Earnings Call: Q1 2021

Apr 29, 2021

Hi, and welcome to Stetec's webcast. Jacob Holm, the CEO and Bengt Leistrom, the SFO of Stetec will be presenting today. My name is Martin Westlund and I'm from FINWAIR TAVR. If you have any questions to Jakob and Bengt, you can ask them in the form on our website that is located to the right. Marc, and if you're watching this on YouTube, you can find that formula in the description. With that said, I'll give Jacob and Bengt the stage. Marc. Thank you very much and welcome everybody to StipTech's report for the Q1. Jacob Holm, CEO for Prestipek. And as always, I have with me Ben Glatstrom, our Marc, CFO. So the agenda for today, the normal one. First, a brief business overview. We dig into the Q1 Financial Development and finally an outlook looking ahead. So starting off with Having a look at the overview of our report, it's a very strong report. We're proud to present it. The profit growth is strong, both organic and from acquisitions. We have a solid sales growth organically, and If we have a look at the our overall goal, which is to create shareholder value in a sustainable and long term way by increasing profits every year. Our business model is as some other companies to acquire niche companies and develop them, of course, but then we've decided to do some things differently as well. So our acquisition of work is structured in a different way and also what our focus is. The drive for more sustainable, efficient and safe societies is something that we have focused on for a couple of years. We believe it's important. Infrastructures, important sectors for us as well. They are under dimensioned in aging. So all in all, the underlying growth in our markets are good. We also focus a lot on acquiring companies with strong and defendable positions, high margin companies, but that's also how we develop our existing companies. And if we look back 5 years, actually 1 year before our IPO. We've grown at the profit CAGR at 36% And actually the last 12 months at 40%. So the trend is continuously positive. So that is the basics for our business model. And this will, of course, continue. We are rigged to do this We're very happy to present. We did so some time back the acquisition of the quarter. So we welcome Rollek to Stiftec. Rollek is specialized in electrical charging solutions. It's been we've been in contact with the company for about 2 years. So we were happy to get into a position where we could actually agree with the owners that to take over the ownership. And for us, it really confirms to the market and to all of you our position as a group then focused on sustainable and really leading customer offering. So sustainability for us is very much a source of revenue and something important also for It's our largest acquisition so far in terms of profits, SEK 80,000,000 in EBIT. Profitability margin last year was 30%, expecting going forward rather 28%. Moving forward, one more page to describe Rollek. To start off, 3 business areas, the electrical vehicle charging solutions, charging solutions for Marina Services and then also caravan parks. And Rolik Mariana. She has been doing this for about 30 years in the Marina and the Caravan Park area. So that really means that those type of solutions Marc. They are more complex. It involves, of course, a lot of hardware, but also software. The design of those more complex solutions, the installation of those solutions and then also sales of the solutions worldwide actually and a service of them worldwide. So Rollek has been doing this for 30 years, and that was really the reason why we found the company especially interesting Because Rollek is not a new start up in a fast growing market, it's definitely an established company. Marc. Then of course, the electrical vehicle segment is of course extra interesting. Marc. Two customer segments there, business to business, business to consumer. Once again, the reason for why we wanted to acquire Rollik was really the business to business segment. The business to consumer side is, of course, interesting. It's highly profitable. It's growing at a good pace. However, in the long run, we believe it will be commoditized. So for us, established strong niche positions within the business to business segment. So expanding that a little bit, to start off with the hardware, Once again, with experience 30 years going back, they have a complete range of chargers ranging from the smaller ones, 3.6 kilowatts up to the really large ones And also the superfast direct current based chargers. So the 200 kilowatt chargers are they have a very high capacity, actually larger than Marc. So the range is really complete. The software is a very important side of more complex solutions. On one hand, it's very much about monitoring the technical specifics of a larger park, Martin. The other side is the administrative side that also this software caters for. So adding customers into charging park billing and not only billing for the charging, but also billing For additional services, and this is also an experience that comes from, for instance, Marina Services, where the Software solutions are a lot wider than only the focus on the charging side of things. So and That part of the offering is extra interesting for the business to business customers. Marc. Moving over then on equally important is really the network of sales agents in UK, 2,000 wholesalers selling Rolex chargers solutions. Equally important is, of course, the service network, the technicians. So together in the training Courses, there are 80 of them to really ensure that the service technicians are well trained on Rolex products. And these networks are, of course, very important in a fast growing market. But it's also equally important to service the products and especially for the more complex installations. About 