Earnings Call: Q4 2019

Feb 4, 2020

Thank you. Welcome all to this presentation of the ADNOC Group year end report for 2020. With me, I'll also have the CFO of the annual group, Latajola Reid, and we would like to present the annual group result. So if we could please move to the next slide. And I think we could just move on to slide number 4, Adnan Group Digital Solutions for a sustainable future. And looking at Admiral Group, as of today, we are training at SEK 3,800,000,000 and we have 1800 employees. We are active in 19 countries, meaning that we have offices and operations there. We do businesses in a lot more parts of the world as well, but our main markets are Sweden, UK, Germany, Norway, and Finland. And as you can see on the map to the right, we are predominantly doing our operations in the Northern Europe. We are, organized and active in 3 divisions. Design management, product lifecycle management, and process management. And we will go in further in details on the businesses of the 3 divisions later in this presentation. So let's move on to slide number 5, the agenda for today. We will focus on Q4, of course, a little bit on 2020. And we'll dive into our free divisions to sign product life cycle management, process management, We will also discuss our cash flow and financial positions and then we'll end on acquisitions. And with that, I'd like to move on to the next slide and our group Q4 2020. Looking at this quarter Q4, to improve our margins and we had a very strong cash flow. Net sales was 921,000,000, down from 933. We were able to increase our EBITDA from $100,000,000 to $108,000,000. And we meaning that we improved and strengthened our margins from 10.7to11.7. So even though, net sales were down, we were able to be efficient in our operations, and we also had a cost cutting program that we have, been running in the PLM division that has been, going as well as we expected. We had a very strong earnings in the Process Management division. And, we were able to, be diligent with regards to our cost during the quarter, and that was significant significant for all divisions. And, looking at other events in the quarter, We have a new head of divisions for, PLM. And, also, this, I mean, CEO of Technia Manu Saultman, who took over from from, from, January 1st and is running the business as of now. Within the acquisitions in the fourth quarter of Skanscot as well, I will come back to that later in the presentation. And as you can see, this a quarter, even though we are moving more and more, to our business with, to recurring revenue and services provided when, integrating and implementing our digital solution. This is the quarter where we actually sell licenses as well. And then this has a good impact on our margins. And as I said, we will discuss later in the presentation more in details with regards to our divisions. But let's move on to the next slide. Slide number 7, annual group 2020. Looking at the full year, this was, of course, a year that was very much impacted. Everything that has to do with the COVID 19 and the change in the market conditions. But I do believe that we were very, fast and adaptive to the changes in the business. We can see that started in Q2, Q3. And now in Q4, we're a little bit do sort of running the business in a normal mode, meaning the normal mode that most of our employees are working from home offices able to serve our customers in a good way. It was also a year when we can see that the organization took at least 2, 3 years, leap so to speak, meaning that we ourselves have become even more digital, meaning that we continue to work distributed in a good way. Our customers are becoming more digital, and this is also something that drives our businesses because this is actually what we help our customers with. To become even more digital in the way they work. And that makes sense both for the things that we do for the construction industry, our architects, the people who are our OEM customers and discrete manufacturing, you can also see it in the public sector as well. Becoming more efficient with the help of digital solutions. So even though it's been a tough year with the cohort, it has also been a significant year for driving our business long term as well. And what we also can see that we have been able to generate a very strong operating cash flow. Looking at the year, I think the operating cash flow from our operations was $579,000,000 compared to our EBITDA on 305 fix means that we have a very good cash generation. That has to do also with our business model. We have in our business model, customers prepay for the right to use the software, meaning that we are operating with a negative operating cash meaning that when we grow, we actually generate cash. So it's been a good year on that, and we have also been diligent in the way to I think customers actually pay for this. So we have very low, if almost non customer losses due to bad debt this year. We did 4 acquisitions of Excited Unisitenet Publicator in Skanscot. And So with that, coming to 2020, I would like to move on to the next slide, slide 7. It's a slide that shows our 3 divisions that we operate in, design, PLM and process, I will not spend that much time on that. And it's just an overview for you who are new to the business to see in the 3 divisions that we operate. So