Earnings Call: Q2 2021

Aug 17, 2021

Good day and thank you for standing by. Welcome to the Presentation Q2 Report of 2021. At this time, all participants are in a listen only mode. After the speakers' presentation, there will be a question and answer session. Please be advised that today's conference is being recorded. I would now like to turn the conference over to your speaker today, Mr. Thomas Wittstrand. Thank you. Please go ahead, sir. Thank you very much and very welcome to this presentation of coax Group Second Quarter Financial results or presentation. And I think most of you are used to this kind of presentation. So nevertheless, I will inform you then that you can find this the template that I will work from, You can find it on the outdoorax.com homepage, our web page, and you will find it then on the Investors and then You find that the presentation for Q2. But if you don't have it, you will be able to follow, I think, what I'm saying in any case because I will follow them. My usual presentation, which means we will go through a number of the figures and I'll try to comment Some things which have influenced and positively negatively then our development, especially in the Q2. So to start on with Truax, I guess that most of you, as I said, are well acquainted with Truax. But as you know, we try to stay safe, and that's what I'm starting with. And we try to That our customers are safe and that's really business idea. Just quickly to go through a little bit of the background. We are working in 3 different, what we call, segments. And the biggest one is called And as you see from the picture, it shows then obviously what we're doing, protecting people and from Change use of this in this case robots who are working along a manufacturing line for cars. This is approximately 65% of our turnover. And if you take next page, it's called warehouse positioning. It's approximately 21% of our turnover. And as you can see from the picture, We're talking about dividers or guarding them, protecting them, for instance, what you have on the shelves So falling down on people who are perhaps working in the eyes or people are working in the forklift trucks. So I think that's all the self explanatory. And the 3rd and the smaller segment that we work with nonetheless very important, it's what we call storage solutions or property protection. It's primarily, I would say, Northern Europe segment. It's approximately 14% of our turnover. And as you can see, It's not so much about protecting the people. It's more about protecting, of course, what you tend to have in your storage area like skis or Bicycles or whatever you want to protect that from burglary, at least within a reasonable amount of our efforts. And then let's go to the next stage. We actually have something which is a mix between machine guarding and the warehouse part. And we call it automated warehouse, surprisingly enough, where you can see then that we are focused on As the word implies, Automated Warehouse, which is growing substantially at this moment and has been doing so for Several years now actually, and that's of course something which we are profiting from. And as you see from the picture, it's basically a warehouse, but it's of course Automated to major extent. And you have long lines of eyes who are then fixed over the goods that are on these sides or on these Shells are picked, of course, by some sort of robot or some sort of machine, which is collecting the items To distributor or retail market or whatever. And this is something Nissan is growing very much. I will come back to that in a little bit later. Next page shows the increase from 2020. I think I can skip that for those of you interested using down the development 2020, which a little bit was a difficult year, obvious reasons with the COVID. And you see also Just speak up and I'll just say it to the region, but I think you can read it for yourself if you're interested in. We also have next page where you see also the EMBs where we say that the other global, either of the impairments Protection, we're approximately 2.5 times larger than the only 2 player. We are a growth company even in the Q4 2020. It was difficult to grow. We are approximately 2.5 times of the year present in 42 countries. And historically, we've had A growth of, let's say, 8%, 9% organically and including some few acquisitions have been made And the growth per year has been 11, 12 years. Going to the next page, I'll talk a little bit about financial targets. We don't as regards to the first one, which is called sales growth, we don't really say exactly what our product is. But We definitely aim to grow more than the market is growing. And over our business cycle, Our estimate is that the market is growing with some 4% to 6% per year. And that means, of course, we should grow more, which we had, As I said before, it's okay, Dan. So then coming back to what we did now for the first half year, I would say that we've been growing substantially. So we've been actually having, I would say, a good second quarter. I will come back to that. So organically, we've been growing 40%. And we then added acquisition that we did 1st November in Poland called NATON Logistics. And that is added, 90% so we've been growing with some 60% or so compared to Last year, risk nevertheless was negatively influenced by the COVID. So you have to take it that is high percentage figures or of course positively influenced by this rather easy comparison. When you go to profitability, we should be on 20% on EBITDA And you, of course, mainly to good volume and good cost control and good utilization in factories. We are now actually exceeding this for the first half year. So we're