Earnings Call: Q2 2021

Jul 30, 2021

Quarterly report

Welcome to the Cava Tech SA Audiocast with Teleconference Q2 20 21. Throughout the call, all participants will be in listen only mode. And afterwards, there will be a question and answer session. 20. Today, I am pleased to present CEO, Michael Norris and CFO, Glen Withers. Please begin your meeting. 20. Good morning, everyone, and welcome to this audio cast. My name is Mikael Noren. I'm the CEO of Kavatek. And as usual, I have our CFO, Glenn, with us on the call with me today. We are here to talk about our Q2 2021. It was a quarter characterized by High activity level and we actually secured many important orders in our Ports and Maritime business, Both with current but also new customers and very encouragingly also in new geographies. And as a result, the order backlog in Newcavatek increased by 19% compared to the previous quarter. I think that really validates our strategy to focus on cleantech solutions for ports and maritime and industrial application. Talking about the orders in that quarter, we, for example, won a series of orders to equip new build container ships with shore power systems, and that was a total order value of around €5,000,000 We also want to break through more master order in Japan, And this is the first of its kind in the Far East. And for an order to be in the quality conscious and and very competitive Japanese market, it's really important for us because it's a validation of the technology for the whole region. We were also happy to see a repeat order for 2 more master systems from PYOR1, which is the leading Norwegian e failure 20. And as you may have seen, after the end of the quarter, we secured also the 1st automated mooring system Order, more master order in Sweden for the quarter of Stockholm. So it really we can see that the 20. Now all those installations will lead to reduced 20. CO2 emissions by up to 90% and it means that we play a very active role Spread interest in our technology and its growing use around the world. And several of the recent orders such as the one in Japan that I mentioned and the one in Sweden, I think it lays the foundation for a wider adoption in those and neighboring markets. I'm also happy to report that the EBIT margin for new Cava Tech adjusted for investment in our future growth increased to 5.2% compared to 3.6% last year, despite revenues decreasing versus the same period last year. That revenue decrease is, to a very large extent, explained by the impact the pandemic had on the order intake in 2020. We saw a lot of hesitancy in terms of decision making during the pandemic year. But we have seen now a high growth in the order backlog and we feel very confident going forward about The track that we are on. Speaking of the future, we have long recognized that one of the biggest obstacles to greater adoption of the latest automation technologies that we can provide is the perceived complexity and up 20. So in the beginning of July, we launched MoreMazda as a service. And this is the world's 1st subscription based automated morning service. And actually, it's one of the maritime industry's first product as a service offerings. So under MoreMasters as a service contract, our customers can benefit from the productivity of MoreMasters, but with 0 upfront investment And they get a full performance guarantee. So we will install the hardware and cover all of the maintenance costs in a fully managed service. I think we think this is And we believe that customers will appreciate this reliable and a simple way of transitioning to automated mooring. And I think also for us as a company, of course, it leads to longer customer relationships and higher degree of recurring revenue, which is And with that summary of the quarter, I'd like to hand over to Glenn to Thank you, Mikael, and good morning to those of you on the call. I'll start by summarizing our financial performance in the Q2 in terms of new Carvertech, increased 19% compared to the previous quarter to €77,400,000 There was growth in backlog in all of our main areas and that's to say more master shore power and also with our industry customers. The good number of orders is a strong sign for us that the customer pickup is improving with regards to our developed and also our new solutions. As for revenues, we're still feeling the effect of the pandemic And what that is said on the order intake and Mikhail talked about that earlier. The fact that the revenues decreased 13.7 percent to €25,800,000 is to a large extent explained by the impact the pandemic had on decision making 20 resulting in an order backlog at the start of the year that impact the revenue levels that we see in this quarter. However, the order activity that we are now seeing will impact revenue in a positive way in future reporting periods. Looking at profitability. EBIT and New Carbotech Adjusted for the growth investments amounted to €1,300,000 corresponding to the margin of 5.2%. As many of you will know, in 2021, we launched a transformation plan to accelerate the focus on cleantech by investing in sales, In the quarter, these investments amounted to €400,000 and in the year to date, €600,000 20. Turning to airports. The order backlog increased 1.7% compared to the previous quarter to €28,500,000 However, revenues decreased 17.7 percent to €10,000,000 And correspondingly, the EBIT decreased to €300,000 from €1,300,000 in the same period last year. However, in airports going forward, we expect the demand for both new product and services will improve We're increasing optimism in the industry as the pandemic subsides. And while I'm talking about airports, earlier this year, we announced that we intend to divest this business. My only