Earnings Call: Q4 2020

Feb 8, 2021

Good morning, everyone, and welcome to today's telephone conference for RASA CEO, Jonas Lundgren and CFO, Jonas Auguste, will present Ratas' report for 2020. After the presentation, a Q and A session will follow. A recorded version of the telephone conference will also be published on our website after the call. With that said, I leave the word over to Jonas. Thank you, Helen, and thank you, everyone, for joining this call. Welcome. Before we present our development in the Q4 and for the full year, I would like To start with a few comments on who we are for new attendance. And most importantly, put this report into the context So our 3 year journey going into a new and quite different druthers in the future. So with that, let's move over to Slide 2. This is a picture of Rathes today. We have some 12,500 employees in the group before the divestment of this node, a total sales of SEK 37,000,000,000. Our EBITDA is 1.9. And we like to have our companies headquartered in the Nordics. And we are solely focusing on long term and very active ownership. Down to the left, you can see our EBITDA rolling 12 months since Q4 2018. During this period, both EBITA and profitability has more than doubled. And this EBITDA comes from profitability growth and not acquired growth. So this is an organic journey. 10 out of the 11 Companies we have today in our company group have improved their EBITDA. Companies to the right is now in order of EBITA size. Plantarsen is the largest EBITA contributor, followed by Diab, HL, Able and onwards. This node is down to the right because this node will no longer be with us in 2021. So let's move over to Slide number 3. As from the start of 2018, We decided to stop all acquisition activities and focus shifted into stability, Profitability and Organic Growth. We decided to lead the PE conglomerate idea, which Sam actually still refers to, with a vision of building a company group of larger companies with an eternal ownership horizon. Necessary divestments of companies that are not qualified to be a member of the Fjalljord Company Group have been made. And we also have increased ownership in TFS. So now when we have achieved most our goals regarding stability and profitability, we're ready to take on Also, acquisition of growth in some of our companies and also new platform acquisitions in branches where we do have industrial knowledge and experience. So regarding structural Change, as you see, there is one box not ticked. We can't exclude that there will be some more changes to the existing group. But the important message is that we're now starting add on acquisitions in our group companies And also new platform acquisitions. If we Go to Slide 4. I just want to underline that our focus is EBITA growth. We will stop reporting book values. We will not introduce NAV values, etcetera. EBITA growth is our ambition. Chen. And we have detailed plans for all our companies in the future company group. And above, you'll just see a few examples. So with that, I wanted to move to Slide 5 and also have a look at our new financial targets that was launched today. So we aim to have an EBITDA in the company group of at least SEK 3,000,000,000. This means a 14% annual EBITDA growth in the next 5 years. Now I can tell you already by now, since I have some experience from acquisitions and growth through acquisitions, that it will not be 14% every year. Some year, we will have a much higher EBITA growth and some years, we will have a much lower EBITA growth. You can't plan when acquisitions should happen. If we go into our leverage goal, we want to have an efficient Capital Structure. We want to be a net debt company, although we're not that at the moment. We think a target of net debt over EBITDA between 1.5 to 2.5 over time It's a sound and good leverage. We also have Restated our dividend to say that we exclude capital gains and losses from our dividend policy. And we aim to pay out the ratio of 30% to 50%. So with that, we move over to talk about the current The quarter and the full year and move to Slide 6. The quarter and the year is quite affected by currency effects, sales and COVID-nineteen, of course. Sales declined 9%. Again, currency effect, 6% in the quarter, may get to have an organic sales decline of 3%, and that is COVID-nineteen and it's able. We're coming back to EIBEL, who are dependent on a very low number of very big projects and a big number of smaller projects. And the phasing of these projects make turnover and EBITDA to vary from quarter to quarter and year by year. We have strong growth in Plantarsen, Airteam and Diab in that order in this quarter. Also, the beta is negatively impacted by currency of some SEK 8,000,000 in the 4th quarter. To that number, of course, individual currency impact for some companies is upon this number. The EBITDA is up SEK 244,000,000 compared to Q4 last year. One should remember that in Q4 2019, we had some SEK 70,000,000,000 in Extraordinary costs for increasing profitability in TFS, that was SEK 40,000,000 or SEK 41,000,000 And in Plantarsen, it was some SEK 30,000,000. 10 of the existing companies in the business group increased EBITDA. Lund. It was Abel who didn't do it this quarter, although the profit margin was higher. And we have higher EBITA margin in all companies, except Bisson, who is leaving us or who has left us. Cash flow continues to be stronger through improved earnings and increased or focus on working capital. And we have a further improved financial position, Let's go to Page 7. Here we can see the development for the full year 2020. Sales declined 2%. Currency effect was 5% for the full year. Organic sales was up 4% for the full year. And if we look at the strongest organic growth performer During the year, in Swedish currency was actually Ertine, 7%, DIAB, 13% and Plantarsen 6% over the year. But we have actually said 6 companies showing Negative organic growth due to the pandemic and Able project facing. The EBITDA is affected by currency negatively with SEK 84,000,000. Plantarsen, Hent and Dieab had the highest increase of EBITDA compared to 2019. 