Alimak Group AB (publ)

STO:ALIG

Earnings Call Transcript 2022-Q1

[Operator]

Thank you for standing by. My name is Paulie, and I will be your conference operator today. And I would like to welcome you to the Alimak Group Q1 Presentation Conference Call. [Operator Instructions]

I would like to hand over to Ole Kristian Jødahl. You may begin your conference.

[Ole Jodahl, executive]

Thank you. And yes, welcome to this quarter 1 2022 conference call. And with me today, as always, I have my CFO, Thomas Hendel.

So if we turn page and look into the new -- or into the business highlights.

As you know now, this is -- we are now entering step 3 of the New Heights Programme where focus is profitable growth. And I'm happy to see that the margin improvements continued during the quarter driven by the revenue growth and also improved gross margins despite an increased difficult macro environment.

Focus on activities and investments continue, and it's, of course, to future drive profitable growth, both on the sales side and also into product and service development.

I think it's also important to highlight that our business is highly contract driven, and that also means that we can have high fluctuations between months and also quarters on the order intake side. So as a group and myself, I'm not at all concerned about the order intake level in itself in this quarter as regarding with the question on -- with some comparables, that this is natural swings between months and quarters.

So if we turn page and look more into the group quarterly summary.

Order intake was down 2% then in the quarter, 9% organically, and we saw strong organic growth in Industrial continuing. But as I said, we also have what I would call natural fluctuations in the quarter.

Strong order intake continue on the service side, part of our strategy and something that should have more -- much more stability to it, as we see. And then Wind reported a continued drop also, as expected, and we're coming back to this.

On the revenue side, we were up 11% in the quarter, 3% organically and with a strong organic increase in Construction, Industrial and Facade Access. And Wind again down as expected due to the situation coming in from last year.

EBITA increased to SEK 107 million, up from SEK 95 million last year, and the margin improved, up from 11.2% to 11.5%, and it's driven by the revenue growth and the improved gross margin. But also important to note is that our investment in the sales and product development is ongoing, and that's something we also see comparing year-over-year.

If we turn page and we move into Facade Access. Order intake was down 8%, down 18% organically. And it's still a small market for new equipment but in high-rise buildings. So it's not so many closures yet. But we see clear signs now of increased activity levels. So we, of course, see that the market and this will improve going forward. But we also continue to have a very solid order intake growth on the service side, which is positive and part of the strategy.

The revenue were up 28% in the quarter, 17% organically, and is due to stronger equipment and service revenue across all regions. Good activity level on that side.

EBITA increased to SEK 4 million, up from a loss of SEK 6 million last year. And margin was then positive 1.5%, up from a negative 2.5%, and again also driven by higher volumes and improved gross margins in Services. But of course, also now we have -- with the uncertainty in the market, we see increased raw material costs and supply chain challenges, which is, of course, also affecting this division, but something we have been able to manage in a solid way, I would say, up to now. And we also expect that we will be able to handle this going forward. But there is a high uncertainty to what's coming, of course.

And then if we move to next page. This, as you know, is the first quarter where I'm running this business, and that feels good. It gives me, of course, an opportunity to get much more into the details and understanding this business better, which I feel that I already am very well into. And we continue our activities to improve both sales and profitability, and I'm happy to see that we are making steps in the right direction basically every day.

We are also working on expanding, as I announced last quarter, to -- our product range for low- and mid-rise buildings. So in that sense, broadening our addressable market.

We have launched during the quarter CoxGomyl 1000 Series, which is a modular sell-powered platform intended for the U.S. market. And we have actually also reopened manufacturing operations in Dubai, which should then enhance and are enhancing our competitiveness in emerging markets. And this is a manufacturing location which used to be here in the EW Cox site. So some years ago were closed down or only doing some smaller things, but now we are really back and we are manufacturing what we call the CoxGomyl 4000 Series now in Dubai. Already taking orders and see very nice prospects for this going forward.

Then if we turn to next page and we move into construction. Order intake was down 14% in the quarter, 19% organically. And important to note here is that we have tough comparables year-over-year. Last year, we had a very solid order intake on the Rental side, which is now more on the normal level this year. We have a positive order intake development for new equipment and also in Services. And we also see an increased base of transport platforms in Europe, which is now an important part of our strategy.

