Alimak Group AB (publ)

STO:ALIG

Earnings Call Transcript 2022-Q2

[Operator]

Good day. My name is Paulie, and I will be your conference operator today. At this time, I would like to welcome everyone to the Alimak Group Q2 2022 presentation. [Operator Instructions] And finally, I would like to remind everyone that this presentation is being recorded.

I would like to hand over to the CEO, Mr. Ole Kristian Jodahl. You may begin your conference.

[Ole Jodahl, executive]

Thank you, and a warm welcome to everyone for this quarter 2 2022 call for Alimak Group. And with me today, I have, as always, Thomas Hendel, the CFO.

So if we turn page and we look into the business highlights. We had a strong quarter 2 from an order intake perspective and also good profitable growth. I'm happy to see that the strategic initiatives that we are driving with the New Heights Programme are accelerating, and we are gaining more traction. We have also, during the quarter, worked more on the M&A efforts, as I have talked about earlier. And I'm happy to say that we have then signed the acquisition of Tall Crane Limited, which I will come back to, announced last night.

We also saw an increased EBITDA and a margin in line with the same quarter last year, even though it's challenging, of course, business environment. And I would also like to say that I'm very proud of the way this entire organization have been able to work as a team and serve our customers foremost and also to continue to drive then the New Heights Programme during these challenging times.

So if we turn page and we look at the group quarterly summary. Order intake was up 37% in the quarter, up 24% organically, so also strong then currency impact in the quarter. And then we also have one M&A impact from Cento that we did 1st of July last year. So this will be the last quarter where we also have an M&A impact from that than a year ago, which is something we seen in Facade Access.

Strong equipment order intake of 56%, up 44% organically overall and solid contributions from both Facade Access, Construction and Industrial in the quarter. The revenues were up 13%, 2% organically. The increase is driven by industrial, construction and also Facade Access, and Wind were down as expected due to then still an effect of the exiting of tower internals.

EBITA increased to SEK 141 million, up from SEK 126 million last year at a margin of 13.1%, slightly down then from the 13.2% the year before. And effects of increased costs, we have been able to mitigate, I think, in a good way through active price management in the quarter.

Please we turn page, we move to Facade Access. Order intake was up 78%, a very strong quarter for Facade Access, up 57% organically. And as I also said in quarter 1, we will see fluctuations between months and quarters. And quarter 1 was a little bit softer. Now we have a very strong quarter 2, which also puts the full year in a solid position for Facade Access.

We have strong equipment order intake in general, but also including a major project in the Middle East. And overall also Asia was doing well. We see good activity level in Europe and U.S. continuing to improve. The revenues was up 24%, 7% organically, and it's driven by stronger equipment and service revenues, both in Europe and U.S.

EBITDA unchanged to SEK 6 million, same as last year, and the margin then was 2% versus 2.5%. And here, it is a challenging situation with the cost inflation and also especially our factory in Germany, highly exposed to the Eastern Europe. But I think we have managed well, and I'm happy to see that we have been able to come in the way we did despite this turbulent or this turbulent quarter. But, of course, we also continue our work to improve our margins. And from that perspective, nothing changed to before.

If we turn page and we look at a little bit more general business update. We see lots of things ongoing in Facade Access. We are working on improving the efficiencies in our factories through a lean manufacturing program. We are standardizing the CoxGomyl product range to be more effective and streamlined in the way we work both with engineering and production. We have consolidated the 1000 series from CoxGomyl into Dubai. And we have also made a more standardized and more fit-for-purpose product, the 4000 series that can fit into the Hong Kong residential market where we also start to see nice orders coming. We are working on strengthening continuously the commercial terms to, of course, mitigate risk, exposure and we are also constantly reviewing our costs and improving the profitability overall.

So if we then turn to the next page, and we move into Construction. Order intake was up 27% in the quarter, up 19% organically, also strong quarter for Construction. Strong new equipment sales in several markets and also especially in North America, having a strong quarter. And we also see increased order intake on rental in Europe. The revenues were up 11%, 3% organically, and it's good revenue development in rental, the new equipment and also in installation services. The EBITDA ended at SEK 64 million, up from SEK 61 million last year and a margin of 18.8% and is driven by higher volumes and activities to mitigate supply chain cost increases.

So if we turn page and look into a short business update on Construction. We see that we have secured several important orders during the quarter. So yes, sizable, nice orders coming back a little bit, you could say, after the pandemic. We have increased distribution of the STS 300 products. So now we are expanding the markets where [indiscernible] also U.K., Sweden, Norway, Denmark and the Netherlands. And we see that we really start to gain traction with this product. We have launched a more standard product out of China to more meet the domestic China market needs. And we have also then done the acquisition of Tall Crane Equipment out of Canada.