up to 21.6%, which is So far, as we said, a good figure. We've already kept the structure with the 3rd target that we have. We are saying that the net debt in relation to EBITDA should not exceed 2.5 times and we are clear We hold that for Leon on 1.2. I think we paid the dividend in May June. So it's a Good figure, I would say, showing them that we both have good possibilities for further acquisitions should such occasion arise. And of course also to do further investments where that gives you see if we should like to do so. Dividend is not really one. Normally, we have the target to pay out 50%. And as we've paid out this for this year, I will have to come back to that next year when it becomes 2011 to 1. Right. Then we come to some summary of Q2, and I will do that in some sort of summarized way. But you can say then that the Q2 of 2021 continued with a very strong wholesale order trend. We started basically in Q1, towards the end of Q1. We could see some signs of it already towards the end of Q4 last year when we returned them from this difficult COVID Period, which somewhat, I wouldn't say normal situation, but at least it's a better situation than it was previously during 2020. And I think there is a certain effect then of what I call a catch up effect and in the very good figures of Q2. We cannot really estimate how the U. S. Of course, the market has been very good. And as I said, there is certain elements of this catch up effect. But basically, I would say that Q2 is characterized by a good amount from customers, More or less in all parts of the world, in all parts of our different segments. And then on top of that, We probably have some sort of effect and I thought of this catch up effect coming from projects, which have been delayed and of course of the COVID. Nevertheless, we have seen and as I rewrite in this summary, Doctor. De Mona has been, I would say, especially stronger than, Of course, we've automated warehouse, which is continuing the very positive trend from before. But also machine guarding has been improving during 2nd quarter, and I think I wrote somewhere on that the automotive has started to be more active. And Not saying that it's fantastic because it's far from that, but we clearly see then that the automotive activity was not stronger in the second quarter compared with So because of them, we had very good order intake in the second quarter. We had quite good also in the Q1, at least a decent one. That of course was turning to a major extent into sales During the Q2, so that means of course, standard. If we get good sales levels, we invoice a lot and we manufacture a lot. This was of course creating a good result. So if you look at the results, which we will do in the second Basically, for the quarter, the operating profit has more than doubled for the quarter. And if you look at the 1st 6 months, it's basically has happened to result in this We're not used to having those kind of gross figures actually. So, I mean, the share Actually, then more than double. So it was going from €0.08 last year to €0.19 Good quarter. Just a few words on the working capital. It's on the expected level. Inventory is still high. Due to that, we've done some precautions, as we say, in connection with the Corona effects. And we intend to keep the slide guide until we see that things are stabilizing. We think at the end of the year, we'll still be able to some turbulence with deliveries of steel and especially, of course, on prices. So I think we're going to keep it on this level. Otherwise, we have a stable capital. I think nothing which otherwise this was really mentioning. So because of the good sales level, which I touched on before, I also said and briefly that all the manufacturing units have had a very good development In Q2, we have very good volumes. And despite the fact that the steel prices continue to be, if I call it turbulent, I mean, going up substantially, We have been able to, I would say, basically to compensate that. There are some delays in the price increase Because the field test has been gone up so considerably in a very short time, but nevertheless, I would say that we have, on the whole, been able To have this thing in a good way and in cooperation with our customers because obviously we don't want them to Software more than what is really necessary. So I think we've had a good dialogue with most of our customers. But nevertheless, there has been increased the price. Going to acquisition, Nathan in Poland, also Postman, That has continued to have a good allotment also in the Q2 and especially then with good inflow orders coming from The warehouse segment, this is where they are, so that's not as strange as we are. But that if anything, they've been Even stronger, I would say, in Q2 and Q1. So, so far, we are quite pleased with our development. And obviously, this has Also been turned into a good phase and also a decent result. So we are, as I said, quite pleased with it so far. We are working with a new facility where we intend to merge the 2 factories, which are exiting today into 1. And the first factory, which is the start of the first factory will be starting to be transferred now in the Q4, moving into BT, I think in it to 2022. And then we take the next one a little bit later in 2022, depending on little bit when we can get the proper electricity into the site. We have also then, As we are informed separately, purchase and the guarding activities referring to aluminum from ABB, The talk thanks for Amy is QuickCard. And we purchased that on 1st July, And there's been some trends now of machines during the summer period. So we do intend now to start Let's say manufacturing deliveries from 1st September, we