Earnings Call: Q3 2021

Oct 26, 2021

Good day and thank you for standing by. Welcome to Presentation Q3 Report 2021 Conference Call. I would like to hand the conference over to your speaker today, Thomas Windshorn. Please go ahead, sir. Thank you very much. Welcome everyone. The theme for today are as usual to stay safe. Obviously, since we have I had a lot of improvement with the pandemic and obviously, since Storak is a safety oriented company, we try to stay Stephen, I'm on solid ground. But as normal, I'll do a small introduction the before we briefly go through the figures. And as normal, for those of you who've been around before, which I think most of you have been, You will find the documentation of what I'm presenting on our web page under the headlines of Investor. You will see that presentations. And if everything has worked out all right, you will then find the presentation for the Q3, which I briefly will follow. And then of course, in the end, you can put the questions on this or anything else that you like to. 1st, a brief introduction. As you know, Troy is a growing company. We are working down with Safety Solutions. And the biggest segment for us is machine coding, which we have on Page 3 on this presentation that we have prepared. This is approximately 65% of our turnover. I'll quickly go to the next one, which is what we call warehouse partitioning, which is some 20%, 22% of our turnover. And I'll come back later with a brief description of some customer or customer segments, which are a combination, both the warehouse and our machine the call. Warehouse Automation. The 3rd segment that we work with is what we call property protection, Mainly for the northern part of Europe. It's approximately 14% the And as you can see from the picture, those of you who have put it up on the screen, you see that it's mostly then safety more from a static point of view. We protect and the luggage to bicycles and you have in these kind of cages. Whereas the other two previous ones where we really the strategies and the business idea is to prevent accidents Either with rolling objects like conveyors or robots or other moving objects or like we had in the warehouse, You could also say we try to protect people from getting injured, Daniel, in an area where there could be fallouts from goods or trucks this. Then next page will show you then what we call automated warehouse. And it's a combination of FFF and our products coming from different segments. And this is then a segment a which then is growing substantially. It used to be only a couple of percentages, so I turned over a few years ago. But due to the ongoing demand of e commerce, this is of course growing substantially. I would say it's grown substantially for us now during 2, maybe 3 years. And this is a long term trend, which I Expect them to be ongoing for a number of years. So for us, it's of course quite interesting that even this is today driven by Major international customers who are doing this kind of huge automation in warehouses. It will also spread to at least medium sized customer Yes, I use our firm belief. So it's a trend which will go on, obviously not forever, but for another year is our conviction. Going to the next page, I think the figures that you have on the left side there Pertaining to 2020, there are a bit also I skip them for the time being. But just to briefly Talk about the sales per region, which you have on the mid part here of the paper. You see that the main and Europe is, of course, the the big part of our turnover still with a little bit more than 50% of our turnover. And if you combine that with the Nordics and UK, which are also then roughly 10%, 15% each in addition. Then of course, you quickly come to the conclusion on that. Still we have some 80% of our turnover is related to European business. Unifil growing very nicely, I would say in North America, over the last, let's say, year or so, I think we've had a quite good development there. And also new markets, We saw mainly countries in the Far East like China, Japan and a few others also growing, Of course, nicely, but of course, from a low level. Next page shows some of the Figures over a number of years. So it's a more long term trend. And I normally saying then that we are going into too much details that we have had an organic sales growth of some 8%, 9%, 10% per year. And even if we don't have any official targets that we communicate over the future, I'm only saying then that What we've done historically could possibly be some sort of indication what could be expected going forward because we should continue to take market share And we are in a market that is growing regardless of what we are doing. So we get some help from the market and that's From our point of view, calculated to something around 4% to 6% per year over a business cycle the question. We have some 2.5 times bigger market share than our number 2 player and our 2 number 2 players, which I'm coming to a little bit later. So with this done, I think you've at least got some sort of indication of what we've been doing historically. On the next page, you have the financial targets, and I will comment briefly what happened in the last quarter. And obviously, when it comes to sales growth, just as I just said, we don't have communicate a specific target, but we should grow more than what the market is growing. And as I said, historically, we've been growing with some 8% to 10% per year. And of course, right now, we are growing substantially. And organically, we've been growing with, Let's say around 40% and with some additional annual of the acquisition we did towards the end of the year Last year in Poland, we've had quite a good growth this year. And I would say that this kind of figures is not really, Let's call it normal and you have to see it as some sort of extraordinary growth. And I think over the business cycle, we are more talking about what we have historical down to be more realistic, excluding acquisitions of course. Regarding profitability, Our target is to be on top of 20%. And right now, I think year to date, we are close to 22%. It has been a rather turbulent year as you know. But basically, we've