Earnings Call: Q1 2021

May 7, 2021

Thank you. So I'd like to start by talking about a very strong Q1 we've seen. We've seen a surge in order intake, bringing us up to SEK 979,000,000, which represents an increase of 74% compared to prior year. And if we could look at our sales in U. S. Dollars, which is the predominant trading currency we use, we are at 100% increase from prior year. And if we look at comparable units, the increase in U. S. Dollars is 62%. Part of the order increase we are seeing or a non insignificant part of the order increases in the quarter are related to sort of orders with longer lead times. The acquisition of Prevent took place in February, was announced on February 22. That has proceeded according to plan, has been well received by customers. Our sales in the quarter grew by 40% 47% in U. S. Dollars and 28% in SEK. And our EBITA margin continued to improve and reached 9.5% in the quarter. If we move to the next page To give some background around NCIB, as a company, we are dealing with printed circuit boards And our mission is to provide printed circuit boards for demanding customers, deliver them on time with 0 defects, produced sustainably at the lowest total cost. And that means that we're normally not maybe the cheapest in terms of pricing, but we provide superior value for our customers. And our aim is to be the number 1 PCB producer wherever we are, and we are already in our position to be the global number 1 in our field. And total now we are around close to 500 employees in our company. If we move to the next page, printed circuit boards again, our product is the products to the left, which is the basis for any kind of electronic products upon which components are mounted to form a printed circuit board assembly, which then goes into any form of intelligent or electronic product. Moving to the next page, you can see that Our focus in this industry, the global market for printed circuit boards is a $65,000,000,000 market. We are focusing on the market which is characterized as being high mix, low volume and also demanding customers. This part of the market we anticipate represents roughly a third of the global printed circuit market. And some of the characteristics for this market is that these products have generally a higher product value in relationship to the cost of the printed circuit board. Also, these customers have very high quality demands on their products, and the printed circuit board is a key component to secure quality in the final product. That results in a lower price pressure on the printed circuit board itself. And many of these customers also are of a size where they have challenges to buy from the leading factories themselves. And here we can provide the opportunity of aggregating the needs of many customers and give those customers access to the leading factories and the best technologies available. Our company, if we're moving to the next page, has been was established in 1993, and it's been a continuous journey of profitable growth. It started out in Sweden, expanding into the other Scandinavian countries and then further into Europe and the world. If we look upon our growth since 2,008, we've had a compound growth rate of more than 15% annually, and that has been predominantly organic, but also with additions of acquisitions. And in the recent years, in 2020, we made 2 major acquisitions of Flat Field in the Netherlands and Bearboard Group in the U. S. And as earlier communicated, we made the acquisition of Prevent in Italy in February of this year. Anders, Okay. Hello, everyone. So next page there, we can see some info about the PREVANT PCB acquisition we made in February. And it was, of course, a good start for us to make another acquisition. And Italy has been a focused market for us. And we think Italy is a very interesting market going forward. A lot of smaller PCB factories that have some financial problems, and we think that our niche will grow in Italy. So This is very good for us to take a broader marketplace in Italy. The company we acquired had a revenue of roughly to EUR 20,000,000 and with good stability. So far, the customer reactions have been very, very positive. And I think also we have done a great work with integration and all the people are Very happy to work with us. And we see a good alignment with the team in Prevent and with our own team in Piacenza, which is about 1 hour away from the office. So that is very good. And looking further on the next page, Precision is an important tool for our growth going forward. And during 2020, we have been looking into mainly Europe and U. S. A, to find more acquisition opportunities. We have identified about 120 companies that are could be suitable for us. And I mean, the market consists of very many small companies, typically started benefactor went about maybe 10, 15, 20 years ago, and they grow to a certain size. So the market is fragmented with many small players. We are looking for companies in the high mix, low volume segment. They should be profitable. They should have the right customers. So it's important, of course, for us to find companies that fuels