200,000 charging points installed in the U. K. For 10 years. Rolex definitely has Established market position and of course the customers presented here is one example of the established position that they have. So we're very, very happy to welcome Rollek to Stipek. In addition to acquiring Rollek, we've had high activity in terms of doing important deals this quarter. We've also completed divestments of 5 business units from the business area, Property Technical Services. And it goes along the line that we've had for a couple of years to focus our growth to the Water and Energy and Special Infrastructure Solutions business areas. Those areas where we believe our solutions and products, they are really towards critical needs within infrastructure, very, very important, But also more along the lines of, delivering services that really creates sustainability, efficiency safety to societies because these are really long term trends that we believe in. So if we have a look at the deals, it's interesting to put them side by side. Of course, Rolik is larger in terms of profits, But it's also a higher margin and high margin also in this case comes from a high quality company as well. Marc. The growth pace is also higher from Varolek compared to the divested businesses. And all in all, Dan, we've also happy to also demonstrate on a page like this that we've actually bought Higher growth, higher margin at a lower multiple compared to what we are divesting. But that is not that's really a result that we have planned All of this for quite a long time. So it's not just something that is happening. We really had the patience to wait for the right opportunity. As a result of these deals, we bring our profit margin with Rollik and we are of course So we've completed a share issue. The purpose there is, of course, that we always want to have the flexibility to do acquisitions or really good deals when the opportunity is presented to us. So that's also an important step Marc. Moving into the 3 business areas before I hand over to Bengt, starting off with the Water and Energy area. Sales increase up About 34% in our existing businesses have performing quite good during the pandemic, although the restrictions in the societies have made it a little bit more difficult in our business Business units in this area, but we're happy to see that now in the Q1, a slight uptick in sales for the existing businesses. However, the primary sales growth comes from Rollek, of course. The same explanation there for the increasing profits. If we have a look at the margin and profitability, It is more significantly up. Once again, Rollek has actually performed extra well during the period. So there's a Significant contribution there on the profitability, but also UK businesses, they've also showed improved profitability compared to previous years. So So it's very much a collective effort to deliver this increase all in all by 14 business units in the Special Infrastructure Solutions, sales increased significantly 70%, Marc, largely driven by the acquisitions. We acquired GAH Refrigeration in December. They are coming in at the full quarter. Majic. We've acquired a Lotter Group prior to that. So the acquisitions are coming to the numbers as Mike Ted. If we have a look on the profit side of things, of course, the acquisitions added to profit increase there as well. Marc, if we'll have it then look at our existing businesses that we've owned for quite a while, the 2 UK business units with insurance clients delivering services for claims management on underground infrastructure, very positive development in those two areas. And then quite interesting to have a look then at the dynamics. If we have a look at the profitability margin, As we've said previously, GAH, which is developing very well, they have a lower profitability margin than the business area as a whole. So when that company eventually gets their full numbers into the books that will be reflected also. So that's a trend of the profitability margin going down that is expected. All in all, 13 number of business units in this area. Finally then, Property Technical Services. It has been An area where we have worked quite intensively with the companies, sales increased about 2% in the quarter. And this is also the area where we did 5 divestments. 4 of the Divestments were in the Elevator Division, and it's also an area which Everyone knows that we have worked with profitability programs and they have continued to pay off. The development in the quarter is good and strong, actually not only the elevated businesses, but also our roof sorry, our Shell Completion business has also added and shown good development. But anyway, the divestments of the businesses, we feel that we are doing it with a good Okay. By that, I will hand over to Bengt, to Jokarp. And looking then at the group as a whole and the sales Marc. To start off with, we can see that we have had a very positive trend also then in sales last 12 months compared to a year ago. As you can see, it's a 20% up, and we showed an organic sales growth almost 4% in the quarter. And of course, a big part of that is our Acquisitions that have been rolling in during the quarter, specifically the DH and Rollek, But also as Jakob has mentioned, a number of other business units who have which have performed very well. Looking up and you can see also the EBITDA margin increasing steadily as our acquisition Acquired companies with a higher profit margin than average is then making this slightly going up quarter by quarter. Looking on the right side, you see the sales by country. And I must just clarify that this is for the quarter and it's also then including it's a last 12 months from the quarter and it's including the elevator businesses. So which we then eventually then divested on the 7th April. So they have