Alimak Group AB (publ)

STO:ALIG

Earnings Call Transcript 2021-Q3

[Operator]

Ladies and gentlemen, welcome to the Alimak Group AB Interim Report for January-September 2021. [Operator Instructions] Today, I am pleased to present Ole Kristian Jodahl, CEO; and Thomas Hendel, CFO. Speakers, please begin.

[Ole Kristian Jodahl, President, CEO & Director]

Thank you, and welcome to this quarter 3 2021 presentation. And today, I have with me as normal, Thomas Hendel, our CFO. So next page, please. Looking at the agenda, we will go through the quarter 3 results and also some key developments in the quarter. And then, as always, round off with a Q&A session. So next page, please. And we turn to quarterly highlights. The New Heights program is on track, and we continue to improve margins in all divisions in the quarter, both on gross margin and on EBITA despite the cost increases that we see on materials and transport. The Cento acquisition that we announced in July is now closed and further strengthens our standing as a market-leading BMU service provider in the U.K. And I'm also very happy to say that the unit has developed very well during its first quarter as part of our group. As I've highlighted many times, product development is a key initiative for future growth. And therefore, I'm also very pleased to see that we start to make traction in this area. The new industrial elevator we launched in quarter 2 developed in China for China has had a very good development and sold well, both in China and also in some emerging markets. The development -- or we also do have a development of a scaffolding transportation system, which is now finalized and will be launched now within some few days. And I will come back to both of these later in my presentation. In the BMU division, we have had the management change in July, and this is the division where we need to see more change and at a higher pace. I'm also coming back to this later in my presentation. So if we turn page and into the group quarterly summary. Order intake in the quarter decreased by 2%, with an organic decrease of 3%. Both Industrial and Construction continued to develop well, and we have a strong order intake in the quarter. Also, our strategic focus on the service business continued to deliver results, and we saw a 26% growth in order intake in our service business in the quarter. Wind delivered as expected, a low quarter, driven by our decision to exit our internals business and due to the remaining challenges that we see in the Chinese market. Revenues decreased by 1% with an organic decrease of 5%. The revenue growth was solid in Construction, in Industrial and for services in all divisions. Wind was, as expected, low as a consequence of the lower order intake for several quarters. EBITA for the quarter was SEK 119 million, up from SEK 67 million last year, corresponding to a margin of 13.2%, up from 7.3% last year. And EBITA margins improved in all divisions in line with plan. In quarter 3 last year, we booked SEK 35 million for the New Heights Programme. As for geographies, we see that Europe is still continuing its recovery and U.S. is also coming back after a tough last year. And Asia is slowly and steadily improving, even though here, we also still have quite a lot of impacts and also some countries that are still closed or facing lockdowns. So we turn page to BMU. Order intake decreased by 3%, down 7% organically, and was SEK 219 million versus SEK 225 million last year. The decrease was due to lower equipment sales, particularly in Europe and the Middle East. Service order intake were significantly higher year-on-year, with large orders in the U.S. and Middle East. Revenue increased by 12%, down 1% organically to SEK 254 million, up from the SEK 227 million last year. The revenue increase was due to contribution of the Cento and Verta acquisitions, as both equipment and service revenues were relatively flat in the quarter organically. EBITA increased to SEK 5 million, up from a negative SEK 21 million last year, corresponding to a margin of 1.8%, up from the minus 9.1% last year. The improved result was driven by higher volumes, a better utilization and reduced SG&A costs in the quarter. Activities to further improve sales and profitability are ongoing. And BMU is delivering, I would say, a disappointing order intake for new equipment in the quarter. And this is mainly caused by our focus on the tallest and most complex buildings, which has been hard hit during and post the pandemic. We are working diligently to get back into the market of lower and mid-height buildings where we see good growth potential going forward. Turning page to Construction. Order intake increased by 15%, up 14% organically to SEK 247 million versus the SEK 216 million last year. New equipment sales in North America together with strong part sales in Europe and continuing good development in rental projects were significant contributors. The revenue increased by 13%, both reported and organically, to SEK 278 million, up from SEK 246 million last year. The increase primarily comes from new equipment to revenue in Europe and Americas together with parts deliveries in Europe. EBITA was SEK 49 million in the quarter, up from SEK 30 million last year, corresponding to a margin of 17.7%, up from the 12.2% last year. The continued strong EBITA margin development was driven by higher volumes and continued good cost control. Next page, please. We are gaining speed within