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Addtech AB
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Ladies and gentlemen, welcome to the Addtech Interim Report 1 April to 30th of June 2020 webcast. Today, I am pleased to present Niklas Stenberg, President and CEO; and Malin Enarson, CFO. [Operator Instructions] I will now hand you over to Niklas Stenberg. Please go ahead.
Yes. Hello, everyone, and welcome. Sorry for short delay. It was some technical issues in the webcast. Anyway, let's start up. Let's see, I hope the pictures are moving also for you. First, some highlights from the quarter. I must say that when we entered the quarter, we were very cautious about how it would be, both due to corona and also, we had very strong comparisons from last year. So I'm very pleased that we managed to end the quarter a little bit brighter than we feared. Net sales fell less than expected, about 4%. And also, we were able to defend the strong EBITA margin. And that is, of course, a good proof on our ability to quickly adapt to new situations and to keep good cost control. We saw a very diverse situation when it comes to business climate. It really varied depending both on geographies and segments. And we suspect -- or expect that this will continue also further on. I will come back to that. Also, as you have noticed in the quarterly report, the Board concluded yesterday to propose a dividend. It's a little bit lower share -- dividend share than we usually give out as a balance of a fair return on investments but also to secure resilience considering the unsecure environment. Looking a bit deeper into sales, we can see that organic growth fell with 7%, while added 4% from acquisitions. And on an overall level, demand for components to mechanical industry and special vehicles were hit hardest by the pandemic. On the other hand, we saw good demand in medical technology, electronics, wind power, infrastructure, et cetera. So the mix, we always talk about in Addtech, is really proven again this quarter. Short mention, development month by month. April was definitely the weakest month, [ 50%, down 50% ]...[Audio Gap] situation improved in May and clearly stabilized in June when the customers started to reopen operations again. But that said, volumes are coming from lower levels, at least in some segments -- sorry, let's see what's happening here. So EBITA margin, as I said, remained very good, 10.9%, that only decreased 0.7% compared to last year. And as I said, this is the result of the dedicated work to keep control of costs. And especially short-term cost effects, governmental support measures and less traveling and these kind of things has helped the margin. Long-term cost measures that we have initiated have not really got a full effect, of course, yet. If we look into the business areas, starting up with automation, net sales decreased by 1% and not so much impacted by COVID-19. Nordic engineering sector mostly hit here, especially, we can see a tendency that small- and medium-sized customers were more hardly affected than the larger customers. In automation, we have some of the bigger companies outside of Nordics, and they had, of course, great challenges due to shutdowns, et cetera. On the positive side, fiber installation, medical, et cetera. Components, also not so -- it's a bit difficult to change pictures here. I'm not sure what's happening. So components decreased sales by only 2%. And so the total COVID-19 effect was pretty moderate. On one side, special vehicles and engineering sector are important for components, harder hit. But on the other hand, quite a lot of medical and electronics sector that had rather a boost due to the pandemic. So all in all, quite stable. And geographically, Finland had the best market due to a lot of medical. Sweden faced the greatest challenges. Denmark, Norway, quite stable, all in all. If we move on to Energy -- something that doesn't really work here.
I think there's a problem with the pictures for the audience, if we have maybe some operator listening. So I do hope that the audience can see the pictures.
Okay.
Yes. The audience can -- yes, they can see the pictures. You're currently on Slide #6.
Okay. Okay. For those not seeing the pictures, the presentation is also available on addtech.com. Thank you.
