Earnings Call: Q1 2021

Apr 22, 2021

Ladies and gentlemen, welcome to the Alimac Group AB Interim Report for January March 2021. For the first part of this call, all participants will be in listen only mode, and afterwards, there will be a question and answer session. Today, I am pleased to present Ole Jodl, CEO and Bernd Inglem, CFO. Please begin your meeting. Thank you, and welcome to this quarter 1 2021 presentation. And As you heard with me today, I have Bernd Ingmann, our interim CFO. Please return to the next page and look at the agenda. Today's agenda is to go through the quarter one results then over 2021 and now also where we then report For the first time, our new division structure. We will also have a short update about the new HEIGHTS program and rounding off with a Q and A session. So then turning to next page, quarterly highlight. I'm pleased to see a solid step forward in improving profitability in the quarter with good effects from the cost Saving program that we implemented last year. We are on track to deliver on the SEK 60,000,000 targeted annual savings And then with full effect as of the second half of twenty twenty one. We are still negatively impacted by currency translation effects, Putting pressure on the reported order intake, revenue and earnings in the quarter. And we have now had these effects For 3 quarters, and then we expect also to see the same in quarter 2. The underlying development is more positive and adjusted for the currency translation effects, organic order intake was up 7% in the quarter, driven by increased customer investment activity in most of our businesses. January February started a bit slow, But we saw a clear uptick in March. As expected, the revenue was more or less flat organically due to the incoming order backlog and continued effects of the COVID-nineteen pandemic. EBITDA increased 20%, and we report a strong cash flow, which has strengthened our financial position further. So then turning to next page, group quarterly summary. So looking a little bit more in detail into the quarter, We see that reported order intake increased by 1%, but then corrected for this currency translation effect, up 7% organically. Both BMU and Construction reported strong organic growth in the quarter. Industrial also delivered a solid order intake, Whereas wind reported a significant drop as an effect of our profit before growth focus, where we have then declined our internal orders, which do not meet our margin requirements. From a regional perspective, all regions were more or less in line with the same quarter last year, but good sequential improvements from the last quarters within APAC and Europe. Our aftermarket business is now part of each division, but as a group, Reported order intake for the aftermarket grew 10% in the quarter and organically up 19%. Reported revenue decreased by 8% and were in line with last year organically, which we see as positive given the current circumstances. We saw slightly lower organic revenue in BMU, Construction and Wind as a result of the incoming backlog and effects of the pandemic. In Industrial, this was small organic increase. And as a group, again, our reported aftermarket business were down 4% in the quarter, but organically up 4%. Margins improved completed the quarter with an EBITDA margin of 11.2 percent, up 2.5 percentage points and then mainly driven by our cost savings initiatives And a good and disciplined price management in the quarter. Turning to the next page, We then move into our new divisional structure and first we then go through BMU. Order intake in the quarter increased by 15%, negatively affected by currency translation effects. And then organically, order intake was up 22%. The growth mainly came from increased service order intake in Europe and Asia and from increased equipment sales. However, we saw continued uncertainty in U. S. As well as intense price competition in Middle East and Asia. And this is stemming then from the COVID-nineteen and thereby a low level of contract Awards in the industry. Revenues decreased by 9%, down 2% organically. The decrease was due to the incoming order backlog and continued impact from COVID-nineteen. Earnings and margins in the quarter were negative, Impacted by low volumes in January February and the project mix. Reporting losses is, of course, the main concern. And we do have a plan to solve this and this should be the last quarter where we report negative figures. We believe the EBITDA margin in this business should be double digit, but it will of course take some time to get there And also considering the long lead times in this business. More details on our activities will come in the Capital Market Day in June. We turn page and construction. The reported order intake increased by 11%, up 17% organically corrected for the negative currency translation effect. We saw an increase in capital investments in U. S. As well as improvements in the Nordics, Latin America, India And also Pacific and especially Australia. Order intake was also solid for parts and service orders overall. Revenues decreased by 7%, but only down 2% organically. And again, the decrease was consequence of the low backlog entering 2021. EBITDA increased to SEK35 million, down from SEK33 million or sorry, up from SEK33 million, and the EBITA margin increased to 14.9% compared to 13% last year. The improvement was due to higher factory utilization, lower operating expenses, The sales mix and also cost reduction measures that we have taken. We turn page and moving on to Industrial. Order intake decreased 3%, Negatively affected by currency translation effects and order