Earnings Call: Q1 2021

Apr 29, 2021

2021. For the first part of this call all participants will be in listen only mode and afterwards there will be a Q and A section. Today, I'm pleased to present CEO, Johan Andersson. Please go ahead with your meeting. Thank you. Hello, everyone, and welcome to the presentation of the Q1 results for Amel Group. My name is Johan Andersson, and I'm the CEO of Anode Group. Together with me is also our CFO, Lotte Jarlirid. Next slide, please. And I think we can Skip one slide more as well going to the slide, Adan Group Digital Solution for a sustainable future. For those of you Who are new to the company, I just want to spend a minute on Enel Group. We have sales of approximately SEK 3,800,000,000 in 2020. We have operations in 19 countries, and we are organized into 3 divisions. Division Design Management is one of Europe's leading suppliers of digital solution for design, BIM and product data to architects and engineers in the construction and manufacturing industry. The division also has a strong offering in product collaboration and asset management in the Nordic region and the United Kingdom. Division Product Lifecycle Management is a global provider of solutions for digitizing a product or a plant's entire lifecycle from the ID, design, simulation and construction, All the way to sales, aftermarket and recycling. Our 3rd division, Process Management, is a leading supplier Solutions to the public sector in Sweden. And with that introduction, I would like to move on to the agenda for today. So next slide, please. During this presentation, we will walk you through Q1 2021 for the entire group, Also, diving into the 3 divisions, design management, PLM and process management. We spent some time on cash flow and financial position, Also on acquisitions, our sustainability focus and end up with a summary of our investment case And then open up for questions in Q and A. So next slide, please. Looking into Q1 2021. Net sales decreased by 16% to SEK 1,036,000,000 compared with the same period a year ago. Considering that the Q1 last year was a record quarter in terms of net sales and EBITDA, I believe the outcome this year is strong. Our cost cutting measures have generated results, and we delivered EBITDA at the same level as last year. All divisions contributed to an improvement of the EBITA margin to 10.3% compared to 8.8% last year. The Process Management division, with focus on the public sector in Sweden, has had continued organic growth with 4% and an EBITDA margin at a stable high level. Net sales among industrial customers in the design management of PLM divisions have been negatively affected by lower demand, primarily in the U. K. And the U. S, while the Nordic countries and Germany had a stable market this compared to last year. A high share of recurring revenues contributing to stability in our revenues, which accounted for 69% of the total during this quarter. We also announced that we acquired the software company, S Group Solutions, which had sales of SEK 144,000,000 and EBITDA of SEK 27,000,000 in 2020. And when we talk about EBITDA, that's without Thanks, James. Desk Group solution is a great addition and strengthens our offering to the public sector, especially in Swedishmen of Sintao Div. And we completed acquisition in Q2. So this will be not the part of the Q1 result, but it will be from Q2 going forward. We are still not through the COVID-nineteen pandemic, but there is stable demand for our digital solutions. And as usual, we will walk you through each division So next slide, please. As you can see in the graph, Q1 2020 was a record quarter for net sales and EBITDA, which makes for challenging comparison this year. Even though the group's net sales were lower in Q1 twenty twenty one this quarter compared to the corresponding quarter last year, EBITDA was maintained at the same level due to swift adjustment of our cost structure. Our cost cutting measures have generated results, We delivered EBITDA at the same level as last year, even though net sales dropped 16%. Completed cost Sales are mostly enduring, but cost, for example, travels are expected to rise as societies are opening up, albeit at a lower cost level than free COVID. So going to next slide, please, 3 divisions. ANNO Group, as we mentioned earlier, organized in 3 divisions, while providing sustainable digital solutions to customers in both the private and the public sector. So with that as an introduction, I'd like to move on to the next slide, design management. For the design management, net sales during the Q1 of 2021 amounted to SEK 533,000,000 compared to $7.22 last year. The decrease in net sales was entirely organic and amounted to 26%. Adjusted for currency effects, the decrease was 23%. Even though net sales dropped significantly Compared to last year, I'm pleased with the Q1 result for design. Digital Solutions for Facility Management and Collaboration Solutions for construction and infrastructure projects show continuing stable development. The Autodesk based offering faced some really tough comparable this quarter. Last year, organic growth was very strong, driven by both the strong market and a higher portion of 3 year subscriptions sold. And looking at specifically at Q1, the demand from architects and technical consultants shows continued stable development, while demand from industrial customers was lower. At the same time, the market conditions in the UK were more challenging than a year ago, even though they are stable. However, we are landing new faces during new business. For those of you who are new to Amel Group, I would like to address our subscription and the revenue recognition principles with regards to that. Last year, we sold a lot of 3 year subscription deals, meaning that last year was a little bit boosted by that because According to the revenue recognition principles for the Autodesk software that we sell, we recognize The full value of the period in the month that with the starting period for the contract. The customers will pay up in advance, so the cash flow follow the revenue recognition principle. But that means that last year, we sold more free EODs than we usually do, and that gave sort of a boost. So that has also added to that. And I just want to tell you that just as a sort of a background that when we are saying that the market is still okay even though net Sales are dropping. So there were those last year that everybody needs to be aware of. But What we have done in the meantime is that the lower net sales have to a large extent been met with a lower cost