had a good development from a volume point of view and that, of course, helps To offset all these things we have been again turbulent with substantial price increases both on steel, the freight and Lazy also on energy and unfortunately we believe that this will continue. But I'll come back to this a little bit later. Again, On the capital structure, I will note that in relation to EBITDA should not be more than 2.5 times. And right now, we are at 0.9 times. So we have a very strong balance sheet, I would say. And we are quite prepared to go into serious discussion for any acquisition, Which we deem to be interesting, and I think the last thing is probably the most difficult to find Interesting alternative because we have the financial means, but there are not so many out there in the markets which are really of interest to us. And of course, they also have to be interested to talk to us. So I think that that's what limits us today, not so much the the balance sheet or the financial structure. Dividend is not really relevant right now, but as you know, we should pay approximately 50% of our net profit and that's the pause, but I think we're on queue and then pay. Going to the next deck, I want to address a little bit some sort of summary then of the quarter 3 And in general, we continue then with good order trends, which already started, I would say, towards the end of quarter 1 When actually the pandemic then started to go away, perhaps not entirely, but at least business wise, it started to improve then. And the main explanation for the good order intake in Q3 are again then the strong development from In terms of customers mainly within Automated Warehouse, but also in machine guarding, not so much in automotive, but in machine guarding in general, I would say. The Yes. It's been quite positive during the quarter. But from figure point of view, it's actually the automated warehouse, which is driving the most of the growth. The This of course gives us a good EBIT result in the margin also in the quarter 3. And as I said the before the good utilization of our manufacturing units are, of course, a key to this relative success. The There are good sales levels in all markets. I will say that the market is very strong out there and it reflects then good activity in Q3. We note and I've said this also in previous times that some sort of delay in orders Coming down from 2020, we regard that as clearly diminishing. So we think that the market towards the end of Q3 and clearly The market going forward in Q4 and probably into next year will be what we call in the normal market, whatever that means, And we'll not be influential by old possible orders or old orders that should have come earlier from the If we hadn't had the COVID in 2020. So obviously then this means that the net result is increasing. The earnings The share increased, I would say, in a nice way from €0.12 last year to €0.19 which I think Again, it's a good development. Working capital is on the expected level even if inventory is still high due to higher security levels And that's something which I think we are going to continue to defend because with the turbulence that is still with deliveries a We think we need to keep the highest security levels in our inventory until Things are starting to stabilize and that we don't see until probably the earlier second part of next year, not earlier than that. Steel price has continued to increase also in the Q3. We have expected this the To start to stabilize. And we have seen some sign of that now going into the Q4. Whatever would happen in the Q4 is too early to a We've seen some signs of this. But of course, with the turbulence in steel and in other things, There might be a continued need for increasing prices also going into next year, even if that's something, of course, that we try to avoid. And talking about the prices, they have done with some delay been adjusted to reflect the highest steel price primarily. Talking briefly about Automotive as a sub segment, it has not been as strong as expected During the Q3, and this is probably as we write here, attributable to the delay in supply of the semiconductors To the industry in general, and we have noted and of course that the delay in production in the automotive industry have delayed also investments. We don't see how well that the sheer size of investments will be diminished just because of this delay, But we think that the projects will be delayed and that will of course also have a hampering effect of deliveries from Truax and our competitors to these segments until of course things are starting to stabilize for this important segment. The On the other hand, which I referred to before, the Automated Warehouse segment continued to give us substantial orders And it's very encouraging to see that our solutions then seem to fall in very good a ground with these kind of customers. So we have very good development there. However, we would like you to understand that, but of course, our dependence of these international customers Have increased in the last 2 years. Normally, we have a very broad customer base and we still have. But of course, especially in these automated warehouse field, The development is driven, as you know, by some very big international customers. And of course, this change is a little bit the structure then of the customer base of Nothing negative. We're very positive over there, but it changes nevertheless a little bit the structure. Jumping a little bit to Poland, with our acquisition of NATO, which we did then 1st November last year, We've continued to have a very good development in the Q3. They really have had good development during the time intro, both in orders and in result. And they are, of course, mainly focused on the warehouse segments, driven At least to a major extent by the demand coming from the e commerce and this automated warehouse trend, But also in other warehouse, more traditional warehouse segment. We have continued in this quarter, continued to invest in this new facility outside of Potsdam in Poland, where we bought We bought this new facility beginning of the year and by the end of this year, the first manufacturing