Revenues were up 16%, 9% organically, and continued good development across the whole portfolio and also all geographies. EBITA ended at SEK 41 million, up from SEK 35 million and a margin of 15.3%, up from the 14.9%, driven by higher volumes and good cost control. But also here, we are doing investments both in sales and in R&D that will help fuel profitable growth going forward.

So next page, please. We are doing investments and have now put in place dedicated and focused sales resources in Norway and Denmark, places where we have not had this before. It's been managed from outside. And we immediately see positive effects from this and something we will continue to do and review around the world. We have had an organization in U.K. which has been focusing on selling used equipment. Now we are putting more structure into this. So we are putting up a global structure so that we can be a more active player in bringing in used equipment, bringing it up to shape and reselling it.

We are also strengthening our product management and R&D investment into the mast climbing work platforms and transport platforms that I talked about earlier. This is an important growth area for us. So we are strengthening our position here.

And we also continue to drive our digitalization strategy, and we get a lot of positive responses from our customers both related to the building information models that we have released, the STS 300 customer portal connected to that launch, and also our connected assets. So that's good, of course being market and customer focused in this sense.

Then if we turn to next page, we move to Industrial. And here, we continue to see a very strong order intake. I guess we see this from all industrial companies. This market is strong. And so for us, we have a very strong quarter, up 37% and 28% organically. It's higher equipment and service order intake globally. We also see more positive developments for our traction technology. This was a company we acquired in Bergen in 2014 and have basically been focusing in Bergen in Norway. But now we move forward with this technology and we want to do more globally, and this with the [indiscernible] and also contribution from the new products that were launched for emerging markets and also specially engineered elevators.

We have a revenue growth of 12% in the quarter, up 5% organically. Higher volumes driven by strong service parts sales globally. And EBITA decreased to SEK 46 million, down from SEK 50 million last year. And we are now reporting a margin of 19.3% versus 23.7% last year and the high profitability in quarter 1 2021 due to the favorable mix and also somewhat lower selling expenses. This is the division that we have invested the most since the start of it a year ago into sales and segment structure. And it's also paying off, but that's one of the reasons why we see a slight decrease in margin quarter-over-quarter.

If we turn to next page. And yes -- and then dedicated and focused sales force. We are focusing on strengthening global and regional sales and segment focus. And also, of course, now what is good for this business and in division in general is that when the markets are opening up, we can have much more customer interaction again. So that's something we see.

We also now, due to the current situation with the war in Ukraine, see, of course, increased activity in Energy-related segments, and these are segments that we traditionally have been strong in. So we expect also to continue to develop well within that business going forward.

And also, we've developed last year as well a solution for offshore support vessels, supporting and connecting offshore wind turbines. So providing access to wind turbines offshore in heavy weather conditions. And we continue to sell very well from this solution. So that's a good business and happy to see that development.

If we turn page to Wind. Order intake was down 22% in the quarter, 28% organically. And still it's, as we have announced earlier, the effect of exiting of our internals, and the volume impact in the quarter 1 was SEK 27 million year-over-year, and also the fact that China continues to be challenging.

The revenues were down 20%, 27% organically, and tower internals impact to quarter 1 was SEK 20 million year-over-year, and then also driven down somewhat by the lower order backlog in China.

And this -- as I said, the exiting of the tower internals was something we decided beginning last year, and we were driving out throughout last year, and we should also see effects in quarter 1 this year. And so now this is basically something which is and should be behind us.

EBITA increased to SEK 16 million, very happy to see that, and up from SEK 15 million last year. A margin of 11.6%, up from 9.1% last year, and it's due to our and this division's strong drive to improve margins. They have very well control over their business and also supported somewhat by a favorable product mix in the quarter.

So turning page. What we are seeing now, of course, which is positive for this division is that there is a huge increased focus on renewable energy around the globe. So something that should support the -- this division solidly going forward. We continue to drive our product development focus to both expand on the product side and on the service side. We are working, yes, with our resolve to mitigate the effects of the raw material and price/cost increases. So we have managed prices in a solid way. And also, as you know, the strategic review of the Wind division that we announced last quarter is ongoing. And as soon as we have something to announce or something more to talk about there, we will come back on that one, of course.