So if we turn page. So regarding Tall Crane Equipment, we have then made an agreement to sign an agreement yesterday that we will acquire 100% of the shares in Tall Crane Equipment Limited, which is an Canadian hoist and crane rental service provider headquartered out of Langley in British Columbia, Canada. And this is a company that was founded in 1980s, which has more than 40 years of presence in this market, and it is a market leader in this region.

It's a licensed elevator contractor providing hoist and crane rentals with lots of qualified licensed personnel, of course, and also doing repairs and maintenance on-site and off-site. They have been a customer of ours for more than 30 years and is today an important customer, and they will also become now then part of the group's construction division.

The purchase price amounts to approximately SEK 215 million, CAD 27 million on a cash and debt-free basis and a condition-based additional earn-out setup where the maximum can be up to SEK 105 million or CAD 13 million and is based then on the fulfillment of certain performance goals regarding sales and profit over the next 2 years. Tall Crane's revenue in the last yearly closing amounted to approximately SEK 130 million or CAD 16 million and will contribute positively to the Construction division's EBITDA margin.

Closing of the transaction is then expected to happen during now quarter 3, 2022. The company is a market leader in this region. It will also give us then, for the first time, access to the Canadian market. We will get a presence there with the group. And of course, a good base for us to expand the business, both within Construction, but also for the other divisions, Industrial and Facade Access. Mostly, we see potential and we'll use this as a base for further expansion. The group has 47% employees and of course, a good presence in service and something that we can then continue to build on. So it should be a good base for us to work out from. And then it's also, as I said, a good and nice EBITDA contribution.

If we then turn page and we move into Industrial. We see that order intake continues to be strong, and it's up 35% in the quarter, 24% organically and again, driven by higher equipment and service order intake globally. We see positive developments for our traction technology solutions, which we are driving out of Norway and especially in the marine segment. Increased order intake in parts and service sales globally. Revenues were up 56% or 44% organically and a strong revenue growth due to the strong order intake of the backlog coming in and also our focus on services globally.

EBITDA increased to SEK 52 million, up from SEK 35 million last year and a margin of 17.7% versus slightly down then from the 18.17% last year and the higher EBITDA is driven by strong revenues. And also, we see that ongoing investments in sales and R&D is paying off and helping fueling growth.

So next page, Industrial business update. We have now done a global launch of this SL range in quarter 2. So it's an industrial lift for emerging markets. I've talked about this before. It was developed first and foremost for the Chinese market. And then we saw that we could start to sell it also more in the neighboring countries in Asia. And now we have really made this a global launch for emerging markets, something which has -- a product which has been selling very well for us for quite some time now.

We also see that the divisional structure that we have built up is starting to gain momentum and strength. So we get higher activity levels in more countries and -- which is then resulting, of course, in more business. And also, we see that more structure and improved processes is also helping us gaining momentum in North America.

During the quarter, the increased activity in the Energy segment is something we see all around, and that's also something we expect, and we also start to see some effects, so we have traditionally been strong in this segment. And then we also continue to see a nice progress for our solutions for these offshore support vessels supporting wind turbines, quite a unique solution that we have there.

Then if we turn page to Wind. Order intake was down 6% in the quarter, 15% organically, and China continues to be challenging, affecting by the COVID-19 restrictions, the closedowns of especially Shanghai had an impact in the quarter and overall on this market. But we see an increased order intake in Europe. And from an order-intake perspective, now this tower internals is not something that is an issue anymore. That's behind us.

Revenues were down 35% in the quarter, down 41% organically. And this is over as expected due to the lower backlog coming in and the year-on-year decrease in revenues. We also still have some effect on the tower internals there, and it was SEK 23 million in the quarter. EBITDA decreased to then, due to the lower size of the business, to SEK 19 million from SEK 23 million last year, but we are working hard to mitigate the effects and very happy to see that we are able to continue to lift the margins, and it was now 14.4%, up from 11.1% last year. So good pricing and cost management in Wind division.

So turning page to a business update Wind. And as I said, this is, as we all know, a quarter where a lot of things has happened on the Energy segment, which also really going forward puts energy back on the agenda and also should mean much more investments also into the Wind Tower segment. Global renewable energy outlook upgraded as for these energy challenges that we see. We have a tight cost follow-up and of course, prioritize the lean concepts to protect our profit and also then the strategic review of the Wind division is still ongoing. And as soon as we have something to conclude or announce there, we will, of course, do that.

