Q4 20/21

May 18, 2021

I have the CFO, Malin. As usual, we will give our comments to the report and then open up for questions. But I would like to start up with this picture and just say a few words the company after this span of Ronan, Vermin and Diving. A now proven and successful business model has generated an average of 18% annual earnings growth. And during these 20 years, a lot of things have developed, but a lot is also the same. So we have increased our value add and expanded into new niche market, market segments and new geographies. Especially in this last quarter. A very tough Start, but a clear recovery. We have also Important to be reminded that we had very tough comps from last year's Q4. We had a positive effect both from ICF tax sales coming in from Q3, but also to see the boost effect of COVID sales in the end of the quarter, especially customers who were bunkering or what the word is in English for the before the pandemic. The most positive impact This quarter derived from segments like forest industry, sawmills having a very good position. Of course, some companies Our experiencing difficulties and also higher costs on components and price, but all I see it in a very good way. If we look at development month by month Over the quarter, demand has steadily increased and Results from acquisitions, we managed to achieve this margin that we're very happy of. And adjusting for evaluation of the purchase consideration impacted this year's quarter negatively of $16,000,000 and previous year, SEK 30,000,000 on the operating margin. So it was almost in line with last year's strong closing, if you take that into account. Scrubbers sales, we have increased the margin of approximately 0.8%. So we are satisfied with the margin, absolutely. This picture Shows the spread of market segments and geographical markets, we do this updated once a year. And it is, for us, very satisfying spread and shows our focus on increased Hedge being very successful. The diversified business portfolio is the main idea for us. And as I said, we managed to perform a stable full year outcome. The challenging side, looking at the segment, Marine sector primarily, but also special vehicles and traditional industry. On the other hand, transmission, wind power for sawmill industry has been very strong. And the remaining segments, I would say, quite flattish and stable. Energy is the biggest segment, as you can see, followed now by forest been processed in the state. Geographically, all in all, over the year, Sweden Sweden and Denmark is stable development. Finland has been negatively affected, particularly in the mechanical industry, but it's being upheld by electronics. And Norway, both on the lockdowns but also lack of willingness in the oil and gas sector has affected. The countries outside of the Nordics had the hardest hit by the pandemic shutdowns, but we see a clear recovery now during this quarter. So full year, to a large extent, due to the Rubber, again, and some negative effects on currency, but good inflow from the acquisitions. And also important to bear in mind, we're looking at Adtech that apart from In the beginning of the year, we have not had any specific positive COVID sales. Throughout the year, we have worked very effectively with cost measures. And as you can see, in total, And compared to about 250 employees or 8%. So we have now a good cost level adapted to the current sales volumes. And this will offset the costs that are expected to somewhat come back both in terms of companies seeing growth and also in more market activities. But we are coming out of this year with a record high water shocks and, as I said, a good sentiment on most segments. I'm very proud of what the whole organization has achieved this year, not only with the pandemic, but also the challenges with supply chain. Some words on each of the business areas. Sales with automation is, as you can see, down with about 11%, very tough comparisons to last year's final quarter. So a lower sales level than More discussions DACH WENELUX, we have some imported units for automation Again, tough comps from last year where we had some boost, especially in the end of the quarter Demand remains strong now in April in both wind power The inflow on new projects has decreased. And The underlying need for electrical grids to expand and make it stronger is massive. The reason here is the lack of to full capacity and also very long, long times in permit times. And this makes that which we have also anticipated that it will be difficult to keep up the extremely high level as we had last year. But as I said, underlying market here is seems to be good long term. When looking at margin in Energy, it was very strong, as you can see here, but our belief is that the accumulated margin of About SEK 12,800,000,000 is should be stable long term. So Energy, all in all, a good full year, And we expect sales to continue to be Margins have recovered during the year, thanks to cost savings and recovery in special vehicles. So that was some comments on the business areas. Couple of words on acquisitions before I let Malin go a bit deeper into the figures. We have kept up a good pace, as you have noticed. In total, 11 stand alones and 7 add ons to existing business, if