So then turning page and the financial summary, and then I'll leave the floor for Thomas.

[Thomas Hendel, executive]

Thank you, Ole, and good morning, everyone. As always, I have the overview here for the financials.

I'm happy to report back that we have increased the backlog of more than SEK 100 million in the first quarter, and it's mainly Industrial division with good margins.

Then we have also a clear revenue growth, as you have seen, up 11% reported and 3% organic, and further margin improvements following the revenue growth and also gross margin improvement.

Lower cash conversion this quarter, but it's mainly timing effects, and I will come back to that.

Next page, please. earnings summary.

The EBITA improvement, driven by revenue growth, as I said, and improved gross margin. The financial net is a little bit lower this year compared to last year, but it's a combination that the interest net as such is improved, but the currency effect has the opposite impact.

The tax rate for the quarter is 23% compared to 25% and is basically reflecting the country profit distribution in the group.

So next page, please, the EPS.

Results for the period. The net income is SEK 70 million compared to SEK 63 million, and the earnings per share growth is 13%, following very well the operational result improvement, which is also 30% up.

So next page, please, cash flow.

Cash flow from operation SEK 36 million, as I said. And basically, we had good cash collection in the quarter with somewhat reduced overdues, actually. But, however, we had lower conversion this time. As you might be aware of, we had a very strong cash conversion all year, 2021. So the timing here is that is coming basically from three areas. Firstly, the timing of shipments. Leading to that, we have increased goods in transit, meaning revenues in the short term would come. And then we had fewer payment milestones in the projects this quarter, leading to an increase of the contract assets, also timing effect. And then we also have some -- selectively, we have built up inventory to secure future deliveries. So these are the main reasons for the lower cash flow this quarter. But as I said, it's basically timing effects.

Next page, please, net debt.

Yes, stable since year-end, and our leverage is still on a lower -- on a low level of the strong 0.56 compared to the 1.29 last year's first quarter. From a cash point of view and a flexibility point of view, we have over SEK 2 billion in unutilized credit facilities.

And I want to repeat again that our capital allocation priorities remains, which is, number one, profitable growth, and this time we have also seen now in the comparables on the sales area and the development, as Ole mentioned; secondly, the M&A area, which we foresee increased activity, and we're working hard on that in the management team; and thirdly, that we have to deliver upon our dividend policy. And this time, we have a proposal to the Annual General Meeting for a 59% dividend on the net income, which is well in the range of our policy of 40% to 60%.

So next page, please, Back to Ole.

[Ole Jodahl, executive]

Yes. Thank you, Thomas. So if we then look at the summary, and the focus is, of course, on profitable growth. And happy to see that we are seeing continued margin improvements delivered in line with the New Heights Programme and supported then by increased volumes and improved gross margins, which also means that we have pricing power in our business and we do have it in all our divisions.

We are the leading player. But of course, the war in Ukraine and also the continued lockdowns that we have seen in China, which is also seen to continue, have, of course, also brought further uncertainty into the markets globally, and it is a challenging situation to manage. And we have one factory in Germany which is getting most of its steel from the Eastern Europe side where it is turbulent, very turbulent, these days on reliability into supplies and, of course, knowing the costs. But the team there have managed, I think, in a very solid way so far.

We also announced yesterday that we are now exiting our business in Russia. We announced when the war broke out that we stopped all deliveries and sales to Russia and Belarus. And now we also initiate the exit of our business unit that we have in Russia. So something that will now be happening in the coming weeks and months.

Then as a group, I'm happy to see now that we are further set for margin improvement and continued growth. We continue to manage and mitigate the things around us in a solid way. And we are driving our programs, we are expanding our range of products and solutions. We are continuing to drive service penetration, and this is a very important part for the group and something we continue to grow quarter after quarter. And it's, of course, to do more spare parts and service of our existing setup but also the fact that it's more and more products or fixed installations out there, especially within Industrial then and the product kits that have now been up for 20, 30, 40 years and are in need of refurbishment or replacement. And here, we have a very strong position, I feel, to be able to support that market need, and we do.