structure. The EBITDA decreased DKK61 1,000,000 compared to DKK67 1,000,000 last year, but the EBITDA margin strengthened to 11.4% compared to 10.5%. And that goes back to the reason I'm saying why I'm still pleased with the outcome of this division because we have been able to address the lower net sales with a more efficient cost structure and improving the EBITA margin. So with that, I would like to move on to the next slide, product life cycle management. For PLM, net sales decreased by 7% during the Q1 to SEK SEK 283,000,000 compared to SEK304,000,000. Acquired growth was 2%. Organic growth was minus 9%, but Minus 5% adjusted for currency effect. The division, as compared to last year, has seen lower demand of customers in the manufacturing Factory Industry saw greater interest from the Life Science and Auto Industries. Business in the Nordic countries, Benelux and Germany Stable with the number of large license agreements during the quarter signed and delivered and paid for. The market conditions in the UK and the U. S. We're more shelling in, however. EBITDA increased with 80% to SEK 18,000,000 and the EBITDA margin strengthened to 6.4% compared to 3.3% last year. The restructuring program that we announced and completed last year Have been carried out and have yielded the intended cost savings. With a better cost structure, we are now in a position to focus on growth in this business area. And with that, I would like to go to the next slide, Process Management. Net sales in Process Management increased by 5% during the Q1 To take SEK 225,000,000 compared to SEK 214,000,000. Organic growth was 4%, and We have been able to continue to grow this business organically. Demand for the division solution for document and case management, citizen services And Munciepao Technical Systems remained good during the quarter. The division's business are well positioned for public sector tenders Owing to attract the digital solutions, solid experience and good references. The acquisition of S Group is a good example of how we can broaden our I'm really pleased that the division is able to continue to grow organically and improve operating margins. EBITDA increased to SEK 39,000,000 and the EBITDA margin strengthened to 17.3% this quarter. And with that, I would like to hand over to Lotta, who will walk you through the cash flow and the balance sheet. Yes. Thank you, Johan. I would like to start with a review of the consolidated cash flow. The operating cash flow was strong in the first Quarter 2021 amounting to SEK 950,000,000. This represents a cash conversion rate at 1.4 times And that is operating cash flow to EBITDA. The lower operating cash flow compared to previous year is mainly attributable to lower contribution from working capital. Net working capital is, however, still negative as well as lower than at the same point in time a year ago. With regards to cash collection processes, the share of accounts receivable that is overdue now is lower than before the COVID-nineteen pandemic We haven't suffered any significant credit losses. With regard to cash flow from investing activities, the amount refers to earn outs driving from previous acquisitions and investments in software. Financing activities in the Q1 refers to leasing. No amortization of external debt was made during the quarter. Please also note that the Board of Directors has proposed to the AGM a dividend of SEK 2.5 Swedish kroner per share. This corresponds to a total dividend of €84,000,000 to be paid out to the shareholders in the 2nd quarter. Next page please. Continuing with some comments on the consolidated balance sheet. We continue to operate supported by strong balance sheet, which gives us a favorable position to continue to grow the group through acquisitions. In 2020, a year with many challenges due to the COVID-nineteen pandemic, we managed to increase both net sales and EBITDA. We had a strong cash generation and by that managed to build a solid cash position. Together with the generation of another SEK 105,000,000 in the Q1 2021, our available cash was EUR779,000,000 by the end of March. In addition to that, we had another EUR 250,000,000 in revolving credit facility for acquisition purposes and an unutilized overdraft facility of SEK €100,000,000 External debt was about €750,000,000 and leasing debt amounted to €120,000,000 Net debt was consequently very low at €88,000,000 by the end of March. Liquidity ratio was 39% and return on shareholds equity was about 10%. Other larger changes in the balance sheet items from December 31, 2020, mainly refer to currency translation effects and seasonality variations. I'll hand over to you, Johan. Thank you, Lotta, for that introduction and presentation. And with that, we would like to move on to the next slide, Acquisitions 2020. Acquisition driven growth is a key element in our strategy. During 2020, we made 4 acquisitions that together added €570,000,000 in sales and contributed to us gaining 170 new skilled employees. And as you can see on the slide, we did acquisitions in UK, Norway and Sweden, And we did acquisitions in all of our divisions, and that is what we expected to grow moving forward. We would like to continue to grow in all divisions. And with that, I'd like to move to the next slide focusing more on the latest acquisitions that we made there. So far this year, we have completed one acquisition. At the end of March, we announced that we had acquired S Group Solutions. The company is a strong addition to our existing operation in process management. S Group had sales of SEK 144,000,000 and an EBITDA result of SEK 27,000,000 in the financial year 2020. The acquisition strengthens Ameren Group's market leading position in Sweden within municipal systems And solutions for the smart city. Acquisitions are a part of our business model. And at all We're engaged in a large number of dialogues with interest in acquisition candidates. We have a strong cash flow and a strong Financial position, like Lotta mentioned, which give us favorable conditions to further expand ADNAR Group. So part of our business and still looking for new acquisitions. And with that, I would like to move to the next slide, long term Sustainability focus areas. During the past year, we began working more sustainably with sustainability. For Amel Group and our companies, it has been long natural and obvious that the digital solutions we deliver are used to drive societal development forward in a more sustainable way. But now we are no longer content with that. In 2020, we initiated a group by product to identify focus