Earnings Call: Q4 2020

Feb 11, 2021

Ladies and gentlemen, welcome to the Alimac Group Interim Report for October to December 2020. For the first part of this call, all participants will be in a listen only mode, and afterwards, there will be a question and answer session. Today, I'm pleased to present Ole Krasten Jorde, CEO. Please begin. Thank you, and welcome This is the quarter 4 call for Allomak Group. With me today, I have our Ipirin CFO, Bernd Ingmar. So if we then turn to Page 2 of the agenda, we will go through then the quarter 4 results also look at the full year 2020 before we move into a status update of the new HATE program and in the end Q and A session. So if we then turn to Page 3, quarterly highlights. And then to sum up the Q4 of 2020, after an improved start to the quarter, the second wave of lockdowns And restrictions combined with the U. S. Elections and negative currency translation effect, we saw significant impact now our order intake and revenue in the quarter. The cost savings part of the new HEIGHTS program is on track. And in the quarter, we took the last SEK 26,000,000 as planned and announced as well as an additional SEK 16,000,000 in nonrecurring costs related to reservations and provisions. These are things that should have been taken earlier. So it's not something that we are too happy with. However, I'm glad to see that already now the improved underlying Margin continues and we ended up at 13.7 percent EBITDA adjusted in the quarter. As of January 1, the new organization is in place together with our group strategy, vision and values, And we have now entered the 2nd page of the new Hague program. So then if we turn to next page, Page 4, group quarterly summary. Order intake decreased 21% in the quarter, of which 14% was organically and 7% coming from negative currency translation effects. I'm pleased to see that both construction and after sale reported organic growth in the quarter. Rental had a little softer quarter, while the full year saw strong organic growth. Industrial Equipment reported a weaker quarter, driven by continued delayed Investment position in the uncertain market conditions. Revenue decreased 11% organically, The result of lower order intake in previous quarters and some delays in project execution. We have had some shipments delayed in ports And also some delays out of our own factories due to increased sick leave. And this is when people staying at home As soon as we feel any signs of being fixed, it should be in quarters and not to get any outbreak of COVID in And of course, we also are at a very lean pace now. The underlying profitability improved with EBITDA adjusted margin at 13.7%, up from previous quarters in 2020, As well as an improvement year over year by 0.5 percentage points following our cost reductions. Next page please, Page 5. And full year 2020. 2020 was a challenging year for the group with the impact from the pandemic, with lockdowns and delayed investment decisions And also then the negative currency translation effect that we have seen in the last two quarters. All business units were down on order intake except Rempel, which reported a strong Organic growth of 9% for the full year. And this is also, Dave, and what we have said, that we have seen a preference of renting versus buying Throughout the year during the pandemic. Wind also showed resilience with a long, stable investment cycle, But we have stepped away from more power internal business when it has not brought the right profit level. Construction was weak already at the beginning of the year moving into the pandemic And have been further affected by the market uncertainty brought on by the pandemic. General Industry and BMU Has been the business that's hardest hit by the pandemic, where the oil and gas business has been very weak And also investment positions in BAU has been and continue to be pushed forward. From a geographical perspective, U. S. A. Has been a very weak market for us throughout the year and driven down both by the pandemic And also the election. All business units reported lower revenues, driven at first down By lockdowns and travel restrictions and later by a lower order backlog, something we will continue to see the effect from in the coming quarters. Full year EBITDA adjusted ended up 10.6%, down from 13.7% last year For the full year, they've been down by lower volumes. Temporary and permanent measures have been implemented and we have Used number of employees with 237 during the year and seen an improving underlying profitability quarter by quarter, making us well positioned For 2021. Dividend. For the financial year 2020, the Board of Directors proposed an ordinary dividend of SEK DKK 2 per share. In addition, the Board proposes an extra dividend of SEK 1 per share. And this total level takes into consideration the current market conditions and also her participation for the continued strong balance sheet To support our growth ambition. Next page. And then construction equipment, Quarter 4, Page 6. As already mentioned, a highlight of the quarter was that the order intake for construction was organically up With 8% year on year, but also up 19% on quarter 3. Positive and also, of course, contributing was the order In U. S, from Moro, of SEK 36 units. The revenue decreased as a result of a lower backlog, The SEK126 million revenue represented a sequential improvement from quarter 3. This resulted in an EBITDA adjusted margin of 10.8%, driven down by the lower volume as well as less delivery through America, which usually Has a higher profitability, but being the best quarter this year and a solid improvement from quarter 3. Another notable item for construction equipment. We also launched our new product in China, a construction soft hoist, Which is then for the Chinese market. Next page, the