Q3 20/21

Feb 4, 2021

Ladies and gentlemen, welcome to the AD Tech Presentation. For the first part of this webcast, all participants will be in listen only mode and afterwards, there will be a question and answer session. Today, I'm pleased we present Nicholas Stemberg, CEO and Manin Enersen, CFO. I will now hand over to Nicholas Stemberg, please go ahead. Hello, everyone. Welcome to Marlin that will guide you through this. First, some highlights from the quarter. All in all, stable report with the sales growth of 1%, even though we had a large The drop off scrubber sales, I will talk more about that, and still some other negative COVID ability to adjust to new conditions and have been able to do business activities even without physical meetings. A good The result growth, but here, of course, we have to take last year's cyber attack into account with SEK 90,000,000 in negative effect on the results last year. But if we adjust for that, we see a clear improvement from last considering all the circumstances and it's also a record high margin to be the 3rd quarter. So all in All after Q3, we have an accumulated margin of 10.8%, which is strong and primarily approved of Our measures to adjust costs to new normal and that does give an effect and also that underlying focus to this added value both organically and in acquisitions has a positive effect. And again, this year, Very tough headwinds, especially this quarter on scrubbers. Still varying business climate, apparently in different geographies and markets. But generally, we saw a gradual improvement in the industry and Infrastructure business sector that we are in. So from a Nordic industrial perspective, The second wave of the pandemic has, at least up to now, been more of a social lockdown than a business lockdown. That's our perception. Worth mentioning also is that we had no positive impact of COVID-nineteen this quarter, so it's more withstanding with the MIR and Negative effect. Also a positive development on working capital, strong cash flow. And despite pandemic, we we have also continued to keep up a good pace on acquisition. So 3 more companies coming into the family this quarter and all in all, 13 acquisitions so far. If we look a bit deeper into sales, During the quarter, we can see that organic sales fell with 4% compared to our previous quarter where we it has 10% drop, and we added 8% from acquisitions. The organic loss is primarily related to the scrubber that I talked about. If we take the scrubber effect aside and also just for the cyber attacks. As you can hear, there are many things to have in mind now. It's COVID, cyber and scrubber. But If we adjust for these effects, there is an underlying growth compared to Q3 last year. So It's a clear improvement in the sentiment. So to summarize a bit, the Market segment strong this quarter has been primarily the energy sectors. Also the forest industry, especially the sawmill industry are having a very good market situation. On the negative side, as expected, slow market for marine, in not only scrubber, but marine overall has been slow activity. In improvements in the Nordic Mechanical Industry, which is an important sector for us, especially automation and components, providing a lot of OEM components, And the clearest recovery in demand we saw in special vehicles that was very weak the 1st 6 from a geographical point of view, Sweden had the best development, and that is primarily thanks to the recovery in Mechanical Industry and Special Vehicles. The other Nordic market varied. Denmark still stable, Especially, we have a lot of wind power there, and that's a good development. Norway, quite okay Taking scrubber business out of equation and Finland varying, electronics still stable, but Mechanical industry is still on the weaker side. Outside of Nordics, tougher market conditions, they are still affected by restrictions, DACH, Benelux, U. K, but also here and improvement during the quarter. If you look at the development month by month during the quarter, demand has overall picked up sequentially. We had a positive book to bill end of December, but we also see that in the order stock, there are longer projects, which rather looks promising for 2021, 2022, our next financial Order stock and prospective product call ups for present quarter, so our 4th quarter is a bit weaker than compared to last year, where we had a very strong Q4. EBITDA, large drop in scrubber had a significant impact on EBITDA and also on the margins. I would comment more on that, efficiency measures in the investor process have helped out to balance out that. Cyber attack, Again, it makes it a bit difficult, of course, to analyze. You have to put that in the picture. But all in all, adjusted for for both cyber and scrubber, we had an EBITDA growth of 3%. So that gives the The feeling of improvement. We have continued, of course, to work with our cost reduction program, focusing on the companies were decreasing volumes. So we are constantly reviewing our measures and balance growth potentials we see in these extraordinary times. And I'm very satisfied in how we have done this balance we've done a number of restructuring measures like mergers and ended with some low margin business. And as of end of December, we have also terminated about 8% of our workforce. The way we see it as of today, we have made the adjustments necessary with the information we have at this time. So the intention is to keep up good margin even when the short term effects like furloughs and things like that are Some short words of the different business areas. Automation has a stable development on sales, where underlying business was in line with last year, also adjusting for the cyber attacks. And it's clear that it's still our unit outside of Nordics Because automation have operations in DACH, Wendelux, etcetera. So that is where we still see the weaker side, fiber installation continues to be stable, also defense, medical. And again, Nordic The chemical industry important for automation is sequentially improving. Still, reluctancy in investment and with the customers, but