the NCIB model and where you're working. And on the shortlist, out of these 120 companies, we have identified 30 companies, which we are now in progress of contacting and setting up meetings with. And we are in the discussion with a number of those companies. Course, it always takes more or less long time. But anyway, it's good to see that we are in progress and then have a lot of discussions. And we can also say that the corona pandemic has had a great impact on the possibilities for further acquisitions because many of the smaller companies without presence in China, have had severe problems getting a relationship with the factories, and they don't have the same priorities. So So I think here we can see that our presence in China is really useful and that gives us an opportunity in those cases. On next slide, we have to give you a small example of how we do with integration because I think we, compared to many other companies, work a little bit differently. We tried to form the acquired companies into an NCIB company that might normally take 12 to 18 months. We focus very quickly on changing the brand to NCIB Group. And then, of course, main focus, the first So maybe 100 days is focused on customers and employees. It's important that we meet the customers in the acquired companies so that we can explain what we can add for benefits for them and so on. And typically, we can add a lot of benefits because we have a strong position in China and so on. And they can still keep the relationship with the salespeople they have in the acquired companies. And then, of course, we need to take care of the employees in the acquired companies because the people are the most important assets. So we do a lot of work with that. After that, we focus on operations, how to implement the factory in our team in China, how to work with sustainability in a good way in both companies. And we look into IT tools. We try to learn the best from the acquired companies and also emerge into our IT systems. And then, of course, we try to find some benefit of scale from banking contact, insurances, etcetera. So after typically one and a half year, everyone should be fully NCIB office. That's the plan. So if we then summarize in numbers the Q1 for us, we can see that our net sales amounted to SEK 617,000,000, so an increase of 28% versus last year. In dollars, the increase goes then to $74,000,000 an increase of $47,000,000 47%, sorry, and our EBITA number to 54 58.4 percent and up an increase of 54% versus prior year and an EBITA margin of 9.5%, which is an increase of 1.7 basis points. If we look upon our different regions on the next page. I think that is also very positive that the growth we are seeing is something that is not just special one special region or a few regions, but in fact, we're seeing organic growth in all of our 4 regions. And then, of course, we see the growth in Europe and North America further being boosted by the acquisitions that have happened in the last year. And we have also seen the margins, which we'll come into more detail, where we have Nordics and East continue to perform at a very good level, but we're also seeing clear improvements in Europe and North America. Okay. Coming back to the growth, as you can see on the next slide, we have a robust solid growth. We see that gross margin is a little bit slightly lower than before, but that's mainly due to our acquired companies that have been on the lower EBITA margin. If we compare the same comparable units, we should have been at 31.4, so it's a little bit down compared to 20 19, you could say, for the current companies. But anyway, we continue to deliver good added value. Next page then. We see that we have, as Peter said, had a fantastic growth in sales, 47% in U. S. Dollar and 28% in USD. And also for comparable companies in USD, 18%. So it's good to see that it's taking over in most segments. But of course, the order intake is the real positive thing, which is what's 100% in U. S. Day and 74% in SEK. And we have to remember, of course, what Peter said that some of these orders are for a little bit long term deliveries because customers are placing orders more in advance than they have done before. So yes, strong quarter in that way. On the EBITA side, on the next page, we also see a solid development where we increased to 58,400,000 and EBITA margin of 9.7 9.5, sorry. If we then exclude the transaction costs for Prevent PCB. We reported 60.6% or EBITA margin of 9.8%. And that should be compared to 2020 of 9.0 because we had some transaction cost for the flatbed acquisitions, to be honest. Earnings per share was a little bit lower, 21,000,000 versus 20,000,000. And the main reason is that we had roughly 15,000,000 and exchange rate gains in the Q1 of 2020. So that is the main reason why we have a lower earnings per share. Going into the segments on next page, Nordic. We can see that the Nordic have had a little bit slower start or slower recovery than rest of Europe. Still, we show a growth in with 12% in revenue, but measured in SEK is a little bit down 3%. Anyway, it's good to see that order intake is kicking up. So we increased