Okay. So I will continue then. And I am now on Page -- Slide 7, Energy. So if you have problems, then take the presentation from web page instead. Energy stood out very well this quarter and increased sales by 10% and also very good incremental margins on that sale. And very limited COVID-19 effects for Energy, primarily those companies working with sales to OEM industry. But both wind power that had a very good development and also installation, the grid sector that we usually talk about, had very good -- both demand and sales. Really sorry, it's something there is turning to the presentation. Industrial Process, as you know, had very strong figures for last year. So tough headwinds. And alongside of that, other effect of COVID-19. So quite heavily impacted. Some comments on scrubber installation. It was quite slow. As we write in the report, about half of the sales from Q1 last year, and Q1 last year was when scrubbers really took up to speed. And the main factors are uncertainty on the oil price, and of course, also a little bit extra of the pandemic. And even if we get some positive signals from our customers, I would say that there are quite a lot of uncertainties surrounding this market. So we will have tough headwinds for scrubbers also going forward. On the positive side for Industrial Process, we had good demand in the forest industry, especially projects in sawmills, where we had very good demand. And this is also where we have the newly acquired Valutec with interesting development. I'm trying to change the page now. So finally, Power Solutions, also quite mixed situation. Overall, quite difficult for Power Solution due to special vehicles, which is the main segment for Power Solutions. And basically, all OEM customers responded quickly to the pandemic and closed down. So decreasing sales, about 25% of special vehicles, for Power Solutions. Now we see in June that they are slowly opening up again, but it's with reduced capacity and still slow demand. On the other side, battery solutions, power supply, wind power segment kept up very good. And I think, especially the margin that we managed to keep up such good margin, even if we lose special vehicle segment, where we usually have high margins, I think this is a strong development. So to summarize, effects from COVID-19, not as bad as we initially feared. Our estimate is that approximately 7% have been affected due to the pandemic. And as I said also, a little bit positive trend in demand during end of quarter. So hopefully, this trend is continuing. When it comes to employees, about 120 have been made redundant and about 800 have been affected by short-term layoffs, more or less, in percentage. The big question is, of course, what will come next? What's the new normal? And that is certainly difficult to answer since there are a lot of uncertainties. Development, as all of you know, is dependent on manufacturers outside of our control. But that said, if we look at our order intake during Q1, and also that we foresee an even slower summer period than usual since some of our customers and suppliers are having a slower speed in the summer, we believe that Q2 will be a bit tougher affected than Q1. Also, we have to remember that Q2 last year was very, very strong. If I remember right, I think we had 17% organic growth. And so that's, of course, tough. But with that said, about the coming quarter being tough, and I think it's important that we remember Addtech's long-term development. We have been through crisis before, and we are good in taking us through it. And it's our firm belief that we will do it again. We have a robust business model, good finance, as Malin will talk about later. And also our spread today in segments and geographies gives a good balance. I can also mention that our internal ambition is to be able to keep a margin above 10% also in -- at the new normal, if I put it that way. Quick look at acquisitions before Malin says a little bit more about finances. We made 3 acquisitions in the beginning of the quarter: Elkome in Finland; Peter Andersson, a small add-on to Energy; and Valutec, one of the biggest acquisitions that we have made. As we wrote in the quarterly report, we have focused on internal work and liquidity and cash flow. That's why we haven't continued publicly with any further acquisitions. But considering the situation we are in right now and the processes we have ongoing, it's my absolute belief that we will continue doing acquisitions going forward now. Okay. Malin?
Yes. Some highlights on the financial position. We have strong cash flow despite decrease in profit. Key financial indicators remain strong. Our liquidity is good with comforting headroom in credit facilities. And even though our running profit decreased during the first quarter, and we are obviously affected by large acquisitions during the beginning of the quarter, our cash flow remained strong. Profitable working capital remained at 54%, which is very good and mainly due to our ability to work efficiently with our working capital. Obviously, there are greater risks of uncertainties within our receivables right now, but we have not experienced any loss due to customer liquidity problems. Our inventory levels are on a stable level, but the situation differs a lot between companies, depending on their business model. Some have higher levels than normal due to the uncertainty around the supply chain, very important to keep close attention to this. Our core ability to work efficiently with our working capital is now more important than ever. Besides the profitable working capital, we follow our equity ratio, our leverage and gearing closely. And even though affected by acquisitions, it is still within normal range. We will probably see our leverage going up during this year due to the fact that we plan to keep our acquisition pace for sustainable growth, even though we will see our EBITA decline in short term. Our gearing is more stable over time, even though it is not a straight line. It's reasonable to believe that this will be around 1 or slightly above during this year. So we would like to say that all in all, comforting financial position with a lot of confidence in future long-term growth potential with efficient cash flow.
Thank you, Malin. We're almost ready for questions. I just want to take a minute to present our sustainability vision. You can read more about it in our annual report that we released earlier today. You can read many interesting examples of sustainable business, et cetera. So shortly, as you can see, we have 4 major visions that we want to achieve: We want all our sales to contribute to sustainable development; we aim to reduce carbon dioxide intensity by 50%; and also to increase women in leading positions; and also to focus even more of the sustainable supply chain. Yes. I think next picture you have seen before. So I think we run over to questions.
