Earnings Call: Q2 2021

Jul 22, 2021

Thank you very much. My name is Peter Kruk, CEO, I'll start by giving you an update of the second quarter. If you move forward in the presentation to slide 3, we are quite pleased to present another very strong quarter for NCAB. We've had a very continued strong ordering take, being up 118% in Swedish krona, or 152% in U.S. dollar, which is our main trading currency. Looking at comparable units in U.S. dollars, our growth was 129% versus 2020. We can also note that our business model with local presence in the factories, especially in Asia, is proving to be an important competitive advantage, and it's helping NCAB to gain market shares in the current market where the supply chains are strained. Another positive item is that our acquired companies are all performing according to or in excess of our earlier plans. Net sales, we were up by 31% in SEK and 52% in US dollars. Looking at comparable units, excluding acquisitions, sales were up 15% in SEK and 33% in US dollars. We've had a good conversion of the additional sales, which has helped us reach a record EBITDA level of SEK 104 million, which amounts to an increase of 105%. In that EBITDA, there is a positive one-time effect from granted Paycheck Protection Program loans in the U.S. of SEK 11 million. If those are excluded, our EBITDA margin reached 12.2% versus 8.7%. Including this one-time effect, the EBITDA margin reached 13.6%. If you move to the next page, to give an overview of NCAB, we are a company with 500 specialists globally. We are servicing customers in Europe, Americas, and Asia. We are a producer of printed circuit boards, but we do not have any factories ourselves. Instead, we're working with partner factories. Our main factories are around 27, supplying us with products. Our mission is to provide PCBs for demanding customers, delivered on time with zero defects, produced sustainably at the lowest total cost for our customers. Our aim is to be number one PCB producer wherever we are. We are already the globally leading PCB producer, but we aim to be number one in every market we operate in. If you move to the next page. To give further background on printed circuit boards. The printed circuit boards we make is the board you see on the left, the green copper plastic laminate upon which our customers mount electric components to create PCBAs. PCBAs are the key components in almost any product today that has any form of intelligence. The printed circuit board market amounts to a total value of $65 billion. Our focus is in the high-mix, low-volume market with high demands. That represents roughly a third of the global market, roughly $20 billion. Moving over to our activities on acquisitions, Anders Forsén. Sorry, I have one more page. Sorry. Move to the next page to give you a bit of our history as well. Our company was started in 1993, and it's been a journey of continuous growth, both organic and through acquisitions. It started in Sweden and Nordics. Then expanded into Europe, China, and followed by the U.S. Throughout the years, we have seen strong growth. Actually only since 2008, we've only had one year with negative growth. This was again followed in 2010 by record growth. The growth has been largely organic, but it's also been complemented by acquisitions. Thank you, Anders. Yes, hello. Good morning. Anders Forsén here. I would say it's happy, of course, that we have managed to succeed with another acquisition during the second quarter. We acquired a smaller company, sas-electronics GmbH in Germany. Very good match to NCAB, focusing on high-tech customers and high-tech products. I think that will be a good add-on for our German business. Looking into the future into acquisition, the market is really interesting for us. We have made a long list of companies that could be suitable, which consists of at least 170 companies. We try to then run through a shortlist we will try to look into further. We can see a lot of smaller companies in Europe and U.S. from the size from sas-electronics GmbH up to maybe EUR 15 million-EUR 20 million. We also see that the pandemic may be support us here actually, because there are difficulties for the smaller ones that are not present in China or Asia to get good presence at the factories. Together with our big team in China, we really can support those companies in a smart, good way. There are lots of opportunities. Hopefully we can explore more of them in the future. Back to you, Peter. Okay. Coming to an overview of the numbers for the second quarter on the next page. We can see that sales reached SEK 702 million, an increase by 31%. If we look upon comparable units, again, the increase was 15%. In US dollars, which is the main trading currency, we reached $91 million of sales, an increase of 52% versus prior year, or 33% on comparable units. I think it's important to bear in mind also that our second quarter in 2020 was not on sales numbers impacted very much by the pandemic. Our EBITDA numbers, as we said, a good leverage on the additional growth and additional volume meant that we were able to increase our EBITDA number to SEK 103.8 million, an