Earnings Call: Q2 2021

Jul 20, 2021

Ladies and gentlemen, welcome to the Allomat Group AV Interim Report for January to June 2021. Today, I am pleased to present Ole Christian Gerdott, CEO and Thomas Hendel, CFO. 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. I will now hand over to Ulla. Please begin your meeting. Thank you, and welcome to this quarter 2 2021 presentation for Alarmak Group. With me today, I have Thomas Hendel, our new CFO, and very happy to have you with me here, Thomas, for the first time. Next page, please, agenda. Today, we will go through the quarter 2 results And also some developments and rounding off in the end then with the Q and A session. So next page, please. Quarterly highlights. I'm pleased to see the continued margin improvements in the quarter with good effects from the cost saving program that we implemented last year. The efficiency measures are delivering well in line with the targeted Savings and will from now on have full effect as we announced also earlier. But we will, of course, continue to drive efficiencies and improving our results further going forward. We are still negatively impacted by currency translation effect, putting pressure on the reported order intake, Revenue and earnings in the quarter. We have had these negative effects now for 4 quarters, but we do expect to see some continued effect in quarter 3, but at a somewhat lower level due to the further weakening SEK. Excluding the effects from our exits from tower internals in wind, the underlying organic Order intake growth was 5% in the quarter. Organic order intake in services was 13% in the quarter, up 16% in the first half to last year. Very happy, of course, to see this development driven by our strategic We focus on strengthening our service business. The underlying organic revenue increased 8% if we exclude then the effects of tower internal exit. The growth was driven by the execution of the backlog And strong development in service. EBITDA increased by 45% And we report a strong cash flow, which has further strengthened our financial position. Next page, please. Group quarterly summary. So looking at the quarter more in detail, we see that reported order intake It decreased by 5%, but corrected for currency translation effects, up 1% organically. And then further excluding the effects of the decision to exit Tower Internals, the underlying organic growth was 5%. We saw strong order development in industrial and with organic growth also in BMU. Reported revenue decreased by 2% but up 4% organically corrected then for currency translation effects. Excluding the effect of tower internals, organic growth was 8%. Construction showed strong growth And BMU also had solid development. The revenue in industrial decreased due to low backlog coming into the quarter And also timing of deliveries in the U. S. And in wind, revenue declined due to exiting tower internals. Service revenue was strong in all division. I'm pleased to see the continued result improvements with a margin increase of 4 0.3 percentage points in the quarter, which now bring our or brought our EBITDA margin to 13.2% in the quarter. We saw improvements in all divisions supported by our cost reduction measures launched in 2020, Which then is improving the factory production results, giving a good leverage and also lowering our SG and A expenses. Next page, please. I'm moving into the divisions. We start with the BMU. Order intake in the quarter decreased by 1%. Organically, order intake was up 5% driven by significant increase in service order intake in most regions, which is one of our most Strategic pillars also in this business. Equipment sales decreased quarter over quarter, particularly in the U. S. Markets where we still face challenges due to delayed project awards. Our main focus is on taller buildings, and this is a segment which is showing a slower recovery. Our work to expand our offering will be important, of course, to secure a more stable growth and profitability going forward. Revenues increased by 6%, up 12% organically, with improved service revenues in Europe and Americas. And equipment project revenue was also up, driven by strong volume in Middle East as well as in Australia with revenue from Sydney Harbour Bridge also coming in, in the quarter. EBITDA increased to MSEK 6000000 corresponding to a margin of 2.5%. The improvements were driven by higher Revenues, better utilization and reduced SG and A costs. I'm pleased To see, of course, that we have brought the division back into profit in the quarter, but we still have a long way to go. And activities to improve profitability further is, Next page, please. Construction Reported order intake decreased by 4%, but was on par with last year organically. New equipment sales in Europe and Australia together with continuing parts demand was positively contributing. In rental, order intake was lower year on year in the quarter, but due to strong order intake in quarter 1 This year. So year to date, rental has had a very solid growth. The revenues increased by 19%, 24% organically. And the increase