update today is that the process is ongoing and that we still expect this to be finalized during 2021. Finally, at a total level, 20. And that's to say new Carvatec plus airports. The order backlog increased 13.8% compared to the previous quarter to €105,900,000 and the revenues decreased 14.8% 20 to €35,800,000 due to the reasons that Mikhail and I talked about earlier. Remaining at a group level, Operating cash flow amounted to €2,500,000 in the quarter, which is slightly higher than the previous year and much improved on our Q1 result, which was impacted by the timing of major project receipts, particularly in the ports of Marathon Business and also by the operating results of the airport business in that quarter. Investing activities in the cash flow amounted to €500,000 mainly due to R and D investments in new Covertec products and Technologies. And this was partly offset by the proceeds from the sale of a building in France. Cash flow from financing activities was €1,700,000 which is a negative number, mainly due to the repayment of financial liabilities in the quarter. The difference compared to last year is due to the new long term credit facility that we entered during June 2020, 20. Thank you very much, Glenn. To conclude, I think I'll pick up on one of the comments made around our investments that we're making in our future growth. So this is something that we announced in May of this year. And we said that we believe that we have such a strong position in market segments that are now And we said we're going to invest SEK 20,000,000 over the next 5 years in technology, engineering and business development. I can tell you that it is full speed ahead in terms of those plans. There's been a lot of high activity during the quarter, And we are seeing every day how some of these niche markets that we've been active before are now rapidly becoming mass markets Just in terms of the interest from customers and the conversations that we're having. So we're very optimistic about the future, And we are very encouraged by the fact that we are on the right track in terms of our strategy. With that, I I thank everyone for your attention today, and that concludes our prepared statements. And We're now going to open up for questions. Thank 12. And we currently have one question in the queue. That's from the line of Karl Buchust of ABG Sundal Collier. Please go ahead. Your line is open. 20. Thank you, and good morning, Mikael and Glenn. First question has to do with the port side where you secured the order for fitting vessels with the ability to Achieve short power electrification. I'm just a bit curious here, are you seeing any differences in interest and or demand between the 20? That is good morning, Carl, and happy summer to you as well. That's a great question. And as you said, both parts or both ends of that equation has to be in place for shore power to work. Obviously, it's quite encouraging for us that the ship owners are investing heavily in Equipping their ships to give to accept shore power. And this is a conversation that we're having also with ports Where and part of how the conversation has shifted is that Previously, for a quarter, it was a conversation about either legislation or sort of public pressure In terms of electrifying and reducing emissions, what they are seeing now is that there is also competitive pressure, Pressure from their customers who are saying, well, we have the sustainability agenda as a company. You if you are going to be the port for us that we call on, you have to be part of that. So you have to be Able to provide shore power to the ships that we now have made that we have now enabled So the conversation is actually happening in both of those parts of the industry. It's quite encouraging. And then I realize your business can be volatile at times, but Is it your feeling now that the order momentum, if we just look at the backlog, has sort of Turn the corner, I mean, we've seen quarter over quarter growth in your backlog for both in Q2 and Q1 now if we look at new Calvertag. Yes, I would say so, Karl. And that hesitancy that we saw last year during the pandemic here in terms of taking Making investment decisions is that has subsided definitely. The one thing that I am concerned about, and I think a lot of business leaders are, It's the ongoing restrictions that the pandemic has on our business and other business in terms of Travel in terms of being able to be out there, meet our customers, also to meet our people And so on. But I would say that definitely a more optimistic Now than a year ago or even, I would say, 6 months ago. Understood. And then just two questions more on sort of But first, are you what segments within industry are you seeing as particularly strong? Or is it just industry overall that have been growing year over year? Well, in general, industry, and I think you've seen that I'm reporting from a lot of industrial companies. It has really picked up in terms of demand. What is interesting for us is, Again, the conversation around electrification. We are in a lot of very interesting conversations regarding charging, and I'm not talking about charging of personal vehicles. Now I'm talking about commercial vehicles, trucks, buses and so on where some of our core technologies around connections, around cable management and so on is seen as very interesting for a lot of our customers. So that is also happening. Now that's early days. So I don't want to read too much into it, but we just again, we're seeing that a change in attitude, a change In the view of where the business is going. And then just Two final questions before getting back in line. It has to do with if we look at your sort of normally the sales conversion from your backlog, It's a bit low this quarter. And I'm just wondering in case we should assume a kind of back to normal backlog conversion for the coming quarters. And the second question might have something to do with it, I don't know. But In case you haven't seen any effects on your business from supply chain, disturbances, bottlenecks, Cost inflation, any sort of those kind of effects that we're seeing in other industries? 