Earnings Call: Q4 2020

Feb 15, 2021

Thank you very much. Very welcome to our presentation of our Q4 and full year 2020 results. Page 3, please. First of all, I would just like to make a brief overview of who we are for those of you who might not know us well yet. We are a global provider of premium indoor air cleaning solutions, And the main markets that we operate in are the Northern and Central Europe, Japan and the U. S. Traditionally, we've been addressing customer segments within logistics, industry, food, offices and cleanroom segments. We have more than 2,500 customers worldwide, and we have more than 9,500 of installations. We work with long term rental contracts that typically run over 36 months, and we have satisfied customers. 75% of our contracts are either extended or renewed. Next page, please. Page 5, please. Looking at the key financial highlights for Q4, We delivered improved margins and increased recurring revenues. Sales in the 4th quarter were affected by corona. And we saw a currency adjusted decline of 8.7%, and that is also comparing to a very strong Q4 in 2019, we saw an increase in our installed base, which is the base for our revenue generation. We saw an increase of that of 14%. And our recurring revenues in the quarter increased with 25% to SEK 64,600,000. On our order intake, We saw a negative impact from corona, and we saw a decline by 35% to SEK 66,700,000. However, we saw a strong increase in shorter rental contracts that are not included in our order intake statistics. And we also had a very strong Q4 2019 in Japan on our order intake side because of the implementation of the Health Promotion Act from the 1st April 2020. We delivered an increase in EBIT margin, and it was at 19.3% and SEK 20,500,000. And the Board proposes to pay out a dividend of SEK 1.3 SEK per share. Page 60. 2020 was the year where we saw a significant increase in the awareness of the importance of indoor air quality and an understanding that Air cleaning solutions can contribute in a positive way to provide healthier indoor environment. So quickly, during the outbreak of corona, we've made we've moved into a mode of cooking solutions in the marketplace to provide healthier indoor environments. And in the first step, we reinvented ourselves and based ourselves on our existing challenge solutions. And we launched an execution of our FS70 with FS70 ESSA and then Air Canada with ESSA. Then we also started a product development initiative to understand and work closely with the health care and understand what type of solutions would be optimal to help the health care sector to provide more safe and secure working environment And soon that work towards the end of Q4, we launched our newest innovation, the FS-thirty Kiesa product, Acquiring air cleaners, powerful and that we've adapted to the health care sector, but also public places and offices. Page 7, please. During 2020, we have had a record year in bringing new products and innovations to the marketplace within our Facility Solutions. When we started 2020, we had 2 products. We have the AirPigl 115 and we have the FX70. Then step by step, we have standard and broadened our product offering. First of all, we have been sticking to the plan we had at the beginning of the year, And that was to introduce a product specific for the food segment, our FS70 food grader product that we launched in Q2. Then towards the end of Q3, we introduced the FS90, where we target larger industrial areas. So we maintained the plan we had disregarding the turbulence that happened out of the corona. But in addition to that, we then launched a number of new applications, targeting the need to provide more safe and secure working environment. So we leave 2020 and enter 2021 with a significantly increased and extended product portfolio. And the product portfolio that is broader than it has been had not corona happened. Page 18. And with this extended and improved product portfolio, We also see the result in the increase in order intake. And in Q4, we had a number of breakthroughs. We received the biggest order to date when it comes to our Facility Solutions, and that was for the school sector in Germany, where we obtained an order worth €500,000 approximately. And we continue to develop and deliver it to the health care sector. And moving into 2021, we continue to see the positive impact from our expanded product portfolio by getting orders for our new products for our company in Japan, and we also gained a second a large quarter for the full sector in Germany. Page 19. Then I would like to highlight a couple of customer cases where we provide more safe and mature working environment in different customer segments. The first one being the health Care statement and the customer being Karolinska University Hospital, where they, during the outbreak of corona, understood an urgent need to improve the working environment and reduce the virus concentration in their premises. And they asked for our support and help to provide some more safe and secure working environment. And so far, We have delivered 90 air cleaners to Karolinska University Hospital, and we have also continued our strong and close cooperation when it comes to innovation. Next page, please. Another example of where we contribute to providing more safe and secure working environment and where we can also contribute to making sure schools can remain open and society can remain open is that within Germany, there has been