several of our companies have more discussions on projects once the investment climate comes back to normal. Improved margins related to improved market situation, a good contribution from acquisitions and the restructuring measures that I mentioned is giving effect. Components in total had an improved market situation also on sales compared to 1st 6 months, there were no positive COVID-nineteen effects this quarter that components had in the last quarter, with OEM, systems and parts. And as I said, these improved sequentially. Geographically, Yes, same as my general description before that Demok's stable. Sweden, the biggest unit for components, had the best recovery. Norway, of course, affected by both COVID, but also the oil and gas sector and negative currency effects as well. Finland, A mix situation. Special vehicles picked up there as well in the end of the quarter, but base industry lower. The margin component was a disappointment this quarter, And it relates to several factors, unfavorable product mix compared to last year, Negative currency effects in some of the companies and also some nonrecurring costs like mergers of units and moving to other facilities, etcetera. But the margins in components should not be on this low level as we look ahead. Energy continued to have a positive market, increased sales by 10 Main driver is the company selling products for the national and regional grids. Inflow of projects here slowed down a bit during the quarter, which might affect short term, but we have not changed our view that long term potential in the infrastructure is very good based on the investment plans and the strong positions, our company is in energy providing NIS products for electrical power and the companies in Energy Products Unit that are providing installation products for industrial OEM market and building installation saw a sequential improvement during the quarter, they were did not have such good position in the 1st 6 months. Very good margin improvement in Energy, which primarily relates to incremental margins scrubber toughest headwinds this quarter ended up with a contract of approximately 80% Lower sales compared to last year. So the vast majority of COVID-nineteen effect here is related to scrubbers. And we still have some quite substantial headwind in Q4, but then the comparison will obviously ease up going into next year. To comment something on the scrubber market, our best view at this point is that it has a quite insecure future. Positive signals, the fuel spread has picked up is now around US100 dollars and we see some activities with our customers. But at this point, nothing will account on at this point. So my best guess is that sales of scrubber will be quite flattish from current levels. For the rest of the business area, there was a clear improvement this quarter. We could take out scrubber and on cyber volumes, we had a growth in underlying business in the industrial process. Process industry, In general, stable and sawmills, as I said before, they have a very good position with low prices in looks strong in that sector. We also have a positive upside going forward in our other company selling replacement products like conveyor chains because the sawmills have not stopped for maintenance and they have to do that at on point. Margin, a good level, definitely considering the drop in the incremental sales of scrubber, both due to restructuring measures, we have among things, we have closed down one of our scrubber Finally, Power Solutions, a mixed situation, but overall, a stable quarter, I would say. Net sales increased, but adjusted for cyber attack, it's more flattish, but a clear improvement from the first And the main reason is the special vehicle, which is the main sector for this business area. And and our big OEM customers in forest mining, construction and trucks, etcetera, have absolutely improved. Sales relating to refurbishment on the old machines has been quite stable also earlier this year. So now it's more that the project is starting to ramp up again. Other segments like customized battery packs that is next to vehicles, the main product area for Power Solutions had a good inflow project, margin picked up, rolling 12 margin is now coming back to normal levels for Power Yes. So to sum up the period, 1st 9 months, all in all, sales decreased Increased by 3%, COVID quite a lot impact for 6 months, but not so much now. Accumulated margin of 10.9%, which again, considering COVID strong headwinds is satisfying indeed. And cash flow, Strong performance. Marlin will come back and comment on that later. Acquisitions. We have done on 13 acquisitions so far this year. We added 3 more in the quarter and welcomed additional 3 after the end of the quarter. In total, 8 stand alone companies and 5 add ons. And apparently, we have kept At a good pace despite the pandemic, it's also interesting to mention that we have also said no to step out of a number of discussions as well. The main reason for making it possible to keep up this The speed is, of course, going into the pandemic with a strong pipeline, but also an organization with our business units, where the prospects emanating from. So we have a lot of fleet working on M and instead of only a few people in the central office. And another thing with the business unit is that many entrepreneurs see this Some reason to sell to us because they come into a group of companies where they see both similarities, There's also possibilities to share experience and possibilities to cooperate. So companies is joining this quarter, Kvildan Omerken in Sweden, a good addition to the strategy in public safety, OEF Group in Sweden, Italy working in markets of ergonomic solutions for and after the end of the quarter, Paunor, a Norwegian company providing UPS systems and a good complement to our battery group in Norway. Sunextive Labs, a company with high competence in hardware and software design in industrial IT solutions and finally, Impact Air in UK, Our ambition in the field of sustainable solutions. Yes. And pipeline still looks good. It's a good market