increase by 105%. Our EBITDA margin, excluding the PPP loan effect, reached 12.2%, an increase by 3.5% from prior year. Moving to the next page, we see the full 6-month numbers of the first half year for 2021. Overall, year-to-date sales have now reached 1,379 million SEK, which is an increase of 30% versus 2020. We can see that on comparable units, that increase is 9%. Looking at US dollars, we are reaching $164 million, an increase of 49% versus 2020. Again, here on comparable units, it's an increase of 26%. Our EBITDA numbers for the full 6 months is 162 million SEK, which is an increase of 83% over prior year. Our EBITDA margin reaching 11%, excluding the PPP effect, which is again an increase by 2% points versus prior year. If we go to the next page, one thing which is very positive is that we can see that the increase we're seeing in our numbers is not something that is related to one specific region. We can actually see that we have good, strong growth numbers in all of our different regions, and growth also excluding acquisitions. Also very positive is that we've seen good, strong result improvements in all of our regions at the same time. We can see that the main drivers between the growth is overall, there's a strong general market growth, but we also see a growth specifically related to our market segments. If you move to the next page, we will see an extract from a study from IPC, which is a global association for electronics manufacturing, which highlights the view of where the electronics industry is going in the near term or in the midterm. I think one of the interesting parts in this study, which has bearing on NCAB, is that the main growth in the market in the coming years is seen to be coming not so much from consumer PCs, mobile phones or audio-video products, which historically has been driving a lot of the electronics industry. Actually it's coming more from industrial applications where we find the kind of high-mix, low-volume applications where NCAB is focused. The key drivers for this is more electrification of products, more intelligence being built into products, and more connectivity being built into products. All these things is driving a further need for printed circuit boards and electronics, which we can benefit from. Then of course, on top of this, we see the current supply chain markets, which also leads to some non-insignificant effects of earlier order placement, but also an effect where we with our stronger supply chain setup, is able to gain market shares and gain further growth from that. Okay, let's move to the next page. Back to some numbers again then. We are proud, of course, to present the continued growth year by year. If you see LTM numbers until June 2021, we are up to SEK 2.4 billion. We see also that we keep on a good speed on the gross margin. Gross margin here is a little bit impacted by this granted PPP loans, excluding that we are down to 30%, still good. I can say that compared to 2019, the little bit lower margin is connected to the acquired companies, we see that we step by step increasing the margin for those companies as well. Going further on to the next page, we are of course, very happy to see the growth numbers overall. U.S. dollar is the trading currency we use in almost all countries. Growth in sales were up 52%, and for comparable companies, 33%, which is really good. Order intake has increased even more, due to, of course, what we see that the market rebound and so on. I think it's also important to note, if we compare to 2019, for comparable companies, we are actually up 82% in U.S. dollar and 64% in Swedish krona, which means that it's not only an effect from the rebound from COVID-19, it's actually real growth compared to 2019 as well. That feels very confident. Next page, we go down to the results. We have really been able to leverage on the increased revenue, good gross margin and costs are still on a lower level, which means that we added on the result. Of course, this also includes this SEK 11 million from the one-time effect from this loan forgiveness. Excluding that, we are anyway on the EBITDA margin of 12.3% for the quarter. These loans from U.S., they were established last year when COVID-19 started, and all companies in our size in U.S. were able to search for those loans, and we applied for that, and we got roughly SEK 11 million. Then if we met all the conditions, they could be granted or forgiven. That also happened in May, June this year. Of course, it's positive to see that one-time effect. Next page, going into the different segments, starting with Nordic. We've seen a bit slower growth in Nordic in the start of the year, but second quarter was really good. We saw that order intake actually more than doubled compared to 2020. It's driven in all countries in Nordic, but in Norway is the main part where we see huge business for printed circuit boards for EV chargers. We can also see that net sales grew 23%, and EBITDA is still stable on a rather good margin. We reached about 16% for the quarter. I think it's important to note here that maybe the orders are a little bit driven by lower order for 2020, but revenue-wise, we