I think we're all interested in Q4. So let's move on to the next slide. Slide number 8. And dive in a little bit more to the design division, design management. In design management, we support free customer groups on the broad base and meaning that everyone who sign something, could be an architect. It could also be a technical consultant. It could be someone in the district manufacturing producing something, they need software to design. And they also need software for taking care of all the product data being, distributor, and also we are working with, customers on the construction side, helping them with product management tools, And we are also working with facility management customers when things have been built, it needs to be management over time. So we provide software for that as well. So if we look at the figures for Q4, we are almost flat on net sales and almost on EBITDA. And, with that, we can also see that the negative, with the negative organic growth, it has to do that in the beginning of the year, major acquisitions in, of Xitec. So they have been contributing to both net sales and EBITDA. And in the Q4 this year, we have a lower net sales compared to last year in And then we had to remember that last year was a very good year for us. We have a very had a very good organic growth that we hadn't seen before. So it's tough comps as well. And in the market, as well as we are right now, we have seen effects from COVID-nineteen that our customers have not invested much this year. But compared to Q3, I would say that nothing has changed. It's the same market condition. So it's more of a matter that we had a very strong Q4 last year. And unfortunately, we have not been able to repeat that. And that has to do with the phase of our outlet solutions. If we look at our prepared software for BIM and product management and facility management, it has been a fairly stable demand compared to last year. And we have been able to mitigate the lower net sales with cost control. So if we move on to the next division and the next slide, and then for our life cycle management, It's been a very good year end for PLM. Had a very tough year starting And, we have done a cost reduction program, for the year, adapting to the market regulation and we can see the positive effect of that in Q4. But we can also see that the customers have invested in licenses in this Q4 as the Normally, or I should say historically, Q4 is always a strong quarter for PLM. And, with the market conditions, and there's we are happy that the customers have chosen to invest as well this year. And we can see that from sort of a low point with regards to demand, we can see some increase or at least stabilization in Germany and UK with regards to that. It doesn't mean that we are back on track compared to what we had, for example, in 2018, but I'm just saying that it's a little bit better right now. And in Nordics and the Ben looks continue to be stable as well. But, And here, you can see that licenses is 18% of the net sales distribution. That also has a positive effect of the margin this quarter but that's historically the way it always had been so fake. And I'm very happy that we are able to execute and, generate a good and healthy profit in the division PLM. They've done a good job executing that. So historically, strong margins. So, let's move on to the next division on the process management. Did a really strong year end as well. And that they managed to have a organic growth as well, 3%. It's a good organic growth for this type of business and the public sector. We increased net sales from $223,000,000 to $231,000,000. And the EBITDA from 48 to 45,000,000. We almost reached a 20% EBITDA margin. So it's a strong year end and that this is driven both by stable demand, but also efficient operations. And some cost constraints, of course, with regards to the COVID situation. But all in all, a very good quarter from process management. And we can see that it's both from our customers in local municipalities and the central government that we are able to do good business with So with that introduction to our, financial for this quarter and the divisions, I would like to hand over to our CFO, Lotte Yoderid, who will walk you through the cash flow and the financial position. Thank you, Johan. I would like to start with an overview about the consolidated cash flow. 20 20 was a very strong year for NAND Group in terms of generation, as Johan said earlier. In the fourth quarter, we had a cash conversion rate that is operating cash flow to EBITDA of one 0.7 times. And those are you who have followed by the group for a while. You know that we are usually start the year with a very strong first quarter in terms of cash generation. This is attributable to our business model with the large share advanced payments for maintenance contracts in the beginning of the year. In 2020, the operating cash flow for the first quarter represented almost 50% of total operating cash flow after a strong first quarter also in terms of net sales. This year, we had a strong cash flow also in the second quarter. When the COVID 19 pandemic was effect, we intensified our work on bringing in customer payments. Focus work with cash collection together with temporarily improved terms of payment from certain vendors and customers had a positive effect