Construction to become more market and customer-oriented and speed up the product development. As I mentioned in the beginning, we are now in the coming days in cooperation with the customer in Construction, launching a new product that will provide scaffolders greater efficiency through a more productive erection and dismantling of scaffoldings as well as increased workplace safety. And this system basically contains a box which is detachable from the drive unit, which will then contain the parts for the scaffolding, so it will be lifted and taken down with this -- in this box. This box has weaves, so it can support horizontal movements on the ground, but -- and also require no landings, so a scaffold material can easily be reached when you stand behind the rails at the scaffolding. And it also comes with a digital portal where customers can have access to all needed product information. They can get fast support from our Alimak service. Customers get the ability to get e-training through this portal. And also, this is a place where the customer can, themselves, configure and order the system online as well as parts and services. Overall, this opens up a new market for us as it's a new product in a new market and it's a great example, I think, of the new way of working that we are now focusing on. And it's expected that this will become a volume product that should be a nice contribution to the growth within Construction going forward. Next page, please. Industrial order intake increased by 19%, both reported and organically, to SEK 259 million versus SEK 217 million last year. Improvement was driven by higher order intake in both new equipment sales and service sales. Increased orders in Americas as well as equipment sales in Middle East were the main contributors. The new industrial elevator for the emerging markets that we launched in quarter 2 continue to contribute positively. Revenue increased by 5%, both reported and organically, to SEK 212 million versus SEK 203 million last year despite some revenue slipping into the fourth quarter due to delayed sea freights. The increase is the result of solid order intake earlier in the year in both equipment and service sales in Americas and also equipment sales in Middle East and China. EBITA increased to SEK 47 million, up from SEK 32 million last year, corresponding to a margin of 22.2%, up from the 15.7%. The improvements are primarily a result of higher volumes and also continued good cost control in this division. Next page, please. Earlier in the year, we launched the SL-H 2000, which is a new lift for the industrial market. It is made in China for China, but also to be sold to other emerging markets. And it was also developed specifically for the cement segment, but is also sold to other segments like steel plants, power plants, bridges, et cetera, where we see potential. And all this coming from the new strategy, where we say, in China for China, but also from the fact that we are now driving a segment focus where the market and the customer is what we work closely to make sure we develop solutions that the customer is ready to pay for. Even though it's developed in China for China, it's still carrying our Alimak DNA, with the key components coming from the original Alimak, like our unique safety device to stop a potential fall. And this product has now contributed to good order intake in quarter 2 and also in quarter 3. And the product is targeted towards a growing market segment where we see large investments in industrial and infrastructure sectors and increased also focus then on health and safety. And as a follow-up of this now, we are also now starting to take orders on a bigger version that will lift 3,000 kilos. We turn to next page, and Wind. Order intake decreased by 36%, down 37% organically, to SEK 146 million from SEK 230 million last year, impacted by the decision to exit tower internals, which is mostly affecting China and the U.S. And the decrease from tower internals in the quarter was SEK 20 million, and we have now accumulated SEK 62 million year-to-date. Revenue decreased by 34% to SEK 158 million from SEK 240 million last year. And the year-on-year decrease in revenue from tower internals in the quarter was SEK 41 million and is now SEK 87 million year-to-date. In China, we also see increased competition from local suppliers and low level of support incentives from the government, which also result in a lower order intake and revenue. And this is something we have seen throughout the year. Most other markets for Wind showed good development, especially in the service revenue. And we believe that we will continue to see a positive trend on that side during the year. EBITA was at SEK 18 million, down from SEK 26 million last year, corresponding to a margin of 11.3% and up from 10.8% last year. The margin improvement was driven by the previously implemented cost reduction measures and additional measures taken now to mitigate the effects of the lower volumes, which I think the division has handled well, being able to continue to lift margins. The expected full year effects from our decision to exit tower internals will be a bit higher than we previously announced. It is expected now to be SEK 75 million on order intake and SEK 112 million on revenues. Combined with the remaining challenging China market, we foresee no major upside in volume in the next coming quarters. Then we turn page, and I'll leave the floor for Thomas.