primarily comes from new equipment and parts deliveries in Americas and Europe, together with increased rental activity in both Europe and Australia. EBITDA increased to SEK61 1,000,000 And the EBITDA margin increased to 20.2 percent. And the increase was mainly due to the cost reduction measures launched In 2020, improving factory production results and the leverage and the lower SG and A expenses. Next page, please. Moving on to Industrial. Order intake increased by 18% with an organic growth of 24%. And the increase was mainly driven by solid equipment sales in Europe, but also in Americas and emerging markets, As well as improvements in service and parts. Activity level in this business is high, and it's all driven by smaller and medium sized Orders. Reported revenue was down by 24% with an organic decrease of 18%. And the decrease was mainly due to a low backlog and timing of some deliveries in U. S. However, America is currently impacting the most, but shows positive signals with solid order intake. EBITDA decreased to SEK35 million due to lower revenue. However, the margin increased to 18.7% and driven by the previously implemented cost reduction measures. Next page please. And finally, wind. Reported order intake decreased 31%, Down 25% organically. And the decline is an effect of our decision to exit from tower internals, Affecting then basically China and U. S. And in addition, the delay also government support programs have slowed down the market in China, Also affecting the quarter, but something we expect to improve again in quarter 4 and onwards. Brazil and Northern Europe saw good order intake. Service order intake for the division was strong, up 26% organically. And the decrease in order intake from tower in terms in the quarter was SEK 30,000,000 And it's now SEK 42,000,000 year to date. Revenue was 12% lower year on year, down 5% Organically. And the decrease in revenues from tower internals in the quarter was SEK 35,000,000 And with now SEK 46,000,000 year to date. UK showed solid development And with stable revenues also in the U. S. Service revenue growth was strong. I would like you to remind that and also confirm that the full year effects We announced last quarter from exiting the tower internal business is still estimated to be Around SEK 60,000,000 full year on order intake and SEK 100,000,000 on revenues. So we expect further effects to come in Q3 and Q4. EBITDA was SEK 23,000,000 With a margin of 11.1 percent and the improvement was driven by the previously implemented cost reduction measures. But also we did some one off costs in the quarter, which was taken to mitigate effects from the decreasing volumes in tower internals. Next page, please. And then I leave for Thomas. Thank you, Ole. You have financial summary for the group, June 2021. You have seen the Q2 result, and so I will comment on the financial Form us year to date, meaning the first half of twenty twenty one. And as you have heard, we have organic growth of both orders and revenues For the half year, important that we have built backlog with around SEK 200,000,000 during the 1st 6 months, Supporting our future growth ambition. We have a strong EBITDA margin in the quarter, 13.2% and year to date, 12 0.3%. So to summarize, we are recovering and we are on track. Next page, please. The earnings summary. I will go through the main impacts of the P and L in the quarter compared Due to 2020. EBITDA was up SEK 39,000,000 primarily due to the cost savings that we initiated 2020 And the currency adjusted EBITA improvement is 52% quarter on quarter. We have so far managed The effects of raw material price increases as well as freight costs and semiconductor shortage issues. We continue to closely monitor and work on mitigating actions on these areas. The financial net was Stable quarter on quarter. And then the tax rate, tax expense for the quarter was NOK 27,000,000 And corresponding to the tax rate of 25.5 percent versus the 21.9 percent in Q2 2020. The current tax rate of 25.5 is close to where we should be, reflecting the country profit mix that we have. The low rate in Q2 2020 included the tax adjustment in the U. S, which is not sustainable. Next page, please. Result for the period. The higher net profit was the result of the higher operating profit And also this led to an increase in earnings per share for the quarter to 1.45 compared to 0.94 in the Q2 2020. The number of shares are as before 54,200,000. Next page, please. Cash flow. We maintained a strong cash flow in the quarter of SEK 151 1,000,000 driven by mainly by an improved EBITDA, But also some contribution from further reduction of working capital. We continue to have focus on receivables, Payment terms and project execution. Next page, please. Net debt. Our strong operating cash flow together with limited investments took our net debt down to SEK 670,000,000 by the end of the quarter from SEK680 1,000,000 in the beginning of the year. The low net debt and higher EBITDA made our leverage end up at 1.23 By June 30, below our target of 2x, and we maintain our strong financial position. In