Earnings Call: Q1 2021

May 12, 2021

Thank you very much for that and very welcome. We are very happy to present to you our Q1 in 2021. Page 3, please. We would like to start with a brief summary of who we are. And we are a premium provider of solutions for clean indoor air. And we serve more than 3,000 customers globally. And we have an installed base of our solutions of almost 10,000 units. We work mostly with long rental contracts on 36 months. And in more than 75% of the cases, these contracts are extended or renewed. So we have very satisfied and happy customers. Next page, please. I am very happy about the high activity level we have had in Q1 and the strong start of the year. For the 2nd consecutive quarter, we see an increase in our order intake, and we are up with 25% in order intake compared to Q4. And this in a situation where we've had long periods of lockdowns in many of our key countries. I'm also happy to see that our sales continue to grow compared to the previous quarter, and we are up with 4%. But I'm also very satisfied to see that our strategically important product category, Facility Solutions, delivered growth of 77% compared to the Q1 in 2020. This as a result of all the new product introductions we made during last year. We continue to grow our installed base, and it's up by 15%, and we delivered stable margins and profitability and resulting in a stronger cash flow. Page 5, please. So we see here in detail the progression in our order intake, looking at the level of SEK 70,000,000 in Q3, moving into SEK 82,000,000 in Q4 and ending at SEK 102,000,000 in Q1. At the same time, we increased our sales to SEK 100 SEK11 1,000,000. So a strong progression and this at good margin levels, delivering an EBIT margin of 18 percent. And this also in relation to a very strong Q1 in 2020, where we had an exceptionally strong Cabin Solutions business in Japan because of a new health promotion act coming into play from the 1st April. So we had a very, very strong comparison period in Q1 2020. Page 6, please. So 2020 was a record year when it comes to delivering new innovation and new solutions to the market in our product category, Facility Solutions. Among other things, we introduced our most powerful unit so far, an FS90, aiming for larger industrial areas. We also launched a specific solution for the food industry for the food graded version. And we also launched HIPAA 14 versions of several of our products in our range. And we ended up 2020 with introducing a new product called SS30 that would be the Impenlok close cooperation with the health care sector in Sweden. So we extended a broader product range, which constituted a good base for delivering growth in Facility Solutions. Moving into Page 7. We see also the results of this extended product range that we we're able to target new customer statements. We developed during 2020 a successful cooperation with Karolinska University Hospital Brazil and a successful facility business in that segment. And we continue now to do that also in other markets, where we announced just a few days ago first major order for the health care sector in France. We also developed our Facility Solutions business in the office segment, taking a first major order of the new product in Japan in the Office segment. And we just announced also a major breakthrough in the Office segment in Germany. And as announced previously, starting at the end of Q4 and moving into Q1, another segment where we have had the opportunity to deliver healthier and more safe and secure environment is in the school sector in Germany, where we continue to take both larger and smaller orders during Q1. Page 8, please. I would like to highlight a little bit more in detail our strong momentum and strong performance in Germany, both coming from Q4 2020 and moving into Q1 2021. We are servicing Germany since a long time, since 2003, and we are a market leader in Cabin Solutions. But Germany has also been the 2nd market where we have developed a successful Facility Solutions business after we've done that in Sweden. We are simply established within the industry sector, automotive, Food, Logistics and Warehousing. And we have a number of really strong customer brands in our portfolio, mentioning a few of them, Daimler, Mann, Bayer and Covestro. And with the extended product portfolio we introduced during last year, we have been able to target new customer segments. And looking at our order intake during Q4 and moving into Q1, we then announced in December our first major orders from the school sectors. And this was then followed by a session and the 3rd major school order in Q1, resulting in a total value of approximately EUR 1,400,000. And in addition to that, we had a number of smaller orders also from the ZOOM segment. And we just then in May here also announced the first major order from the Office segment of 65 units of Facility Solutions. We have increased and we continue to increase our sales resources. So we are very happy about the strong momentum that we've had in Germany and the strong base we have developed in our category, Facilities Solutions. Next Page 6, Page 9. Here we would like to visualize the development on of our order intake and sales on a regional basis. And I'm very happy here to see that we developed a strong order intake increase in Europe of 51% compared to the same period last year. And here you can also see Q1 in 2020, how exceptionally strong that reference point was due to the high activity level on Cabin Solutions in Japan. And at the same time, we also developed a very positive development on the sales side and we see growth both in Europe and in Japan. Next page please, Page 10. Then I'd like to move into our 3 product categories. I'm starting first with Facility Solutions, where we then grow by 77% compared to the Q1 last year. Next