[Operator Instructions] And our first question comes from the line of Oskar Vikström from ABG.
To start off, I wanted to discuss a bit on the EBITA margin. You mentioned that the sort of long-term initiatives that you've been working for this quarter haven't really paid off yet. I wanted to see when you expect to see the effect of these? And also perhaps these SEK 25 million in positive EBITA impact from governmental support, how do you see them play out over the coming quarter here? Will it be just around the same level? Or how should we think about that?
Okay. Thank you, Oskar. It's -- the first question, we have, of course, been working quite heavily the last quarter on looking into profit protection and the long-term initiatives, because certainly, depending on how long time this pandemic will impact the market, we have to look on long-term costs. And how it works with reduction of employees, it takes usually a year before you have the full effect, but we will start to get effect quite instantly. And among the people that we have already been discussing with, part of them are not with us today. So I think also linked to your second question, this will link with each other quite well. It's difficult to say how long time the governmental support will last. That, as many things else during this pandemic, things are changing. In some of the countries, they talk about ending it in September, October. Some countries talk about keeping it for the rest of our financial year. So it's a bit difficult to say. But I think these 2 short term versus long term will more or less take out each other. And so when the short-term effects goes down, the long-term effects will step in.
Okay. So we should expect at least then a somewhat significant relief on EBITA for the coming quarters as well?
Yes. I would.
Yes. All right. And then secondly, very strong development in the Energy segment there, and you're mentioning grid infrastructure as well as wind power being big drivers here. Is this driven by any particular like large projects? Or is it more sort of normal flow business? Or is there anything particular in this quarter that would make you think that the next one wouldn't be as strong? Or how should we view this segment coming into Q2, Q3?
Yes, it's a good question. I would say that the main answer is that it's a good growing market, a lot of projects. It's nothing in this quarter that really sticks out. It's been full activity, and it's relating to stabilizing and enlarging the grids in the Nordics that we've been talking about for a long, long time. And so it's not any peculiar situations in the quarter that has passed. What might be a little hindrance for future growth, and I really say might, is as my business area manager for Energy told me is that with the low energy price we have, the willingness for investment might be affected. But we don't really see it in demand in Q1.
Yes. Understood. Understood. And another question, just final question for me here. In terms of scrubbers, could you just remind us, last Q2, how much of the growth for Industrial Process, was that pretty much all scrubber growth? Or because you had really strong organic growth there last quarter?
Yes. I don't know, Malin, maybe if you can pick up? I don't have it in the back of my head, but you're absolutely right, that scrubber had a huge impact. It was, at least so far, the peak of sales for scrubber for us was in Q2. The peak in demand was in Q1 last year and peak in sales was in Q2. But how much of the growth that was linked to scrubber, I really don't remember...
Last year.
Last year, yes. But we did have a good growth in many of the other sectors as well. I remember that both automation and components had a little bit weak Q1 but came back very strong in Q2. So we are...[Audio Gap]
Our next question comes from the line of Johan Dahl from Danske Bank.
Niklas and Malin, just a few questions. Firstly, Niklas, I was just wondering what leads you to this slightly cautious statement regarding Q2 growth compared to Q1? Can you mention any certain areas that sort of you note this weakness?
Yes, Johan. And Oskar, I will come back to your question later. I don't know why you were interrupted. But Johan, well, I would say it's a general -- it's more of a general feeling based on the order intake in Q1. I mean if you look on the good sales we had in Q1, it was partly thanks to good order intake in Q4. We ended up Q4 with very good demand. Now in Q1, we see the main effects of April and May being very slow. So even if June is now picking up, and we definitely see a positive trend, as I mentioned, is we'd rather have to look on Q3, Q4 before we see that positive trend coming out. So that's more of a general perspective. Second, I would say that the 2 areas where we face the toughest headwinds is special vehicles and scrubbers. And these 2 segments is also segments where we have had very good margins last year. So that is also part of why we are quite cautious of the coming quarter.
I got you. Yes, that makes sense. Just trying to understand also, you're referring to, at the end of the quarter, I mean it seems as if 30% of your employees, give and take, are affected by either furloughs or redundancies. It seems like just quite a massive amount, considering that organic sales was only down 7% in the first quarter.