machines will be installed there. The administration have actually Just recently moved there, so we are now starting with the implementation there. And the intention is that the move of the 2 existing units will be done during the main part will be done in 2022, but part of it will be done probably also in 2023 because of some lead time in acquiring enough electrical power in the new facility. And also just some information we have also during the Q4, so the new release of the newly acquired Quick card, which was the Old Lady B product range for aluminum growth range. It doesn't change, as I call it, the top line of TROWAGs, This could be a good addition in some markets than for customers who are used to work with aluminum where we see that we can combine aluminum and our more traditional steel fence in a good way for the customer. Going to the next page, we saw the financial highlights for the group. I think we went through this briefly at least today. But just to summarize, we have a very good order intake. First, we shouldn't exaggerate in comparison with 2020, which of course was influenced negatively the call, but nevertheless, it's quite a good figure. And also the same goes for the safety invoice, which of course follows the ordering trade with some delay. And just to give you the information on that the order book that we have today It's of course intended and maybe part of that will be delivered in Q4 this year. Some part of it will be delivered in Q1 Next year, but the main part is, of course, then connected with orders for delivery already this quarter. Gross profit is on a good level, albeit that I would say that the gross margin could have been even higher than if we had been Even quickly, we do some of the price increases. So there are, as I said, some delaying that. So we expect the margin if this good volume development increases to not to deteriorate further, but on the other hand It's of course quite encouraging to see that we are on this 22% margin, but due to the good volume level, This is something which is not really unexpected, but follows them or less our plans. Net result, as I said, It's following then with the operating results, obviously, it's quite good improvement compared with last year. So after 9 months, we show the middle section of the columns here, you see then that we are already now substantially above Last year in turnover, both in orders and in sales and also in the result. Of course, we are Improving. So if you look to the right, you see it on the 12 months rolling, 3 years, and you see that we have substantially improve them in orders and sales and also on the results. So, so far this year, it looks very stable and on a quite acceptable level. Going to the next page, which I think could be perhaps more interesting if you look at the 3 quarter, regional development on order intake and maybe on sales. So to the left on the left columns, You see around the July to September development and you see there's a continued strong development In all regions, this quarter was very, very strong in United Kingdom. And as I normally say, not all of this volume is going the Finally into U. K, but we have an organization that is handling also some sort of export activities. So some part of this is going to other parts of the world. But it's as the way we report it. It's for us and our U. K. Organization is handling it. But generally speaking, it's been very strong also in North America, quite encouraging with good order trends. Those in Truax the part and also in the following part, which was actually acquired a number of years ago. So totally, we are then in the quarter of 47% up and then we had, of course, the acquisition. So we have reached quite good 80% increase in this quarter, Even if I said, maybe the figures when we compare with last year, it looks a little bit too good. If we look at sales, it's a similar development. But of course, you can see that North America where we had very good growth intake In the previous quarter, also has now good sales level, which means, of course, also that I have contributed well and to the result development. The same goes for principal all the other markets. So also the more mature region in the Nordic region and Partly in the continent, Europe had quite stable development, which is, I would say, quite encouraging when we see that our customers appreciate our solution. So after 9 months, if you look at the same figures, the The total Excluding acquisition, we talked about around 40% in orders and a similar figure for sales in organic growth. And then if you add the Jumping to some sort of summary, which briefly will touch upon what I said before. But in you could also say in other words that Q3 has been more or less Expected. There has not been any tremendous deviation from expectations. So even if, of course, you've had this continued turbulence in pricing, which I think we've handled in an acceptable way. So the Good orders coming as I said from Automated Warehouse and also Machine Guard has, of course, been driving then the good development Great. Kind of good EBIT result and margin, mainly in all regions. The The automotive, as I said, has not been as strong than as expected. So maybe that could be the negative deviation Compare with our internal plans. But as I said before, this will come back, but there probably will be some delay In the timing then from the automotive companies when they start to invest in a way Which also gives some volumes to Troy. And the acquisition we did in May, Tom, is continuing in a very good way, And we're quite happy to see them integrating a good way in the 2 hours group. That's a good addition to our portfolio. And the same goes hopefully for the new QuickCard aluminum. It's a little bit early days to say that they have something in a good way, but I think that this will be created in a way that makes it positive. So our North American operation has concluded and they continue to develop well and they show continued improved results. All factories are continuing to develop well, have good utilization. We have still our capacity in a In the normal truck factories, so we can see cope with high demand, Which