May, we paid out dividend by SEK 162 1,000,000 following the Board decision to pay an extra SEK 1 per share. The group has SEK1.9 billion in our unutilized credit facilities, which gives us financial flexibility in the future. Next page, please. And then thank you and back to Ole. Thank you, Thomas. So then we are at Enhancing the customer value through digitalization slide. We as a group continue on our digital journey. We have now an installed base of more than 5,000 machines connected. And this is, of course, a great opportunity for increased service revenue. Technology leadership and digitalization is key for us to deliver more value to our customers. As also previously mentioned, we are developing Building Information Models, BIM, for all our products And also work hard to make all our products connected. And when they are connected, daily use and maintenance, of course, can be improved and done more efficient. We can prolong life. We can monitor and troubleshoot remotely. And we also facilitate planning and control of the flow of people and materials Through our lifts and hoists to ensure an optimized flow in our customers' ECO system And making the machines connected and integrated into our customers' ecosystem also contributes to sustainability. We are resource efficiency and also So making workplaces even more safer. Our focus on the service business It's also a vital part in creating a more sustainable society as the offering of upgrades and refurbishment Extend the solutions lifetime. Next page, please. I'm also very pleased to welcome Cento Engineering Group into Alimac Group. We made this acquisition just at the end of the quarter. So from 1st July, it will be part or it became part of the group. Cento is a U. K. BMU engineering and service provider that has been our ManTech Distributor and service partner in the UK for more than 20 years and of course have a very solid experience within their team. The acquisition further strengthens our standing as the market leading BMU service provider in the UK And will of course help grow our service business. The revenue of Semto was approximately SEK 60,000,000 last year And the company will become part of the BMU division. Next page, please. In June, the group had its first ever Capital Market Day. And There we gave an update of the new HEIGHTS program and also more details of the division strategies. Connected to this, we also updated our financial targets and the dividend policy. And just to remind, the updated Midterm financial targets are now, as for revenue then, a growth target of being in the range of 5% to 7%. As for EBITDA, we have a target to be in the range of 14% to 16%. We have and remained with the leverage target of 2 times. But this is also flexible in the sense that certain investments could or give us the room to overshoot, but we should then, as a group, do what we can to be Back into the framework of the 2 times as soon as possible. And then we also updated the dividend policy From being approximately 60% to now be in the range between 40% to 60% of net profits. And of course, as a management team, we are highly committed to deliver on these targets and get into this as soon as possible. Next page, please. As part of the Capital Market Day, we also announced For the first time, a CO2 target for the group. And our aim is then to reduce our CO2 Print with 30% by the end of 2025. And 2019 is the comparison base And this also then includes scope 3. Next page, please. And then to sum up the quarter, I'm pleased to see the recovering underlying organic growth on order intake in the quarter And also the solid margin increase of 4 percentage points, bringing it up to 13.2% in the quarter. We have a strong financial position and cash flow, which enables us to continue to invest in growth Forward also including acquisitions. Our divisions are now implementing the strategies for profitable growth. The core elements of these divisional growth strategies are expanding the range of our products and solutions or working with the value proposition, as We like to call it further geographical expansion, also further service penetration, Digitalization and of course also pursuing further M and A opportunities. I also want to note it takes time to get the effects from all of these activities. And as announced in our new HEIGHTS program, We should start to see effects of this in Phase 3, which is from 2022 and onwards. This year, focus is on securing our margin and preparing the group for growth, which I'm glad to see we are well on track doing. We expect markets to continue to improve going forward, supported by trends like urbanization, digitalization, sustainability And increased focus on safety. And I would say we are well on track to set the foundation for sustainable profitable growth and are highly committed to deliver on our target. However, there are current And securities around us and regarding raw material costs, also regarding supply issues on some products Like semiconductors and of course also the further development of the pandemic. But so far we have managed to manage