Alimak Group AB (publ)

STO:ALIG

Earnings Call Transcript 2023-Q1

[Operator]

Welcome to the Alimak Group Q1 2023 Report Presentation. [Operator Instructions]Now I will hand the conference over to the speakers, CEO, Ole Kristian Jodahl; and CFO, Sylvain Grange. Please go ahead.

[Ole Jodahl, executive]

Thank you, and welcome to this quarter 1 2023 call then for Alimak Group. And with me as you know and heard, I have Sylvain. So if you turn page. The group had a very strong start to the year, driven by a strong operational performance. You see we have increased our margins with 5 percent points and half of it is operational performance, the other half is the integration of Tractel. So both these elements have been managed very well during the quarter and given us a solid start. Then in addition, we also, finally, I could say, start to see positive contribution from a volume perspective from Wind, and that's very encouraging of course, and I'll come back to this. Overall also, the Tractel and Tall Crane integration works well, as you also can see from the figures. And then we also conducted the rights issue during the quarter where we then successfully raised close to SEK2.5 billion and used that to repay some loans.Turning page then, diving into the group quarterly summary. We see that order intake and that SEK1.870 billion, up 78% over last year, where then 65% is coming from the acquisition of Tractel and Tall Crane, and where we also have a 6% organic growth, and this is then supported and driven by Industrial and Wind in the quarter. Revenue we report SEK1.745 billion, up 86%, where then Tractel and Tall Crane contribute 67%, and we have a 12% organic growth. And the organic growth here we see in Construction, HSPS, Industrial, and Wind, while we had a slight decrease in Facade Access. EBITA adjusted increased to SEK289 million, a very strong result, up from SEK107 million last year with a margin of 16.6%, up from 11.5% last year. And as you can see also in some of our aggregated figures when we compare the full -- or if then Tractel would be part of the group last year, we have an increased EBITA of 41% year over year. So strong -- again strong operational performance and significant contribution from the Tractel acquisition.Turning page, and starting looking into divisions. We look at Facade Access first. And order intake was then SEK493 million, up 86%, and this is the division where we have a very high contribution from Tractel, so that contributed 82%, and we have a 3% reduction in organic growth. We see that the market is still good for both parts, but, of course, now we've tighten even more our pricing and contractual terms. We see that Tractel have been even tighter in this than legacy Alimak, and still our order intake held up in a solid way. And also service continued to contribute positively for us here.Revenue was reported to SEK485 million, again, heavily supported by Tractel acquisition of 60% and a small organic drop then of 1%. Overall, it's Americas which is holding up the best and was very strong in the quarter. EBITA increased to SEK29 million, up from SEK4 million last year and a margin of 6% versus 1.5%. Again, heavily or fully impacted by this Tractel acquisition. And as we know, they have a very solid business in facade access, reporting historically more than 20% EBITA, while Alimak part has been then on, yes, very low profit margin level. So now the focus here has been to get this together. We are, of course, not happy with the level, but we have the right things going to start lifting the results going forward.So if you turn page. So the Tractel integration is moving according to plan. And as I said, this is the division where we have most to do. From this perspective, it's led by then Philippe Gastineau, who is the former CEO of Tractel, and during the quarter we have set the new organization here and that is, of course, the first step to really get the right structure and governance in place so that we can manage it. And then now we will then, in each of these 3 regions, we will start to dive into the local markets and set the right procedures and ways of working. It's North America where we really have a solid base from before. Both organizations where we, I would say, we are fully up to speed, but it's more things to be done in Europe and Asia Pacific.I could also mention that, of course, immediately when we got together, we tightened the pricing management and also contractual terms. But what takes more time is, of course, to get full control over the project management and set the right routines there. But actions are being implemented and developed, and we clearly, of course, expect to start to lift the profit in this division going forward. And also important