Earnings Call: Q1 2021

Apr 26, 2021

Good day, and welcome to today's Q1 Report Call. And I would now like to hand the conference over to your speaker today, Thomas Windran. Thank you. Please go ahead, sir. Thank you very much, and thank you for calling in. As usual, I will try to present on the this quarter development, and you will have the opportunity also by the end of the presentation or towards the end to ask some questions if you're interested. So I will those of you who have followed me before, I will follow the same sort of agenda or presentation mode that we've been to before. And you can find on this presentation what is called Q1 twenty twenty one in our homepage, troax.com, under the headline Investors. And in under Investors, you will find it then under Presentations. And obviously, then we talk about Q1 twenty twenty one. So I will follow the structure. But even if you don't have it, I think you will be able to follow roughly what I'm trying to say. So I'll start by introducing down the Q1 and say, we are, of course, trying to convey the message of stay safe, not only because it's pandemic and we are still trying to keep safe until hopefully different vaccination, etcetera, has a positive impact on the society. But also, of course, that this is what we do, this is our business idea that we help people to stay safe in factories and different sort of working places all over the world. We are working with three different segments and I'll very quickly go through that. The first and biggest one is what we call machine guarding. And for those of you who have had the presentation, you will find the photo which shows then the typical examples of the installation that we used to type of machine guarding for. Could be robots, could be packaging machines or could be conveyor systems as I said or something else, but the principle is that you protect people or in some cases you also protect of course the process. This machine gun is approximately 65% of our turnover. And the growth rate in this, I'll come back to this a little bit later, but it's, of course, very much depending on the continued optimization and mechanization in the world, driven not only, but of course to the main part is driven by the increased use of robots in the world. Next segment or next page, you'll find is what we call warehouse partitioning. It's a little bit more than 20%. And in this page, you have what we call a more traditional warehouses, where you build up a number of pallet racks and you have forklift trucks who is driving around and picking up goods and delivering it to somewhere, who is picking and packing and sending it off. And this is something which is becoming more and more interesting to mechanize at the moment. And I'll come back to you in a second because that's the part which is growing very much for us. The third and also the smaller segment, but nonetheless quite important is approximately 14% we call it storage solutions and it's primarily an European process where you of course and as you see from the picture, you are safeguarding them, bicycles, luggage, skis or whatever you have that you want to store and you can't keep it in your flat, which normally is then part of the multi store building. As I said, and I go to the next specs. As I said, we have something which we call an automated warehouse, which has been growing substantially in the last couple of years, which actually for us is a combination of what we do in machine guarding and also in the warehouse partitioning side. And this is obviously driven by the e commerce, where people like you and I, we are, of course, increasing our purchases from different e commerce companies. And obviously, that creates an amount for making a lot of picking and packing more automated. And as you see from this picture here, this typical example, I would say, where you see them that this kind of picking and packing is to main extent automated. And there are very few people involved, even if there are people involved, of course, because you need to protect them from things for falling down or you have to protect them when you stop to make a maintenance and then you don't want obviously to close down the whole site. You only want to close down perhaps the aisle where you make the maintenance. Obviously, there is a need for our kind of protection that we offer as a good solution for these installations. Very, very brief on 2020, we passed that. But if you've been following us, you know then that despite the COVID situation, we managed to get an increase in order. Last year, we didn't do that in sales invoice, which obviously had a negative effect on the operating profit and also on the margin. But nevertheless, we think we came out of last year with a decent development seeing the circumstances. On the middle of this page, you see the split up of geographical in our geographical areas. And as you can see, we are still quite dependent on Europe, which is some 80% of our turnover. We've got North America coming up with 15% now. And also what we call new markets, which is primarily, of course, the APAC region, which is, let's call it, 5%. So of course, we are still, as I said, quite dependent on Europe, which still is something which we try over time, of course, to change a little bit the balancing. Next page is called the year in brief. And as you know, we are a growth company, but last couple of years, we've not been growing so much, which is primarily a loss of air conduction with the fact that we used to be quite dependent on the automotive industry. And the automotive industry has not had a lot of investment going on in the last couple of years, which, of course, had an impact on us. On the other hand, we've been growing a lot and compensating this and a bit more with the growth starting in Automated Warehouses. So we're still looking quite positive towards growth in the coming year, even if, of course, it is sort of that for a single year, it could even be a decrease in turnover. But we're normally saying that overall business cycle, our historical growth has been some 8% line, maybe 10% per year. And without giving any forecast, that's probably something which is possible