We continue our efforts in R&D and digitalization. And as I said, also now we start to have the things here that we are testing and running with customers and getting good feedback. And then we also increased our M&A efforts, as I've said earlier. And we now have much more stability and a solid base that I feel that we as a group are ready to move forward with here. So that I expect that we will be able to report upon in the future.

And if we come into the divisions. We have a solid base, a very solid base, I would say, in Industrial. We have a very solid base in Construction. These divisions are continuing, and we have a clear growth path forward on the Facade Access side. We are improving, and we have a solid plan in place to -- yes, we might call it a turnaround because we have a lot of margins to improve here. But that's ongoing, I feel, with a strong guide. And for Wind, we should have now seen the worst and that should be behind us with this takeout of the tower internals and the China effect. The worst of that should be behind us now. So yes, we feel that we are well set going forward.

So then, I -- we turn to next page and move into the Q&A.

[Operator]

[Operator Instructions] Your first question comes from the line of Johan Dahl.

[Johan Dahl, analyst]

Just a few questions quickly. On the order backlog, can you just address the risks here in -- with the terms and conditions given the substantial cost inflation, I guess, you are seeing? How would you be able to offset that given the duration in that order book?

[Ole Jodahl, executive]

Yes. Yes, Johan. Good question. It's, of course, something that is a little bit different from division to division. The biggest -- or the biggest challenge we have, in Facade Access, where we might have contracts that are to be installed 3, 4 years down the road. Or -- so we are working on projects now that were signed up 2, 3 years ago or maybe even more. So that's, of course, a tough challenge, but what we are doing is everything that is possible. We have discussions with our customers. We show them what we are now exposed to. We work with our suppliers. We delayed some, we moved some.

So, so far, we have been able to manage it in a reasonable way. Of course, it's affecting us. But still, as you see, we are able to move forward and improve our position. But if it wouldn't be for this, we would have been even stronger.

So - -and there is also a lot of uncertainty still going into second quarter, of course, because, yes, the war started and the lockdowns also now in the latter part of quarter 1, so there is an uncertainty absolutely into quarter 2. So it is very difficult to say how and what will bring going forward. But we feel that we are well set to manage, and we are managing this every day.

[Johan Dahl, analyst]

And your prices, as you're putting a lot of efforts into innovation, sales force, et cetera, how much are you incrementally adding in '21 (sic) [ '22 ] versus last year? If you can talk about money or FTEs or -- just to put it into context.

[Ole Jodahl, executive]

Yes. That we have not -- Thomas, maybe you want to say -- or a few...

[Thomas Hendel, executive]

Yes, yes, it's a -- maybe if -- just by reading the report, it's obvious that it's the sales and the development areas within the SG&A area that we have increased. So if we adjust for the currency effects, we talk about in the magnitude of about SEK 50 million quarter-over-quarter.

[Johan Dahl, analyst]

And that's a fair assumption on sort of an annualized basis to look at -- look forward at those growth investments?

[Ole Jodahl, executive]

Thomas?

[Thomas Hendel, executive]

I would say that we have -- I mean, we gradually increased our activities last year. So I wouldn't say that you should, let's say -- in your models, you shouldn't make automatically another incremental increase, no.

[Ole Jodahl, executive]

No, but this is the figure year-over-year. And the then -- and you will, of course, also continue to invest. But that it will be some sort of linear thing, it's not. We do a balanced approach here. So yes, so that will fluctuate a little bit based on what we see as potential and how we manage our results.

[Thomas Hendel, executive]

Yes, I think the assumption -- sorry, Johan. Yes, I will say you can -- just to conclude on what Ole said, I think that we -- you will see certain increases in our efforts in an absolute terms when we feel it's a good timing but not relative to revenues.

[Johan Dahl, analyst]

Yes. On wind, I appreciate it's difficult to talk about, but how much time are you sort of giving this review? And can you give us any sort of update on what type of sort of things you're primarily looking at right now?