10 of the existing companies in the business group increased EBITA, again, all except for Abel and LED. The EBITA margin improved in all companies except for Able, and cash flow improved by 86%. Stoltenberg. This sums up all in all with an earnings per share increase with almost 4 times. Last year, you remember, we sold we divested our headquarter and had a capital gain, which is excluded from the 4 times increase. Our Board of Directors has suggested Now I want to you to move to Slide Voorhees. And I at the same time leave the word over to my dear CFO, Jonas Voorhees, to comment on leverage. Thank you, Jonas. So we are at Page number 8 now. And we saw the leverage coming down by 58% In the end of last year, we were at 1.1x in average compared to 2.6x in the same quarter before. EBITDA improved by 55% And net debt decreased by some SEK 1,100,000,000. We saw strong cash flows in both Q4 and for the full year 2020. If you look at the net cash position within in Ratus AB, We had in the end of the year SEK 1,200,000,000 in net cash roughly. And ROTH AB has also a loan facility, which was Unutilized and is unutilized of SEK 1,000,000,000. After the closing of this node and The divestment of that business, if we adjust for the business numbers and include the cash that we received from the divestment. The leverage in the end of last year was minus 0.9 times. And net cash position in Ratheus AB is approximately SEK 4,000,000,000. Out of the total SEK 3,900,000,000 that we received from the divestment, we invested SEK 1,000,000,000 in Dun and Bradstreet shares corresponding to roughly 1% of the shares outstanding. And then also in Q4 last year, we received a dividend from business amounting to SEK 175,000,000. Back to you, Jonas. Thank you, Jonas. And let's move to Slide number 9, where we are trying to summarize the COVID-nineteen impact 2020. We had negative impact on net sales in all companies except Plantation and Waste Outdoors. And we are coming back to these companies later. The Q4, we had A little bit less negative impact from COVID-nineteen than before. During the year, We have received government support, tax reductions, etcetera, in all countries or most of the countries we are active in. And it amounted to some SEK 79,000,000. In Sweden, we also have received Contributions on SEK 6,000,000 for furloughs And be able to temporary What he said, to leave the country for a temporary time. That amount We have paid back to the government. And all contributions that is possible to pay back, we have paid back. Our priorities during the year has been, of course, our employees' health and safety, But also a big focus on liquidity and after that EBITDA. And I think that has further helped us to improve our cash flow actually. Now we are continuing to focusing on mitigating risks and negative impacts of the pandemic. And actually, I view the Q1 as more challenging from COVID-nineteen than the Q4. We have more restrictions now in Europe, and we have actually had some lockdowns in China with the new virus spread, Which we hope they will handle very efficient as they've done before. But COVID-nineteen is not over, And it will continue to affect us for the first half year. Let's take a look into the business areas and move over to Slide 10. EBITA is up 13% for Construction Services in the quarter. And for the year, EBITDA is up 27%. The organic sales were down 9% due to the project facing Enable. But also, Abel and Hent were affected by the COVID-nineteen pandemic. Actually, we had to stop Some projects in hand during Q4 just due to the pandemic. Abel has increased their EBITA during the year, quarter by quarter. And also the EBITDA margin continued to stabilize during the year. So Ebl's profit margin in Q4 were actually higher than last year. In fact, in local currency, Ebl had a record year in sales. The backlog Of orders at the end of the Q3 was roughly NOK 11,000,000,000, Of which now, as much as 45% is in wind and electrification of offshore platforms. Our team, a really great year for the company, growing 11 percent in the quarter, 15% for the year. Record high order book covering Big part of our business going forward. EBITDA is up 34% in the quarter and 39% for the year. Good and increasing profitability in both Denmark, where they are the number one player, but also in Sweden. So great year for our team. He had commented on the organic sales, which is down in the 4th quarter. Some projects has been Spohnd and even temporarily closed due to COVID. But EBITDA is continued to improving due to more stable project portfolio. Speed Group, you remember The great turnaround program we had in Q2 2019. And since then, we have had seen further improvements by the new management in this company that has a good future to look forward to. Now in Slide 11, if we move to that slide, I just want to say that not only Ratus is transforming, Able is transforming from platforms and services to the oil industry into sustainable energy. Platforms in offshore windfarms and electrification of existing oil platforms Is growing. Offshore wind is a rapidly growing market. And the Goal for the European Union is to fivefold capacity within this decade. That is offshore wind. It's really a good market strength for Abel because We have 