on the operating cash flow. The third quarter was weaker when capital tied up increased during the summer due to the business cycle. In addition, the temporarily improved terms of payment from vendors during 2nd quarter resumed to ordinary terms during the third quarter. Altogether, this meant that we, in 2020, generated an operating cash flow that was 40% above previous year, landing at CXM 579,000,000. This represents a cash conversion of 1.6 times EBITDA. We have actively worked on reducing tied up capital through challenging invoicing and payment routines. The share of account receivables that is overdue now is lower than before the COVID-nineteen pandemic. And we haven't suffered any significant credit losses. With regard to cash flow from investing activities, the 4th quarter contains about SEK 40,000,000 referring to the Scanscock acquisition in November. And total cash flow from investing activities above 1,000,000, apparently mainly reflects the 4 acquisitions made during 2020. We reference to the accumulated cash flow from financing activities. Please remember that no dividend for 2019 paid to the shareholders as decided by the AGM in May 2020, previously as a dividend amounted to SEK 84,000,000. We have also chose to not try and modify our external debt due in 2020 in order to resume full flexibility in terms of access to liquidity. Next slide, please. I would like to continue to with some comments on the balance sheet. We have been operating during these challenging times, supported by a strong balance sheet, giving us the confidence to continue to develop Admiral Group. By the end of December, our available cash was CX-six forty four million. In addition to that, we had another CX-three hundred million in the revolving credit facility for acquisition purposes and unutilized overdraft facility of SEK100 1,000,000. External efforts about SEK 700,000,000 unleashing debt amounted to SEK525,000,000. This means that our net debt was on the lower side of about SEK 180,000,000. Liquidity ratio was 40% and the return on shareholders' equity just above 11%. Other large changes in the balance sheet items such as goodwill, other intangibles and other liabilities, mainly to the acquisitions made due in 2020. And by that, I hand over to you again, Johan. Thank you, Laura. And let's move to the next slide, acquisitions. In the fourth quarter, we did an acquisition of Skanscot, skarskop is, the sole partner, which focus on Simulia. And Simulia is the simulation part of the platform. The company has also developed brigade. It's on a stand alone software suite for simulation of British and civil infrastructure. And Scott Scott gives us extensive knowledge and experience of advanced simulation services, and they are active in a wide range of industries civil infrastructure, big size and nuclear. So this is a add on acquisitions to Tekia. Technia has a strong offering with regards to simulation earlier on. And, this brings new capabilities and also some add on software. So it's a very good addition to Techno that will make it possible for us to serve our customers even better going forward. So And that was the acquisition that we did in Q4. And as I said earlier, we did 3 more acquisitions earlier on this year. And, one of the questions that always gets, are you still active within acquisition? Yes, we are very much. But as you all know, it's a matter of timing. When we are able to close things on the terms that we seem favorable for us. So, but, I expect us to do more acquisitions in 2020 so. So let's move to the next slide. This is summary. Why invest in annual group? So it's not the same pitch. It's just a description of what we have done and what we're expecting to do going forward. We have a growth strategy and we are very much a growth company. And we do it both organically and through acquisitions. We have a crew on track record. We have been profitable ever since the start, and we have found a way to double our operations every 5th year. Meaning that we have a net sales growth of around 14% on average the last 10 years. We provide digital solutions for sustainable future means that our offerings are supported by strong global trends as a digitization that we discussed, but also urban organizations people are moving into cities and we need the infrastructure there and the infrastructure needs to be to sign and it needs to be maintained and we provide software and digital solution for that. We are long term to our customers and our partners and relationship, meaning that there are customers who have been with us for 30 years. Plus, we have been working with our part almost that long as well. And, we believe that it's a very good benefit, and it gives us more opportunities and stability this as well. We do believe that we have an attractive business model, not to discuss the strong cash conversion, And there are a lot of recurring revenues as well. And in the business as well, there are divers occasion, meaning that we are go, supporting both customers in the private and the public sector and we are doing that in different parts of the world as well in different industry segments. So with that summary, I would like to thank you for listening to us and open up for any questions. Thank you. You. We have a question from the line of Frederic Nilsen from Redeye. Please go