were very strong in 2020. This growth we can see in revenue is not really connected to the COVID-19 pandemic. It is real pure growth. Going into next page, Europe. Europe is the segment where we see the strongest growth in all our markets. We have a very positive trend actually in all countries in Europe, and especially Germany, Netherlands, and U.K. The bigger markets, they are really booming for us. Order intake increased over 200% in USD, and for comparable companies, it's 170%, so that's really good. Here, of course, we could see some impact from a low order intake 2020 due to COVID-19. Net sales up 80% in USD and 45% for comparable companies. Also here, we have been able to leverage the revenue increase into good profit. We are also happy to see that the acquired companies in Europe are performing very well. Flatfield in Netherlands that we acquired in March last year has done a fantastic growth in orders, in revenue, and increase in profitability. We can also see that PreventPCB in Italy, which we acquired in February this year, also have exceeded the plans and performed much better than we had expected. We also see that we can add on with our factories in China and add on more business to our existing customers, which is really good. Of course, we are happy to announce that we made a small acquisition of sas-electronics GmbH here just before midsummer. Changing to next slide, going into North America. Here, we see a positive development of orders. Order intake increased 119%, and excluding the impact from BBG, the acquired company last year, it was 73% organic growth. Net sales is up, and we can also see here an improved profitability. Of course, there are a lot of extra one-time impact from these granted loans, but excluding that, the EBITDA margin was 11% for segment Nordic. I think we can see step by step, we've been able to increase gross margin for the acquired company from last year. Overall, very good profitability in U.S. as well. Finally, on next page, segment East. Yeah, the same trend. Strong order intake increase and net sales also increased very much. Net sales up 52% and orders 127%. We see a good development both in Russia and in China. I would say China maybe is growing a little bit faster. Here we are also growing a lot within high-tech products, and I think there we can really add some good value for the customers. It's amazing to see that we have managed to have a higher gross margin and average for the group in China, even if we have the factories close to us. Due to the strong service, we can manage that. Malaysia, still a small company for us. The revenue is increasing. Now again, we see a lot of lockdowns for COVID-19, there will be slower order intake coming quarter, I guess, from Malaysia, but still small numbers. Going into the next slide, some KPIs. Return on equity, very stable versus last year. Net debt versus EBITDA increased a little bit due to the acquisitions we have made. Still very good solvency of over 40%. Net working capital. Yes, it's increasing. It's connected to the increased revenue. If we compare net working capital to net sales last 12 months, we are still in line with last year of at 7.5%. I think we are still able to run a very lean working capital operation. We still have good liquidity and available cash of over SEK 350 million, and also have some line of credits above that. We still have a lot of room for further investments in growth. Mm-hmm. Peter? Summing up a little bit to outline our overall strategic direction. Our focus is on continuing to increase our market shares in Europe, U.S., and East. We still see that this is a market which is quite fragmented. There are a lot of opportunities for us to gain further market shares. We are also working on continuously deepening our collaboration with existing customers. We can clearly see that when we work with customers over a longer time, we're able to generate more value for those customers, which normally results in both increased competitiveness for our customers, but also for us an opportunity to grow and also to improve margins. We also see the opportunity to continuously expand geographically by adding new markets or adding new footprints in larger markets where we can increase our local presence. Finally, as Anders partly outlined regarding acquisitions, it is a very fragmented market today, and there are a lot of opportunities for us to look at opportunities for consolidation, which is something we are also pursuing. By that, I think we conclude our presentation. Thank you. Thank you. We open for questions. Ladies and gentlemen, if you do have a question for the speakers, please press 01 on your telephone keypad now. If you would like to withdraw your question, it's 02. Once again, for any questions, it is 01 on your telephone keypad, there will be a brief pause whilst any questions are being registered. As we have currently no questions, I'll hand back to our speakers. Okay, we just want to add that you're all very welcome to our next report, which is Q3 on the 12th of November. Thank you. Peter and Anders? Mm-hmm. Thank you very much. Thanks a lot. Thank you for listening.