to do also in the future. Next, next is call the financial targets. And I think we have covered most of that. We have if you come down to the third bullet point, capital structure, we have quite a good balance sheet. So our net debt in relation to EBITDA should not exceed 2.5 times and per end of last year, we were at 1.4. So it's quite stable. And therefore, so we decided, which actually have been just decided by the annual meeting that payout approximately 52% of our net profit as dividend. Now I'm coming into much more the summary of the Q1. And we are quite happy to say that it continue with it quite good on the trend, similar to the development in Q4 twenty twenty. It was perhaps even stronger in the Q1. And the main expenditure for this is what we call the continued strong development within Automated Warehouses, where a number of big players are substantially increasing the investments. And even if we are not the biggest supplier to this kind of installation, I think we can say that we are quite important because, of course, we help them with the safety solution. So for them, it's also quite important to get a good level of safety, obviously. Due to the good, of course, good orders and in the latest days also the invoicing, We got quite a good improvement on the average result and margin in Q1 compared with same quarter last year. We could still see some negative effects of the Corona virus during Q1, but nevertheless, I think due to the good volume development, we could secure and a substantial improvement in results. If we look at the different geographical levels, I can summarize and say that we're good sales levels in actually most markets. And that was reflecting also, of course, good activity in Q1, where we also could see at least that smaller and medium sized companies started to become more active, I would say, in the market compared with last year. So it's probably too early to say that marketing is opening up. But what we could see during Q1 was a bit better activity than Q4 and Q3 last year. I think that is a clear message nevertheless. There was, of course, also good sales level in Q1 because we turned a big part of the order level that we have in Q4 in 2020 into sales invoice. Obviously, that is a direct connection. And by this, we also created, and I would say, a good development of the earnings per share. So we reached some this quarter and corresponding period last year was So it was, I would say, it's a good improvement on earnings per share. Normally, I'm also commenting a little bit about the development in North America since we had some problems with the acquisition we did a couple of years ago in the company following on. But we can say that the improvement process continued in Q1 with the increased productivity and increased turnover. And this, of course, created a better result, which is, I would say, also substantially improved compared to 2020 and 2019. Regarding working capital, I would say it's on the expected level. We are a little bit higher on the inventory side, but actually we are quite happy with that because due to some corona effect, we could be delays in deliveries from component suppliers or material suppliers. We are trying to keep a bit higher stock or inventory in order then to safeguard that we can do deliveries to customers obviously. Jumping over to a few comments regarding our manufacturing units. I would say that for the first quarter, we can comment on that the volumes within the group, as we write here, we had a good development in Q1. We know they all had good volumes. What has been obviously a problem and it's a bit turbulent is the steel price. And we expect that to continue like that in the coming quarters, even, of course, that we hope. And the experts expect that this will, of course, level out at a certain time. But we have not seen that as per end of Q1. And if you read the newspapers, you see that there are more, of course, threats about increasing steel price. So we have a feeling that this could be still continued to be turbulent for some time. Our prices have obviously have been adjusted to reflect this. But as turbulent as it is today, it's of course difficult to short term to compensate for this. So there will normally be a bit of a time lag between them that we get some sort of raw material increase and then we can compensate us from increasing prices to customers. Talking a little bit about the types of segments, we are normally commenting a bit on the automotive. It's still continuing to be, from a figure point of view, still a weak segment. But we could see some orders coming in, in the first quarter. We see in The U. S, for instance, that we are probably a bit before in the process or in the cycle compared to Europe that the car industry there or the automotive industry is planning a little bit earlier to do bigger investments and that, of course, have a certain effect also on trucks, which is positive. And hopefully, that will come into effect also in other areas. But for the first quarter, it was not really booming, and we expect this to slowly come back to not perhaps all times levels, but at least a better level than today, but it won't be until the end of twenty twenty one or perhaps more likely into 2022. Regarding our newly acquired company in Poland called Natam Logistics, they've had a very good development in the first month. And it's, of course, good to see that they have had good inflow orders mainly, of course, within the warehouse segment, which is primarily where they're working. And we would like to inform also then that we have during the quarter that's in a complete new facility and for us outside of Poznan, where we intend to merge the two existing manufacturing units in Poland into one during this year and also next year. So we do intend to continue to invest, so to speak, in May time in order to get it both to increase the manufacturing capacity, but also to get it a more, even more efficient unit for the future. Coming to next stage, which is the financial highlights. I guess most of you have read this, I won't go through this in detail, but of course, there is a substantial increase of re intake and also sales, and I