to note is that together now combined, we have a leading market position globally, and we have a complete product range handling both low, medium, and tall buildings.Turning page and looking into Construction. Order intake was SEK469 million, up 46% and also here a solid contribution from both Tractel and Tall Crane with 44% in the quarter and a small negative organic growth of minus 4%. We saw that the demand for new equipment was lower in the quarter, but strong rental and also service order intake. But we also need to remember that quarter 4 of last year was very high. So overall we think and see that this market is holding up quite well for us globally. Revenue was reported to SEK467 million, up 73%, again, 46% contribution from Tractel and Tall Crane, while we had a 20% organic growth in the quarter. And again, also then highly supported by our rental activities and also from a regional perspective, Americas is standing out as the highest growth area. EBITA was reported to SEK86 million, up from the SEK41 million last year, and a good margin of 18.5% versus 15.3% last year, and it's driven by a good drop through from the revenue increase, good cost control, and also our continued pricing management.Turning to next page. Yes, this division is now also then becoming a bit of a new business because of the integration of Tractel and the Tall Crane. But this is moving very well and it's more or less set now, so we have a good way of working with this forward. We received another very nice order during the quarter. We have been moving more and more away from just looking at the products, more looking at the customer and the market needs, and there we have a very good example that you can see in the picture here what we call the Common Tower, where you'll find that it's a complete logistic solution basically where you have multiple lifts with different purposes, some are just handling people, some are handling both people and material, and some handling big material units, like a kitchen modules, et cetera. And this picture is from Karlatornet in Sweden. And something we have been successful with, and we have just received another order in Australia for the tallest hybrid timber building in the world. We see, of course, that higher interest rates and the material pricing is affecting this market, but mostly on the residential side and that the infrastructure part is holding up quite well.So turning page, another very important thing. This was actually launched just after the quarter, but [ with Easter ] during the quarter about this and something we are very proud of, we have released our all-new Alimak Scando series, and this is then the 650a. This is the first size that we are releasing. It will be coming more sizes on the way, so it will be completely replacing the old Scandos. And it's really setting a new standard. Most of the products going into this [indiscernible] recyclable up to 97.5%. It's 33% lighter machine and also with a significant reduced environmental impact. And this is the first real update of this machine in many, many, many years.And turning page. Connected to this, we also fully launched our customer -- digital customer portal, My Alimak, where the customer also then gets full operational data access to these machines. They get beam modeling, they get stress calculation tools, technical data, et cetera. So basically, this goes hand in hand and very nice was that also after the quarter ended we have been awarded the Best Digital Development Award at the International Powered Access Federation Conference in Berlin, and I think this is also then a nice evidence that we are leading in this industry when it comes to this.Turning page, we look into Height Safety & Productivity Solutions. Order intake in the quarter was SEK329 million, and since we don't really have comparable figures inside the group but, of course, if you look at it aggregated, we see that this represents an overall increase of 7% versus quarter 1 last year. From a revenue perspective, we report SEK362 million, and this represents an increase of 19% versus the aggregated 2022 and also with a strong EBITA of SEK75 million, a margin or 20.8% versus SEK54 million and a margin of 18% if you look aggregated back 1 year. So also a good start and continuation of this Height Safety & Productivity Solutions business.If you turn page, [indiscernible] that is 100% former Tractel and is now this new division that we have here. And this is also then under continued leadership of Philippe. Focus here going forward will be product innovation and also driving sales effectiveness and, of course, also synergies with the rest of the organization. And we have some examples of product development here. We have released a new