is according to plan. The exception for this is basically the Natan factory, which is moving the to this new factory until we got that in operation. They are working more or less at full capacity. So in total, we grew development in the quarter with a substantial better result in the corresponding quarter 2020, even if I said before, this was and of course negatively influenced by COVID. So to end that, you can start with your questions within Zoom. Just like to end and for the sake of clarity that the growth factors for us and probably for our competitors All very similar to before. So it's a lot about the industrial automation and the growth in e commerce. And I think the figures Present it now for the Q3 exactly shows this. To a certain extent, we also believe the on shoring of manufacturing will help this. The We will probably not change the total picture, but on the top it will have a certain positive the impact. And then of course, as usual, safe awareness and stricter regulation will of course also over time improve the market. But the real influence from the market development is coming from this general trend of industrial optimization and the growth in economics. In this market, and as I said before, we are the market leader. We are approximately 2.5 times bigger than the closest competitor. We still are in a good position because a number of our very small local competitors, we call them blacksmiths, They don't have the same possibility as the professional suppliers to compete with good prices, good technical knowledge, safety knowledge, lead times and what have you. So, so far, I think we have Still a good advantage in competing with this more or less in all places in the world, maybe with the exception of the Nordic countries in Europe, a Well, this kind of blacksmith has disappeared since quite a long time, I would say. Obviously, we need to do some a new estimate now of the COVID over the global market. But on these old figures coming from 2018 2019, we think that the global market was some €1,100,000,000 of euros And then of course, the European market was approximately half and the American market or North American market a little bit less than half. And the rest is basically the APAC region, which is growing substantially as we speak, but of course coming from the lower level. Next page, you have the our assessment of the competitive situation and turnover based on 2019, 2020, I want to point to this. In our production units then, which is the next page, you see where we are producing, which I think is right now actually then benefiting us in a good way because We are from environmental point of view, not having to ship everything from one place. We have different regional manufacturing, Which of course is good both from an environmental point of view and now also good from a lead time point of view because Right now with containers all over the world is, of course, not the easiest thing to organize and plan. And of course, the costs are also increasing. So the addition to the right we have in Poland, the capacity there will be increased by the end of the year. And When we meet again in February talking about the full year, I will then inform you then about what the new capacity will be. The In our group, as you know, with different brands, they are very important even if Trox As a brand, it's of course the biggest one, but the others are good complementary brands. And we're working on with the safer tomorrow, as you know, since 1995. The We're working with a lot of things obviously like many companies today for a safer tomorrow. And we try to especially decrease the energy consumption. We try when we do investments to have then of course an environmental Of course, we see that as a healthy influence on the environment. We work then with compensating programs for the transportation, Etcetera, etcetera. But I think that as a conclusion, our main advantage from environmental point of view is that our products are more or less 100% recyclable. That means, of course, that we help our customers with environment because the products they buy from us, they don't really the Thank you so much. I will say then what they are doing from an environmental point of view because our products can be We utilize time after time, assuming, of course, that we see steel and to be Recyclable product or recyclable source, which we think clearly and there. The Okay. Going into then the questions, just briefly touching upon that. We, of course, test our products. We have our R and D sensors. We're getting certified by external parties so that the customers know that We are not only writing something or saying something by ourselves, but someone is testing us. And by the end, of course, Our aim is to protect people, property and processes. And with this time, we aim to continue to work and grow and continue to be the original Since we have been since 1955. So, dear operator, I think I end my presentation there You could ask the participant to come with the questions pertaining to this. Thank you, sir. And sir, your first question comes from the line of Hermann Ericsson from Nanske Bank. Please go ahead. Your line is open. Thank you. Hi, Thomas. So two questions for me. First of all, just regarding the order intake in the Automated Warehouse segment, Are you receiving orders from new customers or is it mainly from already existing customers that you are ramping up on? The I think if you just look at the order value, the main part is coming from existing customers who are ramping up the volumes and are increasing to the moment. But we are expanding also the customer base quarter by quarter or month by month. So it's still important for us to continue to do that. But again, From the sheer size of the orders, the majority is coming from the existing customers. Perfect. Thank you. And then secondly, just The CEO letter was a bit less forward looking than usual. So should this be interpreted as business as usual or how should we view this? Yes, that's right, I think you should read it and that's our intention to give you the conclusion that we think then that It's very much business as usual now. Of course, we cannot foresee