intake organically was then up 4%. We saw increased CapEx investment mainly in Americas, but also solid order development in emerging markets and in spare parts as a result of increased activity in most industry segments. Interestingly, it was all driven by small and medium projects. No major projects won during the quarter, which continued to be pushed forward with delayed investment positions, but we do not see any cancellations. Reported revenue was down by 4%, but up than 3% organically. Growth was impacted by a low backlog of refurbishments and upgrade projects due to the earlier limitation on travel. During the quarter, we saw some improvements, especially in America. Industrial delivered a solid margin improvement in the quarter. EBITDA increased to SEK 50,000,000, up from SEK 38,000,000 last year with a margin of 23.7 percent, up from 17.4%. The increase was driven by improved We turn page And finally, wind reported a weak order intake in the quarter. Order intake decreased 27% And corrected them for the currency translation effect down 20% organically. The decline was mainly driven down by our profit before growth focus, where we now only take orders for tower internals, which meet our margin requirements. The main impact was in China, but also in U. S. We will continue to see a drop in our order intake and revenues related to tower internals. Throughout the year, we believe order intake related to tower internals will be around SEK 60,000,000 lower than last year and revenues would be around SEK 100,000,000 lower. We should then be at a sustainable level for 2022 and forward. This has, As you know, been an ongoing issue since 2019, where it was a big drop in the tower internal business. But we now believe that we should be at the end of this process by the end of this year. We saw delayed investment decisions in some European and Brazilian lift projects Else, other parts of the wind business showed good development with increased order intake in Northern Europe, particularly regarding equipment in Denmark and services in the UK. Our core within wind, the lift and leather business is developing well according to plan. Revenue was 11% lower year on year, down 2% organically, impacted by the lower order backlog. EBITDA came in at SEK 15,000,000, down from SEK 16,000,000 last year with a margin of 9%, up from 8.4% last year. The margin was positively impacted by our cost reduction measures. And then we turn page to the earnings summary, and then I leave for the bank. Thank you, Ole. Let's run through the main impacts on the profit and loss from EBITDA and down in the profit and loss for the quarter compared to the same quarter last year. EBITDA was up €16,000,000 in spite of the fact that The €13,000,000 lower gross profit. And primarily due to cost savings and as well as good and disciplined price management, The EBITDA was up €16,000,000 Currency adjusted EBITDA increased €19,000,000 The financial net So the positive impact of SEK10 1,000,000 compared to quarter 1 the year before. And that was a result of lower external funding of SEK 450,000,000 with both Lower interest rates on our senior credit facilities and lower margins due to lower leverage as well as a positive currency conversion effect compared to last year's negative effect. Tax expenses For the quarter was SEK 20,000,000 compared to SEK 12,000,000 corresponding to a tax rate of SEK 25,000,000 compared to 23 the year before. Next slide, please. Results for the period and earnings per share. The higher net profit was the result of higher operating profit and improved financial net. This led to an increased earnings per share to Swedish kroner SEK1.15 compared to SEK76 in the quarter last year. The numbers of shares are the same as the quarter a year ago. Next slide, please. Cash flow. We maintained a strong cash flow of SEK112 1,000,000 in the quarter following a strong focus on receivables, Payment terms and working capital, which was reduced by €16,000,000 in quarter 1. Next slide, please. Net debt. Our strong operating cash flow, together with limited investments, helped From €680,000,000 in the beginning of the year, the lower net debt made our leverage end up at 1 0.29x by March 31, below our target of 2x, and we maintained our strong financial position. In addition to this, the group has €1,800,000,000 in unutilized credit facilities, which gives us Financial flexibility in the future. Thank you. And now I return the word to Ole for a final summary. Yes. So we turn into next page, product development, technology and sustainability. From our operations in China, we have launched 2 new products during the quarter. Yes, one of them actually between quarter 4 and quarter 1. And these are then products adopted specific to the Asian market. New industrial elevators specialized on the requirements The growing industrial sector in Asia and then also construction machine to be used inside lift shafts during the construction phase of tall residential buildings. During the quarter, we were also piloting various digital services with selected customers with very good feedback. And as part of our increased focus on sustainability, we have signed up as a partner to RIEF, a strategic R and D In circular economy and by Linkoping University. And also more details about our We turn page to the summary. I'm pleased to see organic order intake growth in the quarter And a solid step forward in improving profitability with a margin increase of 2.5 percentage points. We have a strong financial position and cash flow, which enable us to continue invest in growth and funding activities. We have now entered Phase 2 of the new HEIGHTS