been included fully for the quarter in all results figures, But they have actually been excluded in the balance sheet because of these IFRS rules, how you should included, and then the U. K. Businesses all in all are about a third of the company of the group's total sales If we would exclude the Elevator businesses, this number would slowly get up to higher numbers, of course, then eventually almost up to 45% or so. If we go to the next slide, we see that the EBITDA margin, as you said, is increasing, But not the least, the EBIT itself, 40%, if we compare the last 12 months this quarter compared to a year ago. Marc. And the increase in the quarter as such was a strong 64% EBITDA increase, of which 52% came from the acquisitions and but also very strong organic profit growth. And of course, we're happy to announce that the companies have performed very well even though last year Quarter 1 was also strong quarter. The pandemic hadn't really affected that much. Marc. The restrictions came along during March, mid March, but it was mainly in the Q2 that the effects from the pandemic were affecting the group. So it was a tough comparison, but strong performance from Marci. Many of our business units then ended up with a strong organic profit growth of 16%. We actually then had some Mark. Tailwind from the currency, of course, mainly the British pound, which in average during the quarter had less favorable foreign exchange rate than a year ago, so we have negative 4% effect from that currency. The EBITA margin of the quarter was a little bit higher than the last 12 months, of course, because of the acquisition of Rolik, not the least, Marc, pushing up the margins slowly. And as Jacob already mentioned, When we come to the end of 2021, we expect it to be somewhere between 19% and 20%. And then turning The next slide, we see some additional metrics and key figures. As you may have learned by following us from following us for some quarters years now, when we go then from the EBITDA profit measurement down to the earnings per share. We have some other items in the results. We have costs for acquisitions. We have amortizations of intangible assets that we have acquired. And of course, we have our financial revenues and costs. And so eventually and of course then also the tax itself. So we have as an appendix to this presentation, the bridge where we show all these different items, and you can also find them in the report. But all in all, as a summary then, we had an increase in the earnings per share that was roughly about So I made 10%. And both on the quarter on the last 12 months It was actually then a little bit lower than that, the increase. One major part of that So partners helping us in the transactions, but also when acquiring companies in the UK, we need to pay what's called the stamp duty based on the enterprise value of the company. So we actually paid the stamp duty of a little bit more than SEK 5,000,000 And we had all in all then costs for performing the acquisition of Rollek and the divestment of the 5 business units of about roughly SEK 10,000,000. That was, of course, extraordinary high in this quarter. Looking at the cash conversion, which is also important, we are proud that we typically have a very strong cash Conversion, as you can see in the last 12 months, we are above 100%, which we were also a year ago, But this quarter was lower, it was actually only 48%. And you see that also last year it was below 100%. And typically, it is because you pay taxes in this quarter belonging to last year's results. And last year, many of our companies were, of course, cautious about their cash management and their expectations for the profit of the year. So they did not pay perhaps as much as preliminary taxes. So they had to kind of catch up during this quarter to pay in some of our companies. In U. K, it was partly because of the Brexit where it's still not fully clear how that will affect the flow of goods. So just to be cautious, some of our companies then Invested in some extra stock just not to be affected so much, increased administration or bureaucracy, so to say, when they import goods, Which is good that they do this, build up of stock. And they're also in some businesses, just to be sure that it's not Running out of some components that they also then bought in some extra inventories just to be on the safe side. So that affected the cash flow, but that's you could say is for positive decisions and reasons. Then we also have our debt leverage ratios, one which we think is the most important, the net financial debt Higher profit level than we have today. So this figure is not really showing the true situation for that debt. So that's Why we don't focus so much on that figure, but we always present it. But it's still on a healthy level below 3%. So also very strong figure. Marc. Yes, thank you. Okay. Thank you, Bengt. So finally, have a look at the outlook for the future. As I think we've throughout the entire pandemic. The underlying demand from our customers is solid in this quarter demonstrated by Approximately 4% sales growth. The profitability continues to increase. Marc. It's driven by acquisitions, as Bengt has described, but also by the organic profit growth. Organic profit growth Marc. In businesses with more scalable business models, of course, also increases the profitability percentage. And that's really how we focus our business development also. The guidance we talked about, Having a look at the acquisitions pipeline, we are well capitalized, of course, since our capital raise Marc. During the quarter, our focus is very much on high quality businesses. I think both the 2 recent acquisitions, but actually all the acquisitions from the past years really demonstrate that, but also Rollek, of course. High quality is really what we focus on. The restrictions, especially