CMD 2020

Oct 8, 2020

Slides

As communicated earlier, we have had a business strategy review in the group. And today, I'm presenting the outcome of this and our way forward. With me, I have Tobias, our CFO. The group has a strong foundation. The group has a leading market position with a unique know how and expertise within vertical access solutions for professional use, a global footprint and a large installed base of around 70,000 units around the world and a leading position within the aftermarket. We are present in a vast number of segments. And with our strong aftermarket presence, we are in a unique position to help our customers from a full asset lifecycle perspective, optimizing total cost of ownership. We have a portfolio of strong leading brands globally known for safety and reliability. We are supported by some megatrends like urbanization, more high rises governmental regulations within safety digitalization, high demands on sustainability and productivity, of which a group like ours, with our size, global reach and solidity, are well positioned to capitalize on. We have a strong financial position with a solid balance sheet and cash conversion, which puts us in a position to invest strategically. In sum, a great company with a lot of value creation and potential forward. Next page, yes, our financial targets were set in February 2017. And as I've said earlier, I note that some targets we have delivered upon and some not. And this has, of course, formed an important input into our input areas I brought with me: customer focus, a truly customer driven company, ensuring all decisions are being influenced by customer needs technology leadership, setting the agenda in the industry from the perspectives of innovation, productivity, digitalization and sustainability goes both in our offering to our customers goes both in our offering to our customers, but also internally in our own development. Delivering shareholder value, delivering on our commitments, focus on the figures, profit before growth, but also organic growth and continuous improvements. And last, people and culture attract, develop and retain the best people, having a culture where we all live our core values and where people can blossom. And to have the best people blossom, I do believe a well functioning organization is vital, an organization with clear responsibilities, accountability and a mandate to act. Digitalization and sustainability should be our fundamental enablers and cross through all strategic initiatives. Next page, please. So we are now introducing the new HEIGHTS program, a program in 3 steps to take us to new HEIGHTS that will run through to 2025. We are currently in step 1, reviewing and tuning to have the foundation right. Step 2 will be focusing on getting up to speed with implementation of our strategies and where profit before growth is vital. And step 3 will be to drive strong profitable growth where we deliver on our financial targets over the business cycle. So what are we doing now? We are updating the group vision and core values. We are setting a new customer centric organization with full accountability and mandate to act. We are accelerating innovation, digitalization and setting a customer centric value proposition. We are establishing a people and culture function to secure excellence in our developing our most important asset, and we are setting profit before growth, securing margin improvements. And we will be back to all of this during the presentation. Next page, please. When reviewing the strategy, the first thing you look at is the vision, and we noted that it was not used that much within the group. We also felt a little bit limited by having the word vertical in it. In addition, a lot of people still talk about us as the big Hissbolage or in English, the construction hoist company, so we decided to update the vision. And the new vision is then moving people, material and businesses safely to new heights. We shift focus on vertical access to smart solutions for people and material access and flow. We also highlight our ambition to help our customers excel. New heights is a clear signal of constant improvements both for our customers and ourselves, but also our core knowledge of providing access and flow safely at HEIGHTS. And we open up for the possibility to review new verticals that would fit the group. Next page, please. With the reorganization that we are making, we also reviewed our core values to ensure they were supporting and strengthening our new structure. We will also now have a strong focus on people and culture, and an excellent way to kick start that work is actually to update the core values. We want to have a culture where people take ownership, and we now also get an organizational structure that fully support that. That we constantly move forward, we challenge the limits as we want to go to new heights, and we realize that the most efficient way is to do that in a well diversified team. Next page, please. We have decided to reorganize to have 4 customer centric divisions with full responsibility and accountability and a mandate to act for its own business. Adding up these 4 divisions will form the group result. It will be supported by some carefully selected corporate functions, and each division will be fully responsible for the full value proposition through the entire asset lifecycle. The division will know the customer needs best, so they develop our products and solutions, our aftermarket offering and commercial models. They produce market and take to market. They are responsible for P and L, balance sheet and cash flow. Today, the organization has 4 business areas with 7 business units all reporting into me and 4% from the group sales coming from the former aftersales, being then spare parts and services. Constructions consist of then the old construction business unit and the rental business unit. They will own the rack and pinion technology and thereby also the group's rack and pinion manufacturing, supporting and selling rack and pinion