by 46% in US0.27 dollars This is in most areas in Nordic countries, but mainly driven from Norway, where we see a big boost in electrical vehicle chargers. So that's really booming in that market. EBITDA slightly down compared to a strong 2020, but still we are on our normal level around 40%, 50%, so still rather stable. If we then go to Europe, it's the segment where we see the most growth, and we see very, very strong recovery in all our markets. Based on numbers, of course, Germany, Netherlands and UK has shown the strongest upturn. But we can see almost all markets in Europe is going extremely well. And then we have to remember that the corona Impact was very limited Q1 last year. We saw huge impact in Q2, but Q1 2020 was still rather strong. And we can see that the orders have increased by 148% in U. S. Dollar. And even for comparable units, it's close to 90% increase. And we see that in new customers. We see that in customers, of course, placing order for longer deliveries, but a lot of new part numbers. So it's a solid robust recovery in European markets. So that's really great. We also see the good benefit from the Flatfill acquisition. The trend has been really positive and they have shown a good growth. And we also see that order intake in Prevent PCB has developed very, very strongly during the we have had the company. And this also reflects in the EBITDA, which more or less has doubled compared to last year. So we increased to SEK 23,500,000 corresponding to an EBITDA margin of 8.2. So we see a strong recovery in Europe, which is good. North America then, also here we can see good growth, mainly driven by the acquisition of group. We see that orders are increasing 19% for excluding Babyl Group, and revenue was up 6%, excluding by our group. EBITDA also went up to 8.1%, and we can see more and more that we have some synergies from the acquisition of Babble Group, and we can see that we can align the business in a better way. So we are very happy for that as well. Finally, segment East, also here we see a positive development. Order intake increased 66% and let's say, it's 26%. Here on the other side, we can say that the corona pandemic affected the China It's rather negative in Q1 2020. So here, we do have some positive impact with comparison of 2020. EBITDA also went back to normal level. I think also here, comparison with 2020 were affected by the corona situation. So the line about 12% is back on a normal level for East. It's also good to see in China that we're able to meet customers. We had the first big exhibition in Shanghai around a couple of weeks ago. So there's very positive drive in the Chinese market. Okay. Go to the next page then. Look at some KPIs. Return on equity, 22% versus 36% last year, mainly driven by the share issue we made in April 2020. Net debt has gone down also, of course, driven by the share issue. Still, Solvency, very good. Net working capital, as you know, we're running a very asset light business model. We don't have much working capital, and we are at below 8% of last 12 month revenue. So I think in that way, we're really efficient in how we use our capital. And still, we have a strong cash about SEK 458,000,000 in available cash. So we are still geared up for further acquisitions in that way. And if we just look upon our medium term financial targets, we can see that we have an average growth target of organic growth of 8%. And in the quarter, in U. S. Dollars, we are exceeding that target, although in Swedish krona, we are below on the organic side. EBITDA target, we are exceeding the medium term target. Our net debt versus EBITDA is considerably lower than the limit of 2 times. And regarding the dividend, we have proposed a dividend of SEK 5 per share for this year. If we then move to our strategic plan, we continue on the on execution of our strategic plan and our path to further increase market shares in Europe, USA and the East. There are a lot of opportunities for us to grow in these markets. We also work on deepening our collaboration with existing customers. The longer we work with customers, it enables us to provide greater value and also with time both growing sales, but also increase our margins. And then to this, there's also the opportunity of further expanding geographically outside markets where we're already present or potentially opening up new regions in larger markets like the U. S. As an example. And on top of this, as Andres mentioned, the PCB market is extremely fragmented, which also means that there are opportunities for us to drive consolidations through acquisitions. So thank you very much, Peter and Anders. So we are open for questions, Thank you. And our first question comes from Robert Reddin from Carnegie. Please go ahead. Your line is now open. Yes. Hi. Congrats on a good result. I have a couple of questions. Maybe first on the extremely strong order intake. And you've been cared about that it's more stretched out in time, the order book. But my question was if you expect to deliver all of that before year end, the order intake you had in Q1. Yes. I think the order intake we've seen in Q1, yes, we