Earnings Call: Q4 2020

Feb 25, 2021

My name is Ivo Munning. I am the CEO of Sensus Watso, and I will be presenting to you together with Simon Nolder, our CFO. Next slide, please. In this market presentation, we will provide you with an update on our business for the quarter and for the full year 2020. We then will follow-up with a financial update by Simon. And finally, I will finish this presentation with a summary and our outlook. Next slide, please. Now let's look at an update of our business. In this business update, I will take you through the order intake, which is up by 40% our trial sales, up by 23% for the year our profitability with a positive EBIT of €11,000,000 The deliveries to Saudi Arabia that have restarted, our strong position in the Costa Rica contract, an update on the Netherlands. And finally, I will shortly talk about our new CTO, Per Degerman, who has recently joined Sensus Grassho as our new CTO. Next slide, please. First, we look at our order intake. The order intake for the Q4 arrived at a solid 121,000,000. More important than the absolute size of the order intake is the quality of it. With trust contracts signed in the U. S. A. And in the Netherlands, the major part of the order intake okay, from recurring revenue contracts. The renewal of the Dutch Tras contract stands out this quarter for its long FET. We received the 2nd renewal of this contract in November, extending it to a total contract length of 12 years. This speaks for a long standing customer relationship based on our excellent hit rate and uptime performance. In the U. S. A, 2 of the 3 contracts we signed in the 4th quarter was full zone speed enforcement contracts, a strategic objective for us. Looking at the full year of 2020, we booked A record high order intake of 788,000,000 This is 40% higher than the already strong order intake of €562,000,000 in 2019. The excellent global spreads of the full year order intake as well as the high level of trust in the order intake is paving the way for strong profitable sales growth in the years to come. Next slide, please. Now let's have a look at our top line development. The total sales for the quarter came in at 100 and €34,000,000 We are pleased with the sales level, given that as a result of the pandemic, not all school zone speed enforcement programs in the U. S. A. Fully restarted in Q4. Of the sales in the quarter, 44% relates to crafts, mainly from programs in the United States. This is an improvement of 12 percentage points compared to Q4 last year at 32%. Overall, the total global sales for the year grew by 12% to €455,000,000 compared to €406,000,000 2019. Given the market challenges in 2020, we consider this an excellent growth level. The global distribution of our sales by region is well balanced in 2020, with 26% coming from Americas, 34% from Europe and 40% from APAC and EMEA. It's evidence of our true global distribution and brand strength. In 2020, fras accounted for $270,000,000 48 percent of total sales Compared to 2019, with $177,000,000 of trial sales, this is an increase of 23%. Next slide, please. We finished the year at a high EBITDA level of nearly €60,000,000 or 30% of sales. This is a doubling of our EBITDA compared to 2019. We are particularly proud to have reached this result in a year of global economic downturn due to the COVID-nineteen crisis. Right from the start of the pandemic, we came together as a global team and continued our business almost as usual. It has taught us that our investments in customer relations, in our internal organization and in our agile way of working are paying off in times of global distress. Due to this favorable situation, We could keep our sales levels high and our margins up. Even with the average number of full time employees during the year increasing to with 27, to support our growing business, we managed the cost side of our company well. Our total expenses decreased with 11% during the year. With higher sales, stable margins and lower expenses, we are proud to have realized a positive EBIT of €11,000,000 in 2020, an improvement of €35,000,000 compared to last year. Next slide, please. In August 2020, we received a contract from our customer in the Kingdom of Saudi Arabia for our in vehicle solution. With a total contract value of €275,000,000 this represents the largest single contract ever awarded to Sensus Hutso. Since 2015, we have sold more than 2,200 in vehicle systems across 4 countries. The use of friendliness, ease of installation and above all, the precision and effectiveness of our solution makers the clear market leader in this domain. We have first started our deliveries to our customer in Saudi Arabia in Q3. Due to logistics challenges at our customer, only 15% of the contract revenue is accounted for in 2020. We have restarted deliveries in February and foresee the remainder of the deliveries under the contract to be executed throughout 2021. Next slide, please. In February 2020, Sensus Hutso, together with our consortium partners, signed a contract with the Costa Rican government for the country's nationwide intelligent transportation system for a total contract value of €192,000,000 Alongside the systems agreement of €132,000,000 There's an additional trials and maintenance and staffing contract estimated at €60,000,000 over a contract period of 4 years. Sensorskratso will supply T Series camera roadside systems together with related analytics software, PULSE and our back office software, Cillian. During the quarter, it became apparent that the Costa Rican economy has been severely impacted by the COVID-nineteen pandemic. The budget already allocated to our customer for the execution of our contract was withheld by the Ministry of Finance. This has put the formal start of the program for the moment on hold. The Costa Rican government clearly recognizes the benefits of our traffic enforcement program for the general public that has other financial priorities in the short term. Given our strong contractual position and the willingness of the government ultimately implement a national traffic safety program, we believe the program will be rolled out as projected, albeit later than initially expected. Right now, our best estimate is that first deliveries will start in the second half of twenty twenty one. Next slide, please. Now let's have a look at some recent developments in the Netherlands. The city of Amsterdam has defined a policy how to make Amsterdam a more sustainable and healthier place to live in. One of the key contributors to this policy is to reduce emissions for vehicles entering the city. The policy envisions that by 2,030, only emission free vehicles are allowed to enter the city. In order to enforce this policy, Sensorschatso has been the technology provider to the city of Amsterdam already since 2010. More than 50 cameras have been placed around Amsterdam, reading the license plates of all vehicles. Those license plates are checked against the national vehicle database using our analytics software, PULSE. With that information, PULSE decides if an entry in the city is unlawful and if so, to record a violation. On a daily basis, more than 600,000 license plates are read and checked using our post software. The result of the enforcement of this policy is that the emission levels within the city have decreased by more than 50% since the introduction of program. The greenhouse gas emissions are now within the levels of a healthy living space. We are very proud support Amsterdam in making the city a healthy place to stay. Next slide, please. In January, the fiscal information and investigation service in the Netherlands started an investigation into Sensorschotzel Netherlands BV, formerly known as Hagstrometer BV. The investigation relates to allegations of misconduct in Hagstrometer before the acquisition by Census Traffic AB. The investigation is at a very initial phase of collecting information and very varying details related to a certain contract dating back to 2015. We want to be very transparent about the situation. And therefore, we decided, although not a marked obligation, to nevertheless inform the market and or other stakeholders about this industrial investigation. We do so because for Sensus Hutso, everything we do revolves around one powerful word, integrity. It's been in our DNA for 60 years. It defines who we are as people and as a partner to our customers. All of our actions are based upon that single word. Showing high level of integrity is a way of being, a way of building our products and providing services and above all, a way of doing business. In line with our integrity culture, we have initiated in January our own internal audit, which has not provided any indications of possible wrongdoing. We will, of course, fully cooperate and proactively share our findings with the investigating authority. Although we are positive about the outcome, it will not be possible to assess if there are any consequences for the company until a final conclusion has been reached by the investigating authority. Next slide, please. We are pleased that Perje Degerman has joined Sensus Hutso in February as our new CTO. Replacing Timo Katsonides, we decided to pursue other opportunities. Timo's fast experience in our industry and his Inclusive leadership style have helped us to get to our current market leading position. Timo will remain with the company in an advisory role. Per deggemann is a Swedish national, which helps in diversifying the group management team. He has an international technical background from Scania and Einride, a company that develops autonomous driving trucks, where he has served as a CTO. Per holds a Master of Science as well as a Licensate degree from Linkoping University. He has strong skills in building a modern engineering organization, and he brings additional knowledge about the automotive and traffic industry to our company. I am confident that he will be able to help align the company with changing market needs, creating long term shareholder value. Per will introduce himself and share his technology vision on our business during the Q1 market presentation on April 27. Next slide, please. With the addition of paired to our team, we have further diversified our team and added additional knowledge and experience in the mobility market. This slide shows how we are organized. We have a global organization operating in 70 