Then if we turn page, and then moving a little bit into our digital world. I would say it's something that we have been working on quite intensely since I came here. And it's really about this thing that it's not only trying to make the best product that we are after, but it's really to help our customers to do the jobs they do even better. So it's really to focus on our customers and helping them become more productive.

And then we have -- we just wanted to show you a little bit of a time line here. This -- the basic hoist was actually having a system, which would also make them able to connect back in 2010. But then not so much happened. But from 2020, we have done quite a lot on this digital agenda. We launched the Alimak BIM Gallery on -- for the Alimak range in 2020. In '21, we started to connect the BMUs so that they have this connectivity ability.

We also, in '21, released the first customer portal, digital portal where the customer can get access to all the information they need, and we did that for this STS 300 launch. We launched the BIM Gallery for all the Facade Access products. And then in '22, we made this online tool for -- so the customers can make an easy calculation, and of course, in a smart and safe way of how to install mast climbers and construction hoists.

We also then pilot-released now recently My Alimak for the construction hoist with a large Swedish rental customer. And we have now recently signed a letter of intent with OO Software to have a strategic partnership for how we can develop an SSM system supporting our service engineers globally going forward.

And if we turn page, just a couple of words about the BIM Gallery. So basically, all standard machines and lifts now available to download, free of charge. So that enables our customers to really be able to choose the best solution. It simplifies and reduce risk, of course, for the customers and in the selling process because everything can be simulated. And as an example, I spoke with one important construction customer of ours not long ago, and they have -- we're very, very happy with the overall Alimak solutions. And -- but they saw when they come up in height, they have not really calculated enough of the lift capacity because when you start to move up in height, of course, more time will be spent on running inside the hoist. So you lose some sort of capacity there. But again, if you would have a BIM model, you could simulate all these things before you kick off the project, so you would know this and not something you experience on the way.

And also from an industrial perspective, when you have a BIM model, you can also just sign it into the overall plant instead of being something you add on to the plant afterwards, which will also take down the need for the infrastructure or structural type of design. So you are actually designed into the whole thing. We have more than 3,500 downloads since this was launched last year, and it's also something we use as an important lead generator, of course, we see and we can follow up on those that are in download.

Then, if we turn page and a little bit more about My Alimak. So My Alimak, it's actually then a webpage where you get, as a customer, you get your own page where you get access to all relevant information. And this is something we now have started. And more and more, the information we get, we can also, of course, store inside this place then. So improving the customer value from order installation, use and service and the content that we have now and had in the first releases are basic machine information then. They can get access to all technical documents, to calculation tools. They also see analysis of how the machine operates and of course, also service and contact information. So this is basically here, we digitalize, we make it easy for our customers. We provide them better service. We give them lower cost -- and we also create stronger ties with our customers, et cetera. So we're way forward for this business.

So -- and if you turn, I'll just say 2 words about this cooperation or strategic partnership that we will have with All Software. So it's a web-based tool for service management, so field service management system. When I came here, it was work on a bigger supplier to actually do this for the group, which will make us more restricted on actually how we would manage and it will have the high cost. So we have now a small player out of Boras, which then work close with the rest of our team. And this will help us make a flexible and fit-for-purpose field service management tool. And of course, for us, we're service development, and we have service engineers all around the world and it's something we want to expand upon, of course and it's both related to installation. It's related to service, maintenance, refurbishment projects, et cetera. This is, of course, an important strategic thing for us to make sure that we have digital tools to make it easy, both for ourselves and for our customers.

And then if we turn page, we move into the financial summary, and then I'll leave the floor for Thomas.

[Thomas Hendel, executive]

Thank you, Ole. As always, a financial summary of the quarter and also the year-to-date now half year. As we can see, we have an increased backlog year-to-date of about SEK 300 million now supporting a further revenue growth, which is very good. The EBITDA increased year-to-date to 30% in absolute numbers and the cash flow softer, but it's a timing issue, and I will come back to that.

Next page, please, earnings summary. The EBITDA margin is in line with last year, as you saw, but we definitely, with the help of an active price management, which offsetting a challenging market situation with very high cost inflation in many product areas, not product types. The financial net, if we compare quarter-over-quarter, it's a slight negative interest net in comparison, but a positive currency effect of SEK 7 million. And regarding the tax rate for the quarter is 22.2% now and is basically reflecting the country profit distribution.

Next page, please, earnings per share results for the period. The result of the period SEK 98 million was SEK 78 million, and it's actually an EPS growth of 26% versus the EBITDA growth of 12%. So it's very nice to see the drop-through all the way to the net income.