rental. Despite the strong development in France, REN2 reported lower order intake compared to the same quarter last year, Down 5% organically. This was the result of a soft quarter in Germany and Benelux As well as also Australia, though Australia market is showing improvement. For the full year, order intake development was strong With a 9% organic increase as mentioned. Revenues decreased by 11% Organically in the quarter, mainly driven down by the Australian market. Though notably, again, France showed good development, Which has led us to increase investment into this fleet during the quarter. The margin of 11.5% is lower Than the previous two quarters and the result of volumes of lower volumes as well as increased The costs and these are permitted and driven by the need to put in temporary staffing due to quarantines and extended Particularly in some markets. Next page, Industrial Equipment. Order intake for industrial equipment was down 31% organically for all and down for all business units. For Bimmune and General Industry, this came from customers continuing to delay investment decisions, especially towards the end of the quarter. We see the oil and gas business has been very hard hit in the quarter, but also throughout the year. And also big projects in general that are being pushed forward. For wind, this softer quarter came from us continuing to step out of low profit to our internal business, in line with our profit before growth topic and what we have announced. Revenues decreased by 10% organically, the result of a lower backlog and some delayed shipments within general industry. We also continue to see delayed project starts for BMU as customers push back completion dates and the signing of approval going. Despite the lower volumes, we managed to improve profitability both compared to the same quarter period last year as well Significantly above previous quarters in 2020 and ending with an EBITDA adjusted margin of 6.7%. The improved profitability was seen in all business units as we see effects from our cost spend program. Next page, after sales. Very pleased to see That was after sales. The order intake improved and we had 6% organic growth in the quarter. Europe showed strong development, and I'm pleased to see the increase in services booked for BMU customers compared to the same period previous year. This is according to what we tried to achieve. The revenue was flat organically. The remaining restrictions from COVID-nineteen Continues to affect our business, but to a lesser extent than what we have seen earlier in the year. So we have better and more safety measures now in place that let us perform daily services. We saw an increase in refurbishment revenue as well as online training, which is also part of our strategy. EBITDA margin adjusted ended up at 25.6%, slightly better than last year. And then we turn to next page, Page 10, and I leave it for Bernd. Thank you, Ole. I will start to run through the main impacts of the profit and loss in the quarter. Compared to quarter 4, 2019, the biggest negative impact came from the lower operating result as well as the nonrecurring costs taken. EBITDA adjusted was down DKK 24,000,000, Primarily due to the lower volumes and despite lower operating expenses, Another impact of SEK 42,000,000 came from the nonrecurring costs taken in the quarter, SEK 24,000,000 higher than quarter 4, 2019. From the SEK 26,000,000 SEK 26,000,000 was stemming from the new hike program, of which SEK 23,000,000 are related to COGS and SEK 3,000,000 to OpEx. For the additional SEK 16,000,000, SEK 3,000,000 are related to COGS and SEK 13,000,000 to OpEx. Adjusted for The net no, the nonrecurring items, the unadjusted EBITDA was EUR 86,000,000. Then we have less amortization than last year, €9,000,000 versus €11,000,000 the year before. And the financial net had a positive impact of SEK 11,000,000 compared to Q4 2019. And finally, the tax expense for the quarter was EUR 21,000,000 And SEK 17,000,000 the year before, corresponding to a tax rate of SEK 29,000,000 compared to SEK 16,000,000 the year before. All of these are taking us to the result for the quarter of EUR 50,000,000 compared to EUR 88,000,000 last year. Next page, please. The results for the period and EPS. The lower net profit was the result of lower operating profit despite cost reductions as well as higher nonrecurring expenses. This led to a decrease in earnings per share to SEK 0.92 Compared to SEK1.62 the corresponding year quarter before. And SEK 3.37 for the full year compared to SEK 7.28 The full year 2019. Next page, please. Cash flow. Despite the lower revenue and the operating results, we maintained a strong cash flow of SEK 164,000,000 in the quarter, following a strong focus on receivables and other working capital, It was reduced by DKK 51,000,000 in the 4th quarter. For the full year, Cash flow from operation improved to $505,000,000 compared to $502,000,000 in 2019. Next page, please. Net debt. Our strong operating cash flow together with limited investments Helped take our net down to SEK 680,000,000 by the end of the year. So despite the lower EBITDA results, the lower net debt made our leverage end up at 1.5 times by end of December, below our target of 2 times, And we maintained our strong financial position. In addition, the group has SEK 1,800,000,000 in unutilized credit facilities, which give us financial flexibility in the future. Thank you. And now I return the word to Oleg for a final summary. Next page, please. Thank you, Bernd. So then we are at Page 14, the new HEIGHTS program. That's for Phase 2. And now as we then have put the 2020 behind us, we also have put the first Based on the new HEIGHTS program behind us after the launch in October 2020, we have, of course, Doing a lot of work behind the scenes since to