Dynasafe Mecha 7, which is a mechanical load limiter that you see in the upper picture here. It reduce risk of accident, save maintenance cost, and it's developed and manufactured in house, and this new version also have a significant reduced cost, allowing us to keep up and further strengthen our margins on this.On the lower picture, you'll see from a lift, what you call it, lift tunnel area. This elevator segment is a very important segment for this business where the Tirak hoists that Tractel manufactures is used by most of the global lift or elevator companies globally and they use it when they install their lifts. So important segment for us and also holding up well and a strong development in quarter 1. So we see double-digit growth in almost all regions, and it's mostly then driven in the period by productivity solutions and the service segments. And as I also mentioned, of course, the synergies with the other divisions and the cross-selling opportunities we are working on.So turning page into Industrial. Order intake was SEK372 million in the quarter, up 10%, whereof 5% was organic growth, and here we have no impact of acquisition. It's a solid order intake for both new equipment and service, and we continue to see strong development in the marine, energy, and mining segments for new equipment, as we have seen for some time. Revenue was up and reported to be SEK311 million, up 31%, where 25% was organic growth. And I think, again, this is driven by our good focus in this division over quite some time. EBITA increased to SEK74 million, up from SEK46 million and a margin of 23.6%, up from 19.3% last year. And here also good drop-through from revenue increase, good cost control, and our pricing management contributes to this strong and good result.Turning page. We are changing leadership in Industrial division. So now David Batson, who is then heading up the Construction division will also interim head up the Industrial business. And as you know, this shares -- mostly shares the same products, the Alimak machines, so I think it's also a good combination to run it a little bit in parallel now. So David will do that while we are then looking for the new permanent EVP for this division. Overall, this division has been developing very well for a long time, as you know, and this is a result of the strategic focus that we are putting on these industrial segments and dedicated sales organizations being close to customers that are paying off and also that we have been driving good product development where we are not only focusing on the product but the full asset lifecycle, including service and parts for our customers. And I also want to highlight again, we have a strong quarter in Norway where we are selling these gangway lifts, and these are for supply ships then connecting to offshore wind turbines. So these solutions here actually allow these ships to connect at the wind over 20 meters per second and keep stable access into the offshore wind turbines.So turning page and looking into to Wind. Order intake of SEK208 million in the quarter, up 62% whereof 50% was organic growth. Finally, I would say very nice to see we have been working for a long time to make this division ready. We have set the good base here and cleaned out what was not profitable business. And now we also start to see that the market is coming back. We see a positive impact from the U.S. Inflation Reduction Act in U.S. and also in China with our China for China strategy. These are markets now that starts to increase investments in wind, again. Revenue was up and reported to be SEK151 million, up 11%, 4% organic, and again, driven by higher activity in the U.S. and also in the service segment. Also, a very solid EBITA at SEK25 million, up from SEK16 million last year and a margin of 16.5%, up from 11.6%. And also here it's driven by higher revenues and pricing, cost management. But I also want to highlight, we have also beneficial product mix in the quarter.Turning page. Yes, the U.S. Inflation Reduction Act, IRA, has started and helped increase investments in the wind sector in the U.S. so that's positive for us. And we also see that this act that is on the verge in the EU Net Zero Industrial Act, that if that is enacted, we also expect to see similar effects in Europe going forward. We expect gradual improvements now during 2023 and also then further improvements in '24 and onwards. Our investments and focus on product development and customers, of course, also here continues, and 1 example is that we have been awarded to work with our Avanti Dolphin lift into this laminated wood wind turbine that has been developed here in Sweden.So turning page, and then we go to the financial summary and then I leave the floor to Sylvain.