program. We have a new organization and diverse leadership team in place. The team is committed to deliver on our profit commitment while also preparing for sustainable profitable growth going forward. The core in this is our strategic wheel, which I have been presenting several times with the customer Session in the center, technology leadership, operational efficiency, people development, digitalization and sustainability being the white blue element. And we are now in the final stages of completing our divisional strategies and look forward to presenting this at the upcoming Capital Markets Day on June 17. Looking at the current market development, we expect To see continued COVID-nineteen impact in quarter 2, but the gradually improved business climate in the second half of this year as we also announced last quarter. I want to take this opportunity to sincerely thank all our committed and engaged employees that have embraced our new strategy and organizational setup in an excellent way. Thank you. And then we move to the Q and A. Thank you. The first question comes from the line of Matthijs Hornbe from DNB. Please go ahead. Your line is open. Thank you and good morning everyone. I'm a bit curious on the comment you made on the BMU division where you mentioned that Q1 now will be the last quarter with negative EBITA. So I'm, first of all, wondering what measures have you taken to lift the profitability short term, as you mentioned, sort of The double digit margin further down the horizon with long lead times, etcetera. And also if you can provide any clarity on sort of what The level or sort of what region of margin we should be able To expect for the rest of this year, should the overall year for BMU be at least breakeven? Or will it be better than that? Or any color would be very helpful? Thank you. Yes. Hello and thank you for the question. It's We have had, as you know and seen in the figures also, this situation within Bem Europe throughout last year. So this is something that we have been working on for quite some time. So there is a lot of activities now in place To ensure that this would be the last quarter. And it's of course related to many things. We are working hard on the cost. We are working hard on quality. We are working hard on our processes. And we have clear activities in all these areas to make sure now That we can put this behind us. So we feel very confident that this would be The last quarter where we report negative figures. And we also feel very, very confident So that the full year definitely will be with a positive outcome for this business. It should be Clearly better than the breakeven. Thank you. And one more question from my side. When I look at some leading indicators for construction markets, it seems like there's been a pretty clear Hiccup here in the last report of Q1 and you also mentioned that you've seen a similar trend. What's your view generally on the construction industry at this point? And sort of do you think that we will get out of this old COVID situation with some pent up demand or what do you see here? Well, I think it's, yes, definitely it was some positive signs during the quarter, especially towards the last part of it. But I think it's too early to really say that this is stabilized and we are really out of the Pandemic and also construction had a tougher Situation also pre pandemic, you know. So I think it's a little bit too early to really say that So now it's full speed, but we see positive signs definitely. And it was positive for us in the first quarter. So we expect a slow and steady improvement. But I think also with the pandemic very much around us, it's still, of course, a lot of uncertainty in quarter 2 because we know the pandemic It's so much present. But we expect then, as we have said before, also for construction that the second half would be showing more signs of further improvements. Thank you so much. Thank you. The next question comes from the line of Ewan Dahl from Danske Bank. Please go ahead. Your line is open. Yes. Hi. Thank you. Just on the numbers that you announced on orders for the aftersales The operation, I think you said it was up some 19%. How much of that would you say is sort of Recurring revenue in the sense that it's long term commitment to serve and what is sort of temp of demand for spares, etcetera. I'm just trying to understand the Long term effect of that strong order intake. I think you could say that I don't have exact split on that, but I think A solid portion of this was what you would refer to as pent up, you know, An effect of less activity over the last quarters. So that we would see continue to see exactly this and the forward, it's still too early to say. But we saw that this is Parts of this were definitely related to more pent up demand. It doesn't sound as if you addressed The success to the changes that you've done recently in the organization? Or am I wrong there? Or do you see that sort of new Incentives for your sales personnel, etcetera, is really having an effect? Or is it still too early today? No, I think it's a good question. We have reorganized the entire group. We are building up new strategies. We have overall new group strategy. We are working on the final stages with the divisional strategies. So clearly, you know, I would say that real effects of what The strategy will bring they are not here. That's for the future to bring. But what we have proven, I think, is that we have been able to Carry through this organizational change in a good way, stabilizing the business And started our journey on having control over the cost and Yeah, starting to be more customer