6 years of experiences from working with offshore wind converter stations. And we also see efforts from the Norwegian government to reduce carbon footprint, which is a boost for the electrification of offshore production facilities. And again, The green share of the order book is continued to increasing and is up to 45% in the quarter. With that, let's move into Slide 12, where we have our business area, Consumer and Technology. EBITDA up SEK 160,000,000 in the quarter and 86% during the year. Organic sales development, 7% plus with strong sales in Plantation with 12%. The organic number for Plantation's growth is 18%. I'm not going to comment so much on this note. We had a lower EBITDA in the 4th quarter due to the lower sales, again affected by COVID-nineteen, but There was higher EBITA and EBITA margin for the full year. KVD Sales decreased in the quarter due to lower sales in KVD Pro. Cars is growing, EBITA and EBITA margin is increased during the quarter and full year. And KVD is continuing to gain market share in the rapidly transforming used car market in the Nordics. Waste Outdoors had a very tough start of the year since their shops and camping sites were closed. Now if we look into the Q4, it's a very small quarter. It's normally 2% to 3% of annual Sales of the quarter itself is not very interesting. What is interesting is that the data and margins from summers From the summer when camping sites open up, when shops open up, was very, very strong, a positive effect from the COVID-nineteen pandemic. More people spending time in outdoor activities. The order book for 2021 is higher than ever, And it covers more than 1 year of normal sales. Plantation, finishing a very strong year with a very strong Q4. Sales is up in the quarter, of course, and even for the full year. We had last year, the 1st 3 quarters, Spira, in our businesses, which contributed to the sales, but strongly strong negative impact from Spira last year of EBITA. EBITA increased in the quarter and full year due to higher sales, increased gross margins, Higher Efficiency and so on. And I think everyone wants to know how large is the beta effect from Korgen. Well, it's difficult even for us to put an exact number on this Because many things have happened. During Q4, loss making was divested, as I said. In June 2020, we had a new CEO who very rapidly took a number of measures, Put in a new management team with some new members on key position was created, I think, within 1 month or so. This has resulted, Together with the better sales, with the profitability increase from 3.6% to 12.4%. We have better gross margins, higher efficiency store, lower costs for logistics, Better customer offering, better customer satisfaction. And The new management team is really focusing on reducing seasonability. So how big was the EBITA impact from COVID. Well, our best guess today is around SEK 150,000,000 for the year. We expect to gradually decrease of COVID-nineteen effects during 2021. There was a survey performed in Sweden from Hamden's Utrenings Institute, whatever that is in English, Where they interviewed customers and almost 50% claimed that they will spend more times with Gardens Then before the pandemic, also after the pandemic is gone. We will, of course, follow this very closely. One should remember that Stellan Tarshend also is dependent on weather, especially on the few Spring and summer months. And the weather was rather okay during 2020. Let's move to Slide 13, which is also about Plantarsen. Kantarson is the number one player in the Nordics. This market, even before COVID, was actually growing. We do have a favorable megatrend around green living. And it goes for all generations, young people as well as older people. It's a big market. It's We estimate it to EUR 3,500,000,000 only in the Nordic. It's quite resilient And non cyclical in terms of business cyclical, it's a non cyclical consumption demand. And of course, again, we had positive effects from what they called staycations in 2020. The key success factors going forward here is to really be the most inspiring Nordic garden center And also to have sales growth through new channels like online, Click and Collect and services that our customers really like. And I just want to tell you once again how great job I think the new management team in Plantarsen has done during the year in gross margins and so on. So with that, let's move to Slide 14 and Business Area Industry. If we look at the EBITA growth here, we are up 161% In the quarter and for the year, 49%. We had An organic growth increase in the 4th quarter. And this comes very much from Dieab, who had strong growth in spite of quite negative currency effects. In fact, DIAB grew 15% in the 4th quarter. Good demand, but also increased Production Capacity. The wind segment in China, which is Dieab's largest market, Is growing. And we have gained market shares in also new products made from the material PET. The Marine segment was down during the year, but we saw signs So recovery during the last quarter. EBITDA increased 37% due to higher operational efficiency. We have not just invested in production capacity, but also in automation to be competitive in the future. EBIT and sales development is strong for the full year, in spite again of significant negative currency effects for Diab. Hay Shell's display has been Affected by COVID-nineteen, net sales was down in the quarter and in the year, but actually up organically in the quarter by 2%. It's impressive to see how both the EBITA Sta. And the beta margin were strengthened through good efficiency in production logistics, Favorable product mix and ending the full year Very strong. I think best profit