[Sylvain Grange, executive]

Thank you very much, Ole, and good morning to all participants. We are now coming indeed to an overview of our key financial indicators for the quarter. Many of them have already been mentioned by Ole, and we are pleased to present overall green numbers despite the macroeconomic challenges. Regarding revenue, we posted a strong 12% organic growth in the quarter. And that was higher than the 6% organic growth in order intake. However, the quarterly order intake in absolute value is higher than the revenue. That means the backlog kept growing in Q1 2023 from what was already a high base at the end of 2022. This obviously gives some comfort for the revenue over the coming months. Adjusted EBITA is moving up from 11.5% in Q1 2022 to 16.6% in Q1 2023. As mentioned by Ole, assuming Tractel had been acquired on 1st of Jan 2022, the aggregated EBITA performance would have been 14.1% in Q1 2022. So we see that roughly half of the EBITA percentage improvement is coming from the Tractel integration and the other half is coming from operational improvements. At constant perimeter, we have added 2.5% of EBITA. Operating cash flow has grown to SEK108 million from a low base of SEK36 million in Q1 2022.Next, please. We are now focusing on the bottom part of the profit and loss statement. I've just mentioned the impact of the operational improvements on our EBITA. To be a bit more specific, we have maintained our total gross margin on a stable high level on an aggregated basis, notably reflecting our active price management policies and our continuous efforts to optimize the cost of our products and solutions. So the gross margin is now close to 40%. At the same time, we pay continuous attention to controlling the cost below the gross margin. At constant forex, those have increased by less than inflation. The higher revenue has mechanically led to higher adjusted EBITA margin, once again, moving from 14.1% on an aggregated basis to 16.6% in Q1 2023. The increase in financial net charge mostly comes from the interest related to the debt raised for the Tractel acquisition. The increase in the average tax rate is due to the new country mix implied by the Tractel acquisition. This is in line with our expectations and the comments we made when releasing the Q4 results.Next, please. Result for the period was SEK124 million versus SEK70 million in Q1 2022. Adjusted for items affecting comparability, this was SEK127 million versus SEK70 million in Q1 2022. Earnings per share was SEK1.72, posting a growth of 76% and adjusted for IAC, it was SEK1.76 growing by 80%. One comment regarding EPS, those have been calculated according to IAS 33, implying a restatement of the prior period EPS to reflect notably the Rights Issue discounts.Next, please. We are now coming to the cash flow. We have paid more cash interest. We have paid more taxes in the quarter versus Q1 last year, but this has been overcompensated by much stronger earnings. The working capital grew again in the quarter. We are not there yet, and we are not where we want to be in that respect. We trust more should be done and will be done to contain working capital looking forward. The outcome is that cash flow from operation at SEK108 million in the quarter versus SEK36 million in Q1 2022.Next, please. The net debt has decreased significantly in the quarter, mostly due to the successful SEK2.5 billion Rights Issue. As a matter of fact, the issue was oversubscribed by 19%. And we are obviously very grateful to our shareholders for their financial support, and we take this as a sign of confidence in the company. Leverage is now down to 3.72. Factoring rolling 12 months of Tractel EBITA, the leverage is 2.87. You will surely remember that we had previously announced that we were planning to be around 3 after the Rights Issue, so we are on target or slightly better. It remains a high priority to carry on deleveraging in the remaining 3 quarters of the year. M&A is still seen as a good way to generate value for our shareholders, but we are on pause in the very short term as deleveraging will prevail over inorganic growth. The other capital allocation priorities remain unchanged. You will have noted that the dividend proposed by the Board at AGM is indeed within the range determined by the [ related ] long-term financial targets.Next, please. We're now moving to balance sheet. And the most significant changes in the balance sheet relate to the Tractel acquisition and its financing. Equity was obviously impacted by the successful SEK2.5 billion Rights Issue. Long-term borrowings have decreased in the quarter as we have used the proceeds of the Rights Issue to repay the bridge loan and some of the RCF. At the end of Q1, the biggest component of our debt is a term loan of EUR300 million maturing in 2025, but with 2 1-year extension options which may take us to November 2027.And now handing over to Ole again.

[Ole Jodahl, executive]

Thank you. And then if you turn page to the summary slides. So we are very happy with the quarter, as you can understand. Strong operational performance and also then we have managed to drive and integrate Tractel in a very solid way now in the first 5, 6 months where we have been able to maintain the profit level, and therefore, we also see a significant contribution from the Tractel acquisition in our figures all the way through.And here we continue to work on this, of course, intensely. And yes, we'll, we'll report back on this every quarter, of course. We're also keeping up a strong focus on our product and service development. And happy that we could announce some very nice product releases during this quarter, and this is something that you will continue to see from us. And then we have announced that June 14th here in Stockholm, we will have a capital market day where you will get a little bit more insight into the status of the New Heights Program, again, and also, of course, a bit more deep dive into HSPS, a little bit more deep dive into Facade Access and what we are doing there, and also some updates of the other divisions. We see, as the rest of us around us, that it is still a challenging market around, and we also expect that these challenges will remain. But as we have been managing this well before, we feel even better prepared now. We have a solid structure, we have a good organization and leadership, and we feel more than ready to take on the challenges that are coming.So with that, I also want to thank all employees for delivering another solid quarter. Thank you. And then we move to the Q&A.

[Operator]

[Operator Instructions] The next question comes from Hanna Lindbo from DNB.

[Hanna Lindbo, analyst]

Yes. My first question is on Facade Access, because when I look at the numbers, it seems like the legacy Facade Access margin is not improving. So my question is, basically, when do you expect to see an improvement here?