ahead. Hello, Craig Hinsom from Reda here. Then we solid margin in PLM, Is that mainly an effect of restructuring or are there also significant temporary factors? Thank you, Frederic, for the question, Frederic. I think your question was that the strong solid margins in PLM this quarter Is it, long term, something that you can count, or are there any short term effects that we should be aware of? I think most of the fact is that we have been able to lower the cost base in the divisions, and that will that has an effect. And we can But then we can, debate whether there are some, with regards to recovery, we are not traveling as much. We are not, meeting up. And there are some furloughs still in Germany in the results. But but the bulk, so to speak, are, I would say, long term, but we have to be aware that let's see how it pans out with what happens when sort of the COVID situation solves, will we start traveling a little bit more will we meet with this more and will that drive cost? Having said that, we can see that we are able to serve our customers in a very good way working distributed as we are today. And that we will bring with us going forward as well. But there are some furloughs in Germany, that will, but at the same time, going forward, we will hopefully see that there are a restructuring program that will mitigate that going forward as well. So we haven't seen the full effect of the cost effective program at the end. Okay. That's a good answer. Thanks. 1 more, the margin in seems quite weak considering the relative weakness of the Autodesk related business. Could you elaborate a bit on that? You can always debate on what kind of model we'll have, but I think it's a good, it's a with regards to the drop in the net sales, I think we've been able to mitigate it very well with regards to the cost structure as well. So, I think so I wouldn't call it a weak margin. So I think we have actually mitigated as well. What happened is that when you, the net sale, there's a variable component in the net sales to the Autodesk business, and that's the cost of sales to Autodesk. So that That is something that we don't have to pay us. So I will call the weak margin. We have tried our best to mitigate. Going forward. So but as always, it's a matter of opinion. Okay. I see. I see. Sorry, Fred. I missed the question. I said something about the public sector. Yes, do believe that you're gaining market share. In the public sector? Exactly. Exactly. Yes. Yes. I would say we are there are no market data available for that, but let's say that I think we you are at least not losing any market share. And if any, we are, sort of fortifying our position in the public sector markets, I would say. Okay. Thanks. That's all for me. Thank you for We have one more question from the line of Daniel Torsion from ABG. Please go ahead. Yes, hi. Thank you very much. I was a few minutes late into the call. So I apologize if you have covered this one, if I'm right, I look at the acquired growth in design management, mainly coming from Xitec. Obviously, it looks like it contributed with around SEK 100,000,000 in sales in Q4, which is half the level of the reported in Q1. When we go into Q1 2021 now, should we expect this level of around SEK 100,000,000 meaning that that has dropped 50% and that will be part of the organic development in design? Or how should we see the seasonality in XITAC here going into Q1? Let's answer that in two steps. When we calculate organic growth, we only calculate organic growth 12 months after acquisitions. So that means that if I'm looking at lot better means that when we report organic growth in Q1, excited will not be part of that. They will be part of the organic growth in Q2. But going back to the second part of your question, what is the run rate of exciting as of now is probably closer to 100 and 150. Yes. I see. Okay. But regarding the organic growth, 12 months after acquisition, wasn't that closed end of January? That it should be organic in February March? No, no, 1st January. 1st, shouldn't that be organic in Q1 then? No, I don't think, yes, it's been, as we reported as part of the full Q1, then we have to So we'll so that will sort of so that means that Q1 is, and then we go starting from Q2, we will report it as organic growth. It will be part of the organic growth calculation. In Q2. Okay, entirely in Q2. Okay. And the run rate is more like $100 versus $150,000,000 to $200,000,000 At least we don't do any pros, but it's closer to 100 and 15. You can see that in the figures that that's the run rate. And just to follow-up, that is that we had overall a very strong Q1 for our Autodesk business. I think it was for the whole division, the organic growth was plus 20% in Q1. And as you can see, the run rate that we have right now, we will not be able to deliver that as well. So we will have an effect of the net sales as well in Q1 for the design business. And that goes along with your question, sir. Yes, absolutely. Yes, I think that was it from me. I heard Frederic's questions on PLM margin as well. I stopped there. Thanks. Okay. Thank you. And as there are no further questions, I'll hand it back to the speakers for closing remarks. Okay. Thank you for listening to our presentation. And with that, I would like to thank, from us here, for me and, lockdown. Thank you. So, thank you.