already got some orders from ABD customers. We will see how quickly we can take this up, but I think we will be prepared to start We are working with this in an operational level from 1st of September. Going to the next page, We're talking about the financial highlights and then Samir already touched upon them that the results were substantially improved. And if you go through the 3 months period, you see that's a substantial increase in order intake. I will We didn't a second share with you then where this comes from and more or less the same as the sales. Gross profit has been more or less almost double even the margin has slightly decreased. I already talked about the operating profit and the margin. So the operating margin is 21.6 percent and it was 22.8 percent for the last quarter. So it's a good figure. We're actually quite pleased with that. And that means also that $3 per share for the 1st 6 months, I've pointed at $33,000,000 So It's more or less a doubling mode compared with last year. Now we come to the next page, where I think we mentioned that this is some sort of regional development in order intake in the phase. And it's quite interesting because you can see Both in the order side and on the same side, but we have rather strong figures than in all regions. And I would say that partly that's affecting all the projects we've been doing, which has been coming in and on a rather high level, But also, which may be even more encouraging than that the smaller and medium customer, which previously has been On the low level during the corona situation, I think I've come back now even more or less in a full fledged way. So that things are, It's not back to normal. So at least from a figure point of view, it looks like it's rolling over. If we really point out something, I would say that we said Very strong order intake, I would say, in Continental Europe, obviously some sort of catch up effect there, but very strong. And of course, if you go to North America and you see that this kind of quarter is very strong. But The figure, of course, was last year negatively influenced, of course, by the COVID. So This percentage is 50 days, I would say, is a bit too high side. New markets also relatively good, so totally Approximately 59% to 60% and then plus the acquisitions, 27%, you come to 84%. If you then look at the same figures for the first half year, you see then that's what I talked We will be growing with, let's call it, 40%, including some currency effects and then Some acquisitions, so in total, roughly 60%. On the sales side, you see senior development, but also The things which is maybe a little bit deviating though is that you see of course that North America is doing very well. And besides the King, noise of invoicing quite nice. They had a lower intake in the Q1, which of course manifest itself in a higher So quite a strong development, I would say, all regions, even of course that If you have higher figures than that, but some of those are not as mature There's the other one which you also have to take into consideration. So to the end, we have the invoice of the $122,000,000 And if you take that to the rolling figure Okay, Marc, if you see to light on that picture, you see then that it's on the side €209,000,000 and on the other side €230,000,000 So obviously, This is continuous. We want to make a substantial increase in volume and activity level compared with 2020. Go to the next page. So we enter this and sort of conclusion. We have Yes, this quarter as previous quarters, we have received several main orders of different segments, but of course, The really more bigger ones are really in automated warehouse and machine routing, and we're very pleased with that. And We see those that there is some sort of catch up effect even if we can't guess how much that is. We also see that the smaller and medium sized customers have come back now. Hopefully, that will continue. So it means that there was an all time high development in result in this quarter, which was reflecting, of course, the overall end. Thank you. I have some good utilization of the manufacturing units in the group. Going to United States, Both drugs, which are Eastern Drug Enforcement and Polymer, are continuing to develop well and show a continued And I would say especially pricing is growing substantially And it's probably then approaching following orders as regards to size if this continues. All factories continue to develop well. There is a continued turbulence with steel price. We don't think that the increase of steel price will continue in the Q3. Maybe there will be a leveling out Q4 and hopefully you can see some stabilization. Maybe sometimes you see or going down during the earliest Q1 next year, But we are calculating with and taking measures that the steel price will continue to be very turbulent in the remaining part of the year. Integration on Natron was continuing and it's done in a good way. So we don't see any No problem there. So in total, the development with a substantially better result, even if, of course, when you compare with the same quarter last year, as I said, It is, of course, negatively influenced by the company. For the rest, we have some comments Regarding those factors, I won't go through that in detail because there is no change from quarter to quarter. But one thing I could touch upon, Larry, is that Yes, item 2 of the what is called here onshore and on manufacturing, which we have seen before, I would say, many years, but maybe have not had A big influence, but I don't think that I will have a big influence now because we do see, of course, that customers of ours Our thinking on realizing that to have many sub supplies