and market driven. But you don't make these changes or build your own in a day, so things like this will take time and it's a journey that we are on. Okay. Also on the order intake on construction, I mean, we haven't seen those levels for a couple of years' time. What do you make of that? Is that yes, just to it'd be interesting to hear your read on the market here, why that is occurring right now, pandemic related or is No, but I think what we hear and also see a lot of companies are reporting and all, there is a more positive sentiment In the industrial and that's also what we have seen. We have taken a lot of smaller and medium sized projects. It's none of the big ones, you know, Which normally, pre pandemic, you always had some of these ones, but we don't have any of those now. They are still being pushed forward. So there is a positive underlying sentiment in the industry that these small and medium sized orders are coming and we see it quite broad in the different industries. So there is an underlying A positive trend there. Okay. Finally, before getting back in line, can you just talk about components shortly as what sort of risk? Components, yes. Cost, you mean? Components shortage. Yes, component shortage, yes. We have not really been affected heavily by this, you know, and the cost increases that has occurred in transport And raw material, we have been able to pass on. We, of course, monitor also some shortages, but this has not really had an effect So much for now, and we think that we have it under control as it looks now at least. Thank you. Thank you. The next question is from the line of Tore Tore from Carnegie. Please go ahead. Your line is open. Yes. So on the wind side, you gave some guidance on how much Hello? Yes. We lost it. The rest of the business, what Yes. How do you think that market shares for the hoist business on the wind side is moving? And are you competitive there from a Costs and price point of view. And what about the service business on the wind side, please? You know, we lost you a little bit. So I think it would be good if you could repeat the whole question. Yes. Yes. So on the wing side, I mean, you gave good guidance there for how much revenues and orders are going to be affected Are you exiting this tower internals? But can you talk a little bit about the hoist side for the wind business? Are you sort of keeping your market shares there? And how is your cost competitiveness there? And what about the service business to the wind side? Yes, absolutely. I think we do well on what we call the lift and ladder business within wind. And we keep our market shares and rather have, I think, a strong position, which we are Leveraging on and think that we can take more market shares moving forward. As it is now, we are cost Competitive, definitely. And we have our plans to be even more so moving forward. So that business I see as A stable and relatively solid business for us going forward. But also what I've Pointed towards, you know, is that a couple of times is that we don't or it's important that we The difference about the energy output expected from the wind production in the years to come Versus actually our market potential in this business, because our market potential is driven by the number of erected towers And the penetration of lift and ladder systems inside these towers. And the number of towers It's now forecasted to actually go down in the next 10 years Because they are becoming bigger and thereby still produce much more energy than they used to do before. But at the same time, as the number of towers go down, There is also an increased penetration because they are growing bigger and therefore the need for these solutions, List and other solutions are higher, and they're also going offshore, where it's basically 100% penetration. So for us, we see it as a stable solid market, not enormous growth and not growth related to the energy output. Okay. And on the service side, do you think there are opportunities To grow that side of the wind business? Absolutely. Now with the strategy, we really aim within each of these divisions to understand the customer ecosystem Better working even closer with our customers, becoming stronger partners and being able To provide more value to our customers. And one natural element for us, of course, is to have a stronger stance within the service business Than what we're currently having. So that's clearly an important part of our strategy within Okay. Great. That's all. Thanks. Yes. Thank you. Thank you. The next question comes from the line of Douglas Leonard from Kepler Cheuvreux. Please go ahead. Your line is open. Hi, good morning gentlemen. Just following up on that wind theme. The wind industry has been impacted Quite a lot of pricing pressure since 2017. I guess that's something you would have experienced as well to some degree. Can you give a bit of Some sort of indication on what margin levels you see as attainable maybe in the longer term now that you've been vocal about Lifting profitability while we see pricing pressure. Obviously, you have service that can lift the overall profitability for this business. But Structurally, you should see price pressure on the equipment side at least. Any sort of comment on that? Yeah. You know, win the business, I think it's the most competitive and difficult business that we are having in the group Because it's driven by some very few very large customers. And that's also maybe one of the main reasons Behind these issues of the tower internal business because these products doesn't really add any value So that the big customers, end customers here, they