a very strong focus from local government to subsidize investments in air cleaning Because a number of prominent sources like Technische University in Berlin and the German ECBC are highlighting that air cleaning with EPRA 14 filters can be an efficient means to reduce virus, bacteria and other contaminants concentration. So we have delivered step by step air cleaners to the screws worth €1,000,000 in order value. We will continue to do that during Q1 here. And Page 11, please. Another example where we contribute to providing more safe and secure working environment is towards the office segment and in Japan. And traditionally, we have a very strong position towards the office segment in Japan through our cabin solution. And one example of such a customer is Yustar, a Tokyo based gaming company that realized during the outbreak of corona the need to improve the air quality in their offices in order to take care of their personnel. Since they were happy with our cabin solution product since before, it became natural for them to turn towards us and have us deliver air cleaning solutions. And they have purchased a large number of Air Clean Low products. Next page, please, Page 12. So to wrap up on Facility Solutions, We have broadened and extended our offering during 2020. And during Q4, We start gaining groundbreaking big orders for these new solutions, so they will help us to drive growth going into 2021. And we continue to see growth opportunities with that in our core segments of Industry, Logistics and Food. And we have increased our offering towards these segments during 2020. We are developing new markets in terms of geography with our introduction in Japan and within our customer segments, And that has also resulted in a strong increase in order take for shorter contracts. We saw In the quarter, an increase in our sales performance of 11% compared to the same quarter last year. And average over the last 5 weeks, 5 years, we delivered an average annual growth of 18%. Page 13, please. Looking at Cabin Solutions. 2020 was our best year ever, And we delivered a sales level of SEK 393,000,000, representing an average annual growth Of the 5 last years of 9% and the growth this year of 9.5%, We had an exceptionally strong Q4 and first half of the year twenty twenty in Japan because of the implementation of the new Health promotion act. So in that respect, we saw a decline compared to Q4 2019. But it was the biggest and strongest sales performance to date when it comes to Cabin Solutions. Next page, please, Page 14. When it comes to room solutions, our primary market is the U. S. And our customer segments in the U. S. Are pharmacies within the hospital systems and independent compounding pharmacies, and they have been largely impacted by corona. And we have seen longer decision processes within our customers when it comes to investments. We entered 2020 with a very strong pipeline. So we see only a minor Decline in our sales level compared to 2019, we ended at SEK 54,000,000 compared to SEK 56,000,000 in 2019. But we had a weak quarter in Q4, and we had challenges on the order intake side. However, The year ended with the biggest orders to date when it comes to room solutions, and we received an order of approximately US1 $1,000,000 in value ending 2020 in an upward trend also in the U. S. Next page, please. So this is raising you ground number 2, this large cleanroom of $1,000,000 that we received an order for in at the end of December and that we will start implementing as of Q1 2021. And here, the need from the customer of Voxel Clean Lumate compliance is USD 7.9 Dublin and USD 800, and they also needed a flexible solution so that they could continue with their compounding operations while the new clean room is being built. And there, our modular flexible solution works very well for these customers. And this is clean room number 6 for this U. S. University hospital system. So it is a Very satisfied customers. Next page is Page 16. So to summarize, In a business perspective, we have maintained a high activity level. We have introduced more solutions and products than ever before. We have obtained a number of groundbreaking business opportunities, and we have developed new customer segments. Then I'd just like to highlight our business model and the performance during 2020. And this is our installed base that drive our sales, and this will increase during 2020 of 14% of our installed base. However, when it comes to our order intake of our long term rental contracts And the direct sales of products to customers, we saw a decline compared to last year because of the corona situation. However, at the same time, we saw a sharp increase in the number of shorter contracts, which are not included in the order intake statistics, net increase was 4 92% or 231 units. And when it comes to our sales mix, this was an increase in our recurring revenues of 35% during the year, landing at SEK259,000,000. We saw a decline in our sales refinance companies, And we ended up at SEK 130,000,000 and saw an increase in our product sales and ended up at SEK 104 SEK 1,000,000,000. And in total, sales were up by 9%. And when it comes to our increase in recurring revenues, One explanation for this is the acquisition of SFS Finance in December 2019. So we have increased the book value in units in our own balance sheet to SEK 46.4 SEK 1,000,000 from a level of SEK 23,600,000 in 2018. So we have consequently increased our investment in