[Ole Jodahl, executive]

The timing of it is, of course, always difficult. But I also want to conclude it as fast as possible. So what we have said, we would expect to be at some sort of conclusion by the end of the year. It should not be -- I don't want to give a date, but spending a year on such a thing should be plus/minus enough. And then it's basically all options on the table, which also could include a divestment.

There is a lot of things happening in this market now. But whether it changed the fundamentals, it's, of course, one parameter that comes in that we are taking into this review. But it hasn't changed the fact that we are continuing on the same path that we announced a quarter ago that we want to make a full strategic review.

[Operator]

[Operator Instructions] Your next question comes from the line of Gustav Österberg.

[Gustav Österberg, analyst]

Can you just give some more sort of color on the order intake increases in industrial and Construction business? Sort of is there a common denominator there? Or what's sort of driving that positive trend?

[Ole Jodahl, executive]

Yes. On the Industrial side, it's been -- you see that all industrial companies basically are reporting and have been reporting for several quarters a strong market, and that's also what we see globally. It's -- we have a global presence, and we see global demand and we are the leading player here. So we are getting what we should get. And then they've also invested further into this organization so that we have improved our presence. And we see that this is paying off, being close to customers and being out there and supporting. And they know us. So we get the business there and take a lot of business. So strong development been -- for several quarters now that this will be some sort of linear.

We also need to remember that also Industrial, it's a lot of projects. It can be small projects, and it can be big projects. So there can also be fluctuations natural between quarters, but it has some more stability to it than maybe some of the other divisions.

Then Construction, also very solid. I must say that the service order intake going up. They're growing nicely. The new sales of the machines going up. The thing that pulled that down was the Rental, and that has some swings to it.

So it had a very strong first quarter last year. Then 2 -- maybe a little bit pent-up first quarter last year. The Rental order intake now is more normal, I would say, than it was last -- first quarter last year. So nothing worrying or anything in Construction. I think that's a strong -- it's a strong position. We have a good business. We are doing the right things and it's progressing day by day. But that market is...

[Unknown Analyst]

And just a quick follow-up on the Industrial side. Are you feeling sort of -- do you have a closer read on whether you're taking share? Or is that sort of a market-wide increase that we're seeing in recent quarters including Q1?

[Ole Jodahl, executive]

We are basically taking business in multiple segments and around the globe. So it's nothing really that's going out. What we do see is that, of course, the Energy segment is coming even back stronger now with -- so that might be a stronger driver going forward. But -- and that's a segment or sector where we traditionally have been strong or that Alimak have a strong business there. So we expect also, of course, that we should have our fair share of that going forward.

But a general positive sentiment, and we have a good presence in Asia, in Europe, in North America, and it's all moving.

What is also strengthening a little bit further now compared to the first 3 quarters last year is that service is stronger in -- our service business is stronger in Industrial. And this is because markets are opening more up, so it's more possible. There's no placed restrictions on travel, et cetera, anymore.

[Gustav Österberg, analyst]

Got it. Just sort of final quickly on the capital allocation priorities. I appreciate you, Thomas, sort of gave us the ranking there again. But then on M&A, sort of what type of M&A are we talking about there? We talked about the add-ons previously. Do you feel it's -- is it sort of an idea to wait and see what the strategic review in Wind sort of arise at which type of conclusion you arrive at there before you start to think about M&A? Or is there sort of a parallel M&A agenda going on as well?

[Ole Jodahl, executive]

I would say that it's a parallel agenda. Of course, if the Wind would turn out to be a divestment, that will, of course, bring even more means to do more. And there is a lot of opportunities for us out there, but we already have a very, very strong position from an investment perspective. So absolutely, that's something we drive in parallel, and I can't say that we have anything now that is on hold due to the strategic review of Wind.

[Operator]

There are no further questions at this time. I would like to call the call back over to the presenters.

[Ole Jodahl, executive]

Yes. Thank you. And I would like to thank everyone then for listening in and also those that asked good questions. That's always nice. And maybe lastly, thank you to all the employees of the group for solid work and for driving the group forward.

So thank you. Until next time.

[Operator]

This concludes today's conference call. You may now disconnect.