Nimbus Group AB (publ)

STO:BOAT

Earnings Call Transcript 2023-Q1

[Operator]

Welcome to the Nimbus Q1 presentation. For the first part, participants will be in listen-only mode. [Operator Instructions] Now I will hand the conference over to the CEO, Jan-Erik Lindström; CFO, Rasmus Alvemyr; and Head of Investor Relations, Gunilla Öhman. Please go ahead.

[Jan-Erik Lindstrom, executive]

Thank you, and again, welcome. Strategic acquisition and healthy sales characterized the first quarter of 2023 is the headline. And if we then you have already switched then. Some highlights from the first quarter then 2023. If we begin with the sales then, it increased by 6% up to SEK 304 million compared with SEK 287 million last year.We can see that the organic growth actually decreased with 2% but then please bear in mind that this is affected by the timing of the new U.S. business model. We are selling through our U.S. office before we sold directly to the dealers. We will have a lack of time there. This is a onetime thing, but still affect these figures then. So bear that in mind.We improved the EBITA to SEK 7.7 million. And maybe then more important, the EBITA margin increased to 2.5% compared to 2.2%. We have a good order book of SEK 953 million and especially worth mention there is that North America then representing 26%, it's in line with our expectation and the plan. Order book then, of course, strongly affected by the continued lower demand for what we call the low-end boats or the smaller boats below SEK 1 million.Further on then from the quarter, we have this then signed the agreement to acquire EdgeWater PowerBoats and expected closing actually very soon now then during Quarter 2 of 2023. During the quarter, we have also started then to take on all these dealers that has been waiting for our boats. And it's then roughly 10 to 12 dealers that we have taken on during this quarter and there is more to come. The supply chain has stabilized then, and that, of course, then contributes to the productivity improvements.If we then look a little bit about who we are. Again, then, we are founded in 1968, a lot of experience of the company. Already from the start, we have started the international trade and we have a long history of international sales, as we say here. And we have our true house of brands then. And the house of brands then is all -- so far, now we have EdgeWater, of course, but from the Scandinavian perspective, it's well-known brands, and they all score very high and with brand awareness and actually done globally.If we jump to the end there, what has happened during the 2023. In January, we presented the Nimbus 465 Coupe, of course, very exciting for us. We are actually then entering a new segment with the Nimbus brand, and it was very well received. And in March, again, then the agreement to acquire EdgeWater PowerBoats, which will give us an excellent platform for the further U.S. expansion.A reminder, again, then also a little bit who we are. Our footprint today then we can see that we have still buy our own four factories and then five factories where we buy complete boats, outsourced. And you who has followed us knows that the target is then actually to have slightly more than 50% outsourced. And that is a part of what we talk about when we say flexible production.And in the middle there, it's about scaling up or scaling down, and it's based on time, based on days as we say here. And this is then, of course, important and since the recession is visible. But again, it's a recession. It's not the financial meltdown, so it's more about adjustment than anything else.We have our production efficiencies, which we work very hard with, with a modular both building process then, and we want to, of course, achieve synergies with different clients. But of course, then without jeopardize the brand, the integrity, which is important for us.If we look at the drivers that we're still working for and they are still valid. The overall wealth is increasing. We can say that as an average, then we are well above 2.5x more money in our pockets if we compare to year 2000. We talk about the staycation is an old trend. It started well before the pandemic hit us.And inside this, we have this outdoor trend and that continues, and we assume we tend then to spend the extra money that we will talk about. About close to where we live. We're buying summer houses, we're buying things to use for the outdoor living among that, of course, boats.If we look at the industry itself, we have this aging boat fleet, and we talk quite a lot about North America. It's exciting for us. But from that market, we know that it's above 40% of the fleet in U.S. is actually older than nowadays 23 years. They are built before year 2000, -- and as you all know, now probably North America is 50% roughly then of the world market.If we then look at the technical development, also a good driver. The industry itself do the development these days and what we're aiming for then is, of course, to make it less stressful for the capital and also for the passengers, of course, to be out there, even if the weather is slightly rougher and we have this out often and we have the electronic charts and et cetera.It's also about the easy boating. It would be easy to actually have a boat and to own a boat or to rent a boat or whatever. And it's about service, it's about information in real time about the status, and it's about winter storage and things like that.And then we have maybe most important thing, that's the in water-handling. It always scores among the three top things that bothers all around the world wants to have a good performance on. And there, we have, of course, the outer trim where we have the dynamic positioning systems; both thrusters, auto docking, supported, docking of different levels, et cetera. And this is good because for us, it's good because that is a very good driver. And especially then if you combine it then with the aging both fleet because over 20-year-old boats doesn't have this thing.If we look at the order book development, the order book then decreased by 23% compared with last year and mainly then driven by lower sales on low-end boats. The order book is now, as we say, then well balanced geographically. I already mentioned that North America is 26%, and you can actually say roughly 1/3 and is in North America, 1/3 in Europe, and excluding Nordics and 1/3 is in the Nordic countries, which then is a big difference from the situation before.Order book in 2021 and beginning of 2022, then, of course, still then bolstered by the pandemic effect but today then we have this normalized situation. But remember, it's still a high order book. The prepayment amounted to 20%, same as last year then actually of the total order book value. And also worth mention below on that page there, the order book in North America has increased to then SEK 245 million, increasing rapidly, actually 60% year-over-year and setting a new record. So the investment starts to pay off. And with that, I'll leave it to you, Rasmus.