[Thomas Hendel, Chief Financial Officer]

Thank you, Ole. Financial summary for the group. So to sum up the quarter, reported orders and revenues slightly down, as you have heard. However, 2 out of the 4 divisions had organic growth and all divisions strong service growth. Strong EBITA margin improvement and the continued good cash generation in the quarter. I will come back to that. Year-to-date, reported volumes down organically, approximately 4 percentage points better, adjusted for currency and M&A impact. The order backlog has increased during the year and is mainly within Industrial division. And finally, an improved EBITDA and EBITA margin accumulated. Next page, please, earnings summary. Operational improvements and EBITA. We have kept up the gross margin. It's very important. And also in combination with that, we had SG&A in control. The financial net, we have a positive comparison year-over-year from the interest net, but a negative currency impact in that comparison. Tax rate, the 26% approximately that we have seen now, Q2 and Q3, is reflecting the current country profit mix. So this is -- we expect that to remain. The lower level Q3 2020 was due to a temporary tax effect in the U.S. Next page, please. Results for the period. Yes, the earnings per share improved to SEK 1.37 in the quarter, and the number of shares is still above the 54 million. So next page, please. Cash flow. I'm happy to report back the continued good cash flow in the quarter. This time coming both from the EBITDA and substantial reduction of net working capital. We had strong cash collection in the quarter. And -- but we still see further improvement potential in the area of overdue receivables, so we work very hard right now on the collection processes. Next page, please. Net debt. Net debt-to-EBITDA is now down to SEK 0.82 million after Q3. And as you know, our target is to be below 2x over time. And here, I want to point out that our capital allocation plan remains, meaning: #1, investing in organic growth, CapEx, working capital and our product portfolio; #2, M&A; and #3, that we will keep the dividend policy. So next page, please.

[Ole Kristian Jodahl, President, CEO & Director]

Thank you, Thomas. Then a little bit about our digitalization and the BIM Gallery. Our efforts on digitalization is continuing. And as I explained in the beginning here, for the new scaffolding transport unit that we are now launching in some few days, we have developed this digital portal where you can configure, you can get access to e-learnings, ordering parts, order our products, et cetera. And this is the start of something that we will see coming to basically all of our portfolio going forward. We are also continuing to develop BIM, Building Information Models, for all our products, and we clearly see that this is being appreciated by our customers. For now, we have registered more than 2,000 downloads of our units. And it allows us and our customers to design in our products in a much more efficient way, to simulate use, reduce the risk, secure a more efficient flow, increase safety and also increasing sustainability. So it's a lot of benefits to actually have this ability. And it's also, of course, a very nice engine for us to pick up sales line. Next page, please. Then turning into the summary. I'm pleased to see a strong order intake in Construction and Industrial, and that is continues. In BMU and Wind, we still have some challenges that we are working hard to improve and mitigate. But we do feel we have the plan in place. So we know very well what to do, and that's being carried out. We have a strong development in services, with strong order and revenue growth in the quarter, which we have also seen for the last 2 quarters. And this is a strategic priority for us and something that we will continue to focus on very hard forward. I'm also glad to see the improved gross margin and continued EBITA margin improvements in all divisions, in line with plan. Remembering that this is the year where we have profits the most in the focus and that we have been able to also manage this well with the cost increases and supply chain issues that we see around us, which is also, of course, affecting us heavily. We are set for growth and further margin improvements despite the continued uncertain macro environment. And we will continue to work to expand our range of products and solutions, and you've seen some examples of this today. Further drive our service penetration. We will also continue to accelerate our efforts in R&D and digitalization. And also, as we now have a more stabilized organization, we will increase our M&A efforts going forward. So with that, I say thank you, and we can move to the Q&A.

[Operator]

[Operator Instructions] The first question comes from Douglas Lindahl from Kepler Cheuvreux.

[Douglas Lindahl, Analyst]

I'll take them one by one, I think, if that's okay with you. And starting off on the China topic. You have a significant exposure to that market. So I just wanted to understand and if you can maybe clarify also what your view is on the Chinese sort of real estate market and your exposure there. And if you could just clarify that to start with.