get the new organization up and running and now entering Phase 2 where we then put Profit before growth in 2021. Next page, please. Then we are at Page 15, Status of the new HEIGHT program. Since January 1, we now have the new customer centered organization in place With the 4 divisions, construction, industrial, wind and BMU, we have moved from a heavy metric Organizations, the one that emphasizes closeness to the customer, the responsibility, accountability and the mandate to act. And we will drive the group forward based on our strategic opinion win With the elements of customer obsession, technology leadership, operational excellence, People Development, Digitalization and Sustainability. The group has not managed To build a solid fundament after the doubling of the group in 2017 with the 2 acquisitions of That's all Access and Avanxin. That we do now. And this means it's not a quick fix, but we know what to do And we are already well on track. Starting from the next quarter, So quarter 1 results, which is then will be released in April, we will start reporting according to these new divisions. And we're also switching away from EBITDA adjusted as the key measurement of profitability To adjust EBIT, so we are removing the adjusted elements. Since announcing the new HEIGHTS program, we have made further changes to the group leadership team. And I'm very happy to, as I announced earlier this week, That on May 17, Thomas Hembo, who has more than 30 years of controlling and CFO experience, We'll start as our new CFO. He spent a lot of years, 1st within ABB, and now the last 8 years within Saab. So he brings a vast industrial experience and also experience from complex project based business. As also announced, we have recruited Annika Harte to the important role of Chief People and Culture Officer To focus and help us drive the most important asset of the group, our people. And she will also then join us or she will join in April. She also brings a lot of knowledge and experience with her, and she comes lastly from HLBsley, where she has been the Group Director The recruitment for a permanent head of the industrial division is very soon to be ready. We are in the middle of developing the strategy for each of the divisions, and this will be presented at the CapEx in the market day That we will hold in mid June and more information around this will soon come. The cost saving program is ongoing And we have taken the nonrecurring costs announced as well as an additional SEK 60,000,000 in quarter 4. We are already starting to see the savings coming through and are on track to fully deliver on the targeted Annual savings of SEK 60,000,000 beginning of the second half of this year. I feel very good about all the changes that we drew and are really looking forward to 2021 and the years to come. We've been the group that will deliver on its commitment in a sustainable way. Next page, Summary for quarter 4, Page 16. The 4th quarter's highlights We've also improved underlying profitability of the group at 13.7 percent EBITDA adjusted margin. And it was also that we saw organic growth, both within construction and after date. Currency and renewed lockdowns continued to put pressure on orders and revenue, although October was better than the following month. We have held up a solid cash conversion both in the quarter and also for the full year. The year 2020 was a challenging one for the group, but also one of repositioning as we launched The New Hague program and are now in step 2, securing margin improvement as we continue to invest our efforts into R and D and digitalization. Following this, the Board proposes a dividend of SEK 2 plus 1 SEK 2 plus SEK 1 SEK 1 SEK 1 SEK per share in total SEK 3 SEK. While the Westin rollout is now ongoing, we expect to see an improved business climate in 2021. So the first half, we expect to remain challenging with uncertainty of the speed in vaccinations and the spread of the more contagious mutated virus. As this sums up my first half year with Almaty Group, I want to say a heartfelt thank you To all our employees, shareholders, analysts and business partners for the warm welcome and also for the way we have been able to navigate This half year together. So thank you. And then we move to next page and the Q and A. Thank you. Our first question comes from the line of Matthias Holmberg from DNB. Please go ahead. Thank you. My first question is on the margin in Industrial Equipment, where we saw pretty impressive improvement. And I read that You directed somewhat towards an improved gross margin in BMU. And I'm just wondering if You could help us understand the dynamics behind this a bit more. Sort of is it a project Related temporary boost? Or is it more of a structural increase in the margin as a result of the work that you've done to improve the profitability in this business? Yes. It is a mix of it. We definitely, it's our cost improvement That are affecting and helping the results quite significantly in the quarter, But it's also a mixed effect. And that's the nature of both that business, but also all our business. That we it's project based a lot of it and Both geographical and project mix. So that also affects the interest of course to some extent. Thank you. And I know that you usually don't comment on the order book, but could you give us any Sort of comments at all to better understand the dynamics now for the first half, say roughly speaking what your order book is at the end of the year compared to To a year earlier? Yes. I would like to actually comment also more around that. So we are looking into whether we should Bring this more in as we move forward with the new reporting in the new structure so that we have to come back to in quarter 1. But I think it's you can look back into the order intake during the last