page, please. And with our extended product range, we grow our larger we grow our addressable market. So beyond the customer segments where we are already established in industry, logistics and food. We have also extended our coverage the Healthcare Offices and Schools. And we have great opportunities in building on our strong foothold in existing markets like the office segment in Japan, where we've been able to approach them and extend our offering and offering them also facility solutions. And we also have the opportunity to offer our new solutions to more markets. And we see here the quarterly sales development on Facility Solutions where we then end up at SEK 19,400,000 in revenue in the quarter and that represents 17.6 percent of our total turnover. And on a rolling basis, we are at SEK 64,000,000 on Facility Solutions. So for us, very strategically important with this progression in one of our newest product categories. Next page 6, Page 12. Moving into our Cabin Solutions business on Page 13. Here, after a very, very strong launch of 2020 with very high levels of order intake and sales. We are now continuing at the stable levels. So for the Q3 in a row, we delivered stable sales level of SEK 81,000,000 and be in a situation where our main growth market, Japan, has been in severe lockdown mode during most of the quarters and most of the beginning of 2021. So we are happy to deliver stable development. Another rolling basis, we end up at SEK 356,000,000. Next page please, Page 14. Moving into our 3rd product category, Room Solutions. Page 15, please. Room Solutions is where our main market is the U. S, where we deliver to pharmacies within hospitals and also independent compounding pharmacies. We continue to have challenges in the U. S, partly linked to the fact that we were severely impacted by corona during last year and was difficult for us to maintain normal activity level with our customers. So we have a weaker pipeline. That we are focusing to a large extent on closing the opportunities that we have and working on the large cleanroom order we announced at the very end of last year. And we are happy to see that we have a good start of the year within our Room Solutions business in the Nordic region, which is the 2nd region where we conduct Renewal Solutions business at the moment. And in the Nordic region, we are targeting medtech companies and electronic producers. And there we announced an order of an order value of a bit more than SEK 4,000,000 and we have also that a number of smaller orders. So good start in the Nordic region. And in terms of quarterly sales development, linked to the nature of that business that it's a project business. We see a higher volatility level in the quarterly sales levels. And looking at our rolling basis, we end up at SEK 49,000,000 in terms of turnover on the room solution side. Next page 16. I am equally happy to see that as a consequence of the increase in our installed base of solutions around the world, we also continue to increase the amount of clean air that we deliver. And in order to make this more visible. We translate the volume of cubic meters of clean air that we delivered to our installed base into the number of Ericsson's Globe Arenas. And during the Q1 here, we exceeded the magic number of 10 Globen arenas per hour and ended up at 10 point 22 Globen Erikson Arenas at the end of the Q1 quarter. So a really strong sign for us that with the increase in solutions in the market space, we also increased the amount of Clear Delivery. Then I would like to hand over to our CFO, Henrik Resmerch. Thank you very much. Moving into Page 18, please. We see a growth and increase of activities Q1 2021 versus Q4 2020. This is important. Growth in revenues, up 4 Solenary Strong in Japan, as we have pointed out earlier. Facility Solutions showed a 77% growth. We see a clear traction here in Europe. Cabin Solutions in Japan is developing very well both in revenues and margins. With increase in cabin solutions in Japan, the base for future renewals are hence growing. Page 19, please. The Clean Air business model continues to deliver strong cash flow and margins. We have an efficient business model, Meaning, when market conditions are not optimal, we have the opportunity to defend the margins. And our business This model is a combination of recurring revenues and sales to finance companies and product sale. Stable margins while we continue to invest in R and D. We invest in product portfolio, marketing and sales to deliver long term growth. Page 20, please. We continue to grow our installed base quarter by quarter, plus 15% last 12 months. This is, of course, one focus area for us. Increased installed base will deliver growth in revenues long term. Page 21, please. Net debt is down to SEK183 1,000,000. Equity ratio improved to 30% And there is a proposal to pay out SEK 1.3 per share equal to SEK 19,300,000. Having said that over to you again, Cristina. Looking at our midterm financial goals and dividend policy. We have a target to deliver an organic sales growth of on average 10% per year and a target to deliver an EBIT margin between 15% to 20% and to have a possibility to pay out a dividend of 30% to 50% of our net profit. This page please, Page 23. Looking at the key activities in our growth strategy in the short and medium term. We will continue to leverage investments and efforts we have made with our product portfolio during last year and extend these to more customers, penetrate our new customer segment and extend our geographical coverage. And we will continue to focus on innovation in all our product categories. And we will continue to increase our sales force and develop our partnerships in order to increase our reach. And we will continue to invest in our brand and marketing and increase our push and pull effect out in the