Good day and welcome to today's Troax Group presentation, Q4 report 2021. At this time, all participants are in a listen-only mode. There will be a presentation followed by a question and answer session. At which time, if you wish to ask a question, you will need to press Star and one on your telephone keypad. I also must advise you that this conference is being recorded today. I would now like to hand the conference over to your speaker today, Thomas Widstrand. Thank you. Please go ahead, sir.
Thank you. Thank you everyone for calling in. As you understand, I'm Thomas Widstrand. I'm the President of Troax Group. I would like to share with you then some of the analysis, or let's call it conclusions and comments around the fourth quarter financial development of Troax. Obviously we'll do some comments also about the whole year. Those of you who have been following this kind of presentation before, I will follow what we call the quarter four reporting, which is on our webpage. For those who are trying to find it, if you go to our webpage, it's troax.com, you will find on the menu a heading which is called Investors.
If you then push Investors, you will come to a number of choices then of different reports, but you will go to what is called actually Financial Reports. On the Financial Reports, you will then find the fourth quarter 2021 presentation, which I more or less will follow. If you don't have it, you will be able to follow my comments in any case, but nevertheless, if you have it's always a bit easier. I'll start with the first page and it's always that I try to introduce the company by saying then that we help people and organization to try to stay safe. Not only safe and sound, but also on solid ground. With that, the introduction, very short introduction, I come into the third page where we have then examples.
The first example of the business area that we are working with, just so you have a brief introduction to Troax if you're not very well acquainted. First one is Machine Guarding. We have approximately for 2021, 60% of our turnover in Machine Guarding. As you can see from the picture there, these are typical examples of installations where they require some sort of guarding. In this case it's an automotive process, so you can have all sorts of processes of course where you use Machine Guarding. These sort of installations you have all over the world, all parts of the world even of course it's more in the industrialized part of the world. Turning quickly into the second of our business segments or areas, we call it Warehouse Partitioning.
As you can see from also this picture, it's more of a traditional warehouse where people are perhaps not walking around, but they are using forklift trucks to pick up things and then dispatch it to customers. I'll come back to you in a second then with a few comments regarding what we call today Automated Warehouse, which actually is a combination of this Warehouse Partitioning and Machine Guarding. This Warehouse Partitioning is approximately 30% then of our turnover. Last, of course least from a financial point of view, but not least from a, let's say importance point of view, is what we call Property Protection, which mainly is a North European, let's call, operation. It's approximately 10% of our turnover.
As you can see from the picture, it's not really safety in the sense that you protect people from not getting hurt if something would go wrong. It's more about protecting, of course, different kind of luggage or bicycles or skis or whatever you have that you have in some sort of storage solutions. Normally in the cellar or could be in the attic or another place. I then come to Automated Warehouse, which as I said is a combination a little bit of products that are used in Machine Guarding, whereas the application is more to the warehouse side. As this picture tries to explain, and many of you have seen it before, it's a lot of different pallet racks.
The difference then between this and what is more traditional warehouse is of course that it is highly automated. There are different kinds of, you can call it robots or picking parcels that are being transferred from the pallets in different ways on conveyor systems. In different places here you need a lot of safety because even if these are very highly automated installations, you normally need a lot of safeguarding because people are working here with maintenance, they do some changes or updates or whatever. Of course you want to protect people who are normally working in some sort of receiving or dispatching area towards the customer. This is something which has been developing very well in the last couple of years. You obviously know what is driving this.
This is obviously the complete demand for an increase in all e-commerce that you and I are obviously as consumers are also driving. We've had a very good development in these kind of installations in the last two, maybe three years. Also during 2021 it's continuing then to increase the turnover. It's actually today the biggest, I would say, selling sub-segment that we have, even if we don't officially inform about it publicly, but it's actually the biggest part that we sell. The year in brief, very short. Safety perimeter for 2021, approximately, is at 75% of our turnover. If you look at the left of the focus there, Eastern Europe. Of course, in continental Europe a lot goes to obviously to Germany, France, Italy and what have you.