Yes. Yes, that's correct. And what I can say about that is that now we see that quite a lot of companies are releasing part of the furloughs. Many companies are taking back. And when we were in beginning of April and everything was total black, nobody understood what was happening. Of course, all of our companies took their decentralized responsibilities and did everything they could. So from that perspective, I can totally agree. When we now see the outcome of this quarter, 800 out of 3,000 is on the upper scale, definitely.
But that's still -- it's -- yes, it was the question, but it was just -- I'm referring this number, the 800 plus the 120 redundancies, you're talking about it being end of June, right, as you exit the quarter? It just seems a lot of things have sort of stabilized slightly in June, which we should talk about. Yes, never mind, can -- yes?
Now how it works with redundancies or these furloughs is that you make an agreement with the trade unions. You make a package with the unions, where you decide upon dates, et cetera, so it's not that you can decide from 1 day to another that, okay, now we want to take back 50 people. So you are a little bit stuck in this agreement. And many of the agreements ended end of June. And that's why many of our companies have decided not to continue, because they do see a positive trend.
I understand. That's useful. Just finally on Norway, quite significant movements on energy prices, which you talked about and the Norwegian krone as well. I remember last time, Norway was weak. It was -- it required a bit of work from your side. What's your judgment on Norway today looking forward, if possible?
Yes. Yes, I don't know. When you referred to last time, you mean the meeting in May, I guess? I think what I said...
Basically, in 2015, 2016 with the low oil prices, et cetera.
Yes, yes, exactly. I mean the information I get on the Norwegian situation is that the projects in the oil and gas sector are slow. But the rest of the market is keeping up quite well. So the market positions we have in Norway, which is, to a large extent, electrical installation markets, electrical ferries, these kind of markets, are still keeping up quite well. So -- and our direct exposure to oil and gas sector is -- as you know, is quite low. So from our side, Norway, all in all, has been stable, I would say, going down quite rapidly in April, coming from very high expectations from the Norwegian side, but has picked up quite well during the quarter.
Okay. Just finally, on Valutec, it seems to be a very good and profitable business. And I just saw that the contribution from acquisitions to operating earnings was nothing in the quarter. Is that a very seasonal business? Or is there any explanation behind that?
No, it's not seasonal business, but it's a project-based business, which means that it can vary quite a lot quarter-by-quarter. So only thing I can say about Valutec is that the project inflow and the general feeling of the forest market, also when I talk to the Valutec management, is that, that market seems to have picked up quite well. So even if it was, as you say, Valutec has done an okay quarter, but not compared to what they are used to. So that's why, to summarize, as you say in the report, the EBIT doesn't look too good. But I don't have any fears about that at all. It still seems very positive.
Okay. Should we address then Oskar's question from earlier? So last year, about half of the organic growth in the second quarter was related to the scrubber business. If that was the question?
I think so. I don't know if Oskar can answer, but...
No, but that is the answer from our side. So we can take the next question.
Oskar's line is unmuted.
Yes, that was exactly what I was looking for, thanks.
[Operator Instructions] Our next question comes from the line of Johan Sundén from Carnegie.
Actually, my questions have already been answered. So I can go back in line.
And we have a follow-up from Johan Dahl from Danske Bank.
Malin, just a quick question on the parent company group items, it was positive SEK 2 million. I just didn't understand the reason for that. I'm sure you can enlighten it there.
Come again, please, in the mother company, you say?
Yes, it's just -- you do an excellent split-up here of the earnings per business area. And this quarter, you add up all the divisions, and there is a parent company group items, which was positive SEK 2 million in the quarter. It's usually negative by, yes, a big -- a fairly sizable number. But I'm just wondering why it was positive in this quarter? If there's anything else we should know regarding the earnings?
No. I think really, it's -- if you should understand that, it's in the first quarter, we don't really have the exact specific amount of management fees and everything in line. So I think that is why it can depend in the first quarter. So I would say that it's nothing unusual.
Thank you. And as we do not have any further questions, I will hand the word back to our speakers for the final comments. Please go ahead.
Okay. Thank you for your questions. And no, I just want to summarize that we are quite happy with the outcome of this quarter. In the longer future, we see -- feel very, very positive on our positions. And I'm sure that we will be able to handle the coming quarter that will be tough, but we'll be able to handle it in a cost-efficient way. So with that said, I hope you have a great summer, and we talk again and hopefully meet some time also. Thank you. Bye-bye.
This now concludes today's webcast. Thank you all for attending. You may now disconnect your lines.