeling is rather more positive now than 6 months ago. After summer, there were a lot of signals of a slowdown in primarily the mechanical industry sector. But today, we don't get the same kind of signals. And I also feel it's emphasized by recent macro statistics. But as in Q2, it's the more cyclical sectors where we do see some signs of slowdown. It's more of a leveling out situation. And also here we have had strong growth last year, so the comparison figures are tough. Telecom on fiber side and system side was not as good as expected, but continued stable markets was electronic industry in Finland, for instance, and energy segments. If we look on the results, I would say it's okay on the total given the circumstances. The fact that we only lost 4% compared to last year is very good. And if we clear the IT attack effect, we would have made a profit growth of around 33%. So underlying a very solid profit growth still. And we are continually having good leverage on our organic growth. So we are successful in keeping costs under control and getting the results with us. Short word about the margins, Q3 is always weak in terms of results for us. But adjusted for the IT Tech, we would have been around rolling 12 figure, and that's clearly better than last year. Short words on the different business areas. Automation, stable development. Acquisitions contribute quite a lot on top line, but we still have good organic growth. So continued good demand in our largest segments. For instance, mechanical industry, we saw quite lower activity in the Q1, but a clear improvement in Q2 and now same feeling in Q3. The leveling demand that we write about in the report applies primarily to customers who have some weighting of some investments of new projects. Defense is going really well. We see clear growth here. Fiber installation, that is one part of automation, has varied. Still not good in Sweden, even though the need is great here. The margin was well affected by the IT, but also we have a couple of acquired companies that underperform and also some one time costs here. Components, here we have very tough comparisons because we had a strong quarter last year. And also it's worth mentioning that components was particularly affected by the IT attack, so many companies were hit. Here we have, as you know, a lot of OEM components for electronic markets, special vehicles and the energy sector. And overall, stable demand, not the same amazing momentum as we saw last year, but it's not like earlier this year where customers were draining the stocks and now they need to buy components again. Norway was a good market still. Finland, very good with a lot of electronic industry where they still invest. Sweden, Denmark stable, I would say. So cleared from the IT Tech, the margins would have been better than last year and about rolling 12% level. Energy, I must say, it's impressive to have this margin increase even though they were also, of course, hit by the IT attacks. The fact that we have no direct growth on the top line is really according to plan, you could say, because we have strategically decided not to go for some big projects on the transmission side with very low margins. But we have a lot of new projects to calculate on and we have a really good position. We see a slight slowdown for companies in electrical installation materials, but also here we have tough comparisons. So to summarize, overall a good quarter and a clear margin improvement. Industrial Process continued very strong, certain acquisition effect, but above all, it's organic growth and primarily scrubbers. And if we start with some words about the scrubbers, as we said on the Capital Markets Day in September and also after Q2, there has been a hesitation in demand in the market ahead of the new regulation IMO 2020 that came into force now in January. But as you can see in the report, sales have remained very good, about the same level as in Q2, but we have noticed clearly lower demand for new projects. So we have emptied some order backlog, as I write in the report. We still have order stock to take from, but we hope for demand, of course, to pick up again. And as I also write in the report, our estimation based on discussions with our customers is that demand will pick up again in the first half of twenty twenty. We can see that the shipyards are also building up capacity in Middle East and Europe. Today, most of the scrubber installations is done in Asia, but there is a demand for more capacity. Finally, Power Solution. Cleared for the ice attack. We had an okay organic increase here as well of a few percent. But I have to say a quite crappy quarter in results, because even if we take out the IT Tech effects, the margins would still be not so good. It's yes, and that is due to some one off projects with the poor margins and non favorable product mix. So this margin in this quarter, I think we have never seen this bad quarter in Power Solutions on the margins, but it's not alarming in any way. It should perform in much higher levels. The largest segment here is Special Vehicles. We see some leveling off on some segments, but we're also taking new projects here, and we have the electrification trend as well. So no reason to be afraid here. So if we look on the whole period up until now, we can summarize an increase of 90% in turnover and of which 11% organic and growth on EBITDA of 23%, 28% if you take away the IT effects and still very good margin improvement. So overall, I would say we are very pleased and we think that these accumulated figures give a very good picture of our situation, underlying normal good organic growth and then scrubbers on top. So how do we see the future? Well, overall, I have a very positive picture of AdTech's possibility to continue profitable growth. We have good positions on the market and in many areas that are driven by macro trends. 2020, if you believe in macro statistics, we will not be able to count on any major growth, maybe a couple of percent, but we are usually able to outperform the market by a few percent. So yes, I'm positive about our future. Acquisitions, as you know, is a very important part of our growth strategy. We have, up until now, made 9 acquisitions on 6 different markets, accounting a total revenue approximately of SEK 600,000,000. And then as you know, our year has not ended yet. We have our New Year celebration of end of March. So there is still time for more acquisitions. And our pipeline, I would say, looks very good. We have a lot of ongoing projects in different phases. So over to you, Marlin. Yes. Thank you. I have not planned to comment the income statement or the balance sheet, but I can say a few words about our cash flow. We had good hopes for good cash flow leaving our Q2, but then we found ourselves in a completely different situation than expected. So unfortunately, we see now that the cash flow in the quarter was a bit weaker than last year's Q3. The weaker cash flow reflects both a slightly weaker profit but also a negative effect from working capital. This is mainly due to the IT attack but also due to the usual situation that we tend to increase our inventory levels during December. In the period year to date, we still see a better cash flow than last year though, and we believe to be back on track during our last quarter. And when we look at our key financial indicators, we can look at our important profitable working capital. And we can also see there for you that remember that we have been on levels around 56% earlier quarters this year. We are now back on the same level as last year, 54%. But we believe due to the IT attack and the situation with the working capital that this is a temporary dip in the curve. Our gearing and leverage is on expected levels for the time being. Okay. So final picture before we let you ask questions. Sustainability is an important area for development for us. During the last year, we have increased speed when it comes to initiatives here. During the last quarter, we have, for example, performed a new stakeholder dialogue and updated our materiality analysis accordingly. And like we said in the previous report, we are in the middle of process of adapting our sustainability work to better align with the UN Sustainability Development Goals. Another really interesting activity that we have done was to map all of our existing operations towards the sustainability development goals. And it became really clear that we already have a lot of business that are contributing to these goals, and we see many opportunities for growth here going forward. So yes, that was it. Please go ahead and ask questions. Thank And as there are no questions registered, I hand back to our speakers. Okay. So it was obviously a very clear and filled presentation. No question marks there. No questions. So, yes, with that said, we are back on track in AdTech. We're leaving the IT Tech behind us mentally and now have full focus on future growth. Thank you very much. Thank you. Bye bye. This now concludes our conference. Thank you all for attending. You may now disconnect.