[Ole Kristian Jodahl, President, CEO & Director]

Yes. To the -- we have some exposure to the Chinese market. That is most and foremost has been through the Wind business. And that's going rapidly down because a big portion of that has been the tower internals. But we also now have a general business there. We are an important player also with our power lifts. So -- and since we have a challenging market where the governmental support programs are not in place like they used to be and also this political situation where they tend to prefer more domestic suppliers, we also face, in general, a challenge in China for our Wind business. As for our BMU and Construction business, we have some exposure on the BMU but have never been a strong player. On the Construction side, we have very little sales in principle, so it's not affecting us now. But we are building up our China for China strategy because we do believe that we should have and be able to have a good position there. And as for industry, we have had some business there over time, but we are now really accelerating our position. This new product that we launched in quarter 2, which is the China for China product, focusing on the cement industry in China has developed very well, and that we expect to continue. And as I said, we are now launching the second product with some higher load capacity in that market. And the -- so we believe and we see that we are developing our Industrial business well and that we can continue this. And that's also the plan that we should be able to do with the Construction business. But still, that is a low [ business ].

[Douglas Lindahl, Analyst]

Yes, I think it was mainly the BMU business that I wanted to hear more about, but I guess you made that clear. So moving onwards. On the BMU again, you mentioned, Ole, that you wanted to focus a bit more on less tall buildings. How does that really work? Is that you focusing more on specific geographies? Or can you maybe just explain a bit more on that work? And also if you can confirm that you still see the potential for double-digit EBITDA margins in the longer term for BMU.

[Ole Kristian Jodahl, President, CEO & Director]

Yes. That I -- first of all, take the last part first, that I clearly do. I strongly believe that the BMU business had a very nice potential going forward and -- both from a growth perspective and also from a profit perspective. The -- our focus on -- in this group has been on the taller and most complex buildings, for different reasons. But if you go further back, the -- both Manntech and CoxGomyl carried a nice range for more mid height type of building. But the focus has not really been there, so -- and the product development. We have lost the edge somewhat. And this is also an area where we have seen competitors in -- proactively going after because it requires a little bit less engineering, it's more volume behind it, and therefore, easier and -- to get into it. And we have lost the competitive edge there I see on this business. Now when I'm also able to travel more and get more deeply inside it myself, this is an important area that we really need to get back into. And then you also have these manufacturing sites or assembly sites, you need also there to have some steady volumes. These nice bigger projects, it's nice when they come, and they are big, but you don't have the steady load. And at the same time, you also have -- and you have periods like we have seen now with the pandemic, it's big, huge investments, and that is stalled. So that market is very, very slow moving. We have and we follow very carefully our win rate within this business, and we don't see that changing. So we have that same ratio. It's just that it's less projects coming to closure.

[Douglas Lindahl, Analyst]

Okay. And the final one is -- from my side is on the Wind segment. You've been clear here that the negative impacts are not fully seen yet. When do you -- but do you still see the underlying trend as supportive, if I understand you correctly. When would you see or expect sort of an inflection point in terms of Wind sales? Is that possible to give any sort of comment on that?

[Ole Kristian Jodahl, President, CEO & Director]

Yes. I think the basic bottoming out of the tower internals should be at the end of this year. So then we should have, as we have said throughout this year, I think that is still valid. So we have taken out most of [indiscernible] we have very little left out of tower internal business when the year ends. So that should give us a different base to move forward with. So then that is done. The China issue, I don't -- in respect to support programs and the preferment to domestic suppliers, I don't I can say when that will change because it's political things. And the -- yes, but we believe it will change and improve going forward. But what I see else, we have a very solid position. We are the most respected and loyal player, I think, towards this market. But it is a very difficult and condensed market with some very big few OEMs that we relate to. So yes.

[Operator]

[Operator Instructions] The next question comes from Johan Dahl from Danske Bank.

[Johan Dahl, Analyst]

Just a question relating to the New Heights Programme. By now, I guess we're at a stage where you've established the base the way you call it. But then again, looking at order intake and looking at how the business is changing more towards service, it just seems that at some stage, you may have to revisit sort of your factory footprint, primarily in BMU, possibly also in Wind. Can you just talk about how you look on that at the moment?