everything with steel pricing or freight prices or NGL. But Since everything is moving perhaps not in the right direction, but in the direction that we think we can If not control, we can at least adopt to, then we think then that it's very much right now business as usual. A Perfect. Thank you. That's all for me. Thank you. Sure, And your next question comes from the line of Kenneth Thal from Carnegie. Please go ahead. Your line is open. Yes. Thank you. So I was a little bit curious. You're right in the report that this automated warehouses now quite a large part of your order intake. I know historically, several quarters You said that it was the same size as the automotive part used to be at around 20%, and now it has grown a lot since then. So is it now up to 30%, 40% of orders incoming? It's a good question, Kennen. I I think we can talk better about this while we analyze the whole year. But if you just isolate the Q3, it's definitely on top of 20% And it's approaching 30%, so you're not too far out. Well, what I said before was probably that it was the same size of automotive And that was more in the 10%, 15% range of the terminal. But clearly, the Automated Warehouse is our biggest, Let's call it segment today. We are not reporting these Paracares segment. And it's certainly on the Substantially higher than 20%. Great. Also, you talk about the high capacity utilization and that you had to bring in some temporary employees in some plants in order to cope with the high demand. But at the same time, on the chart, you show capacity utilization by plant. There, Looks like you have more spare capacity. So do you have Is it the spare capacity is more compared to the technical maximum capacity or how yes, or Yes. That's great. Maybe we should do it in a little bit other way to give better communication to you who are following us. But the figures were written One more of the technical strategy. So we're right that we increase the number of people working with the machine is more short term than to increase than the working hours to increase the output, but the technical ability or technical volume is still the same as it was before. Yes. So we are not we do not need to see a massive CapEx the program going forward since you did that a couple of years ago. No, not a massive, but of course, And this is broadly clear. We have not communicated it. I think that you are quite good in analyzing us and others We understand that if this good development continues, of course, on the overcapacity we have in the machines, We'll more quickly go and then we have to start the next investment program earlier than what was originally planned. But Short term, we're not starting a lot. We have still overcapacity. So with the exception of May term, we're not doing any, let's say, dramatic increases in CapEx. Great. And also, you've had, Natan, now, soon Yes. And you're right in the report in very positive terms. So I guess you haven't found any, How do you say, any negative surprises lying around here or there in the company? No, we haven't seen that, especially from a financial point of view, it's quite stable and quite, let's call it, Well, seen through. What we do see that we need to do and that this is something which we see in all acquisitions that we do, We need to strengthen the management over time, and that's it. We need to do that over here. Yes. Of Of course, when you grow a lot, everyone gets more to do, I guess. Yes. So finally, also the balance sheet is very, very strong. And you talked about keeping the dividend policy intact And so on. But if you don't do an acquisition soon, I mean, you will almost be debt 3 sometimes into next year. So how do you think around that? Would you consider to do an extraordinary dividend or buyback shares or are you trying even harder to look for acquisition targets? We will probably do all of that, Kenneth. I mean, the I don't want to joke about serious things, but of course, that a healthy balance sheet is very good. So I'm not at all negative on this. We don't feel pressed to do acquisitions which we don't see fit in. So if we don't see that we will find new interesting investments which will benefit our shareholders. Obviously, we will evaluate other ways Well, giving back some money to the shareholders. But I think with this current market, there will still be opportunities coming in. So I don't think we should be the too closely focused on the short term issues of this with dividend etcetera. But again, we see how it the In the end of course, it's not my opinion, not my thesis, of course, the shareholders. So we have to see to you. But You have a point. Sooner or later, if we don't find alternative interesting investments, then we have to look at ways of course of perhaps increasing the dividend. Okay, great. Thanks a lot. That's all for me. Thank you, There are no more questions at this moment. Please continue. Okay then. Thank you very much for your time and for your attention to your interest. Sorry for the interruption. I think Kenneth have a follow-up question. Is that okay to open the line? Okay. Thank you, sir. Go ahead, Kennetal. Please ask your question. Yes. Thank you. Sorry for coming in late again, but I was just the speakers about this ABB aluminum product that you took over now and starting to produce. Do you think that there is a business case of expanding that business globally to maybe start production of such products in the U. S. For Asia or something to grow the business? Yes, absolutely. Well, we're talking a bit longer term, Kenneth, but the simple answer is yes, absolutely. Okay. Sounds great. Thank you. All right. If I understand correct, then there were no further questions. Otherwise, you have the I would like to thank you, Dan, for your interest and your time. And I look forward to talk to you again or together with you, try to answer questions In February of 2022, when we delivered the whole year result of 2021. So as I said, when I started, stay safe, Take care and looking forward to see you next time. Thank you for your attention. Bye bye. This concludes our conference for today. Thank you for participating. You may now all disconnect. Speaker, please standby.