this well. And I would say we are also well prepared to continue to do so. I want to take this opportunity to thank all Please for their commitment and the embracement of the new HEIGHTS programs and delivering a solid quarter. I hope you all have a great summer break. So with that, I say thank you. Next page, please, and we move to the Q and A. Thank you. So that is 1 to register for our question. We have a question from the line of Douglas Lindblad from Kepler Cheuvreux. Please go ahead. Yes. Thanks for taking my questions. Starting on the wind business area where you comment that you've taken a one off, is it possible to be more specific on how much that has been in the quarter? Thanks. Yes. For Marc, maybe you want to Yes. It's some €1,000,000 but not Double digits, if I put it that way. No. Okay. And on the Industrials business, which saw pretty bleak Organic revenue growth, but obviously very strong order intake. When would you expect this strong order intake trend to be sort of visible in the revenues for the industrials business? It's the normal, I would say. It's that we have a very wide span on the Timing from order to revenue, but that can vary from 3 months to several quarters. So but I think this we had a low order intake, 43 last year, which also is part of what we saw some effects From now. So but quarter 4 at least and onwards, I would say, we should expect to The more the effects from the strong order intake that we're having. Okay. So no sort of no change in the backlog duration Compared to historic levels, sir? No, I don't. Okay. And on raw materials, you touched upon it now in your sort of summary here. Can you talk a little bit about that, how you've managed to offset that and what you expect in terms of Potential margin impact as we move towards H2? Any comments on that would be helpful. Thanks. Yes. Of course, we see these raw material cost increases also everywhere. We started off early, doing what we could on the pricing site, where we have implemented pricing increases wherever or in all divisions. We have also, of course, been working with our suppliers to mitigate the effect as much as possible. I think we also have a benefit from the effect that we implemented last year, a cost reduction program. So the organization I've been in that mode to take down cost and do whatever possible on the saving side. So we have been able to mitigate. Of course, we are affected by these raw material cost increases also, but we have been able to mitigate it to a great extent. How they that will develop further is always difficult to say, but we think that we will be able So also further manage this without unless it's some much stronger effects coming. But there is also, I would say that the effects that we have seen is mostly, of course, where we have long order cycles, Like in BMU and also in wind, it's been easier to pass this on and to manage So on for the other two divisions. Yes, so more of the project business, I guess. Okay. Yes, thanks. That's Well, just one final, if I may, on the Santo Engineering acquisition. Is it possible to give some sort of indication on the profitability levels? I would assume that Given its high degree of service, it's double digit at least. Can you give some color on that? Absolutely good profit levels. This is a good add on to the group, Which will help support the development of further improving the group profitability. Okay. Thank you very much. Thank you, Douglas. We We have a question from the line of Chennathol from Kanyogui. Please go ahead. Yes. So I'm wondering a little bit about COVID-nineteen effects. Did you feel in the Q2 that the service Personnel and your sales force were able to visit the plants they wanted to visit and visit the customers that they want To this or do you feel still feel restrictions there? Yeah, it's we clearly see that markets are Slowly and steadily opening up. So that makes life easier, of course, for our service business and service personnel. But still, we do have restrictions also in many places. So this is not this it's still there also. But they also had, I would say, it's difficult to quantify during the first half, but we also for sure have had Some that you could call pent up or some effects that all that we are now more speed into the business again. But mostly it's driven by the fact that it is a strong focus in the group and One of our most strategic important pillars. So I'm very happy with that focus on how this is driven in the group for the time being. Okay. And then when we talk about cost savings and you say that you will deliver on the plans you have and so on, but do you also have I mean lower costs that are caused by less traveling and so on due to the coronavirus that might come back, so to say. Do you know the split between those, the more sort of structural cost savings and Savings, where cost might come back? Yes. I can Thomas maybe want to comment a little bit more, Vitaly. Yes. I mean, you're, of course, right. We, as everyone else, have both temporary and sustainable cost savings, to be honest. And But we don't explicitly say