will comment a bit more on that on the next page where we see geographical developments. The gross margin is on a stable level, which it should because of the good volume development, even if we think ourselves that it's been a little bit hampered and, of course, by the fact that the steel prices have increased during this quarter. So then having already discussed on the earnings per share and in Rekte I've talked about the operating margin, which stands approximately 20% for the quarter compared to, let's say, 16% last year, we can just conclude and say it was quite an improved result and for the first three quarters results. Good start to the year, we're very happy for that. Regarding the regional development, you can find it on the next page And where you can see that there are quite strong figures in some areas. I would say it's very stable and quite promising figures, especially in the more mature markets like the Continental Europe and the Korean, where we have plus 11 and plus seven respectively in orders and showing a better activity level and I would say also a very good job done by our own organizations. We can see actually in Southern Europe that they've been probably more hit by the pandemic effects and they have not really recovered from that. So I think we'll still take some time before they perhaps increase the pace generally in the market compared to other parts of the region. And then as you see, we've got very strong figures both in UK, North America and new markets. And I normally talk about the bigger product orders, which doesn't come in every day. And this quarter, we've had a number of these bigger product orders, which are aimed both for North America and indirectly for UK, even if UK normally also get some export from UK. So you cannot just compare and say it's that the market of UK, so good because in our organization, we are also exporting some volumes from The UK, but it's possible. But what is interesting is that also the new markets have got some bigger type of orders, which is a good sign, of course, for the future. And that means then that we are increasing these smaller small figures to a little bit bigger, and that's what we intend to continue to do, obviously. Then of course, we have the acquisition, meaningful and well, which of course adds. So that of course gives them a substantial higher figure in order. So if you exclude that, we can say then that there's been an increase in the quarter of 29%, which is, of course, quite good. It's not really been reflected to the same extent in sales. So if you go further down on the page, you'll find that the 29% and inorganic growth on orders is 19% and on the sales side. So it shows then that we still have higher order intake and sales, which means that, of course, we have ended the quarter with very good order backlog and that there are good possibilities to continue to increase the sales in most in the months or quarters to come. Currency effect are not, I would say, substantial. So that has a certain effect, but it doesn't really change the picture. So on the if you then look at the twelve months rolling, which is on the right side, you see that we are on the order side starting to approach and a bit higher, closest to $200,000,000 in terms of and on the sales side, we are becoming closer to $180,000,000 So if we conclude the quarter one, which is next page called conclusion, We can then say that we have again received several main orders in the first quarter where we are quite happy over and this refers this quarter to just like in quarter four last year, mainly to customers within the Automated Warehouse part. It's been a stable development result coming both from the audit levels, of course, in Q1, but also due to the fact that we invoice a number of the orders that came in Q4. And just like in previous quarter, there was a continued load amount for automotive, however, being compensated and more than I would say, obviously from the Automated Warehouse spot. In North America, we continue to develop well, and we show we're continuing to improve results. I commented a little bit about that there are some activities, I would say, especially in the Southern Part of Europe due to the coronavirus. But as a summary of what I've said, I will say that we're quite happy to reach these good figures of orders in UK, North America and the new markets. And this, of course, means that the factories of the Truist group has continued to do well. And despite the fact there have been some turbulence, both with fund deliveries of steel, but also with steel prices. Obviously, no support whatsoever was recorded this quarter just for information. And the integration of Natam is continuing in a good way, very positive. So in total, I would say it was quite stable and positive development in the quarter with a clearly better result than in 2020. Moving on to the growth factors. You've seen this before. There's nothing which really has been changed. So the main two factors which is driving this for the future and has been doing so for some time is, of course, on the industrial automation, which is continuing and also, which I've said now several times, the growth in e commerce, which is continuing to grow. And in my mind, I think this will continue for quite some time before this is starting to become a mature, more mature, non market or mature development. Next page shows then our estimation of our market share. And we say then that we have some maybe 25% in Europe and 15% worldwide. We are approximately 2.5 times bigger than the number two competitor. But we do think that in 2020, the market was starting to or rather it was decreasing then obviously for the whole year, even if the general negative effect was hit in quarter two and thereafter it was more stabilized. With this development now in 2021, it seems, of course, much more positive than during last year. For those of you who are interested, you can look at the competitive situation. This is our assessment of the competition as we see it. And then next page shows our production units where we've added since last year more or less to the right, we have the Polish one, where we have a capacity of