in China is could create the problems. The lead times are very long. And of course, especially now, all of them and you have also seen that the freight price are extreme now. And so that's taking, of course, away compared with before. Otherwise, what's driving the growth for us is still an increased industrial automation. And again, if anything has happened after COVID, this is positive as regards automation because it will continue. And the same goes for e commerce, which if anything, again, is also taking a new step based on, of course, that we as consumers I want to shop online in a much bigger quantity or much bigger way than we did before. Next page shows the estimation of also the market leader. We don't think that market has changed a much Between 2018 2019, we will, I think, do a new analysis now towards the end of the year, So that we can take into account those key. What a strange year of 2020, where obviously the market went down and now we All very positive so far, 6 months, which where the market seems to come back to the old loans. Next page shows a little bit of our competitive situation. It's our assessment. It's our external company doing this. So we have to realize it's Our best assessment of the competitive situation. And then moving into next page, which is our production units. And we added them Paul, last year, where we don't have a capacity of some 500,000 or something like that, and we do intend to increase this Capacity at time was fine. Next page shows then the different brands that we're working with. And in some cases, Some people are very happy with ROC. In some other cases, with some other brands. And we do intend to continue to work with these because they have different Product ranges, different product qualities and also different distribution channels. Now moving into Let me take off what we call a safer tomorrow, which obviously we've been having since 255. We, of course, work a lot with Just to say, I don't think any company cannot work a lot with that today. And we work a lot with, Which I've said before, not only can we compensate for in regards to transportation, which is the classical one, even if it's not solving perhaps the issue, We work a lot with the energy consumption. We have greenfield manufacturing, which decreases transportation and etcetera. We try to work with, of course, with the ISO 14,000, try to minimize use of plastic products. And then we have Good point, which is that 99% or maybe even higher is recyclable steel and Minimum 30%, and we will probably change that to a high figure. We'll resign and then have refighted steel in our products. And that, of course, is the main, let's call it, problem when we analyze and we see CO2 content that we are They're giving away to the environment that's coming from the purchase of steel. So if we can Either helps the steel mills or at least buy recycle the steel to bigger quantities, then of course that will help sustainably The same liberty for us in a major way. That's much more important actually than what we're doing in our own factories, even if we shouldn't, of course, in any way We like what we are doing. It also have, of course, an effect on the V100. Right. Next page to access the centers where we will do a lot of development work. We also have to see from the next page of certified PI-two forty one, which of course, I will say it's very good because That does mean then that the customer not only have to trust True Access Blue Eyes and sense for everything, but We have someone in the search for us and keeping an eye on us, which I think is very good from a customer point of view. So in essence, you see here on the next page, We are this is our main factory in the South, but we have, as you saw from the other pictures before, a number of factories now all over the world, Well, that's and our aim is, of course, to protect people, property and processes. And being the origin in Scientific 5, we think that we are Best to continue to do that. And just to end my presentation, our aim is of course to protect what matters, Obviously, that's the family. So we want to help all the companies to protect and the people are working in the organization. So obviously, they come in Thank you. When the shift started, they're working on it. So that's what we're doing. So with this, I am A very good presentation. I hope I will answer you should get some very good questions, and I will do my best to answer. So please go ahead. Understand. Thank you. Ladies and gentlemen, we will now begin the question and answer session. And your question comes from the line of Kenneth Tull from Okay. Is it better now? Yes, it's better now. Okay, great. So, yes, so you invested a lot in production capacity a few years ago, but now Your growth is very, very strong. So I was wondering, are you getting close to capacity, To improve the capacity utilization and in that case, how quickly can you expand production capacity more? Good question. Ken, now we still have machine capacity at least available, especially with Airbus in in the south And we it's really because we made some rather substantial investment in the last, let's call it, 5 years. So we still have some machine capacity over. So we don't short term need to rush away and do Imminent investment recoveries is, of course, that's because of the very good volume development. The slack in machine capacity will, of course, eaten up to a certain extent, which, of course, is very good and we're happy with. But the problem from the machine capacity is actually our newly acquired business in Poland. Where this demand coming from Automotive Warehouse makes sense that they actually have had to turn away some orders Well, we