[Rasmus Alvemyr, executive]

Thank you, Jan-Erik. The net sales in the first quarter amounted to SEK 304 million compared with SEK 287 million last year, which was an increase by 6%. And the organic growth was minus 2%.The sales in the Nordics and Europe was in line with last year. And we only noted that small changes on those markets. In the Nordics, the sales amounted to SEK 72 million and in Europe, SEK 100 million.On other markets, including North America, the sales increased by 59% to SEK 65 million, which was the same trend as we have seen in the previous quarters. And our investments on the U.S. markets during '22 has started to somewhat give effects during the sales in the first quarter. But this is expected to increase further in '23 and '24. And as Eric mentioned earlier, our new business model has also been implemented in North America that temporarily has delayed some of the regular new recognitions in the first quarter.In Sweden, sales dropped by 5% to SEK 68 million due to weaker demand of mainly used boats. The sales of new boats were fairly stable, but the order intake was lower than last year, especially related to smaller boats.Now I'll go to the sales development. And as I said then, the net sales in the first quarter amounted to SEK 304 million compared with SEK 287 million last year, which is an increase by 6%. And the organic growth was minus 2%. The difference in between those is fully related to currency and then mostly the euro.Important to have in mind when looking at the first quarter, isolated is that this traditionally is the smallest quarter, together with the fourth quarter due to seasonal effects in Sweden and the Nordics. On LTM basis, the net sales ended up at SEK 1.769 billion, which is an increase by 40% compared with last year's LTM figure and by 91% compared with the IPO from 2020.Distribution of sales through own dealers decreased by 4% compared with last year and ended up at 22%, but the share of own branded products went up, which contributed positively to the consolidated gross margin.The EBITA margin in the quarter was slightly improved and amounted to 2.5% compared with 2.2% last year. The EBITA margin is traditionally low in the first quarter due to the seasonality swings. The gross margin increased up to 16.3% compared with 14.9% last year. The change mostly refers to improved production efficiency, as Jan-Erik mentioned earlier, where previous supply chain for turbines now has been sorted out and underlying routines and processes has been stabilized.On LTM basis, the EBITA 2022 amounted to SEK 194 million, which is an increase by 16% compared with last year, SEK 167 million. And the EBITA margin remained at the same level as the fourth quarter and ended up at 11% compared with 10.8% last year. OpEx in relation to net sales has decreased from 9.7% last year to 9% this year, mostly referring to leverage from the increased sales.Then we go to working capital. The net working capital increased in the first quarter by SEK 120 million to SEK 520 million, corresponding to 29.6%. Normally, net working capital increases significantly in the first quarter and reaches the peak level because of this time of year contains the highest level of demo boats and stock levels at owned dealers.In relation to last year, we now have higher stock levels at the dealerships due to this softer market situation compared with 2022 and 2021. But overall, our impression is that the stock levels are reasonable levels in relation to total sales and the dealerships and the softening market.Compared with last year, we are somewhat ahead in the production and delivery schedule. In addition to the increase the level of finished goods of boats, net working capital is also affected by higher levels of safety stocks that related to the previous supply chain disturbances and the levers are expected to be normalized gradually during 2023, even if some minor improvement also was noted in the first quarter. The temporary effect from the foreign VAT, value-added tax, from the fourth quarter has continued and amounted to SEK 47 million as per the first quarter, affecting the net working capital in relation to LTM sales by 2.7%. The expectation is that this effect will be cleared out during the second quarter.Then we come to our financial targets. We say that the organic growth should exceed 10% over a business cycle, including acquisitions of dealers but not brands. And as per the first quarter now, the organic growth was 11.3%. The EBITA margin should reach 10% in the medium term, and our actual figure is 11.0%.We should have no senior debt except for real estate-related debts and [ check remit ]. As per today, we don't have any other financial debt besides this [ check remit ] since we now have repaid this real estate loan of SEK 60 million that we previously had on the Göteborg facility that was sold in April.We have a dividend policy to pay out up to 30% of net earnings, thinking into account financial position, cash flow growth opportunities of the company. When the EdgeWater acquisition that was announced, the Board decided to withdraw the previous proposed dividend of SEK 1.50 per share. Then I hand over to you, Jan-Erik.