for M and A, so it's steady inflow of projects. That So I hand over to you, Marvin. Yes. Thank you. So I would like to there are 5 highlights from the Q3 coming to our financial position: good cost discipline, sharp improvement of cash flow, strong profitable working capital, satisfying key financial indicators and comforting headroom in credit. With 3 considerable effects on the income statement: the pandemic, last year's cyber attack and the loss of sales of scrubbers, it is important to keep focus on the underlying business and development, the development in sales this year is a proof of the spread of risk that lies within our business model and strategy with small niches on many markets and segments. Aggregated, we have been able to find new areas of structural development to fill the gaps from both scrubbers and COVID-nineteen, even though we have had very little boosting effects of the pandemic. EBITDA has also been proven strong. Taking the cyber attack and the decrease have been hit the hardest by the pandemic, such as marine and special vehicles. The adjusted margin is completely in line with the margin you see in the report of 10.9% for the adjust our costs to an expected new normal level of revenue going forward with a resilient and consistent margin. We we try, of course, as everyone else to take benefit of the opportunities to make short term savings due to less travel, fares, marketing expenditures and combine it with long term savings such as layoffs. I would say that in the beginning of the fiscal year, I think that the split between short term and long term savings were about maybe 70%, 30%. Now it's more down to 40%, 60%, I would say. Each each company in affected segments is still acting according to their consistent plan of activities to adjust according to the situation. Always, we try to we have in mind the importance of keeping the competitive edge. As a result of the development and according to these plans, we have during the 9 in the period laid off approximately 240 employees or 8% of the workforce. We had very limited positive effect on our profit from governmental support measures in the Q3 and in the period as total it was around 0.5 we had a very strong development of our cash flow in the Q3. This is very positive considering that our profits for the period has actually decreased. It is a positive development of working capital that gives us this effect. And even though we have had a very high acquisition we still see a positive cash flow for the period. We have talked a lot about of the fact that cash flow tends to be a bit strained in periods of strong growth, it is obvious that we see the other side of this situation right now, we have positive effects from accounts receivables due to this. But the strong focus on profitable working capital in the whole group is also giving the desired outcome. Even though we still see too high levels of inventory in and subsidiaries due mainly to precautions against delivery problems and long lead times, we see that organically, inventories are Profitable working capital is back at 50 during these insecure times around customers' call offs as well as suppliers' ability to deliver on time. We follow our equity ratio leverage and gearing closely. And even though we have made several acquisitions, we still have our ratios in line our credit facilities have a comforting headwind still and are sufficient for our ambitions going forward. As we can see here, the trend line of our gearing is in perfect presentation, it's always the highest in Q2, then it goes back to an average of around 1, which we believe is satisfying average even though it's not an explicit target. Okay. Thank you. Good morning. So just to sum up, a clear recovery in demand, which is, of course, pleasing on most markets, but it varies, of course. And as Marlin said, long term cost reductions are gradually replacing short term savings. We're keeping up acquisition pace We intend to do so. And also, Marlin went through the balance And explain the positive side of the cash flow. If we look forward then, we expect the continued gradual normalization of demand. Of course, with the COVID-nineteen scrubber installation activity is expected to remain low. We will continue to focus on cost control, but also put, as we always do, put 1 foot on the gas a It lies, especially in the sectors where we actually see growth. And 2 things that have changed during the pandemic or increased the focus in the society In all, but also Adtech is, of course, digitalization and sustainability. And this one thing that is always happening in Adtech, in the centralized model we have is that when the companies start to see the between activities and the business they have, then things are really happening. And these two areas, we see very good progress in our companies. So all in all, we have good confidence in our strategies, and we will continue to foster the entrepreneurial culture. That was it, I think. Yes. So, yes, we are We're open for questions. Thank you. Our first question comes from the line of Karl Ognistama from Nordea. Please go ahead with your question. Your line is open. Hi, it's Karl here from Nordea. So firstly, could you give some flavor on whether we have seen the full effect of the previously announced cost savings in Q3 or if it's more to come. Okay. Do you want to? Well, I would say that the full effect of the actions taken it's, I would say, the total full effect of actions taken during the period, of the year, it's still to come. I would say it's still to come, and we still have some actions planned for this quarter as well, but I would say that it will also meet then Short term savings in a large extent. So probably, it will remain stable on the margin side going ahead. Okay. So we just so I got you correctly. So we have not seen The full effect yet of the SEK 200,000,000 you laid off previously and we still have the SEK 40,000,000 to come, I guess, So or is that correct? Well, all of the persons laid off is not out of the system, is that your question? Yes. I think that's the question, yes. Yes. Okay, perfect. Also, I