Of course, you have the U.K. and the Nordics. What is growing with us at the moment, substantially, or have been doing for 2021 is of course, North America, where we've been quite successful with both Machine Guarding and also with Automated Warehouse parts. Obviously longer term, we try to grow what is called new markets, which of course is a lot on the Asia Pacific side, but also on South America. That's still on the lower side. Obviously we think that there's a potential for that kind of region at least long term. If you look at the figures totally, then we increased both orders and the sales substantially this year, helped both by acquisition, but also by a substantial organic growth, which I'm coming back to.
Totally, we increased with some 50, 55%. Due to the good volume development, we've increased the profit with a bit more, it was actually 70%. From a financial point of view, 2021 has been a rather good year for us. The operating margin is 20.8%, which is actually exceeding our targets, which I'll come back to. In total, I would say that it's a good base for further development now in 2022. Obviously, earnings per shares have developed also in a very good way, and the proposed dividend that will be given to the annual general meeting this proposal is to be increased with approximately 50%. SEK 0.30 is the proposal for dividend per share.
I go to the next page, which is a summary of the yearly development, longer time period development, just to get you into the picture that we are a growth company. We are in our business, we are the leading company in what we call the mesh panel solutions or it could also be called indoor perimeter protection. We are approximately 2.5 times bigger than the number two players. I will come back to that little bit later. We are in 45 countries, and due to the very good organic growth this year, I would say that we've had quite an increase of the compounded average growth with some 15% since 2012. Normally, we are talking about that the market is growing with some 4%-6% a year.
On top of that, we normally should take market share. I would say that the more traditional way of looking at the growth for Troax is somewhere in the range of 8%-10%. This means that the growth in 2021 has been substantial one. I go to the next one called financial targets. If you see from the first one, we don't have an explicit target on the sales growth. As I told you, then normally we should do something better than the market growth. During 2021 then, we had an organic growth then of below 40%. Then on top of that, we had an acquisition effect of the acquisition of Natom that we did in Poland in 2020, which added another 15%.
In total 54%-55% of them are recalculated. The next target is the profitability one, where we should be in excess of 20%, which we have achieved this year, close to 21%. The same goes for the capital structure, where we shouldn't be more than 2.5, we should be below 2.5 times when you compare net debt to EBITDA. We are actually at 0.8 at the end of the year. We have a rather strong balance sheet, which means we can continue with investments, regardless if it's moving on machine investment or if it's market investment, or could be also possibly acquisitions. We should also pay as dividend approximately 50%. This year we will be slightly below that. Forty-five percent is a substantial increase to the year before.
With everything going on, we think this is a good balance for the Troax company then for also for the future investment. Next page, which is still a bit of summary then for quarter four. Not so much the whole year, but more on quarter four. You can say that it continues in a very good way on the order trends. This started by the end of Q1 in 2021, when the pandemic effect started to decrease substantially. After that, we've had a very good development. You could say that generally speaking then to explain this good development is that there's been a strong demand from customers, mainly within what we call Automated Warehouse and Machine Guarding.
We note, however, just as a small remark, that during the second and third quarter, we did get at least some substantial part of, or maybe we should call it significant part of orders, which was one way related then to projects which was probably delayed from the pandemic impact in 2020 or maybe even earlier. In Q4, we haven't seen that. Obviously this kind of effect, however small or big it was, it has ended in Q4. In Q4 it's more of a normal market development, whatever that means. It's for this quarter four, it meant that it was still a very good market development, which means that we could have a very good order trend, which then continued a trend from second and third quarter.
We also have a good EBITDA result margin for quarter four compared to last year, but we are a little bit disappointed with the margin compared with previous during the year. This is coming down to the fact that the gross margin was a bit on the lower side, and there are a few explanations for this. One is of course that due to the fact that we sold a number of these bigger automated warehouse projects that was invoiced in the fourth quarter that was taken on earlier in the year when the steel price was substantially lower. Of course, this has a negative effect on the margin. We also had a little bit of a negative side due to the product mix and some costs which I will come back to.