what is temporary and what's not. Of course, it's obvious that we Travel less, we don't join events and that kind of activity. So but I would say most of these Cost savings that we say that we now have landed and we are on track is sustainable actually. And then if we go for increased cost In marketing, sales and R and D, of course, exclusive decisions when we go back. Yes. And I also might add That we will never go back to the pre pandemic levels, of course. We have learned new ways. We have seen that it's Possible to conduct the business in a completely different manner and be more effective without that substantial travel rate as an example. But of course, some effects it will be. Yes. And also when Economies open up and you start travel a bit more, maybe you also get some more business on the service side that compensates Some of those increased costs. Yes. But of course, if we travel, if we spend money, We should get something back from it. So clearly, my expectation is that if we spend more money than we currently do, we should So generate more business than what we currently do. So clearly, we expect to get more out of it. Yeah. I think you should look at it from the service business point of view. It's exactly what Ola says. But I believe that we should have Increased customer interaction when it opens up even more, of course, to try to close deals, etcetera. So that's where we also have seen That would be fair. And then the acquisitions you made of Cento Engineering Group is very interesting. Do you have a pipeline and plans to do several of those, more of those acquisitions? Acquisitions is an important part of the group strategy. So definitely, we work On our pipe, we do have a pipe and we expect to do more acquisitions going forward. That's important to the group, absolutely. And could we also see it as a sign that the new organization that you put in place that it Have landed well now and it is working well. If I was a CEO, I wouldn't be comfortable doing acquisitions Unless the, yes, the organization I have already is working well. No, but I think you're absolutely right. And that's why it's also we select with Care also, of course, where we can make acquisitions In the group, because it's not perfect in all corners, of course. So we need to be selective In that respect, then be sure that we actually manage what we bring in. So that's the vital part, absolutely. And when you bring in such an acquisition now, this company was very focused on the BMU side and servicing that That's the one. But do you think that you will use the service technicians also for servicing the Alimac Construction hoists and other equipment, for example, in the group? I don't Excluded. But there is actually typically, we see in our service organization that there are some benefits It's fair that mostly they are focused on their own products, not brands, but I would say products. So it's not a high degree of transition between the different product categories in that sense. But of course, some there is. So there might be, but that's not the main thing behind it. The main thing is that We get an even stronger base and continue to build on our BMU service, Which we do think is very, very critical for that business. So it's a lot of products out there that need refurbishment, that need replacement, Etcetera. And then the regular service, you know, so that's important for us to be part of it. Okay, great. Thank you. Okay. Thank you, Gannett. We have a question from the line of Matthias Holmberg from DNB. Please go ahead. Thank you. And apologies in advance if you've already discussed this as I was a little bit late But I noticed very strong margin that you have in the construction business in the 2nd quarter. So I'm curious if there's anything beyond these restructuring measures that you mentioned That has resulted in this very strong profitability. Or is there anything of, say, one off character in this? And So what is reasonable to expect from this division in terms of the margin level going forward? Thank you. Yes. Hi. No worries. That was a new question. So it's a good question. The margin was high, yes, but it's driven by the fact of it's nothing really one off in this, But it's a good revenue. And we see here the leverage that we get now from our cost The improvement program that when we get increased revenue, a big share falls through and down to the bottom line. So That's the main thing. So and that we saw also effects within industry, 1st quarter. You had similar type of effect. So actually, this old Alimak business, which is basically the industrial and So and the construction business, we do have a very good leverage effect there now from our Cost programs have been managed very well by that part of the group. And then of course also we had a strong service business, so that also helps Of course, in the quarter. That's great. Thank you. Thank you. There are no further questions registered. So I invite the speakers for any closing remarks. Okay. So thank you. Thank you for the And for listening in today. And again, thank you to all the employees