are in the process of investing more, but these investments will not come into process due to deliveries of machines Until the earliest end of this year. So there will be unfortunately a bit of our deficit planning in that part. But the, Let's call it the ordinary, so export does not suffer short term from any problems with machine capacity. Okay, great. And then on steel prices, you talked a little bit about sharp increases and that it Might affect your margins going forward, but I expected it to that it would have affected your earnings in Q2, so and you are raising prices. So do you think that the net effect between your own price increases and higher It will be a larger negative in the Q3 than it was in the Q2. It depends, of course, how do you what we know today, I think it will be some sort of similar situation. So Hopefully, we can compensate what they intend to do in the Q3 in a similar way. So That's how we see it, but we will see the effects when we talk again in October. But so far, The information we've got, so I think we can handle this in few terms. Okay. And finally, So last year, of course, we were negatively affected by the COVID-nineteen, but there might have been some costs That have also been a bit lower, such as traveling costs and costs for trade fairs and so on. Correct. Yes. Yes. So do you think that those kind of costs are increasing in the second half of this year already? Or Are you staying cautious on the next year? No, you're right, sir. As an obvious conclusion, the cost will be slightly higher during second half of this year, not flat so that we will do a lot of exhibitions and so because We don't soon come back until next year, but the furthering will restart and some other costs will come back, so it will be a little bit higher. And because of the Volume increase, I would say in general, we have to strengthen the organization in certain cases. We are actually then pushing the organization right now with the present volume a little bit too high, I would say. So We have to do some increases here and there, which of course will have some influence on costs compared to What you see now during the Q2 of this. And that also goes for sales people? Are you adding sales people? Yes. Yes, we are having a safe people. And finally, the capacity utilization, as I understood it, It's quite evenly spread between the different plants you have and so on. Is that true? It's it was certainly true. It has changed a little bit now, I would say, in the last 3, 4 months. So as I told you, Anders, I saw the capacity still possibility in Hillisotto and Italy. Yes, following. What due to the increased demand in the last of the 2 quarters, now you're struggling with capacity problem. Sandozuenext, not maybe generally, but Sandozuenext. And as I said, Neutomis is really up to having no Excess capacity basically. And that should mean that profitability for the closing down operation should be That's right now, maybe even satisfactory. Yes. Correct. Yes. The digitalization of course helps in the philosophy. You absolutely should be right. And your next question comes from the line of Adolphe Just the first question will be on your comment regarding the catch up effect on order intake. And for me, it's hard to understand. So I need a little bit more color on it because you had, of course, A type of order intake before the COVID between €40,000,000 and I would say a big picture €40,000,000 €45,000,000 And then 2 quarters with something like €38,000,000 and since Q4, almost €60,000,000 in order intake. So Why should we still be in a catch up effect? For me, it's already done. Or do you still see that? Yes. It's also a good question, Nadef. But I think, Kaela, that there is some sort of catch up effect because Not only we have seen that, but the small and medium sized customers have come back during the Q2. And I brought with them down a number of, Of course, maybe not spectacular orders, but nevertheless a number of smaller orders, which obviously has been You have not put an eye stand since last year or maybe even earlier. And I think there is a certain effect of that. Even if I said it's difficult for us to assess how big it is. So even if I can't give you a figure, I would still say that the second quarter figure is slightly on the positive side because of this, but the underlying market is very good. So it's not so that it is we're not talking about 30%, 40% or so, but we are talking about some sort of effect, which we Yes, it is a catch up effect. And in terms of competition, do you see the competitors are growing As quickly as you or are you taking market share because of the COVID situation when it was difficult to deliver On time and this time, things? Yes. We think that is our estimate that We took more cash out last year because of what you exactly what you explained about. But this year, we have clearly been taking, Of course, more for sure, because we've been processing from these bigger projects where there has not been so many roles out in the markets. Obviously, we've been doing them More than most of our competitors. I think that's a fair fact. Okay. And my last question will be in term of mix Because you are seeing that these small clients are coming back, you're giving positive comments on automotive. I know from the past that you were saying that Small clients are always very positive in terms of margin effect. What can you say about the automotive sector? Is Still very competitive or less? Automotive. Automotive is always competitive. I would say that At least for the 1st part of this year, if anything, they're even more competitive because everyone is struggling, I think, with Cash restraints or liquidity