Nevertheless, we think internally that we can do certainly better and we aim to show a better figure in quarter one 2022 without giving you any real figure in itself. It should definitely improve the gross margin. If you then turn to the sales side, it was good in all markets, I would say. It's also of course reflecting the activity in quarter four and in previous quarters. Earnings per share increased compared to last year, which I should also mention under the quarter four last year was of course influenced negatively by the pandemic effect. We shouldn't maybe compare too much with that.
Working capital is on the expected level, albeit that it is higher than before, and it is primarily because, well, firstly you have the natural cost that's due to the fact that the sales have increased 55%. You of course get a higher receivable. I wouldn't say that this is a main object for our worry, but the inventory has clearly increased because we wanted it to increase, and we are quite happy to have that because there has been, and will certainly continue to be some disturbances in the supply chain from our sub-suppliers, meaning then that they are delaying components or material that we need for our own manufacturing. Which means then that the lead times from sub-suppliers to us have increased, and it's not reliable like it was before.
We have then taken the attitude of course of increasing the inventory, which I think right now it's a very healthy action. In, if we talk about the manufacturing units, which we now have, maybe not all over the world, but we have, I mean, the industrial part of the world, they've had good development, good volume, so obviously we have a good coverage of the fixed costs there. Nevertheless, the steel prices continued to increase in the fourth quarter and, we actually get a little bit tired of this because we never see that the steel price is stabilizing, so we can also get a stabilization towards our customers. We are then obviously increasing the customer price in good cooperation with the customers, I must say.
Of course, since the steel price are increasing, there's a certain delay of course before we have compensated on this with increases towards the markets. This time delay, you can also see has a negative influence, especially I would say on the quarter four this year or 2021. We did see stabilization towards the end of the period. We hope it's not a forecast, but we hope that now we have maybe some sort of stabilization and could also work in a better way than with the margins like we normally are doing. However, we are not in perhaps total control over the steel price. It's also influenced by the demand from China by the automotive industry and of course lately the energy prices have risen considerably.
There is a certain risk that there might be some continuing increase in steel price. We have to wait and see. We are prepared for that. If it continues to increase, we of course have to go out again and talk to our customers and unfortunately do some sort of adjustments of prices. Otherwise, we have adjusted the prices as we write here with some delay because of that there is a certain delay between when we receive the price increase and when we can get it out, so to speak, practically from the customers.
Turning quickly towards then some comments about the automotive, which we have commented now I think during one and a half year, that it has not been very strong either in the fourth quarter, and we had expected it to at least be a little bit stronger. We note that a number of the automotive companies have good investment plans, but they are not doing substantial investments, so they seem to delay it to a certain extent. There are investments going on, but I wouldn't say that it's done in a very big scale, so this has to come sooner or later because with all this technological transfer to electric cars or electric platforms, this will obviously take place. We obviously need to wait for a couple of more quarters in order to see this probably.
We hope that this will come now in 2022, but we have to come back to this time when we have facts to show and not only expectations. On the other hand, the automated warehouse part is continuing to give very important orders, and it's if anything, it's still increasing, I would say, in demand. This is, of course, very positive for Troax, and I think also we are very strong in delivering solutions for these kind of rather demanding customers. There is a negative side on the same thing that is that our dependence, of course, on these customers have increased due to the increase of volume. I think we can take care of this. It's not a main problem, but it's just something we all need to understand a little bit.
The acquisition we did in 2020 in Poland, also Poznań, they continue to have a good development in the fourth quarter, and we have started now finally to move also to new facilities. At the end of the year, we had moved biggest possibly so one of the two factories to the new site. The second one will have to wait a little bit because we still are trying to get some more electrical power to be connected with our building there. Before we get there, we can't really move the second one. During 2022 and into 2023, we should be able to move that also. As a small remark, we also started a new sales company in Australia.
We think there is interesting possibilities there for number of customers also that we already are discussing with, to, of course, to increase turnover in an interesting market. Well, if I turn the page, I go to the Financial Highlights. I'm sure you've gone through this already. I already talked about that the gross margin for the quarter was on the lower side. I've already explained, and I think the major effects on top of this, we have, of course, the consolidation effects of Natom, which in itself has decent margins, and we are very happy with the result development.