can easily understand what these products are and they are Competitive, you know, and there they are driving pricing heavily. And this is also, of course, one of the main reasons that we are The price pressure is enormous. It's very, very competitive. We can't make the margins that we would like to do. And we cannot really add any value to those products Unless there is a value to connect it with our core products, The lift and the leather systems. And there we see that in some cases it is. So therefore, we also forecast that Some part of this will remain in the group, but a big chunk, several 100,000,000 have then disappeared since the acquisition was made of Rampe, Because this business is not really providing us anything, any margin, and we can't add value, as I'm saying. But the other type the other remaining business, where we have our core, there of course, as you have said, we see You know, a good stable sound business for us moving forward. That this will be a business where we can lift margins Heavily going forward, I don't expect, but that they can that we can maintain and that we can work Improving, definitely. Okay. So no big Margin delta maybe on the upside more maintaining these levels, if that was that fair? Yes. I don't expect the big margin up On the wind business, it is already at relatively okay levels, you know, and we will work hard to improve and Yes. It looks solid in the wind context on the margin side. And finally, just a question on your balance sheet. This is Really strengthening. What can you give us an update on your sort of M and A view, Which business areas would you be interested in doing acquisitions? Which geographies? I mean, sort of comment on M and A would be interesting. Yeah. M and A is important to us, and it will remain to be important. It's been important to the group historically, but they've also had a lot of issues now. And you see the issues is mainly in the group sitting related to the 2 main acquisitions that was done. So that's an important work that we're now undertaking, you know, to make sure that we control this. But we still drive and we work on the funnel and the opportunities every day. And when we are able to do something there, we will do. So that's an ongoing work. And basically, I think as I mentioned it before, interesting areas definitely within service To expand our service offer and after marketer, it's technology, because we need to be more connected. We will make our products connected, and therefore, we will also be more connected into our customers' ecosystems. And therefore, it's also natural to look at different technologies. And then of course also, we also have A geographical perspective, we sell to more than 100 countries, but we are operational ourselves in a little bit more than 20. So there is an opportunity to also establish ourselves more in some countries, and it could be acquisitions related to that. And Of course, something on the product range. We have a very, very strong product base, if you look at the Range at least for bigger, heavier applications, but we are not so strong on the Smaller, medium sized and also on the platform side. So definitely, it's interesting areas also from a product perspective. Okay. Thank you very much. That's it for me. Thank you. We now have a further question from Ewan Dahl from Danske Bank. Please go ahead. Your line is open. Yes. Thank you. Just a few more questions. Can you say anything regarding the $60,000,000 savings that you We're aiming to realize where was the run rate in Q1. Secondly, can you say anything, obviously, substantial headwinds in In terms of raw material cost inflation and the currency, the way prices and currencies are right now, When will that headwind sort of peak for you guys? It's already been in the numbers or you see sort of the main challenge going forward? Thanks. Yes. Maybe I'll leave this for Bernd to comment. With the SEK 60,000,000, You mean the restructuring program. We are following that. And as Said from the beginning, it will be in full swing at the half year, and we are sure that we will reach the levels we had indicated before. Regarding the currency, I think It will be leveling out at the end of the year. We will have against those currencies During the next two quarters, I would say. And then, Robert, because we're not fully aware of the sort of arrangement, the contracts you buy and not how fixed that is. So I'm just trying to understand when you feel So the group that you really passed the peak in terms of this challenge, both on currency and on raw material. Yes. But I think the currency, I think we have had the currency impact now for 3 quarters. And we expect 1 more quarter where we will really have the major effects and then it should be stabilized. As for the Cost increases. We are able to we follow what's happening in the market, and we are able To take this out in most of our businesses when we sign up new deals now. So we have, let's say, control over that. So I don't foresee that we will Am worsening situation from that moving forward, with maybe a little bit exception In with Transportation, yes, maybe. But also being you, we have some long contracts. But we feel that we have good control over it. And I don't see that This should be a main impact for us going forward from where we are today. Thank you. As we have no further questions, I will pass back for a closing comment. Yes. Thank you. And again, I want to thank all the employees The group for delivering what I think is a solid quarter. After all, happy with the order intake that are increasing nicely. And thank you to all for following us today. So thank you.