areas, Key figures and the global goals that we believe we can contribute to as a group and a company. And our five focus areas are Our that our digital solutions contribute to sustainable development. We've set the foundation of what we do on the basis of everything, That we care for people and the plant in our own operations, how we work with our partners and suppliers And that we must be long term financial strong. And in order to make all this happen, we need to have a structure for sustainable management and governance. When adopting our work to the UN Global Goals, we have identified 6 goals with the closest connection to ADNOCROB's focus areas: Human health and well-being, gender equality, decent work and economic growth, industry innovation and infrastructure, Sustainable cities and communities and client action. The work is now being continued in line with our decentralized management structure, The division of Hamsen's subsidiaries take great personal responsibility with the support of common guidelines from the parent company. We will report the progress that what we do. But in the meantime, I recommend that you read the sustainability report in our annual report. The Swedish version is already released, and the English version is expected to be published on our website May 4. So more to come. With that, next slide please, investment case. So in summary, I thought I would end with a few short words about how our strategy and business model create value for our shareholders. We see primarily 4 components that drive value growth in the Annual Group. The first component is our acquisition driven growth strategy. We create sustainable value growth by continuously acquiring new businesses, but also by actively supporting our acquired companies to drive organic growth. We have completed more than 60 acquisitions over the past 15 years, thereby both building extensive experience and refining our acquisition process over time. We have grown with good profitability. The average growth in net sales over the past 10 years has been 14% yearly. The second component is our focus on sustainable digital solutions. Our solution for design, solution, product data information And case management meet global trends in digitization, urbanization and sustainability. The regulatory development also places even higher The most on transparency and traceability. We also see that the pace of digitization has increased further during the COVID-nineteen pandemic, both in the private and the public sectors. The 3rd component is our business model, which means that approximately 65% of our net sales consist of recurring income. Our services are usually directly related to the digital solutions we offer. So customers often return for advice, for the development or integration with other systems. We have a strong cash flow generation, thanks to a large proportion of advanced payments at the beginning of the year And the low need for investment in addition to the products that we develop. The 4th and final component is the diversification across markets and customer categories, which provide a good spread of risk. We are active in several geographical markets. We have customers in both the private and the public sectors, and we have customers in many different industries. We are not dependent on the individual customers either, But we have built many long term customers and relationships during the years. So with that, To the Q1 result in 2021, I would like to open up for questions. Thank you. Thank you. Our first question comes from the line of Patrick Nelson from Red Eye. Please go ahead. Your line is open. Hello. Fredrik Knick from Redeye here. Hello. Hello. One question on design management. The margins Seems really strong. Could you elaborate a bit on the effects of the cost reductions and also the mix effect? Looking at the cost, it's our biggest asset and our biggest cost is the personnel in our business. And would we we have compared to Q1 last year, we are fewer people producing the same amount of Customer value, meaning that we have structurally lowered the cost that we have done. But we also I have a portion that could be debated on how sustainable it is with regards to traveling, meeting customers at trade fairs and etcetera. That will definitely be lower going forward. But I don't expect that to be and some of that will sort of come back. We need we would we don't we need and we would like to meet our customers going forward. So a few millions of that we will have Sven, go forward. But I don't see that happen until the end of this year actually because we are still in opening up in different countries in the societies. So and we are also learning to address and meet with our customers in a more digital way, meaning that we do so much more over Skype, Or Teams, over Zooms and addressing that stuff. It's tough to say. A lot of it's structural, meaning that we have We'll have that going forward, and some of it will come back. And then we also we should see we have probably the mix, Meaning that our own IP that we are doing in the facility management and the project collaboration is doing well, so adding to this as well. So Okay. I don't know if that answers your question, Frederic? Yes, I think it does. Thanks. One more question from me. PLM, while there certainly are some seasonalities, the margin there Seems a bit on the low side compared to what I expected considering the very strong number in Q4. However, it seems like the market has Taking a downturn, maybe a little bit at least. Could you elaborate a bit on the situation in PLF? I think the first that you mentioned makes more sense. There are still in the other two divisions, There are not that much seasonality due to the travel bid. In this division, we have more of a seasonality, meaning that the 4th Quarter is always the strongest with regards to margins and sales of licenses. So That means so it's tough to compare the margins in Q1 with Q4 because the way of the business is that Customers are used to buying licenses at the end of the year and ending that. And then you sort of take a sort of a deep breath in January And then you start all over again the cycle. So there is seasonality. And I think what we can see is that in the PLM, they have done a really good job With the cost reduction program, and we can see that the margins compared to last year is going up even though net sales are going down. So I'm not sort of that worried on that subject. I'm more focused on the positive trend there. Okay. I see. Thanks. That's all for me. Thank you. Thank you. We have no