approximately 500,000 shells. Capacity utilization is actually quite high, so we do need to continue to increase that. And the area where we are sitting in these two factories are some close to 15,000 square meters. The others are more or less like you've heard before, so I don't need to go through that in detail. In our group, of course, we work together for a safer world. You've heard me say that before. I just want to remind that it's not only products, which is, of course, the core of the business also in volume or sales and all the point of view, but you also have important units that we have acquired now over the years like Saftech, which has a strong influence on the South European market, following otherwise a good influence on the Enercare market. And now also Natan, the district which adds different type of products to our portfolio, even if the brand, Eton, is probably not so well known outside of the warehouse sector. So we are working together, obviously, for the Safe Tomorrow since 1955 when the company was started. And just as a few remarks, what we are working on today is for the Safe Tomorrow is, of course, especially on the environmental side where we try not only to compensate on the transportation. And I've said this before, and this is perhaps not the real solution to this issue, but it's the best solution we found so far. And then we continue to decrease our energy consumption, which we have been very successful with 2020, especially I would say in the main unit in Sweden. We reached that and exceeded that and we have actions ongoing to further improve that. And then of course, because we are quite happy to have steel or you can use steel in recyclable way. We have a good situation, of course, from an environmental point of view. And the biggest challenge for us seen then on the CO2 footprint that we are doing is, of course, to increase the weak cycle seal that we buy from the steel mills in our products. And that's the best thing we can do to reduce our own footprints regarding the environmental issue. And that's something, of course, we intend to continue to do. And just as a small remark, it doesn't change the world, but nevertheless, for us, it's an important step. But in our complete new factory in Italy, it all started a little bit more than a year ago. Approximately 50% of the energy consumption comes from solar panels, which are installed on the roof. In our Safety Center, our D departments are investing then in doing some more new products obviously. And we think we have put on the market some innovative products during last year, and we do intend to continue like this. And these products are also certified by a third part in order to safeguard it's not only through access that the products are safe, we also get certified and by this case, just flying land in order for the customers to feel safe. So coming towards the end of this short presentation and soon time for questions. So as you remember, we are protecting people, property and processes. And you can see in this page the existing factory, one of the main factory standards we have in the group, in this case, in the Swedish one, was been expanded several times. And since we are the originals inside in 'fifty five, we aim then to protect, of course, what matters, which of course is our families and relationships with relatives that are important for us. That's the key to what we try to give to our customers. So with this, I'd like to thank you for listening in. And now it's up to you to put some questions. So please, Mr. Operator, if you could allow the people to open up and put some questions. I'll try my best, of course, to answer And we have questions that came through, sir. Your first question comes from the line of Kenneth Thal. Yes, three questions. The first one is on the orders in new markets that were very strong. So is this mainly China? Or are you seeing orders coming through from Japan or other countries than China as well? We also see some aid was coming in from areas than China. So it is in that region. But I would say that if you just look at the figures, the major part of the increase compared with last year is coming from countries outside of China. Great. Then I was thinking, when we look at the increase in orders and also in sales, it's the organic increase. Some of that increase should be from higher steel prices and such effect. So would you say that the increase in volume, how large is that if we try to separate it? That's a good question. We don't think yet that the sales process affected a lot. We haven't been able to calculate it yet. But I think that still it is for the first quarter. The organic growth is mainly the volume part. That will be maybe 1%, two % could be the price effect of this what we just said. But I think the effect will be greater in second quarter compared with the first quarter. So it's a minimal effect if you just look at the organic growth. Okay. And then the last question. In the fourth quarter report, you had a comment in the outlook statement saying that, well, the orders were very high in this quarter, and we are not sure that we can repeat it anytime soon. And now in Q1, the orders were again very, very strong, but that comment you took out. So does it indicate that Q2 has started in a very strong way? Or is it just because it proved to be wrong after the fourth quarter results? No, it's a very, of course, very natural question, Kenneth, you're putting. And I think still the comment we had from Q4 actually remains that we are very happy to have such a strong order intake also in Q4 last year and Q1 this year. But I think the message we want to convey is, of course, that this is not just reflecting and that suddenly through our cash come up to substantially higher level. We are probably gaining some market share here and there obviously, and we are very happy for these product orders. But these product orders, which now have for the last quarter of twenty twenty and first quarter of this year, has had quite, I would say, significant effect. They can't come in every quarter. So it would be wrong just to continue to say, oh, this is the new level now that to us we come up to. So there