margin ever in spite of the negative Sales, which was down 5% for the year. Also, the deal was negatively affected by COVID. Net sales continued to decline in the quarter, although we saw a recovery of the order intake in Q4. And EBITA increased compared with last year due to much lower costs, Higher operational efficiency, both in the quarter and for the full year. Last but not least, TFS. The CFS is very dependent on being able to do clinical trials in hospitals, Which has other priorities today. So we had a negative impact throughout the year, Ramy, pressed to see the strong EBITDA development in the Q4 and for the year, driven, of course, by last year's Trim program that took place in Q4, where we reduced the staff and we changed the CEO. So we will see TFS earnings improve as the pandemic gradually decreases. Now let's move to Slide 15, just to comment a little bit further on TIA, Which I really think is an ESG company, well positioned to take on an important part in the increasing demand for renewable energy and wind power. And the fact that the turbines are getting larger It's really a good thing for Diab's capabilities in lightweight material and design. Again, I just want to mention that the China's market has been effective of new spread of virus, Which may affect the Q1 of the job. If we Look at China. They, in September, stated that they will have 0 carbon footprint in and expected to this is expected to fuel by 2,030 Now I forgot which year it was, expected to fuel market further. And again, it's our largest market, And it represents about 1 third. So now let's try to summarize this year. Well, all in all, it feels very good that we have delivered on our plan, our 3 year plan, And we're now ready for our next step in the journey to the quite different Rotter's, which is a company group. In these 3 years, all companies have stabilized. 10 out of 11 companies has a better EBITA and the EBITA margin And the EBITDA growth has more than doubled. Our earnings per share is up almost 4 times And the dividend is up 46% is the proposal from the Board of Directors. Our leverage is going down. We launched new financial targets, and we have had a very good EBITDA growth. So with that, I want to thank you for listening. And maybe there is a few questions for them. Yes. Our first question comes from the line of Derek Laliberte from ABG. Please go ahead. Yes. Good morning and Congratulations on a strong Q4 and full year, and good to hear that things are going in the right direction. I was wondering about this EBITDA target of a minimum SEK 3,000,000,000 in 2025. How have you come up with this target? And how much of the growth here is to be driven by the current portfolio? How much by new acquisitions and how much by bolt on acquisitions in the current holdings? Thank you. Good morning, Derek. Yes, we have actually a quite detailed plan for this, which I'm not going to tell you all the details. But you could say that acquisitions is around SEK 1,000,000,000 in this during these 5 years to come. All right. Thank you. And then Plantars and just I know you mentioned a few I'm just trying to get a sense of what's been done here. We know it's been a great year boosted by not least the Pandemic, but as you're right, you've also done some substantial improvements, especially with the new management terms In the stores, the customer offering, gross margin improvement, etcetera. So I was wondering, is this a result of sort of a longer process Because it seems like these improvements are more of sort of an immediate type. Just wondering if you could give some details what's been done exactly and why this can be identified before because it seems like it's Some of these things are almost overnight. I don't know if that's clear or not, but Well, I think overnight is maybe to put it far. But they have been working very hard actually since End of May. And of course, the management before also did a good job when it comes to Better customer offering, better assortment, etcetera. But I'm impressed of the new management, again, working with gross margins and logistics. And I think we will see a new not a new brand, but a brand meaning something different in the future. And that, of course, takes longer time. But I urge everyone to look on how much the EBITDA is growing in 1,000,000 and how much the sales is growing in 1,000,000. And you can see there is some efficiency there also made. Got you. Thank you. That's all for me. And the next question comes from the line of Jan Malberg from Kepler Cheuvreux. Please go ahead. Thank you. Just a question first on this margin improvement that we've seen during 2020 and 2019 as well. Now going into 2021, 2022, you might see some top line growth as well. Do you see continued operating leverage here as well? Or do you think, I mean, Stabilica has come to a good level or you see more potential there. Good morning, that is a good question also. I mean, we are You know, good profitability for us is if the profitability is better Then the peers, the peer group for the company, we will never have Plus 10% profit margin in pure construction companies. So as an example, and we want to see more that levels is a good result in other companies. So we benchmark each company versus their peers. And we want to be the most profitable company in our sector Because that's the ultimate proof that you're doing something good for your clients. You create value for your clients. You have A staff that is developing and feeling fairly happy going to the job in the morning And you have an efficient operation. So we will not sort of focus less on profitability increases. Some of the companies, yes, they have achieved that. But We have many