markets. So to summarize the Q1 quarter, we are very happy that our high activity level in the company and the efforts of all the team members in Chilean Air resulted in a continued strong progression, delivering an increase in our order intake of 25% compared to the consecutive quarter. We are equally happy to see that one of our newest product categories, Facility Solutions, delivery growth of 77% compared to the same period last year. We see positive trends in both Europe and in Japan in terms of progression. We continue to increase our installed base and deliver an increase of 15%. And we continue to increase the amount of clear air that we deliver. And with that being said, we would like to open up for Q and A. Thank you. The question. We have a question from the line of Anders Roosler from Henriette Securities. Please go ahead. Your line is open. Yes. Good morning. I would like to start off with the Facility Solutions. You've got several large orders in Germany. And you also announced orders in France and in Japan. How is the order intake of smaller and minor orders? So is it only those are you very dependent upon those larger orders? Or is it a broader Sort of inflow of small to medium sized orders? Yes. We definitely see a broader in flow of smaller orders as well. So it's more that we have been working with Facility Solutions since 5, 6 years, but this is the first time in Q4 and now in Q1 2021 that means we managed to get orders of this size that we have announced, so both within the health care sector, the school sector the office segment. So that is very positive. But we definitely serve a fairly broad customer base with smaller orders as well. Okay. You don't give any forecast, but you say that you expect Room Solutions to pick up sales wise. And you've announced a large order last year in the Q4 of almost EUR 8,000,000, EUR 10,000,000, I think. And that order in the U. S, and I Expect that, that order will be processed here in the coming quarters. And is it also other orders that are coming on stream in Room Solutions? Yes, we have an order intake. We have this huge or very big order at the end of last year in the U. S. Of $1,000,000 in value and that we will deliver throughout 2021. And in addition to that, we have smaller orders coming in both in the U. S. And in the Nordics. So we continue to see a positive outlook for our clean room business. How do you think the how do you see the U. S. Market? When will that start to pick up on a more broader base? Even though you have this large order, It's also interesting to know the sort of underlying order intake in that area. Yes, I mean we don't see any fundamental changes in terms of the underlying potential. It's more that there's been a prolongation in customer decisions because of uncertainties and so on that were in the marketplace during last year. And there. Of course, we feel to some extent we continue to battle with the corona situation. But the need 4 rooms that cater for the requirements of USC 797 and 8 tons, which we are very much focused on in our U. S. Business. That underlying need is there and that growth potential is there. So that has not change in any way. So it's more that we see a longer sales cycle. This new U. S. Legislation, is it still pending, but you expect that it will come? Yes, it's still pending. We expect it to come and it still serves as a driver for market growth. Okay. And finally, if we look at the Cabin Solutions, it Seems that you find a new normal level there. But from this level, after the spike here in demand in Japan in the second quarter, How do you see the Japanese development going forward? Will it start to grow again? Or is it flattish now for some time? Or how do you see the Japanese development. We continue to see growth opportunities in Japan. I mean, in Japan, there has been lockdown situation during the bulk of 2021 so far. So there is not the same amount of the investment willingness in the office environment as it normally is. When the situation returns to a more normal mode in Japan, we see that this will have a positive impact on our growth going forward. So we continue over the medium to long term to see strong growth opportunities in Japan, both on the cabin side and also on the Facility Solutions side. Yes, that is very interesting. I Assume that you use your existing client base primarily in Tokyo to also market the Facility Solutions equipment. What do you see there? Is it a very large interest? Or is it slowly growing? Or what's? Yes, we definitely have developed facility solutions opportunities with our existing the summer days in the Office segment that we have also given the situation with corona and the need to provide a healthier and more secure working environment. We have been able to reach new customers. So we can, of course, in the next step, provide us with more opportunities on the Cabin Solutions side as well. So it's a combination. And we see continued opportunities for Facility Solutions in Japan, both in those customer segments where we already are, but also in the traditional Facility Solutions segment within Industry and Warehousing and Logistics. Okay. Coming back to the present most booming part is Facility Solutions in Germany. And it seems that you have reached several different client groups here, schools, offices and also public areas now. How is the competitive situation here in Germany. Are there many other support providing the same equipment? Or how does it look like? It is a competitive situation in Germany in some of the segments that we operate in. Given that there's been a lot of focus on the governmental side in Germany, since it has been acknowledged by significant bodies in the market like Technicolor University sea and the German ECDC that air cleaning the HEPA 14 filters is a good way to contribute to healthier environments