will be, as I normally say, some good orders sorry, good quarters where you will see hopefully more figures like this, but there will be some quarters where you won't see them. So I think it's a bit early days to say what the trend is pointing at. But the message is still that both Q4 and Q1 are, in our point of view, quite strong quarters in order point of view. And the delivery times for those larger waters, could it be like around six months or could it stretch even longer? No. Most of them are between two and four months, I would say. But there are a few ones expanding largely. So a big part of what we now have received will, of course, be delivered in Q2. But still some, I would say, not an important part. Sorry, it's still an important one we'll be delivering also in Q3. But on the order book we have today, very few volumes will be delivered after Q3. Okay. Yes, great. Thanks. Thanks, Kjell. Thank you. And the next question comes from the line of Hermann Ericsson. Your line is now open. Please go ahead. Thank you. Hi, Thomas, and congratulations on the strong report. So just a couple of questions from me. So first of all, approximately how much of the order received during Q4 in North America and UK was converted during this quarter? We can say as some sort of summary that, let's call it, the third was converted this quarter. So the main part is still to be seen in sales invoice. Perfect. And then, yes, again, we see a strong order intake in both North America and The U. K. Is this mainly the same customers as the last time? Or have you entered new relationships as well? They are both things are valid. There is both a continuation of earlier customers who are continuing to put in good order, but they're also maybe not completely new customers. But other customers which are, for instance, not putting in a bigger pot of volumes in Q4, which now are putting higher amounts of bigger orders in Q1. So it's a mix of those combinations. And also in new markets, the order intake stands out in this quarter. Would you say that this also is related to the e commerce trend? Or what has been the drivers here? It's I would say that the main part in this is actually related to the e commerce plan, if you look at this from at least from a figure point of view. Yes. And then the final question is, your gross margin in the quarter was really impressive given that name Tom entering the books and also the headwind from steel prices. Are there other mix effects or is all related to the capacity utilization? The main thing which offset those things, as you mentioned, was, of course, the good volume utilization and fixed cost coverage. And then, of course, we got some positive effects at least towards the end of the quarter when we had been able to increase prices and that took an effect, of course, also on the invoicing. But I would say that from an otherwise from a product mix point of view, so there are no real significant changes. So it's a bit like business as usual. Perfect. That's all for me. Thank you. Thank you, Alan. Thank you. And the next question comes from the line of Adol Baradev. Your line is now open. Please go ahead. Yes. Hello, Thomas. Congratulations for a good report. To continue on this point from the last question, when we saw North America in sales up 93% and still your gross margin growing a lot. We know that in North America, it's in terms of margin is definitely not the same as Europe. Is it because in The U. S, it's the Truax brand with growing a lot and not so much Folding Guard? Or is it because you succeed in growing margin for Folding Guard? Can you just explain a bit? I think if you look at it from a state point of view, it is like the Truax plant which is growing the most and Truax is, let's say, more healthy still than following our risk. So in a way, you're quite right that has, of course, a positive mix effect. And in The U. S, it would have been a not that good situation if Polonoi has been growing more instead of TROROG. So from that, it's a good mix. But also FOLO has done some considerable improvement in efficiency and results. So it's also helping. So it's both, let's say, entities are helping to this improvement. Okay. And then the other question will be on the automotive. You said so it's you see that demand is slowly coming back, but it's more a 2022 story. What's the situation here? Because we see that automotive sector is investing a lot on EV. Do you see them that EV will be a big positive for you or? We can say in general terms, when the automotive invest is of course good for us and our competitors in general because automotive is obviously quite an important segment. That EV is coming in, we don't really see the final conclusion, I would say, because partly the event EV doesn't demand so many operating phases in line, which means that the number of panels or the number of installed safety solutions that we offer will probably decrease a bit compared to the standard installations. But nevertheless, it's not perhaps having a significant effect, but on the margin, it will be a little bit lower. But then, of course, normally, we are a little bit late in the investment process also. So we are expecting that they will come back to us and start to increase more the investment level because just like you're saying, we also see that they are increasing now mostly output of course obviously, but also for the investment. But I think we'll take a little bit more time because that investment comes through to us and our type of suppliers. Great. Thank you. Thanks, Rolfel. Bye bye. Thank you. And no further questions have came through at this time, sir. You may continue. Okay. Thank you very much. I appreciate as you know, good questions and your interest. We will try to work hard now with what we got and we see price turbulence as I said. And I look forward to meeting you then in August when we can discuss the development for the second quarter. So thank you very much for listening in. Take care, all of you. Have a good summer period. I'll talk to you again in August. Thank you and bye bye. Thank you. That concludes our conference for today. Thank you all for participating. You may now disconnect.