products to the other divisions. And it's a similar then setup for the other divisions. Industrial will account for approximately 25% of the group, where 11% is coming from original equipment sales and 13% coming from the former after sales. Their core competence will be traction technology. Wind will be around 20% of the group, where 16% is coming from original equipment sales and 4% from the aftersales, and their core competence will be designed to cost. While BMU will be around 25% of the group, 19% coming from original equipment and 6% from the aftersales. Core competence will be around project management and customer specific projects. As for service delivery, that will not be split up. This consists today of teams in each market today, and they will remain like this: a local team per country managed by 1 division, supporting delivery of services to the other divisions. You also see the EBITDA per division, and I'm convinced that we can lift our profit in all of the divisions, even though it's obvious that in some areas, we have a too low EBITDA and it will require more focus going forward. This level of detail will be available in future reporting. Next page, please. We will have these 5 support functions, and that means, first of all, that the COO or the operational role in the former organization is taken out. We will have finance and technology as before. We have added one function around strategy and M and A. We will have a people and culture function to take care of our most important asset. And we will have a group support function to support and drive common processes and system support for our local service delivery teams to continue the very good work ongoing in that area. Next page, please. To be a leader, we must secure, we develop and deliver the most value to our customers. We are low in R and D spending compared to industrial peers, even though it has been doubled over the last years. We report around 2%, but in this, it's also included engineering, so maybe it's more correct to say 1%. I would argue that some relevant comparable peers have around 3.5%, and you would find up to 10% for fully technology driven and leading industrial companies. The question is, of course, not only how much money you spend, but how you spend the money. But that we should do more is clear. Our investments will be increased. Continue to drive connectivity and digitalization, which is now ongoing through our IoT hub that has grown out of the 2019 acquisition made of data line in Boros. I believe that all our products and solutions forward will be connected and digitalized. And having divisions responsible for both the original equipment sales and services will allow us to develop Our people are the most important asset and thereby must be a strategic focus. We have, therefore, created this function to secure excellence in this area. We want to attract, retain and develop exceptional people. We want a high performing inspirational culture, and we want people to blossom. Next page, please. Creating 4 strong independent divisions means they will take care of most themselves. But still, there are, of course, several areas where the group will play an important and vital role in value creation for our stakeholders. Within digitalization, sustainability and corporate culture and people, as already highlighted, that divisions can leverage our global footprint and utilize a common back office setup that together with all divisions, we have the widest technology base and portfolio in industry that will be leveraged across the divisions. We will benefit from having a common global service delivery organization and capability and of course, the strong financial backing we can provide to all the divisions. Next page, please. And then I invite Tobias on stage, so he will take us through how we now will make the first solid step in improving our margins. Tobias? Thank you, Ole. As Ole mentioned, a key priority for us is to improve the profitability in the existing business. And with the measures that we now are putting in place, we have a targeted annual savings of SEK60 1,000,000 full effect from end of first half twenty twenty one. These measures that we're now putting in place are affecting production, selling and administration functions with a net reductions of 120 employees, 5% of the workforce. Out of that, around 80 peoples are within production, mainly within the Construction and BMEU businesses. For constructions, the reductions are mainly made in the Hullefteu plant, whilst for BMU, we will, amongst others, transfer the assembly facility in Netherlands to Spain. The annual run rate of these cost reductions is about SEK 33,000,000. The new organizations with the 4 divisions, supported by the lean corporate functions will allow us to have less overlapping roles within selling and administration. The effect of this is a planned decrease of around 40 people throughout organizations globally. The annual savings of this is around SEK 27,000,000. We also strive to further improve the working capital management, and one area specifically is to improve the inventory turnover rate. As a step in this direction, we will take one off provision of SEK 12,000,000, a majority within the after sales business relating to spare parts with low turnover. R and D functions, as Ole mentioned, is a key priority for us and will not be directly impacted by the program. Instead, our focus here is to making sure the investments are correctly allocated, developing new functions and products. All these measures combined will lead to nonrecurring cost of SEK SEK60 1,000,000, of which SEK 35 1,000,000 will be taken in the Q3 and the remaining SEK 25 1,000,000 in Q4. With targeted annual savings of SEK 60,000,000, we will improve our profitability significantly and move in the directions towards our financial targets. Thank you, Tobias. Next page, please. We have now presented how we will establish the base and which then will be implemented during Q4. We will also kick off the strategy development for the divisions and