in terms of the travel restrictions that to some extent prolongs the discussions that we have. Nevertheless, our pipeline is very strong. So it's just a matter of it takes a little bit more time to get to the Final discussions before you could come to an agreement. And also, we would like to Majic. I'll share our view on the acquisitions market in the Nordics. It is, to some extent, overheated. That's the way we experience it. There is a lot of capital available in the market. The interest rates have been low for quite a while and then we have all the stimulus packages We are very thorough in our analysis. We make a decision on what is a correct price for a company based on analysis, not so much about the existing competition. So We have pricing discipline. That's what the right thing to do. In the long term, the acquisitions that we do now, we will live with forever. So the pricing and the balance sheet that the acquisitions create should be healthy. But anyway, we have a good pipeline. So we are working as we And then finally, we believe that we are well positioned towards good trends in the society, especially sustainability, efficiency and safety. These three trends, we've selected them a couple of years ago since they are long trends. It's really based on human drivers To increase the sustainability of the environment surrounding us is nothing new. The drive towards more efficient everyday lives is nothing new. The drive to create more safety and security around us, that's nothing new. So it's very much long term trends. Lately, there's been more focus from politicians, especially around sustainability, from investors, And all of that has created some additional focus on that area. For us, it's very much a long term Magnus. It's not something that we are doing just because it's a trend at the moment. With that, we open up for questions. Thank you very much, Jacob and Bengt. And like you said, now it's time for the Q Monet. And if you have any questions to Jacob and Bengt, you can ask them in the form on our website, and I'll ask them if time allows. And if you're watching this afterwards or that we don't have and some price increases. Could you comment on the magnitude and also if it's reactionary to rising costs Okay. Well, the price increases are really standard for us. So it's normal price increases based on inflation, but also based on the balance between supply and demand. So it's very much so it's nothing extraordinary. What we are happy to see is that we were able to do the normal price increases that we would do any year. We were a bit unsure about the situation in some of these segments, since the pandemic does present some insecurity in the society as a whole. So we so it was more a normal step thank you for that answer. And the next question is, in regards to the component stock building now in Q1, do you think the Mike could be more significant in Q2. And are you seeing any stock billing from your customers as well that could sort Maf Pol Demand. Forward. The stock being that we have done to some extent it's related to Brexit as Bengt explained, but it's also related To shortages in plastics, shortages in metals, semiconductors and so on, so we experienced that. And so we have built up stock for that reason, and we will most likely continue to build up stock when We see that it's responsible from a cost perspective. So we have not seen the stock build up so much from our customers, but we believe it's an important step for us to take. So at the moment, we don't have any shortages, It will take up some cash also in the Q2, we believe. But then, of course, we are in a good position. We have a healthy balance sheet And good cash position. So we are able to support our companies while situation is is the way it is. So we are moving from a strength position and trying to do what is best given the situation. Thank you for that answer. And moving to the next question, could you comment on the activity in the U. K? My perception is that Edu. Is this something you recognize? We haven't seen that specific change between January, February March. It's been for our businesses, It's never been a big problem throughout the entire pandemic. In the beginning, it was troublesome because It hit the world in a very unprepared way. But then eventually, our businesses, they have been delivering. It has been working well. So for us, it's not been big swings. It's been rather stable with a slight uptick now in Q1. Thank you for that answer. And the next question, is the acquisition market hot in every region and segment? Good question. We experienced the hot acquisition market specifically in the Nordics. The situation on the international markets, specifically U. K, where we definitely are active, We do not experience it in the same way. So it's very much related to the Nordics and specifically the Swedish markets. Thank you for that. And the next question, how do you define cash conversion ratio? Yeah. Well, we have full definitions in our report, but it's the cash flow then divided by Full on definition, you can look at page 24, I believe it is in our report. Thank you for that. And the next question, regarding the overheated Nordic market for acquisition, is your view that this market has The trend has A slight inflation in price has been going on for a couple of years that we believe perhaps Over the past year or actually from the from autumn last year forward, we've seen That the willingness to pay prices that we believe are not acceptable. That willingness has been quite high over since the autumn going forward. So we stay cool in this hot situation. Marc. Thank you very much, Jacob Be Bengt, for your presentation, and thanks to all you who have been following today's webcast. I hope that we'll see each other soon Magen. Bye bye. Bye bye. Thank you, everybody.