you include the 4 acquisitions at the end of the year. So This really shows the strength in the business model and also the organization structure with our business units where the prospects And the pipelines are emanating from. So and you can also see it's a good Spread between the business areas and also in different geographical markets. So we're very happy to Welcome these companies to us. And the pipeline still looks good. I would say it's a steady inflow of new opportunities. So continuous good situation for acquisitions. Over to you, Marlin. Yes. Thank you. The development in Good bye now. A few things to take into consideration looking at the income statement considerations. Big impact on profit. This year, negatively by $9,000,000 last year, positively with $52,000,000 in the quarter, negatively by $15,000,000 this year and positively with 30,000,000 last year. The pandemic, obviously, all in all, when we summarize the year, it's the effects from the loss of sales of scrubbers that has affected us the most, Even though obviously other markets were also hit hard, as you've heard Niklas talk about. The pandemic also gave us somewhat a boost in the end of last year affecting the Comparisons. And the IT effect finally affecting the comparisons as well. You can imagine the relief for us Leaving all the effects of the IT attack and scrubber boost behind us starting this new year. The scrubber business was obviously great and is now a business along with everything Else, which makes it easier to analyze the rest of the outcome. You've heard us talk about taking all the above out of the picture, and it is essential to do that because then you can draw conclusions about things important going forward. Our costs have decreased significantly during the year, which is very good considering the costs added from acquisitions. At the end of the year, we had around fifty-fifty short term savings, such as travel and fares and long term cost reductions as an effect of layoffs in our cost Saving. We have, during the year, laid off approximately 250 employees or about 8% of the workforce. And we have had marginally positive effects on our profit from government and support measures. Good cost control gave margins a push upwards in the Q4, if you do your math according to what I've just said. And these levels are what we expect to see during next year. It's a good and resilient margin. The measures taken has given us a cost level better adapted to current sales volumes. And there might also be a potential of higher margins in the beginning of the year before the costs recur, as expected, as the company's marketing activities gradually increased as volumes improved. We had a good cash flow also in the Q4 and a very strong cash flow for the year. This is very positive considering our profit for the period has actually decreased. And even though we have had a very high acquisition pace, we still see a positive cash flow for the period. The positive effect we see on the cash flow mainly comes the positive development of working capital, we have had a positive effect from focused activities regarding accounts receivables as well as payables, But our inventories have also decreased organically, which is pleasing. Inventory levels will be have to be monitored closely going forward As there is a potential risk of higher levels as a proportion considering the ongoing constraints in the supply chain. Profit of working capital remained strong at 52%, although lower than last year due to lower profit, which is a proof of strength, we believe. Good focus on all parameters throughout the organization is the key for us. We follow our equity Leverage and gearing closely. And although we have made several acquisitions and have a lower EBITDA, we are still able to remain on satisfactory levels. Our credit facilities have company headroom and are sufficient for our ambitions going forward. As we can see, the trend line of our gearing is in perfect line with expectations. Even though we have no explicit targets, we see the development following the same stable Pattern, every year. We have the highest level always in the second quarter. And finally, I think I will just say a few words about group items in the report. That is mainly a distribution of costs from holding and other companies. And if you take out last year's SEK 40,000,000 from Q3 for IT FX and SEK 10,000,000 from Q4, You have an average last year of minus 7 per quarter. And this year, if you take the average, it's minus 4. So we think it's a lower but normal level for the average. And that it might be a bit Difference between the quarters, especially this year, where costs were a bit hard to predict, makes Q3 and Q4 maybe look a bit different than you are used to. Thank you, Marlin. So finally, just some key takeaways. So Full year, we are satisfied, taking everything into account, and we see a recovery in demand continuing in the Q4. Good efficiency measures that is supporting our belief of upholding a good margin also going forward. A high pace of acquisitions that we decided to continue during the pandemic that we are happy about, and we have a strong pipeline. And with a good cash flow, as you have seen, and the positive effect from the working capital