[Ole Kristian Jodahl, President, CEO & Director]

Yes. It's something we constantly look at, of course. But you also need to remember that our factory footprint is actually not that heavy. Yes, we have quite a significant manufacturing base up in [Skellefteå], when it comes to -- and which is focusing on the Alimak. And also there, we have something in China. When it comes to Wind, it's basically what we have in Zaragoza. Then there is some assembly fights, but basically manufacturing is what we have there. And then when it comes to BMU, it's mostly these 2 sites, one in Spain for CoxGomyl, which is more of a manufacturing, while the Manntech is more of an assembly, where we do not manufacture too much ourselves. It's more that we do assembly. So we are not heavy on that footprint. I think as a group, the core competence is not really in the manufacturing side neither. You know the core competence is in the spine and the development of good solutions. So that is, I think, as a group where we will put most focus going forward, not that we need to sit with a heavy welding capacity, et cetera. And we neither do we not do today, but we still do in some places.

[Johan Dahl, Analyst]

Now I just listened to your comments there, Ole, when you talked about needing that base load in your production, the way I interpret it. But perhaps I got it wrong.

[Ole Kristian Jodahl, President, CEO & Director]

Sorry. I didn't hear you say...

[Johan Dahl, Analyst]

No. I just referred to your -- I mean you talked about this, the necessity of having a base load in the factories on the BMU side, the need to get into also less complex buildings, et cetera. I just interpreted that as -- that you considered manufacturing being a sort of a weak spot at the moment.

[Ole Kristian Jodahl, President, CEO & Director]

Yes. But we -- both yes and no, because we are lucky that we are not sitting with the enormous manufacturing facilities. But we are still sitting with, for Manntech, a relatively big assembly unit. It's big units that we assemble. So still, that is -- but it's the assemble part and not the manufacturing part, if you understand. So that...

[Johan Dahl, Analyst]

No. I understand. Got you. On BMUs, given the length of the projects and your visibility here looking at the order book and your aim to become more relevant in less complex structures, how long will it take Alimak, you think, to get there? When could that be revenues? So I guess this project's stretched for a couple of years' time, if I'm correct.

[Ole Kristian Jodahl, President, CEO & Director]

Yes. I think we have a benefit in the fact that this product range has been part of the group for a long time. It's just not really maintained in a good way, and we have already started that work. So the starting line is not that long to be able to start to be relevant again, I think, in that area. So it's not a fix that you do overnight. But I don't foresee that -- I foresee that we should start to see traction from this over the next year.

[Johan Dahl, Analyst]

Got you. And just on -- I mean, profitabilities seemed to be in good shape in a way in the company looking at costs, et cetera. But if you just look on the -- how you've been impacted from raw materials, costs, site, et cetera, would you say that there's sort of you need to do more here in terms of prices? Or would you say that you have handled this sort of in a good way to get net 0?

[Ole Kristian Jodahl, President, CEO & Director]

We -- you always want to do more. And we have -- in some parts of the business, I think we have been able to manage it because we are there in a position where it's actually possible to manage. And then we have parts of the business where it's more long-term contract and -- like Wind and BMU, where you can't really just go back and enforce a price increase overnight. You are tied up. So -- but there, we are pushing it. And there, we will see effects also coming forward on the pricing side. So I think we have managed well. That we are affected in our results today from this, absolutely, yes. But still, as you see, we have been able to mitigate, both on the cost side and also to be very active on the pricing side. And the -- yes, and we will continue to do. I don't think this pricing is fully over. It's a high risk of inflation all around the world. And personally, I think that will remain for some time. And the -- so -- and that forces us also to continue to be very, very active in pricing management and also, of course, developing the portfolio so that we can get the new things to talk about also with the customers.

[Operator]

[Operator Instructions] There are no further questions at this time. Dear speakers, back to you.

[Ole Kristian Jodahl, President, CEO & Director]

Yes. So then thank you all for listening in and for some good interesting questions. So until next time. Thank you, all. Bye-bye.

[Thomas Hendel, Chief Financial Officer]

Bye.