countries across the world. To run this global operation in an efficient way and retain focus On our local businesses and customers, we operate from 5 entities with local leadership and P and L responsibility, being Sweden, Netherlands, Australia, USA and managed services, where we do software and business development. The group management team consists of 4 people and is responsible for global results and functional strategy development. The five entities report on a monthly basis to group management and as an extended management team, we meet around 8 times per year to exchange information and make sure All teams are globally aligned with the objectives and strategies. The collective team is very senior with more than 150 years of experience in our or related industries. As CEO of Sensus Hutso Group, I report into the Board of Directors minimal 8 times a year. The Board of Sensus Hutso is a professional Board with a collective international business experience of more than 125 years. All in all, we are blessed with a very experienced team with a strong international background to lead and control our company. On that note, I'd like to hand over to Simon for the financial update. Next slide. Okay. Thank you, Ivo. And I would like to take you through the following topics today: a consolidated income statement an update on the segment's performance and a full year analysis on the Kraft sales development and finally, our available cash and financial position. Next slide, please. The 4th quarter sales arrived at €134,000,000 compared to €156,000,000 in Q4 2019. Full year sales ended at €455,000,000 compared to €406,000,000 an increase of 12% year over year. The gross margin over these sales amounted to 35.6%. The operating expenses for the year totaled €150,000,000 compared to €169,000,000 in 2019. The decrease of expenses is partially driven by lower amortization of €8,000,000 related to the acquisition of HOTSOVIHERE. During the year, the company received COVID-nineteen relief from the Dutch government to the amount of 3,500,000. This has been recorded as a benefit in the operating expenses. The company also received COVID-nineteen relief from the U. S. Government. The relief amounting to €4,500,000 if recorded on the balance sheet as a loan. The operating profit for the year totaled positive €11,000,000 compared to negative €24,000,000 And we have ended the year 2020 with a profit after tax of €4,000,000 which is an increase of €19,000,000 compared to 20 19. Next slide, please. So now let's have a look at our performance of the system sales business. The order intake of System sales for the full year landed at €629,000,000 With this order intake, we end the year on a record high order intake for Sensorskazzo. Compared to last year, the order intake has increased by 67%. The increase is driven by order intake from existing customers and order intake related to Costa Rica of €192,000,000 in the 2nd quarter and the order from Saudi Arabia of €275,000,000 in the Q3 of this year. The sales for the segment system sales in the quarter amounted to €101,000,000 compared to €130,000,000 in the comparison period. For the full year, the segment's sales landed on €333,000,000 compared to €311,000,000 corresponding to 7% annual growth. The EBITDA for the quarter arrived at €40,000,000 compared to €23,000,000 last year. The full year EBITDA has increased from €21,000,000 to €39,000,000 with an EBITDA margin improvement from 7% to 12%. The full year improvement in the performance is due to higher efficiency on delivery of bigger volumes and repeat orders. The operating profit for the year 2020 arrived at €19,000,000 compared to €1,000,000 in 2029. Next slide, please. Moving to our managed services segment. The order intake for 2020 arrived at €159,000,000 compared to €186,000,000 in 2019. In the quarter, we have received 2 new trans managed services contracts and one extension with a combined order value over contract periods of 5 years of SEK 89,000,000. Our managed services sales in the 4th quarter amounted to SEK 33,000,000 and has increased by 18% compared to the Q4 last year. For the full year, the segment sales landed on CHF 122,000,000 an increase of 28%. Large contributors to the 2020 sales of managed services are school zone speed programs. With a higher sales level combined with lower cost of implementation during the second half of the year, the EBITDA has increased 173% from €7,000,000 to approximately €20,000,000 From an operating profit perspective, the performance of the segment has improved from negative €26,000,000 to negative €8,000,000 Next slide, please. Last quarter, we added this slide to our market reporting deck, demonstrating in what way Tras is part of the segment System Sales and Managed Services. In general terms, Truss is recurring revenue within both segments, with truss managed services being 100 percent recurring revenue. For the full year, the segment system sales had 29% truss sales included. These trascals mainly relate to service and maintenance for our customer installed base. In addition to last quarter's presentation, I want to show you what the development of trial sales has been over the years with 2017 as a base. We