When we consolidate it with the rest of Troax, it reduces the margin somewhat just because the products that they are producing and selling have a lower margin just because that is the structure from before compared to Troax. On top of that, like I said before, we have moved at least one of the factories now to new facilities in Poland, and that also created some extra costs. Nothing extraordinary, but it has in the fourth quarter, of course, reduced the margin also a little bit. Totally, the operating profit has increased compared with last year, but as I said, when you compare with last year and with average this year, it's a little bit on the lower side.
On the total side, we already discussed the total picture. The aim is of course then, like I said before, and to step by step to come back to margins, which are a little bit similar to what we had before. Going to the next page, won't go through all the details. We've also done some reclassifications of some sales to some countries, but it has no major impact. Just so you know that the figures are slightly changed in previous year. If we look at the orders, it's a similar development to on the sales side. I first look at the whole year because that gives the total impact.
The 12 months, January to December, which you see in the middle here on the page, there are substantial improvements in our regions, also in the more mature regions like the Nordic region, which has increased with 20%, which is a very good figure. Then you have, of course, North America, which have really excelled in very good growth and, they've really come through in a good way during this year. Also in new markets, which are of course much smaller figures, but, we've grown there organically with some 40%, which is a good figure. Then of course, we increased with the acquisition in order to get to the total figure. I think we really formed, as I said before, a good basis now for future growth.
One of the tasks for us now for 2022 is, of course, to, let's call it, grow into the much bigger customer base that we have created during 2021, which is only a positive thing. As you understand, with such a growth, there has been a certain pressure among the organization and on the manufacturing side and logistics and what have you. We have, I think we should give the organization a big credit for what we have achieved during this year, because it's been tough with the pandemic and also the substantially increasing demand. On the sales side, it looks a little bit similar.
If you see that on the three months, you see a minus for U.K., but I'm normally saying that you shouldn't take too much attention to quarterly figures because sometimes they get bigger projects which are also related to other regions, and in this case, some of the projects are actually then diverted to other regions. Of course, we compare with 2020 where we had more business generally transferred through United Kingdom. Obviously that creates a negative figure. But from a market point of view and so forth, there's absolutely no worry from our side. We are quite happy with what we are doing in U.K., so very well, and don't take this too negative, this -3% for the fourth quarter.
Totally a very good development in orders in fourth quarter. I go to some sort of conclusion because I want to have some time, of course, for you to put some questions. As we said now several times, very good order intake mainly coming from Automated Warehouse, also from Machine Guarding, and some of the other segments are also progressing, as we write here, positively. A little bit low on the automotive side, as I said. Good development results, albeit we can claim that the margins were in the quarter on the low side. North American operations did very well and show improved results. More or less all markets had a good development in orders, and the factories will continue to do well.
Continued some turbulence with steel prices, but maybe there's some sort of stabilization towards the end of the quarter, which is at the moment, I would say good for not only us, but for, you know, for the customers. They need some sort of stabilization, I would say now. It's a tough situation for many of them out there because they have price increases coming from suppliers like us, and we are normally, as you know, not the biggest supplier to this kind of customer, but they also have the problems then to get their own supply of different kind of raw materials or semiconductors or whatever that is, which of course then creates some problems for them to deliver to their customers. Integration of Natom is ongoing in a positive way.
Summary, good development, better result than corresponding quarter 2020, but a little bit on the lower side than when compared with at least quarter two and quarter three. We're going into slowly the end of this short presentation. The growth factors you've seen before, they are the same. It's mainly the increased industrial automation, the growth in e-commerce. We are seeing some tendencies also that the on-shoring, meaning you take back some manufacturing to where you are, that this tendency is increasing. I would say that compared with the other two main ones, it's not the biggest influence, but it's positive, let's say, on the margin side.
On the production units, we still have, as you know, quite reasonable overcapacity since we want to keep our customers then happy with good delivery terms. We have still increased them because of the volume increase, the utilization rates in more or less all of our factories. Which means then that we might look into some investment maybe earlier than expected, which is of course only a positive thing. The ones which is still on the too high side, short term on the machine capacity side or machine utilization side is the Polish one, where we are continuing to invest, but we are still waiting for some of the investments to come into implementation. That capacity utilization is a bit too good long term. Turn the page. We are the group, so we have a number of brands.