[Jan-Erik Lindstrom, executive]

Thank you. And again then, North America, some keys. We have this acquisition that we have mentioned before of the EdgeWater PowerBoats where we actually then get a full functional setup in U.S. with everything you need for the further expansion.We have several new products launched during the Quarter 1 of 2023, that is actually then also supporting this expansion. We have strengthened the dealer network and also the group presence then with our local organization and then actually a headquarter and the headquarter is not only for North America, it's actually for America.But on that point, we still feel that we need to focus still on North America and later on, we will look into South America, which is also an exciting market where we're actually now with EdgeWater but also with our current portfolio has suitable products.We also get broader participation in relevant boat shows, and we get it through our dealers then. So when we're expanding the dealer network, we will also then attend more boat shows through the dealer. And that is also important to get out this brand awareness, of course, but also to show our products.And some market key takes away then. Nimbus Group order book, again, record level in North America, 60% growth year-over-year. And we are talking about towards largest boat market. We have talked about the aging fleet. Last year's figures were 46%. We know that it's still well above 40%. That is built then before 2000.And today's market are well below record if we look at the total market and the world market and the North American part of it, as we still haven't reached the peak. We're also talking about -- and Rasmus talked about the -- how we have grown the growth for us from the IPO, but you can also look from earlier on from 2014 or something similar. But we can say then that the world market has grown between 20 and 25 -- sorry, North American market by 4.6%, and we have beat that figure.And we can also say today we know a lot, as we can say that the North American market is then well suited for our products. And with that, I think I'll leave it to Gunilla to talk a little bit about the ownership in Nimbus.

[Gunilla Ohman, executive]

Yes. So this is fairly the same as we have seen before, and our major shareholders remain R12 Kapital, the family office. And HÃ¥kan Roos the next one. So that was the situation end of March.Then, we're open for questions.

[Operator]

[Operator Instructions] The next question comes from Victor Hansen from Nordea.

[Victor Hansen, analyst]

Thank you, operator. It's Victor here. A couple of questions from me. And first off here, so you signed several new dealers in North America recently. Do you expect a ramp-up period here or should it materially support your sales already in 2023?

[Jan-Erik Lindstrom, executive]

Maybe a long answer then, but a typical dealer, especially the North American market doesn't work the same. We talked about that before as the European market. And in North America, they are selling from stock. And so far, we don't have built up any stock in U.S. So to begin with, we have that effect that will then, of course, be a ramp-up.Then the demand we have on the dealer, we talk about is an important boating district that are both fits in the market, et cetera. And then of course, if the dealer then should be able to live on our brands, then he needs to sell maybe, let's say, 10, 12 boats per year and so it's important, of course, that we get these stock levels in place, of course, but also that we have the capacity to produce these boats.