our books from SEK 22,800,000. At the same time, we have seen an increase in our recurring revenue from SEK 164,800,000 in 2018 to SEK 258,700,000 in 2020. That's an increase of SEK 93,900,000 in recurring revenues. So an investment of CHF 22.8 million towards an increase in revenue of CHF 93.9 million. And we increased our recurring revenues to 40 52% compared to 41% of our total sales. Next Page 17. And our installed units gives us visibility into to 2021. And our recurring revenues come from our own units in our balance sheet. And both our own contracts and contract deal finance companies typically run for 3 deals, And more than 75% of the contracts are extended or renewed. So that means that also for our contract Through finance companies, we have an element of recurring revenues because after 3 years, they are most often renewed. And we also have recurring elements from our service and maintenance income. And we have good visibility That's when it comes to when contracts will expire so we can address and work proactively on maintaining and increasing our installed base. Next page, please, Page 18. Prior to releasing our report, we also released The press release about how much clean air we deliver, and that is a natural consequence of our installed base. The higher our installed base is, the more clean air we deliver. And we delivered at the end of 2020 a figure of 9.77 numbers of the global arena per hour of clean air, And that was up by 13%. So in short, We have had challenges in our Q4 when it comes to our order intake, and we have been negatively impacted by Corona on our sales level, but we also have seen the positive effects of our Significantly extended and broadened products offering in facility, gaining good traction in terms of order intake in Q4. And we have a resilient business model, which shows us well during challenging times like corona, where our increase in store base and our increase in recurring revenues is comforting. And we have maintained during 2020 a high activity level in the organization. And then I'd like to take the opportunity and thank the fantastic team at Flin Air for all the contributions and dedication and passion to make this happen. And then I'd like to hand over to our CFO, Hendrik Rysmach. Thank you very much, Cristina. Moving into the financial information. Please move to Page 20, please. The recurring revenues are increasing full year 2020, plus 35%. We have an increase of installed units with 14% And more than 75% of our long term rental contracts are either renewed or extended. It is very clear that Clean Air has a satisfied customer base. Page 21, please. As mentioned, order intake is down by 35% and sales is down by 9% versus Q4 2019. We are a growth company. We are launching new products, and hence, We need to meet our new customers to be able to sell. A large part of the market in Europe and the U. S. Have been closed or have had restrictions, Also Japan, to some extent. But comparing Q4 with the Q3 2020, We see an increase in order intake and revenues. That is a positive sign. And full year 2020, we delivered a growth So 9% in a year that we have had tough market conditions for most of the year. And again, Our installed base are driving our long term revenues. Page 22, please. In Q4 and full year 2020, EBITDA And EBIT improved in absolute numbers and also the margins. EBIT margin was 19.3%. We have an efficient business model, meaning when sales are not developing according to plan, we have the opportunity to defend the margins in combination with continuous cost control. Full year, the recurring revenues are up and the cash flow is improved. Profit per share was SEK 4.51. Moving to Page 23, please. On this page, I would like to highlight: 1st, the equity ratio improved To 27%, up from 16%. Net debt reduced to SEK 199,000,000, down from SEK 237,000,000. We have a clear strategy to reduce the net debt over time according to scheduled amortization. Operative cash flow of SEK 20,000,000, up from SEK 10,000,000,000 improved cash flow and the business model is efficient also Cash generative business model and strategy to pay dividend to shareholders. Dividend of SEK 1.30 per share is proposed by the Board. Having said this, I hand over to Christina again. Thank you. I am very pleased to conclude that for a year like 2020, We managed to reach our financial targets. When it comes to organic sales growth, we have an Average annual growth target of approximately 10%, and we achieved 9%. We have a profitability target of 15% to 20% of EBIT margin. We delivered 19.3%, and we have a policy to pay out 30% to 50% of our net profit in dividends, and that is in line with the proposal from the Board of paying out 1 when 30 states. So I'm very pleased that we, in challenging times, managed to obtain our targets. And then to summarize, Clean Air as an investment on the next page. We have a unique Service offering based on a holistic approach to clean air as a service with full service rental complex. We have complementary air cleaning technology and best profit solutions, providing substantial barriers to entry. We have long contracts with a high degree of extensions across a diversified Bluetooth customer base, generating strong and predictable revenue. And we have an asset light business model We limited CapEx needs, providing strong free cash conversion and equity return. Then I would like to hand over for the Q and A session. Thank you. We have a question from the line