We don't need to go through this too much. We've been working for a safer tomorrow since 1955, and we intend to continue to do that. Of course, one other thing which is becoming increasingly more important is to work with the, not only on the environmental side, but also on ESG items, generally speaking. You've seen most of this before. We continue with both improving our products from an environmental point of view. We try to reduce the impact that our factories have on the environment, on the CO2.
We try to push the suppliers, mainly our steel suppliers, that we could use more of the reused steel or recycled steel, since obviously steel for us is the major impact on our CO2, which we cannot maybe directly influence, but we can indirectly influence by buying more from the suppliers. We can also influence maybe the steel works to a certain extent to increase the number of reuse of steel or recycled steel that they are using in their own production. We've also done some work on the ISO cert in some of our units this year. We will try to be a little more explicit over this when we do the annual information, which will come I think in March, next month.
We are concentrating to, you know, to continue to improve both the products and our impact and on the environment around us. Continue with our safety center with our R&D department and of course also from environmental point of view, this is quite important that has a good influence already from day one, which means that we are starting to sketch on new or improved products. We are certified also by external companies. In this case, we have taken as an example TÜV Rheinland, which means then that the customer not only need to trust us, which we think they should do, but nevertheless, it's always of course good that an external certifying body has tested that you are doing what you're saying, and that is what we obviously are doing.
We continue to do this kind of testing so that the customer feels safe in what they buy from us. Here we have a photo from still the biggest unit that we have in the group, so it's the one in the southern part of Sweden. Sort of this shows then that we continue to develop and invest. Of course, to some sort of sunrise, we try to protect our people, property and processes, where obviously then the people are the most important thing. Processes is becoming, of course, also more important as we go down the route of increasing you know, safety awareness with our customers. Finally, we are the original since 1955, we try to act like that also.
We have a lot of respect for that we're working with safety, and so we try to have high standard. In other words, safety should equal Troax. With this, I'd like to end my presentation. John, if you would then invite the other people to put questions, I'll do my best, of course, to answer them. Thank you so far.
Yes, sir. Thank you. We will now begin the question and answer session. As a reminder, for those who want to ask a question, just press star and one on your telephone keypad and wait for an automated message advising your line is open. Please then state your first and last name before you ask your question. Once again, star and one if you wish to ask a question. We have a question that came through, sir. We will now take the first question, and the line is now open. Please go ahead and ask your question.
Hi, Thomas. Hope everything is good with you.
Thank you. Yes, so far so good.
Nice. Nice to hear. I was just first looking at the order intake. Will these orders primarily be materialized in the first quarter? And also, can you say anything about how the order conversion was in this quarter?
These orders that came in in the fourth quarter are primarily for deliveries in quarter one and partly in quarter two. We have, however, seen during 2021 that these bigger projects, especially in Automated Warehouse, have a certain, let's call it inclination of being sometimes delayed because these are big projects and they're delayed. There might be something coming in to also the second part of this year. Generally speaking, they should be, according to the plans that we know of today, delivered in Q1 and Q2. If you then talk about the deliveries of Q4, they were a little bit more than usual that were delivered in Q4. They came from previous quarters.
That's what I meant, that there were a certain delay then of certain projects, I would say, which of course had a negative effect also on the margin side.
Okay, perfect. Just on the gross margin of 35%, if we disregard the lag in price increases for rising input prices, what would be a more normalized gross margin in this quarter? I know that before Natom, it was around maybe 40, 41%.
Yeah.
now after Natom, what would be a more normalized gross margin?
I think that under normal circumstances we would say then that we will go to 39%, including Natom, something like this, ±1% here and there, you know, which is a good level where we should be in the longer term.
Perfect. Just the last question. You know, you hear about car manufacturers moving their production back from Asia back to Mexico and Europe. Is this something that you have witnessed or are experiencing?
Yeah, we are seeing that. We have not seen so much that it actually have occurred in reality. But we see a number of potential customers and also some customers who are obviously planning for this. I think this will have a positive effect. It will benefit us and also our competitors, I think, generally speaking. I would not say that this dramatically changes the demand, but it of course is a good thing in general that these things happens. It increases demand for automated solutions, and if you have an automated solutions, you normally need perimeter guarding.