restraints, and we felt that that was even tougher with pricing than in automotive than before. And perhaps now that things are getting back, we've got to normal, so at least some sort of positive development. This will then Also normalized and perhaps not become that price sensitive as it was done by the end of this year. So But it's been a bit tougher, I would say, this year price wise. And maybe there will be some slight improvements during the second half because then It's a more positive situation for them as companies. Okay. Good. And then maybe last question on M and A. So you did 2 great acquisitions lately and still a strong balance sheet. Are you still looking at some bigger targets in APAC? Or do you still do you see that There are some competitors who are growing and becoming bigger and that might be very interesting for you to buy them? Or is it Still a very fragmented market and APAC is still a fragmented market. There are no big competitors The total that you can buy because they don't exist. But there are a number of smaller ones, I would say, 3, 4, 5 of them, which we are interested in. And hopefully, we can get our hands on 1 or 2 over time. As regards to the more mature market in Europe And the United States or North America, we are indeed, of course, always interested to make acquisitions as long as that they are Right, so to speak, from the strategic point of view. And so if something comes up, we are clearly interested. When something comes up, it could take 2, 3 years before something really Not sure, but we are very interested. So if anyone out there is interested to sell a good company within And besides the Fencias, we are really interested. That's how I can And your next question comes from the line of John Nice to talk to you as well. First time in a while, you said something positive about the auto industry. Can you Elaborate a little bit more. What do you see in terms of bigger projects? Because we've seen a lot of new car models coming out, but not really The investments in your field, are those about to come now with all the new models that we see on the market? I think generally speaking, as far as I can understand, there is a financial situation and And this problem we saw last year was a lot of layoffs and what have you in that type of market as they drive now. So I think they look more positively to the future and that of course has a healthy impact also on smaller supplier like us. We certainly have Certainly, in fact, on the safety side for their investments. So we have seen and that is It started on a positive trend without an outage here in North America. And then it came also A big pack in the Q2 now in Europe, we haven't seen so much in APAC or the Far East yet. So we can see that it's coming in different phases. But we do clearly see that more and more question is coming up regarding This kind of safety issues in the investment I will bring. So I would expect maybe not a straight line In automotive, but I would expect that it is growing step by step, But probably a bit slow, not really big increases. And it's based on, of course, on that The financial situation and general situation has been stabilized. They probably know much better how to handle The different product segments and hybrids and electrical cars and diesel and what have you. And of course, They also need to do a lot and based on the explosion or what you might call it On the demand for electrical costs, which of course, they need to invest in Rotterdam. So I have been a little bit surprised before that The obvious output of electrical costs did not, as a matter of fact, it has been a higher interest in other types of But it seems to come out, but it was a bit slower than I at least expect. But have you seen any changes that perhaps they are better And reusing fences and or maybe adapting the production line so that they don't have We haven't seen that, J. 1. Yes, we haven't seen that. It is still so I don't think that's changed, but the Okay. In our types of hands, to be frank, it's such a small part of the total capital value. I don't think that could be a lot of efforts to Take that support and clean it and put it back and then buy some additional parts and what have you, then we'll buy that from Either asking complete package or from their sub supplier, their machine supplier, which supplies the line that they are Yes, sorry. And I will buy that thing is because they need to get the line operating in such a short time. And I don't have the Capacity to do a lot of these small changes that we shall not see. Okay, good. And finally, around what share of the sales Those 2 automotive during this first half of twenty twenty one. I used to say that last year was 10%, 15%, so it was on the loan side. I haven't calculated yet on what the first half year will be. It was on the low For the Q1 and a half year, for the Q2, I would say that probably we are Come close now to 15% return, which is related to automotive. All right. Interesting. Well, thank you very much, Thomas. Thank you. Thank you. So no further questions have came through. Sir, please continue. Thank you very much for your interest and for your attention. I appreciate the very very much, of course, also the question. I look forward to Talk to you again, I mean, at the end of October, something like this, or maybe beginning of November when we are then We're guiding now 3rd quarter results, which of course will be interesting if this good trend continues or not. We will certainly do our best to fulfill the expectations. Thank you very much for listening and see you then. Bye bye. Thank you. This concludes today's conference call. Thank you for participating. You may now disconnect.