corporate functions now in the beginning of Q4. Beginning next year, we will finalize the strategies and present them in a Capital Market Day during the first half of twenty twenty one. We will start implementing our strategies where we keep our financial targets, but we set profit before growth and make the group ready for future profitable growth. The margin improvements will be initiated now with full targeted effect from second half of twenty twenty one. Next page, please. As a base for the future value creation for the group and the divisions, when they now start their work developing their strategies. This will be our steering wheel or pinion wheel, if you like. Customer obsession is the core of everything we do, technology leadership, operational excellence and people development, all in a world where digitalization and sustainability influence all we do. And finally, next page, yes, I'm very happy to present the new group leadership team with some changes. Tobias will continue as the CFO and also Charlotte will continue as the CTO. We have a new face in the team with Mathilde Wernhof. She will be Head of then Strategy and M and A. She's been in the group for the last 4 years working mostly with M and A. Then we are in the recruitment process for Head of People and Culture, and we have hired Cecilia Vestronbeer as an interim support. Patrick Sundqvist, who has been interim Head of Group Aftersales, will be Head of Service Delivery. Jose Maria and Marc will continue to manage Wynn and BMU respectively as before. And as for construction, Henrik Tyvek will leave the group and David Batson will resume the role as Head of Construction Division. He has been the Managing Director of our operations in Australia for the last 4 years and have a deep knowledge of construction and rental. And finally, Frederik Betts, currently Head of General Industry and Oil and Gas, will move out of the leadership team and take on the role as Global Head of Sales within Industrial Division. We have started the recruitment process for a new Head of Industrial Division. Patrick Sundqvist will, in addition to his role as Chief Service Delivery Officer, act as interim. And with that, I say thank you, and we move to the Q and A session. So then maybe Tobias, you will join me up here again. Our first question comes from the line of Johan Dahl at Danske Bank. Please go ahead. Your line is open. Good morning, Ulek. Can you just it says that this reorganization, one of the main sort of changes that you're making is integrating the services operations into the industrial sort of verticals. Can you just talk about the purpose of having this global organization, I guess, was to get that global reach and coordination advantages. Could you just talk about what main sort of advantages you see with this new setup that you're proposing and what you aim to achieve through that and what the main challenges will be in doing that? Yes. I think, first of all, we had a relatively, the way I saw it, complex metrics with both countries reporting into me and also divisions. And therefore, I wanted to simplify the structure so you get a more clear line throughout the organization with, as I've said several times, the responsibility and accountability and this mandate to act, so that you have a clear line through the organization with this. So that was the main purpose. Then I wanted to have a customer driven organization and that's so that that that those that knows the customer segment the best, those that works with the construction segment, they are also the ones that would know the best what type of solutions and products that we should develop for that segment. And therefore, I believe in that they own should own the full value proposition and thereby also the aftermarket offering and take that to market. We will, from a group perspective, follow and separate very clearly what is OE sales and what is aftermarket sales. So we have full control over that and that we know that we are developing both parts like we should. But yes, I think these were the 3 main areas that we was behind this new structure. But what sort of challenge do you say that a unit that generates half of group earnings is not having its own sort of P and L in that sense but rather included in the verticals. Is that something that you sort of create concern on your path? I would not say concern, but it's something that I've been very mindful about. Of course, it's a very, very important part for the group. But also I know that you don't have the service business if you don't also have the OEM business. That's we service our OEM products. So it's important that we see this together. They are actually feeding each other both ways. So that's why I think still that actually getting this with the people that knows that market best is the right decision. But it will be kept, as I said, a separate focus and in most cases, a separate team. But this also varies a little bit from segment to segment because because it depends on the take to market. In some segments, we and aftermarket sales are more de connected. It's different customers and it's different sales, while in other segments, it's the same thing. You take the whole package to the customer in one go. It's the same customer that buys it. So this is also an important part that we understand this and really can leverage on this. So I'm convinced that this will allow us to gain even more speed, else I wouldn't have done it. Okay. Just before I get back in line, can you just confirm that you're reiterating group financial targets? Secondly, these cost out actions that you announced yesterday, in your view, is that sort of is that what's needed to take you to that group margin target in a couple of years' time? Also, have you looked at potential write downs? And is it sort of fair to assume that given that you're not announcing anything now, that's where we're going to be? And finally, what's happening to rental? Thanks. Yes. The first question or the last question. First, of course, I cannot comment upon