Perfect. Thank you. That's all for me. Have a nice weekend.
Same to you. Thank you for coming.
Thank you. Once again, for those who want to ask a question, just press star and one on your telephone keypad. We have questions that came through, and we will now take the next question. Line is now open. Please go ahead.
Hello, Thomas. This is Yun Hiltner. Can you hear me?
Yes, I hear you.
Oh, super.
You sound a little bit darker than normal, but I hear you.
Okay. Well, I don't know why. I just wonder, you mentioned that in automated warehouses you see bigger orders than in the rest of your business. Just looking at the order intake in Q4, the growth rate there, is that reflecting more or less the underlying demand you have, or is it inflated by some major projects that are not likely to be repeated most quarters?
Good question. We hope, of course, that some of these projects will be repeated. To answer you in a serious way, I would say that, no, we think that the fourth quarter is probably reflecting relatively well the market activity. Even if we cannot say, of course, then that some of the bigger projects that came in quarter four, that the corresponding one will come every quarter. We think that this is fairly well reflecting, the activity. I should add also, which I'm sure you're well, very well aware of that. While in the organic growth, of course, for the fourth quarter has a certain price increase influence, which of course, makes the figure look a little bit better than if you compare volume-wise.
Can you say anything about the extra price increase you would have needed to fully offset the margin squeeze from higher steel prices?
I don't want to do that, but we are working with it. I don't want to disclose that.
All right. Just a final thing. You said you increased your stock level and I saw it also. I think it was up SEK 5 million or so versus-
Yeah.
-Q3.
Mm-hmm. Yeah.
Is it a plain steel or is it finished goods you have there in stock?
It's both. On top of that, you also have a few projects that will be level now in Q1, that are more or less finished, but they're waiting for the customer, so to speak, to say yes, so we can release it.
The goods you have in stock are the cost for it that's already known, of course. Are the prices-
Yes.
already negotiated with the customer?
Yes, they are. Yes.
There's no real margin risk, so to speak, of perhaps having
No, not for those ones. No, no, I can't see that.
Okay. All right. That.
Mm.
Good. That's good to hear. That's all I have.
Yeah.
Have a nice weekend, Thomas.
Yeah. Thank you. Take care.
Thank you. We will now take the next question. Your line is now open. Please go ahead and ask your question.
Yeah. Hi, it's Kenneth here. Just a question on the balance sheet and dividend and so on.
Mm-hmm.
Your balance sheet is very strong and you paid a little bit less than the 50% payout, and it's a little bit more now than a year ago that from when you acquired Natom. Are you looking very actively to do more acquisitions now?
That's a very good question, Kenneth. Perhaps a little bit sensitive, but I can just tell you in the way that we are looking actively into making more acquisitions. If they come up, you know, more in the near future or in the longer future, we'll have to see. We are quite interested to do more acquisition. You are absolutely correct that we have a strong balance sheet, but we also see that because of the good volume development, we need to perhaps earlier than expected, and as I said, do more investment. Maybe we are a little bit on the cautious side. We have to see how this works out.
I think you will find out after Q1, and if you know, if this was a reasonable assessment or if we just maybe were cautious.
When you're talking about expanding production capacity, are you looking mainly to do that in your existing operations or would you consider to do a greenfield in a new country or a new city, for example?
No. We will not do it in a new company. We will primarily extend our existing facilities.
That makes sense. Okay. That's all for me. Thank you.
Mm-hmm. Thank you, Kenneth.
Thank you. No further questions have come through, sir. You may continue.
Okay. Thank you very much for listening in. We will talk again then towards the end of April. If you have the time and are interested, I think we have the release of the quarter in 27th of April or something like that. In the meantime, I wish you all the best. Take care, and I hope to be able to return to you then with some further growth, which is of course our long-term aim. Don't give you any promises, but this is what we're working for. Thank you very much. Looking forward to talk to you next time.
Thank you. That concludes our conference for today. Thank you all for participating. You may now disconnect. Speaker, please stand by.