Next page, please. Cash flow. Yes, cash flow from operations, SEK 37 million versus SEK 151 million corresponding quarter last year. It's basically 3 areas that explains the lower cash conversion this quarter. And it's -- the first is the timing of project payment milestones. And we also had some selective inventory buildup to secure deliveries going forward, critical components. And thirdly, when we look into the balance sheet, obviously we had very high invoicing late in the quarter, leading to a high level of trade receivables. So it's a timing issue, but moving forward in the cash flow cycle in the quarter.

Next page, please. Net debt. Yes, improvement versus Q2 2021, but we had an increased debt in the quarter from the lower cash conversion, as I said, due to timing and also the fact that we had our dividend payout in May, SEK 176 million. Leverage is still strong and continued strong financial position, and we have about SEK 2 billion in unutilized credit facilities. The capital allocation, repeat again. The priority is: one, profitable growth. As you have seen, sales and development, if we compare year-over-year. #2, M&A increased activity. Now also very clear when we saw last night, the acquisition of Tall Crane Equipment Limited. And the payout according to the dividend policy this year, 59% of net income in the higher range of our policy. So by that, back to Ole.

[Ole Jodahl, executive]

Yes. Thank you. And then if we turn page to the summary. So the focus is on profitable growth. If you remember, we had a 3-step in the New Heights Programme, first to fix the base, which was something we said we should do 2020, and we did. We said 2021 is the year where we focus on the profit side and really ensure what we -- that we have the right things on board to grow and that we delivered upon. And now we are in this profitable growth phase from 2022 and onwards.

And I'm happy to see that already, as expected, first half of this year, we are really in that modus. And also that this means that we have a more solid organization. We have the base in place so we can also now accelerate our M&A activities and that we see them now with the acquisition of Tall Crane announced yesterday. And all this is still managed then in a challenging business climate, where supply chain disturbances has been quite high during the quarter.

We also have, of course, the cost inflation and interest rates going up, and it's a lot of macroeconomic and geopolitical uncertainty around us, which we also foresee that will continue forward. But I feel that we are -- we have managed it well so far, and we are in a good position to continue to manage this. And it's also times like this where good company like ours should be able to gain ground, which is also what we have as our target.

So we are well set for further profitable growth. We will continue to expand our solutions portfolio. We further drive our service penetration strategy. We are continuing to accelerate efforts in R&D, digitalization and also M&A and all to be done in a safe and sustainable way.

So with that, I say thank you, and we turn to next page and Q&A.

[Operator]

[Operator Instructions] And your first question comes from the line of Kenneth Toll from Carnegie.

[Kenneth Johansson, analyst]

So 2 questions, please. First one on order intake. You had good order intake. The question is regarding how it developed during the quarter. Could you say that it was stronger in the beginning and softer in the end or the opposite? Or was it quite an even picture? Do you have any indications like that?

[Ole Jodahl, executive]

Yes, I would say it's relatively even during the quarter. I can't say that we have had any -- see any special trends during the quarter in either direction, no.

[Kenneth Johansson, analyst]

Okay. And the second quarter is the driver of margins in Construction and Industrial. There have been cost headwinds and so on, but do you think you will be able to return to the 2021 levels again? And do you think that is achievable in the longer term?

[Ole Jodahl, executive]

Absolutely. I think it's -- there will be some swings there. And we have invested quite a bit in R&D and sales and also into this organization that can be even stronger market-focused on its right segments, et cetera. So -- and we have not seen all the effects, of course, of this from a order intake and sales-wise perspective. And definitely, I would expect a drop-through when we move forward on this.

[Kenneth Johansson, analyst]

Great. And then maybe thirdly, on acquisitions. You announced one late last night. And is that the type of acquisitions that we might see also going forward, sort of smaller niche players that are strong in the local field? Is that what you're looking for?

[Ole Jodahl, executive]

I think that's one thing of what we're looking for. So that means that you could see more of this, but it's not everything that we are looking for. So we are having quite a wide agenda, as I talked about before, both geographies, it's related to product categories. It's related to technologies. It's related to maybe or a new leg to the group, et cetera. So that could be -- yes. And the funnel is quite nice both from smaller to medium and to some larger opportunities.

[Kenneth Johansson, analyst]

And then also on the Wind side, you have set that under a strategic review. But now we also see that both, I mean, orders are recovering. We see that margins is recovering here. So maybe it's not -- maybe you don't need to stress decisions on that as long as you have an improving trend. Would that be a fair assumption that if you were to keep this for a year or 2 longer rather than maybe divesting it, it wouldn't be such a bad thing?

[Ole Jodahl, executive]

Yes. The -- of course, what you are saying, the macro around us has changed since we announced this. So that's, of course, something we take in. We have the strong agenda, and had for a long time on what we needed to do with this business and that we saw and have been following and seen. We took a decision to exit the tower internal, but the rest of it is nice. It's something you have control over.