[Ole Jodahl, executive]

No, you're right. The legacy Alimak margin is not improving in the quarter. You need to remember, as I said, that this is the division where we have the biggest, let's say, integration impact where we have 2 relatively sizable organizations coming together. So the 1st focus was 2 things: 1 was to ensure that we put the right structures in place when we now take new contracts from a pricing and contractual management perspective in place, so that was done immediately. So we had a common view on that, and that tightened even further because Tractel had an even tighter view on that than legacy Alimak. Then the other piece that we focused a lot on now initially was to set the right governance structure, of course, to get in place the organization. And that we have done now in the quarter. And then the dive will go into each of the markets, and to manage this business, one thing is their pricing and ensuring that you take the right contracts, the other element is the contract management, and that is really now what will be the focus, of course, going forward along with also some other bigger topics that we have still not fully addressed with make or buy manufacturing footprint and things like this. That will also be worked more on in the coming months. So that's the main reason. So in a way, I could say, I'm happy that it is like it is, that it hasn't really fallen or something is broken. But I feel very confident now that we are setting the structure, and we are doing the right things to really start to lift this. And I also want to highlight again that Tractel have been delivering north of 20% EBITA on this type of business while we have been, as you know, delivering hardly profit at all. So we believe, and we work intensely towards that, this should come up to the Tractel level.

[Hanna Lindbo, analyst]

All right. So can we expect some improvement already in Q2 or what would you say?

[Ole Jodahl, executive]

I don't want to explicit promise of when and what. But my view and what we work towards is that we should improve this every day, and we expect that we should start to see improvements, absolutely, yes.

[Hanna Lindbo, analyst]

Great. And on the Construction, you said that demand for new equipment was lower. So I was wondering if we could get some more color here like which markets are you talking about? And also if you could comment on the outlook for Scanclimber?

[Ole Jodahl, executive]

Yes. The Nordic market is, in quarter 4, that was softer or weaker. We also still see that to some extent. But overall, we feel that it's holding up quite well. It was lower on products in the quarter. But remember, we had a very good quarter in quarter 4. So if you look a little bit over time, the order intake also for products are holding up quite well. And then it's more I think effects in the residential area rather than on the more infrastructure projects where also our machines are used more. So it's difficult to say going forward how this will be and how much effect we will see. But so far we believe it's holding up quite well, actually.

[Hanna Lindbo, analyst]

Yes, that's great. Could you remind us roughly how much is residential construction of the Construction business?

[Ole Jodahl, executive]

We don't disclose or we have never talked about those figures in general, and this is also -- it would be basically impossible to say because a great deal of our sales goes to rental companies, and where they choose to use their machine is something that we don't have full knowledge about. So it would be something that we also really couldn't do with certainty.

[Hanna Lindbo, analyst]

All right. My last question is on the Wind because you talked about this beneficial product mix. First question there, which products are we talking about here and do you expect this positive mix to continue going forward?

[Ole Jodahl, executive]

Yes. It's 2 types of main products in the wind area, it's the lift and it's ladder-guided lifts more with ladder systems. And this is -- we have a stronger development in the quarter on the ladder side and those have somewhat higher -- ladder-guided lifts, they have somewhat higher margin. So that's why we have a positive mix effect in the quarter. And when we want to highlight this mix effect, it is because, of course, that we can't expect to have that every quarter or it's not -- so it's not a new level directly what you see here, but it is an improved overall profitability in the quarter driven by some of higher revenues driven by our strong focus during the last 3 years to take out what shouldn't be there what is not profitable enough, focus on product development, focus on costs inside our manufacturing and pricing with -- and being close to our customers so that they also accept our pricing. So we feel that we have a very strong position. We believe that we also, going forward, should be able to work and develop margins here. But we need to be aware that also mix is affecting it from time to time.

[Operator]

The next question comes from Gustav Osterberg from Carnegie.

[Gustav Österberg, analyst]

Three questions from my end, please. Firstly, if you could -- there was a very high organic drop-through year on year in the quarter. Could you elaborate a bit on what you're seeing in terms of net pricing relative to volume effect? Is this largely given by pricing catching up or is it mainly driven by better factory load?