companies that have not achieved that, and this will work will continue. And if we talk about Add on acquisitions for companies. We think it's important that you have a profitability level that is good. That's my experience from acquiring more than 60 companies in my previous job. And it's a culture thing. So we want the company not only to be stable, but also have a profitability That can create a good culture together with acquired company. Got it. And since you mentioned acquisitions here and you also said that your target included around SEK 1,000,000,000 acquisitions, do you see is this do you think it's challenging Or is it a lot of acquisitions out there? So it's more about execution rather than finding the right companies? No, no. I mean, it's always challenging to acquire a company. And you can't rush it. It's very important that the companies we are going to acquire really will add value also by synergies. Well, the COVID-nineteen also affects The M and A market right now, I mean, it's quite difficult to arrange management meetings, which I consider to be very, very important part of the acquisition process, etcetera. So valuations are high And COVID is making it a little bit difficult More difficult here, the first half year, I think. But we have been working for this for some months now, and I feel confident That we will make this journey until 2025. Got it. And how about the organic growth? I guess, there's a little difference between different companies, but is this underlying market Gross. I mean, you mentioned that, yes, of course, that there's a lot of good market growth, but is it also that you're taking market share in other companies or anything to add there? Yes. Organic growth will always be more they're both value adding growth. So we will not Shift focus there. Organic growth will continue to be important for other companies. Okay. That was it from me. Thank you. Thank you. Our next question comes from the line of Matthias Lundberg from S. E. B. Please go ahead. Thank you and good morning. Can you hear me? Yes. We can hear you, Matthias. Good morning. Good morning. Sorry to be a bit repetitive here, but I also have a question regarding the EBITDA target And relating to acquisitions, just to clarify, then that relates to the current state of the portfolio. And Should you do a platform acquisition, then would that mean that it could be a bigger scope? Is that how we should see it? No, I think, again, we can't share every detail with you because There will be changes. But this is Both add on acquisitions and new platforms. And exactly what the share will be between them, both will be significant, I think. But it is depending on some other activities. So I can't answer the question more specific than this. Great. I'm happy with that. I have a couple of more questions. And just another bit of technical question. On the state of the financial on the balance sheet of the mother company, I saw in the presentation that the Rothf's parent company had a We had a SEK 1,000,000,000 credit facility. But do I understand that correct that it's not yet utilized? It's an unutilized credit facility? It's not utilized. And maybe Jonas, the order of if you want to comment on this. Yes. No, it's unutilized. And we have had that sort of as a safety measure in the past. And what we're looking into now is to centralize the financing for all the Ratus companies. So we have to look over and see This facility will be needed in the future. And most likely, it will not be, but it will be changed into some other central Financing Facilities. And then the plan is to finance all the portfolio companies from Ratliff centrally. So most likely, it will disappear going forward. But it will be we will have some other forms of financing. Lund. Right. We aim to be a net debt group. So yes. Great. And just 2 then questions on the different holdings here. I have one relating to EIBEL. Yes. And something that kind of takes my interest is that the order books Has been in a decline over the past few quarters. Is this something that is worrisome for future growth? Or do you feel that it's Quite all right, Phil. I think it's quite all right. We have A very large project, JST2, who is now in the second And so we have worked up the order book, but the market He's very good actually for new projects, etcetera. So we just have to continue to win a fair Chair of these, and I'm not worried for that. But in all businesses, you need to win new projects. So but it The situation is, I think, better than it was last year at the same time. Great. Thank you. And the last one from me here. It concerns Diab. And I read in the report that the reallocation of wind volumes in China is expected to affect the next quarter. But I come to think then the New Year in China should then be every year. So isn't this in the comparable? Or is it that the exposure to the Chinese wind market is bigger now and because of that, we should be aware of this when looking at this sequentially? Or how should we view that Kommens. Yes. The exposure to China is growing. You're correct there. And I also P. S. To provide a direct contact with the management of the job, so you can add more detailed questions about how they view The Chinese market. Okay, great. Well, thank you very much for all the answers. That's all for me. Thank you, Matthias. Thank you. And as there are no further questions, I'll hand it back to the speakers for closing remarks. Thank you, and thank you for attending and all the good questions. And I'm looking forward to see you all again after the Q1. Helen? Yes. Thank you very much. And don't hesitate to get in to contact with any of us if you have any further questions.