now with the corona pandemic. And as a consequence of that, the government and bodies have gone into subsidizing investments in air purification. So the demand has increased to a large extent and also the competitive landscape. Okay. Where do you see so far it has been, As I said, schools, public areas, how in the private sector have you seen any Ordinary offices, factories, etcetera. Yes, we made recently an announcement of a larger order to the office segment where we delivered 65 units to the State Office For Regulatory Affairs in Berlin. And we believe that, that can open us to more opportunities, of course. As it has been acknowledged that air purification, contiguous to healthier environments that invite a lot so in order to encourage people to come back to work in the office. So we see opportunities to develop that segment further as well. Okay. And you also announced an order in France. And normally, France is not one of your strong markets. So what's going on there? We have increased our resources to serve the French market with direct sales resource. And we believe in the opportunities in the French market guest in our traditional customer segments and also in this more newly developed segments. So we were very happy to announce this order towards the health care sector in France quite recently. And we see, of course, additional interesting opportunities in that market going forward. And we are not only talking about Facility Solutions. Do you also see scope for Room Solutions or is it primarily Facility Solutions you are looking for in France? At the moment, it's primarily Facility Solutions and we already have an installed base on cabin solutions. That. But it could be even Solutions going forward as well. But now our focus is on Facility Solutions. Okay. And the margin development, how do you see that now when you Get more orders in new areas like Facility Solutions and hopefully also Room Solution. Will that be slightly margin dilutive versus the old Cabin Solutions sales? Good question. We are not guiding on that more than the financial targets we have. But Of course, we always try to defend the margins or preferably to improve the margins. And on the total growth, I just wanted Point out the fact that we have an installed base in Japan on cabin solutions and that base is increasing. And with that, we have also a larger base for renewals. So I would say that on the margin side, we always look for improvement. Yes, okay. Sorry, still at the same time, of course, we invest in R and D and the product the portfolio, as I mentioned, also marketing and sales, of course, so it's a combination of both. How do you see upon the fact that it Seems that the rental the length of the rental contracts are slightly lower, it's 12 months or 1 year versus very often 3 years in Cabin Solutions. Is that sort of temporary? Or are you aiming at having prolonging those Facility Solution contract to 3 years or do you expect that after 1 year that will be renewable all those Facility Solution rental contracts. That's also a good question. I mean, we are aiming at long term rental contracts, But of course, we have to adjust accordingly to the market and the customers. And we are also open now to enter shorter term rental contracts. And of course, we are working very, very efficient there and try to make them to be expanded, etcetera. So it's just a it will be a mix going forward. Some will be on long term and of course, our contracts will also be on shorter term. But in the end, the ambition is to get all those contracts extended through a contact with the customers and also we are doing frequent service and we are following up on the customers and the installed units. So that's the highest priority we have to try to extend those contracts, of course, even though the first contract Certainly, a shorter term than we are used to. Yes. I mean, there is always a risk that the client is sort of testing your equipment. And if it Falls out well. They will prolong it and it is not followed up that well, they will try something else. So yes. Correct of course, that is the fact. But still, I mean, we have more than 75% of our contracts that are either renewed or extended. So far it looks quite stable, I would say. Okay. If we are looking In the future now, are you sort of having any more strategic moves here, opening up Facility solution in the U. S, room solution somewhere else. Are there any sort of thinking of strategic changes here Regarding market presence. Yes. I mean, we have just step by step extended and broadened our product portfolio during last year when we looked at Facility Solutions. And there, we are just in the process of bringing those solutions to our markets. And we're also in the presence of developing our newly developed customer segments in more geographies. That. So we see great opportunities to grow through our through the steps that we have just been taking. Okay. I think that I got a very good answer on my questions. So I'll take a break now and see if there are other questions on the line. There appear to be no further audio questions registered. So I hand back to the speakers for any closing remarks. Thank you very much. Then I would just like to summarize our main points during the Q1. We have a strong progression in our business where we see an increase in order intake compared to the last quarter with 25%, and we increased our sales by 4%. We are very happy to see that our Facility Solutions product category delivered growth of 77% compared to the same period last year. And we continue to increase our installed base with 15% and we continue to increase the amount of clean air that we deliver with that 22%. And this has good and stable profit levels and good cash flow. And with that being said, I would like to thank you very much for your attention. Thank you.