have seen double digit growth numbers since 2018 with 2019 2020 at 23% year on year growth. This growth is mainly driven by trans managed services contracts in the U. S. A, of which predominantly School Zone's key programs. These programs are operated in school zone areas where the most vulnerable road users, children participate in traffic. We are proud that Sensorscato is contributing to safer school environments by reducing speeds on the roads in these areas. Based on the year on year growth of 2019 2020 at 23%, we are still trending towards our long term ambition to grow class sales by more than 22% compound annual growth rate to more than SEK 600,000,000 in 2025. Next slide, please. Finally, I would like to take you through our cash position. The available cash at the end of the year totaled 148,000,000 compared to €85,000,000 at the end of 2019. The available cash includes the credit facilities not taken up but excludes the tranches of additional financing of Rabobank not taken up. The remainder of that additional financing amounts to 37,500,000 The operating cash flow of the 4th quarter was slightly negative at €7,000,000 For the full year, however, the operating cash flow amounted positive €15,000,000 compared to negative €4,000,000 for the year 2019. The negative cash flow from operations in the 4th quarter is driven by the increase in net working capital, which peaked at €188,000,000 at the end of 2020. The increase in working capital is related to deal sizes that have significantly increased. With the new raised capital funds in the Q3 and the additional financing from Raubem, we remain to have a strong financial position with 67% equity assets ratio. And on that note, I would like to hand over to Ivan. Next slide, please. Thank you, Simon. Our order book is stronger than ever before. Our truss business continues to grow, leading to higher margins. Together with tightly managed costs, our EBITDA margin has now nearly doubled from 7% in 2019 to 13% in 2020. Even with some short term revenue impact related to COVID-nineteen, we retain our long term plan to grow our net sales from €455,000,000 in 2020, for more than €1,000,000,000 which starts revenues is more than €600,000,000 in 2025. We also retained our ambition to increase the profitability from 13% EBITDA margin in 2020 to more than 15% in 2025. On that final note, I would like to open up for questions. Next slide, please. Thank The first question comes from the line of Victor Westman from Redeye. Please go ahead. Your line is open. Good morning, gentlemen, and good job with a solid report. I wanted to ask about So the contract, you mentioned there was some delays on the customer side there. Is this corona related? Do you see that other customers have similar problems? No, not at all corona related. It's actually been an implementation of our new ERP system at the end of the customer, which is causing us. Okay, very good. And I wanted to follow-up also on the uninsured vehicles. What's going on there? You mentioned And there's been solid interest before. Can you give some update on this? I don't what do you mean with the question exactly? The potential for Insured vehicles, not Oklahoma, but in other states? Yes. I mean, that's like always, we are facing long sales cycles for these programs. Certainly, with the local governments being closed in the U. S, that processes, but it processes slowly. But there is progress there, absolutely. Yes. And when you're looking at your sales Opportunities, the funnel, is this is it larger or smaller compared to 1 year ago, you would say? That will mean a forward looking statement, I guess, Victor. Okay. I understand. We don't we cannot talk about Silcy Filaments in the future. We can talk about the order intake, which actually tells something about the future sales. Yes. Okay. Understood. Can you maybe say something just then about The margins in managed services, they've been on a rather good Trend now, but they have been higher a couple of years back. Can you just say something about its variations? Yes, Victor Simon here. I'd like to comment on that question, if I may. So what we typically see is In a period of relative low onboarding of new programs, costs are relatively low, and therefore, we have a higher margin. [SPEAKER KARL HENRIK SUNDSTROM:] But in higher periods of onboarding programs, yes, the on ramping costs are also higher. So we see that temporary effect. So that's basically the reason for it. Yes. Okay. Maybe you can last question then maybe on the On Verra acquiring Redflex, can you give some general statements how you see this? Yes. I think I consider it to be a positive thing, Victor. And we know the market is fragmented. So There have been some talks about it for many years about that being consolidated. So I think it will it will it possibly drive some other discussions in the in the industry after this acquisition. So I think it could be something positive in the future. Okay. Thank you so much guys. Thank you. Thank you. As there are now no further questions, I will pass back for any closing comments. Yes, it's Stephen Mennig again. Thank you for joining the call, and look forward to meet you again on the next call.