quarters, and that will give you a good indication, Of course, of the order book that we have. But again, it's also so that it Very, so some of our business is very instant that we turn it into sales relatively quick after an order, While in other parts of the business like BMU, it might be 2, 3 years until we start or the project is delivered. So it's also there, a big mix between the different divisions. But I can't give you much more flavor of this now, but we are looking into whether we should start to report more of an order book. That sounds great. And just a final question for me. On the tower and terminals business, could you Elaborate it based on how much more you have to exit here and if there will be a significant drag on orders and sales in the coming quarters. Yes. It's a good question. It's been a drag for 2019. It was a heavy drag for It was a heavy drag for wind business. It's been a little bit of a drag for us this or in 2020. Still, there is quite a bit of this business in that division. But we also do believe actually that we can retain and do quite a bit of it. But it also had a competition, and I expect that they will step out of some more in this year, But not enormous figures, but there is something constantly that we are Evaluating and making sure that we make the right profit on. Else, we don't do it. But it is when we have projects where we can combine the whole thing In a good way and that value is clear to the customer and it's something there to pay for, then we do So it's not so that we are moving out of it completely. Thank you so much. That's all for me. Thank you. And just as a final reminder, if you did wish Our next question comes from the line of Kenneth Tull from Carnegie. Please go ahead. Yes. Thank you. So following up a bit on the wind tower internals. In 2019, there were some problems In China with the price competition on the very low end of the products there. So the problems you are seeing right now, Is it also in China? Or is it in other markets? And is it for low end products or more higher end sort of hoists? Well, it's I think it's still even though I wasn't here, so I can't know exactly then back in 2019, but I think it's still very much the same type of nature of it. Mostly it's even by Chinese competitors, and this product is coming from China also for us. So that's where we see the biggest impact also on the business in China. But it's also We have also delivered the internal business in all parts of the world. And we also have the same competitive situation there As the Chinese suppliers also try to reach out. So but the main issue is in China, But also some in the rest of the world. Okay. And then another one On after sales and service and so on, do you believe that there are some pent up demand of service and spare part demand When the pandemic sort of loosened its grip on traveling restrictions and Restrictions for plants and so on. It's a very, very also Question which we find very difficult to answer ourselves. We know that a big principal lost service hour is a lost service hour. Of course, as you Work overtime to catch up and so forth. In some areas, some segments Product has been used just as before. In other segments, it's not used as before. So that's also a very mixed picture. And that there is a big pent up demand, I don't expect, but that we will see a steady and solid improvement that I do expect. And I also do expect that some pent up and some catch up it will be. But it's again, we are also Part of many businesses, you know, so or the different segments. So it's a mixed picture overall, you know. Okay. And then finally, now you are 1 month into the new organization that you That's from January 1st, or is that a bit more? So what are your initial reflections? So do people feel that it's a logical way to work going forward? Or have there been some uncertainties on And duties and so on? Or what's the feedback from the organization, if I put it that way? Yes. First of all, I would say from a temporal perspective, it's in many ways a dream scenario. Now to have 4 T. O. 4 that you talked with and discussed with and how you managed the business versus before when it was around 25. So from that perspective, it's an enormous change. And I also do feel that now when we sit down and have our Review meetings and so forth. We know that what we discussed, we have the responsible person around. And we can Good activities in place. We can agree, and it will be done. That was very different before. Then, of course, this is a transition. So we have been working towards it towards the end of the year. But now it's in place that this is all in place and It's all working like it should everywhere? Of course not. It is a transition. But overall, it's very well received. We have A People and Culture Day a couple of weeks ago to really launch this more and Laying the core band is the way of working and all these things. We have engaged every single employee, whether it was in the 3 or in any office or wherever around the world. And very, very positive feedback. So things like this, we have activities It's in place to help drive. And then, of course, it's walking the talk from Central and driving into the So this is coming. But as you appreciate, it's not something you just switch On or off either. It's a process. Okay. Great. Thanks. That's all for me. Thank you. Thank you. And as there are no further questions, I'll hand it back to the speakers for closing remarks. Okay. So yes, thank you. Thank you all for listening in and for following us. As I said, This first half year and the support and good questions and engagement, it's inspiring and motivating. So Thank you all and until next time. Thank you. This now concludes our conference call. Thank you all for attending. You may now disconnect your lines.