anything related to the current business environment. But we are not changing any financial targets as it is now. The financial measures that we are now taking, it is to help us lift profit for the group? Definitely, yes. And I don't recall if you had even one more question. Rental division or business area will be part of Construction division going forward. Yes. If that was your question regarding rental, then definitely so. Rental will be part of the Construction division because in principle, that's the same market. Okay? Okay. Thank you. Thank you. And our next question comes from the line of Kenneth Johansen of Carnegie. So maybe I'll ask the same question in a slightly different way. But if you work as a service technician at Allamax, I got the impression that before you were trained to service equipment coming from the Allamac brand, but maybe also from the well, the BMU brands or the wind brands so that you could sort of service many different equipments. So how will the daily work or what changes will the service technician working for Allymax experience in this new organization, please? Yes. It's a very good question because this is important to understand. That's actually not changing at all. What we are changing with the service side is that each of these divisions will be responsible for developing and taking forward the value proposition and do the take to market, but the service delivery. So for the service technicians, they will still be part of the same one team in each market. They will be scheduled and managed in same way as before and support all divisions in that local market. So no change for the service delivery organization in that sense. Okay. So it's more a phase of services rather than performing the services that will change going forward? Okay. Excellent. Then also on the manufacturing slides, I mean sorry, side, you have a number of plants over the world. Those plants, they will belong to the divisions as well. Is that correct? Correct. Today, they yes. Sorry. Yes. Great. And then if you don't see any synergies to produce maybe products of 1 brand in the plant for another brand or something like that, that you sort of miss with this organization? Or how is your thinking there? Yes. Of course, it might be areas that you could maybe take out some more costs. But again, I do not long term believe in that last synergy or cost element is what will take us forward. I more believe in that we should have an organization set up for value creation and growth and then and not be controlled and steered by cost synergies. We will of course drive whatever we can of cost developments and potential, but this will also be between divisions. They will also need to find their way, but they own the results, so they will own also this decision, not something that I'm enforcing across the board at the group. And remember, today, the factories are reporting to me in principle, all of them. And then they are not owned by the business, which I think is not the right way. I think they should be owned. And now construction will own the rack and pinion factories around the world and be responsible for make or buy footprint and how we develop that. Responsible for make or buy footprint and how we develop that. The industrial will be for the traction part, etcetera. Okay. And then finally, the margins on the BMU side are fairly low. Do you believe those are the EBIT margins there are in line with other industrial peers? Or do you see an opportunity to rapidly sort of increase margins on the BMU side? The margin on the BMU side is way too low. And that will, of course, now this is highlighted and we see the whole thing. And we will work dedicated and hard together with the BMU team to lift this. And as I said, profit before growth. So and that's something not only valid for the group, but also for each division. Okay. Thank you. Thank you. Thank you. And we have third question is from Johan Dommel of Baskerv Bank. Please go ahead. Your line is open. I read your comment there on innovation and I read it as a need to increase sort of investment. Can you try to just quantify that? Will the cost savings that you're announcing be sort of enough to offset that increase in R and D spend, if you could elaborate on that? I'm not ready to give any figures on this for now. We will now move into a phase where we will develop the detailed strategies for each of the divisions and also these corporate functions, including people and culture, innovation, digitalization, etcetera. So that's something we will come back to in more detail in the Market Day. Other than what I said, that I think we are too low and that I think in the future all our products and solutions will be digitalized and connected in some way. So we have a way to go. We are I think have started and a lot of very, very good work is ongoing in that area and that we need to continue to fuel and invest in. Okay. Tobias, can you possibly reiterate those tangible actions to realize the cost savings? It was a really bad line, but you talked about some measures that would lead to this cost savings. Okay. Yes. So as I mentioned, so it's we're doing mainly then within production and selling and administration. In terms of production, it is we're using the workforce with about 80 people, mainly within construction and BMU businesses. For construction, it's reduction in Choleftiu. For BMU, amongst others, we will transfer the assembly facility from Netherlands to Spain, but also other actions. In for in terms of selling and admin, it is making sure that we don't have overlapping roles and responsibilities when setting this new organization in place. That is around 40 people with an estimated savings of SEK 27,000,000. And for production, the estimated annual savings is SEK 33,000,000, where we will have the full effect by the end of first half twenty twenty one, so and onwards. But then I would like to thank you for participating and for the interest and also thank you to Bias for joining me here. And yes, have a nice day. Thank you. Bye bye.