anticipate to deliver that during the year. That is correct. Yes. The order book build SEK 3,000,000, SEK 400,000,000 in Q1. It will Okay, cool. And could you say something about the orders trending into the Q2? Is there a backlash on the strong Q1 order intake? Or is At the end of some kind of similar level. I would say that overall, the Q1 I mean, we started to see an order intake in Q4 of last year, which sort of strengthened during the year. I think in Q1, it has sort of been very strong. And in here in Q2, we are just entering Q2, and I'd say it's still a strong market. Okay, perfect. Then Maybe Nordics, the result was a bit more sort of muted. Is there a mix there with maybe medtech related to demand being down or what's driving that? I presume that the general industrial trend with high PMIs and so on in Sweden should be relevant for some of your customer groups. What are you seeing there? I think it is profit wise, it is a mixture. I think we have seen stronger growth in Norway and Denmark than we have seen in Sweden. And we have generally a little bit lower margin in those markets than we have in the Swedish market. So that's part of the profit reduction. I think also you can see I don't know if we discussed, we do have some projects that have been transferred to some other areas. And we have now some project moved to Europe, which can affect also a little bit of the growth. But in general, I think we've seen a little bit slower recovery at our customers in order compared to Europe. But as you can see anyway, the order intake in Q1 was back to be a strong level for Nordic as well. So I think it was just sort of a we saw the little bit slower order intake start in 2020. And of course, that will affect the revenue in the Q1. Okay, right. So you expect some kind of a pickup then in Q2 with the order intake in Q1 in order? Yes, probably, yes. Yes, I think during last year, Nordics was the region that saw the say was held up the numbers the longest in the period where, say, Southern Europe dropped very quickly in last year in Q2, whereas Sweden or Nordic countries actually performed quite well in quarter 2 last year. And I think there the comparables will be different this year. Okay, right. Finally for me on the M and A pipeline. So you have this slide with the 30 or so companies in the short lived. Could you say something about the average size of those? I mean, the 3 most recent acquisitions, they've been fairly large, the SEK 200,000,000, SEK 300,000,000 SEK sales. But I guess the longer term trend is more for acquisitions averaging at SEK 100,000,000 or SEK 150,000,000. Could you say something about the size? Yes, you are correct. I think, I mean, the ones we have done now has been on the larger side. There might be a few left in the size of SEK 200,000,000 SEK 250,000,000. But I think most of the 30 companies in the pipeline are in the range between SEK 5,000,000 and SEK 50,000,000 SEK 150,000,000 in revenue. So they will typically be smaller companies. All right. Okay, perfect. Very helpful. Thanks so much. That's all my questions. Thanks. Thank Okay. There appear to be no further questions. I return the conference to speak oh, no, sorry, we do have a follow-up question from Robert Reddin. Please go ahead. Your line is now open. Yes. Hi, again. Just another question. I mean, last quarter, we talked about pricing with the communicated price hikes in the market. With the order intake so strong, is that That's continuing or has there been more price hikes announced? Yes. I mean, I think the as we said, we started to see price increases coming in quarter 4 of last year, and that was partly also boosting the order intake as people we were helping customers place longer term orders to avoid some of the price increases. But Price increases have come into effect in several steps and are continuing to be a topic in discussion with our customers. But we also see that the order intake has been so not just purely related to avoiding a price increase, but also to secure supply of product going forward. The price increases are something that has been sort of continuing throughout quarter 1. And you can see that we got a little bit boost in the order intake during Q4 or until end of January because then many customers placed order before the price increases. But after Chinese New Year, you can see that the price increases have been in full effect. So the orders we have received in February, March are with the new higher prices. Then of course, we will not see the effect on that on the gross profit or gross margin until probably Q3 this year because we will deliver orders placed before the price increases during the Q2. But of course, the prices will, going forward, also support the growth a little bit. Right. Okay, perfect. Thanks so much. That's also very helpful. Thanks. Thank you. And as there appear to be no further questions, I'll return the conference to speakers Any closing remarks? Okay. Thank you very much. And I just want to remind you that our next Quarterly report, a half year report is due on the 22nd July. So let's see and hear you again then. Thank you very much. Thank you.