[Ole Jodahl, executive]

It's a mix. I can't give you the exact split, but we have been working over the last 2 years. We are continue to work on pricing also. We will do another round. So pricing is, of course, important to us but also the leverage in the factories, of course. We do have a good drop-through when volume goes up. So it is a good mix of both I would say without being specific on exactly the split of it.

[Sylvain Grange, executive]

To add to Ole's comments, it applies -- this also applies more or less to all divisions across the board. So in all divisions, we have a mix of volume and the price effect.

[Gustav Österberg, analyst]

Yes. Perfect. And then on the service business, which seems to be growing well, could you give us some background on what's driving that? Is it a big change in installed base in recent years, or is it driven by older fleets and operators running all their equipment? How should we think about the growth potential in the service business?

[Ole Jodahl, executive]

It's a little bit varying from division to division here also. But I would say the main driver for us is that we have an even stronger strategic focus on this. So that's the main thing. But then if you look into, for example, Facade Access, as I've been talking about before, we see an aging fleet that there is the potential to do upgrades and the refurbishments of all the machines because the first machines that were installed, they are coming to that type of age. So that's a growing market going forward, which is important to us. Then we also know that Tractel has not been focusing strategic in the same way on service like legacy Alimak. So that will create another also increased opportunity going forward. In the Industrial division, service is a very vital part. And as I also highlighted, that we have this combined focus in this division now to look at the full asset lifecycle where we strategically drive these things, that we not only want to sell machines, but we also want to sign up the long-term service contracts at the same time. So I think that's the main thing, but also then like in Facade Access supported by the fact that some new market opportunities are arising.

[Gustav Österberg, analyst]

All right. Thank you. And then the final question on Industrial division, and you highlight the marine and mining segments that are contributing to growth and where you see better long-term potential. Can you just remind us how large share they are out of the total Industrial business today?

[Ole Jodahl, executive]

We are not disclosing these slits there either. But historically, you know, you've followed the company long time. So it's -- energy segments are important to the group, but they have become less important because it was a phase where we also had the strong focus and now today we have strong focus on all Industrial segments, but then we are also, of course, benefiting from the fact that our strong historic segments are also now developing very well overall. So that's also, of course, good for us. But we have a strong focus on all segments and that's really what this division is about that we drive a segmented approach.

[Operator]

There are no more questions at this time. So I hand the conference back to the speakers for written questions and closing comments.

[Ole Jodahl, executive]

Yes. Then we have a couple of questions coming in digital to us here. So Johan Dahl, you had the pricing question. Maybe we have maybe talked about it, but Sylvain, you want to...

[Sylvain Grange, executive]

No, I think the question is what's the pricing impact on sales growth. I think as we said, it's a combination of pricing and volume effect on the sales growth and there is a second question from Johan regarding the potential seasonality in order intake for the Tractel business. Maybe the first comment I would make is that today we see more ourselves as a group with 5 divisions and legacy Alimak and legacy Tractel. But still we can try to address your question depending on the type of business in Facade Access, there isn't a strong seasonality. It's a project business. In HSPS, there is a little bit, but it does not repeat the same way every year. Usually, Q1, Q2 are slightly less strong than -- sorry, Q1 and Q3 are slightly less strong than Q2 and Q4, but there are certain years where it doesn't repeat and it's not that strong. And then as you remember, there is a small component of the Tractel business, which went into Construction. This is the Scanclimber business. And there you don't see a strong seasonality, although usually Q1 is lower than the rest of the year.

[Ole Jodahl, executive]

Yes. And then we have a question about the pro forma margin at Facade Access, the 6% versus 7% Q1, whether this was driven by Tractel or Alimak or both, and the answer is very clear. It was driven by the Alimak piece of this. The Tractel piece is still moving on like it used to do. So it's still the Alimak piece which needs attention and to be fixed. So that were the 2 questions we have here, nothing more here. So then I think nothing more pops up. So then I think with that, we close for today. So I want to thank you for attending, listening in, and also for the good questions that came. And again, thank you to the team that has provided another strong quarter for us, and till next time, thank you.

[Sylvain Grange, executive]

Goodbye.