20. The first is that related to the backlog conversion, One thing that's going to happen over time is the backlog conversion will depend on the mix of long term service contracts and other contracts such as mooring as a service versus the standard equipment sale. So I expect the conversion rate to change over time and it will depend on the mix of revenue sitting in that backlog. So that's the relative to your first question. Then coming to the second question about Supply chain and potential disruption in the supply chain. Like all businesses, we are seeing that there are some challenges in the supply chain. 20. And Those challenges are coming through in relation to products both in industries and in our industry sector and in our port sector. So we continue to have some logistics delays as well as some price impacts on our inputs. And we're reviewing those impacts and the way that we address those as part of our day to day management of the business. Finally, on the point about Overall supply chain management with our new strategy in the ports and maritime business and with a focus on what I call volume product, we will improve the resilience of our overall supply chain from a global perspective. So I think that's something else that we'll see as a mitigating factor going forward. 20. Understood. I'll get back in the queue. Thank you. Thank you. 20. Okay. There seems to be no one else coming forward apart from you, Carl. So I'll put you back through. 20. Thank you. So the just out of curiosity and perhaps you could give us a bit of a recap, The investment the growth investments that you target of SEK 20,000,000, I seem to recall that this was primarily or entirely related to OpEx investments. Could you also just remind us of the kind of CapEx investments that you have planned and if you've quantified those? Yes. You're correct, Karl, that The majority of the spend that we announced at $20,000,000 falls in the OpEx category. It doesn't mean that there's no CapEx. And there is some CapEx attached with the development of new production lines, again for volume based production, particularly in our Moore Master and Shore Power products. But compared to the OpEx spend, the CapEx spend is a lot lower. Understood. So would it be fair to assume that perhaps sort of the, let's say, SEK 16,000,000 or SEK 17,000,000 of the SEK 20,000,000 will be in the P and L and that the large part of those OpEx investments will be taken sort of front loaded over the next 20? Yes. That's a fair assumption, Karl. 20. All right. Good. And then just on the airport side, you reiterate your target of having divested during this year. I was just wondering about sort of internal milestones that separation of legal units and so on, where you are in that process? Hi. Sorry, I was on mute there, Karl. Iano, as we said, I mean, the process is Ongoing, it is progressing well. We obviously have an internal time plan like you pointed out, and I can just say that we are On track in terms of that plan. So again, the statement that we've made about our belief that we You can conclude this in 2021 is still very much Understood. And so without going into too much detail, but do you think that there would be any And the competition competitive sort of risks legally if a direct competitor were to be interested in the business? We have not I haven't seen any indications of that. We do not have any reason to believe that, that would be the case. And part of that the reason for that is also why we're hopeful about being able to conclude this transaction has to do with the unique position that The technology that we have in the industry. So in terms of in ground 20. Total turnkey in ground solutions, which is an area where we are actually unique in the industry. So it would be For another industry player would be technology that complements their product portfolio, if that would be That's possible, Mike. Okay. Thank you. And my final question has to do with airports. Just to understand there, You mentioned that the business is still sort of feeling the overall lower demand in the has still continued to improve sequentially. And is there anything that would sort of disrupt this trend also for the coming quarters? Are you seeing anything sort of materially worsening further before it improves? No. I think we for the Air Force Business, I think we have the same sort of optimism about The future versus last year and that has to do with, again, with easing of hesitancy when it comes to decision making. And I think even though air travel has not Picked up everywhere, that's for sure. But we're seeing signs, for example, in the United States where domestic travel is Getting close to pre pandemic levels. So I think there's much more optimism in the industry than there was obviously last year, And we're seeing that also again in terms of conversations around the future and future projects that they are picking up with them. 20. Okay, understood. Thank you and enjoy the rest of your summer. Thank you very much, Carl. You too. Okay. As there are no further questions coming through, I'll hand back to our speakers for the closing comments. 20. Okay. Thank you very much for your attention today on this Friday morning. We wish you a great Friday and a great weekend. Thank you for your attention. Bye.