of Anders Rooslond from Pareto Securities. Please go ahead. Yes. Good morning. Yes. I would like to know a little bit of how 2021 will look like. You will obviously start with some negative sales growth versus a very strong Japanese development in the 1st and second quarter. But I assume that you also expect stronger growth specifically in Facility Solutions And maybe also in Room Solutions, how do you see 2021 Looking like? Yes. We see a little bit of a mixed picture. I mean, we have still In Q1 2021, a challenging situation with corona with continued lockdowns in many parts of the world. And I mean, for us, it is important to have access to open markets and conduct physical meetings and so on. So That is one challenge. But then, as we have described, with our extended and distant product offering, we see continued Possibilities to grow in Facility Solutions and Equally in Room Solutions growth area for Clean Air. It's a little bit of a mixed picture. Yes. If we just elaborate a little bit more on The growth areas at Facility Solutions, we have seen several large orders, and I assume There will be some minor orders as well. If you look at the installed base, the installed base is developing much It's more favorable than your order intake, showing clearly that you have a larger share of your installed base with shorter contracts, Probably in the facility area, while you have less of long term contracts. The first part of your question is that, yes, I mean, we see a continuous order intake, And we only go with press release on the larger, of course. And yes, the installed base It's positively affected by also short term contracts, and that is the total installed base globally. And that again is driving the top line, of course. So the and the order Isn't the full order intake from that perspective as we have described earlier? And that is the reason why you see that difference. We've seen very positive comments from the Facility Solutions area, but you have only got one large Only. You have got one large order in Room Solutions. But how do you see the Room Solutions area developing In this year? This was an exceptionally high value Berun Solution order that was announced in December. Then, of course, we don't announce all orders in our ongoing business. I would refer a little bit to what I said before that 2021 going into that year, we still have the corona situation, and That is part of the reality also in the U. S, but we see a very good Underlying growth opportunity within our Room Solution business going forward, absolutely. So it's More short term related to corona uncertainty, but the underlying potential is not changed when it comes to Room Solutions. Yes. But the Room Solutions area will be more affected by the close downs and Tough conditions for the health care sector in the U. S, that's what you're saying? We have continued in 2020 to proceed with our installations, and we Deliver a 2020 that is almost in line with 2019, so we have been able to navigate and maneuver there also in year of 2020. But what we have seen is somewhat longer decision processes at the customer side, which has an impact on the order intake side. And then finally, coming back To Cabin Solutions, what is the new normal in Japan now Since a very strong surge up to the Q2, what do you think will be sort of The new normal in Japan? In the short term, I mean, also Japan is It's affected by corona, and we have seen a shutdown situation also here during the 2nd wave of corona in Japan. So short term, we see that impact also for capital solutions in Japan. And then as we have outlined, the first half of twenty twenty was very strong based on Some fantastic opportunities, and we don't see those onetime opportunities reoccurring in 2021. But we still see a strong opportunity for us to continue to develop our Cabin Solutions business in Japan and grow in the medium- to longer term. And in Cabin Solutions, how do you see the development in Europe? In Europe, we see more mature markets when it comes to Cabin Solutions, but more mature and stable. So it's more in Japan that we have the growth opportunities within Cabin Solutions. Excellent. And what do you expect when it comes to New products. You introduced several new products now last year in Facility Solutions. Are there any news on that respect for this year? We will present product news When we are sort of getting closer to launching them, but we will continue to have a high focus on Innovation and bringing new solutions to the marketplace, that is part of our G and A will continue to do so. And regarding markets, You will you remain on the present market structure. You open up sales of Facility Solutions in Japan. That was presented last year. How does it is that the sort of the new Loans you have in market respect? Yes. That is a very important step For us, we have been very successful in our Cabin Solutions business during many years in Japan, and we have a very strong Customer base with our office segment, and that is the segments where also Facility Solutions are very relevant and especially so With the corona situation, so we have been able to extend our offering to our current customer base. But Step by step, we will implement our whole facility range in Japan as well. So that is something going on gradually during this year? Yes. Okay. That's all the questions from my part. Thank you. Thank you, Anders. There are no further questions at this time. Please go ahead, speakers.