So -- and that we have proven, I think, quarter-by-quarter, that if you disregard this political thing with COVID restrictions et cetera, in China and the tower internals, which we purposely are moving out from, this is a very stable business. And we are also managing it in a solid way. So -- and we will not -- we have announced a strategic review, but of course, in the end, the Board will make sure that we make also a solid strategic decision about what we do here. So taking in all these perspectives, of course, I'm sure.

[Operator]

[Operator Instructions] Your next question comes from the line of [ Tony ] from KRB Capital.

[Unknown Analyst]

I just wondered on the Facade Access orders, is the commercial terms now in line with today's cost and your target of improving margin in this segment?

[Ole Jodahl, executive]

Yes. Hi, Tony, absolutely. We make sure now that we -- that the business and the contracts we are taking now is in line with the cost situation and the market conditions we see today, absolutely. If it's not, we stand off.

[Unknown Analyst]

Yes. So basically 1 year, 1.5 years old legacy of the contracts in Facade Access, especially be washed out if you understand when and gradually we see...

[Ole Jodahl, executive]

Yes, I understand, and of course, it's -- the further we go down the line, the more we will have contracts where we -- I know that we have better control over the cost element and the profit element of these contracts. And let's say, all legacy stuff will be more cleaned out. So absolutely, that's the way it's moving, yes.

[Unknown Analyst]

And then for the -- for Alimak as a company, I mean looking at your orders, is it the market that helps you with the growth? Or do you think is it -- or is it Alimak increasing the market share?

[Ole Jodahl, executive]

It's always a little bit difficult to say because it's also -- it's not thousands of the same products, so it's not so easy to calculate market shares day by day. It's project business, most of it. But I clearly feel we have a very strong momentum. We are where we should be and we are developing and we are the natural choice, et cetera, so that we are, yes, in a good positioning and leading way here, I feel confident on. But we also have a huge potential going forward to further develop all divisions, as I've been highlighting many times. So -- but...

[Unknown Analyst]

And that potential -- that is, from my understanding from that potentially is kind of -- that doesn't mean -- you then don't make any assumption on the market, that's more that you internally have a lot of figures. You have control in your own hands to increase the profitability and the turnover for the company if I understand it correctly?

[Ole Jodahl, executive]

Correct. I'm not basing my destiny on market development, even though, of course, we know that we have some global trends and market fundamentals with us, which is nice for the base of the company, but that's not what we based the growth plans on, et cetera. That's driven by the strategic activities and operational activities that we're having in the company each day now.

[Unknown Analyst]

Yes. When acquiring Tall Crane, I mean when you look at the company, what do you find the most appealing?

[Ole Jodahl, executive]

I think it's the things I mentioned. It's first of all, they have been -- it's a way, also what I said, this is the thing that it's not about the product itself that we want to make the best of. We want to also change this business and make sure that we help the customer in the best possible way with the challenging that the customers are having. And then maybe instead just purely look at, you want to sell a hoist or maybe you more look into what are the logistical problems and how can you help develop these type of concepts for the customer.

So this brings us from that perspective closer to the market and closer to the customers. We do not have anything in Canada today. Of course, we sell into Canada, but we are not there ourselves. So this gives us a solid base. And this is a company that has a solid portfolio of Alimak products already. So it's something very obvious for us to continue to build upon. They've had more years of it in this market. They -- lots of service engineers, capable people. So that's something fitting us very, very well. And of course, a base that we can grow the rest of the group offering from also.

[Unknown Analyst]

And the base there, you talk about the base to expand your market in Canada. How do you -- you should think 5 to 10 years, 10 years down the road, how big do you see the market potential for Alimak in Canada?

[Ole Jodahl, executive]

I don't have any clear figures on that. But clearly, the Canadian market, it's a huge market altogether, so -- and it's a natural western type of market...

[Unknown Analyst]

But it's fragmented position is? Sorry, sorry, whether is the market segmented today in Canada? Or is it consolidated by a few players?

[Ole Jodahl, executive]

No, it's quite fragmented actually. So it's a nice opportunity from that perspective, yes. And this company here, it's -- they are strong in this region, but they are not really present in other parts of Canada. So this business is itself, we could further develop. So -- yes.

[Operator]

[Operator Instructions] It looks like there are no further questions at this time. I would like to turn the call back over to Ole.

[Ole Jodahl, executive]

Yes. Thank you. And thank you, everyone, for listening in and for the questions. And then I just want to wish everyone a nice summer. Until next time, see you. Thank you.