mean, you continued to take out FTEs during Q3. I guess they were mainly in Probably mainly in the scrubbers sub segment. Or do you think that you need to take more costs if the scrubbers market will not come back? Or how do you view that? Yes. As I said After the last quarter, I'm quite sure that I talked about that we have deliberate at that time, we deliberately we waited a bit with some cost reductions to see where the scrubber market was heading. Now we have made I think we have more or less done what we should. So what I mean by that is also linked to how I described the view of scrubber. We if the market starts ramping up again, we will be Able to benefit from that, but we have also adjusted for a new normal situation, if I put it that way. Okay, perfect. Very helpful. And just also so I understood you correctly, so you have some longer term projects that you Don't foresee to be delivered in Q4, but rather in the next financial year. And could you also repeat what you said on I mean, what you currently see in the order intake, you mentioned the positive book to bill. Yes. So Basically, what we can conclude then is that demand has picked up, obviously. On the other hand, if you look on the order stock, we have during this financial year, of course, taken parts of the order to fill up the sales. So what we see in the order stock now is that we have just as you mentioned, we have a good project in the projects are coming in or out in some of the quarters. So the coming quarter is a little bit difficult to predict. That's the situation. Okay, perfect. And also the final one from my side looking into next financial year, I mean, what business areas or sub segments do you see the sort of the best organic growth opportunities I think it's actually a bit difficult to pin Point that because it depends quite a lot on how the difference I mean, How the market in what pace the different markets are coming back. But to put it in some kind of general perspective, of course, Energy that has had a good growth this year are apparently meeting a bit more difficult Depending on the development with the pandemic and the markets, Then it should look quite promising. Okay. Thank you very much. Thank you. Our next question comes from the line of Yuvand Dhan from Danske Bank. Please go ahead. Your line is open. Yes. Thank you. Heinekers, Marlin. Do you have a question on if you look on general OpEx in the group, such as travel, education, etcetera. What type of cost increase do you pencil in as you look on the coming 12 months? Are you able to guide us there in any What would the sort of a new normal be? Yes. When we try to predict the costs of next year, we have to sort of get how of travelers and fares that is actually coming back. And I mean, we our best yes, it's that, of course, it will come back, but not in the full extent. But I would also say that, as I have been emphasizing both this quarter and last quarter, is that, with the sort of going back to some kind of new normal when it comes to these operating expenditures. So I would say that when we predict, we believe that maybe yes, maybe not the majority of the cost will come back, but around That is my guess is as good as yours, I would say, Johan, in that case. Yes, yes, I'm just looking at that gross figure because we all have the structural savings. We can do a bit of accounting on that. But A bit uncertain where this all this sort of general SG and A cost will what will happen to that, but I appreciate the uncertainty there. And I think if you should maybe consider the margin because as we are saying all the time that we want to keep a resilient and consistent margin. So then you will have to Okay. Niklas, just to be perfectly clear, I'm sorry to dwell on this Further, but just in your introductory remarks there about orders and call offs for Q4, I interpreted as a bit of Cautionary statement for Q4, was that correct? Clearly with a positive view on next financial year, But what should you read into that? Yes. What you should read in is that we had a very strong Q4 last year, so we are meeting tough comparables. And even though We see absolutely an improved development this quarter. We are not fully back where We were a year ago, obviously. And also, we have this situation with the project callouts, Meaning that as it looks, it might be a bit less on some of the projects the in quarter, but it's nothing strange with that. It's just that how the projects are Planned. So a little difficult to predict this quarter, even though the development looks promising. Got you. Just finally, these major orders you talked about for delivery next financial year, etcetera. What exactly is that? And can you share with us any sort of new niches or segments, which you have identified recently or looking into that may carry growth in the next couple of years here, I mean, areas which we're targeting via acquisitions obviously. Yes. When you look at the projects for coming year, I would say It's a mix. But one area, as I mentioned, a market that has a really good market situation is in the sawmill market. So that and that is primarily in We have those parts. When it comes to where we see growth Potential, I mean, we it may be it's a boring answer, but we see quite growth potential in all existing areas, but like the battery segment that I've been talking about Many years, that is a very interesting area. We see good development there. And when you're talking about new future elements or segments, of course, we are looking a lot, as I've been talking about that we are seeking in different sustainable related areas, like the impact air company we a week ago, like waste handling and those kind of areas, we see some interesting potential. So Yes. It's difficult to pinpoint any specific areas, but yes, at least you got some Thank you very much. Thank if you do have a question, please press 1 on your telephone keypad now or press 2 to there will be a further pause whilst questions are being registered. As there are no further questions, I will return the conference back to you. Okay. Thank you