improvement, we have a good position to continue our journey. So no headwinds from scrubber, normal release comps going forward, Effective recovery in the industrial sectors and good order intake gives us good hopes for the future. The challenges in the supply chain is what is causing some challenges for our companies. But as I said earlier, So far, they have done a tremendous job to manage this in a good way. So over to questions. Thank So our first question is from Karl Ragnamsa from Nordea. Please go ahead. Hi, it's Karl here from Nordea. A few questions from my side. Firstly, you guided for a solid recovery in April. So I wonder if it's any particular segment or geographies standing out? Okay. So I would say that Generally, it's a quite broad and stable recovery. I would say that the clearest The difference is in special vehicles, but there, you also have to take into account that it was quite tough last year, So it comes on that side. But otherwise, I would say it's a quite broad and stable development. Okay, perfect. And also on I wonder if it's possible to quantify the impact from the temporary low project levels in the quarter on the group level, that is? You mean how much in turnover that the project Exactly. Yes. I mean, it's a with project sales, it's a bit difficult to mention a specific figure since, I mean, This was in accordance with the plan. Sometimes the project is planned to like in Q3, we had good project deliveries, And it should look better also going forward. So it's a little bit difficult to summarize, but I would say that to give some kind of hint, I would say that approximately SEK 50,000,000 would be relating to less projects in the quarter. But you have to take that a little bit between the times because, as I said, it's Difficult in when we have 140 companies and we have to calculate on the full picture, but that gives some kind of ballpark. Yes. And maybe you said it before, but should we expect the more normalized project level going into Q4 general or Q1 generally? Or is it still a bit muted in automation? No. I mean, As I said, automation and also partly components, but the special automation is more CapEx related. So we are dependent on that the investment climate is coming back. But if we look at the order intake and also the project stock, It looks good going forward. So we would expect if nothing else happens that it should be on a good normal level. Okay. Perfect. And In terms of cost control, I mean, the adjusted margin held up nicely during the quarter. But I wonder, I mean, how much of the structure So cost savings you made during the full year, I mean, 8% of the FTEs that you expect to be sort of long term sustainable? Or How much of the SG and A reduction should we I mean expected to be sustainable? I mean if you grow, let's say, 5% Organically in the coming quarters, would you be able to do that with the same SG and A level? Or how should we look at the ramp up there? I believe that we will probably have a situation now in the beginning of the year where we Then obviously, hopefully, volumes to increase, and we have our now lowered cost level. But obviously, as market activities come back and improve, then it will Mean that we will also have to invest somewhere. But you always have to remember that we have 140 companies, and we have Some companies are going very strong, although what has happened during the year, we have some companies that have had There are challenges. So I mean, some companies, they are still investing and some companies are still on a restraint. But I believe that we don't talk about the ramp up. But as activities come back, We will probably have to get some of the cost back. At least the short term savings will come back. Then I guess it's travel and marketing expenses coming back? Yes. Then obviously, these government support measures, but that has been only affecting us marginally this year. So that won't have a very big effect on the comparison. But of course, we as every company has adapted to the new digitalization scenario. So just looking at our travels when we are meeting Customers, we don't expect it to come back as it was before. I mean, unnecessary to say. So there should be some improvement there on that side. Yes. And I think we can say that The margins are expected to be on a bit higher level all in all for going forward. But then if you expect Some kind of boost, that would probably be more likely in the beginning of the year. Okay, perfect. Very clear. And also the final one from my side is related to LTIP Programs, did it have any material effect on EBITDA this quarter from increased costs related to that? No. How do you mean by that? In what sense would that have been affected? I've been given a strong share price development. I So that I mean, share price performance based LT programs will perform better in the countries? Yes. But we our LT is not Constructed in that way. So that does not affect our EBITDA at all actually. Thank you. Thank you. Our next question is from Uwe Van Dhan of Danske Bank. Please go ahead. Your line is open. Yes. Hi, it's Ivan Dan. I just have a question or two questions actually. Firstly, if you could just talk a bit about the risks That you're seeing in supply shortages from your OEM suppliers. How