[Rasmus Alvemyr, executive]

But you are correct in that perspective that there is an onboarding period. It takes some time until the dealer is fully up and running and have the boats at the yards, et cetera, and relevant models, et cetera.

[Jan-Erik Lindstrom, executive]

Absolutely. -- absolutely.

[Victor Hansen, analyst]

Okay. Great. And then you mentioned this in the report that you had an inventory buildup among dealers. What regions are you mainly talking about here?

[Jan-Erik Lindstrom, executive]

And here, I take the opportunity to say it's not too high, and that is important to keep in mind that for now and from the Quarter 3, we have started to decrease the number of produced boats. So we don't want these levels to go up further. And the region we're talking about, it's the Nordics, but especially then Sweden, actually.So if you look at in Europe, for instance, we're always following how many boats is actually in stock at our dealers. So if you look at the picture in Europe, there are low levels in Europe. So if we should call it a problem, the problem is then the Nordic countries where we have this soft market, as we have talked about earlier.

[Victor Hansen, analyst]

Yes. Got it. And then I'm wondering here, how much of your backlog consists of low and both now and what was it in Q1 last year?

[Jan-Erik Lindstrom, executive]

It's very low. Actually, I don't have the figure to give you, but it's very low. I should not say nothing, but of course, we have a couple of boats there but very low. So it has disappeared more or less from the order book.We still -- and that's also important to keep in mind that it's still the sales and that is more of in-for-out, which is normal during this part of the season. But the lack in the order backlog that was created already in October, November, where you usually see this increase from the smaller boats in the order book.

[Rasmus Alvemyr, executive]

And that is in addition to Jan-Erik's answer, I can also mention that this is a difference compared with what we have seen in the last years because at that time, we have had an order book also for smaller boats because of this high demand in the Nordic market. So that is a difference in the size of the order book.

[Victor Hansen, analyst]

Makes sense. Then two more questions here. You did a sale lease back here of your Göteborg property. Do you plan to make any more SLBs?

[Jan-Erik Lindstrom, executive]

No. We don't have anything to say -- No, but that is a part of our strategy. We should focus on our core business, and we should not, so to say, have a lot of properties to take care of. And it's about focusing.Of course, when we bought EdgeWater, for example, we bought also the property that may very well happen also in the future with other deals. So we are not afraid and we're not, so to say, despite to owe properties, but it's not in our core. So I think that could be guidance for you.

[Victor Hansen, analyst]

Okay. Great. Only one question remaining here, and I'm wondering how fast can you change your production from small to larger boats and this should also lower your outsourcing production share. Is that correct?

[Jan-Erik Lindstrom, executive]

Yes. If I start from the second part of the question, it's not that easy, so to say, because your different factories that is not equally good on everything. It's about actually then -- if you have a factory built for smaller boats, then you cannot build bigger boats there because the roof is too low or other things, the [indiscernible] could not lift the boat, et cetera. So you have to look on what type of factory is it that we are looking at. So that is important.It's not a quick thing to do. But at the same time, we started already -- if we're looking at Nimbus now, we started already during the end of Quarter 3, we could say then. So already now, example, Finland, we have actually done 2 out of total 4 factories even if we say it's one factory it's three different buildings in what we call [indiscernible] and where we actually already have switched in two of them. So two of them is still building only the bigger boats. And one of them is still -- because we still need some capacity on the smaller boats -- is actually then building a smaller boats.But this will continue. This is something is more less daily business. It's not that big thing, but it will take a couple of months, if you switch... Absolutely. I hope that was –

[Victor Hansen, analyst]

Yes, that's very helpful. Thank you for the answers.

[Jan-Erik Lindstrom, executive]

Okay. Thank you.

[Operator]

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

[Gunilla Ohman, executive]

There are no more comments or questions in the web either. So I'd just like to remind you that our AGM is on May 16. So you're very welcome if you're a shareholder and our second quarter report is due on July 18. So thank you.

[Jan-Erik Lindstrom, executive]

Thank you.

[Rasmus Alvemyr, executive]

Thank you.