what are you doing to mitigate that? And what is The communication right now with those suppliers, I mean, Assatec being a bit more of a distribution business compared to some of your peers. Maybe you could just talk about that briefly. Secondly, I was just wondering, as you sum up the acquisitions done last year, you provided Quite a bit of disclosure. It seems just doing the math very quickly that you paid slightly above 10% or at least double digit on multiples. What's your view sort of on the development and the competition for deals and how that has affected the price for your acquired growth? That's it. Thanks. Okay. Thank you. Yes. So on the component side, Of course, there are challenges, as you are all aware. I mean, it's in Many different segments, but I would say primarily, it's relating to active electronic components. And of course, we have those components in parts of our own products, but and also in the distribution side. So I mean, Our company actively is trying to both find second sources of it. It will partly Fact the working capital because they have to take a little bit security stock to do that. Also, we have a lot of discussions with our customers in a much higher degree than we usually have to have a little bit longer perspective on the supply and also to secure the long term planning. So there are many different things going on. And also when it comes to increased cost, that's also part, of course, of the high demand as we see right now. But all in all, the companies have been very good in handling those. And it supports the question that we are discussing every day with our companies. So it is a challenge, and it will be a challenge going forward, but we keep our hopes that our Companies are, as always, doing a very good job to walk around that. The second question going to Acquisitions, I would say that apart from a couple of companies where we have paid a bit higher multiples. The average multiples are still in the level that we are used to. So I would say that the average multiples are still some 6, 7 around there. Coming to the competition. I mean, I don't see any major difference in the competition side. We are meeting some of our peers that you are following as well, but also some industrial players that want to buy and integrate some of the companies that we are acquiring. But obviously, we are doing a good job. I mean, Since we can keep up this high pace even though it's been a very challenging year, I think it's a proof enough that we have a good competition side here. Do you reckon, Niklas, that we'll see more M and A outside of the Nordics In the current fiscal year compared to last year? Yes. I mean, we have an ambition to Increase our M and A activities outside of Nordics, absolutely. We have some specific projects going on in Dutch region, etcetera. So when I look at the pipeline, I can see that we are filling up with more prospects outside of the Nordics. Thank you. Thank you. Our next question comes from Johan Sandin of Carnegie. Please go ahead. Yes. Thank you for taking my question. 2 from my side as well. The first one, I think the starter is related to The order book, you stated that you see record order book at this point. How long is the visibility of the order book? Is it short term or is it projects for long term? And how During how the short periods are you expecting to kind of convert the order book to revenue? Yes. So actually, the order book looks good, both short term and long term. And so we are looking, of course, in our order book here and looking at long term projects and even taking those out. We have some projects that are rolling over to 2022. But even taking those out of the picture, it looks definitely strong. And when it comes to when we can calculate these to come over into revenue, usually say that we have a very good visibility for the coming quarter and also, let's say, for the coming 2 quarters. The only thing blurring here is, of course, the challenges in the supply chain. But taking that aside, We had, I would say, good visibility for at least the coming 6 months. Good. And the second one, I think it's for Marlin. And just to repeat your comments on the margin for next I think it was a bit hard to catch. Is it correct to think that this short term cost savings should remain in the 1st half of next year and then kind of marketing expenses coming back in the second half and No, I think you are right in your assumptions. Although If we adjust the margins for the last quarter to all things you need to take into consideration, You get a bit higher margin than we have had before going through the year. And I think that, That margin will be quite stable. But of course, there might if you look at the full year next year, But then, of course, there might be a bit higher margins in the beginning of the year, and then it will even out. But all in all, for the year, I think The higher margins that we see now is actually also in the ambitions going forward. Okay. Good. That was a good clarification. That was all for me. Thank you. Thank you, Juan. Thank you. As there are no further questions on the conference line, I will return back to you. Okay. Thank you all very much, And I hope you stay safe, and we are looking forward to a new year.