Nimbus Group AB (publ)

STO:BOAT

Earnings Call Transcript 2022-Q2

[Jan-Erik Lindstrom, executive]

Thank you, and welcome. If we then start at Page 3, highlights of the second quarter of 2022. We had an increased sale 14%, up to SEK724 million. We had an EBITDA amounted to SEK132 million, up from SEK113 million. The margin increased up to 18.2%, the EBITA margin, I should say, from 17.8%. We have the order book of slightly above SEK1 billion, and that is compared then to SEK731 million before. Important to note here maybe is that due to some disturbances in our supply chain, especially then the -- or at the output engines, we then of course, bring with us an order book of roughly then SEK100 million from that.Next step, and this is a big thing for us, of course. The next step taken in North America, we have done some key recruitments. Our Vice President in U.S. is -- his name is Justin Joyner, and he has actually done for the last 10 years for one of our competitors in the industry, the same that we want to do in North America from the Nimbus Group perspective. Also important to know is that this was planned for the autumn, already autumn 2020, but due to the pandemic we had to put that plan on ice, but now then we are happy then to actually then take up this thread again and start -- to start our journey in North America.I have already mentioned the supply chain. What we can say is that we have -- we see a continuous improvement. We have seen that for a while now. And we divide our purchase into different categories, and that could be stainless steel, interior, electronics and then, of course, engines. And actually we have had a very good progress in all the other categories, but what is still putting some stress on our deliveries is actually then the output engines. Of course, we work closely with our suppliers and what we can see for the future is that somewhere during the autumn, we will most likely then balance this situation. But still it is a kind of a messy situation in the supply chain because of this.We have finalized during the quarter the sale and leaseback arrangement of the Lugnas property, also important then, of course, gives us some money to spend on our investments, among others, then of course, the North American investment, and it's also an important step for us. This is one of strategies to be asset-light. We don't need to hold our factories, its absolutely okay then to rent them and then to use the money on the right place system.We have also announced our new Aquador seriess. And also this is an important step. Aquador is second in size in our product portfolio in the second brand. It has an enormous installed base, especially then in the Nordic country, but important then to mention is that this is then, of course, developed for the global market. So we will introduce that, by the way, also in other markets with these new models.If we switch to Page to #4, a short reminder then, what is done in this group. We were founded in 1968. We have a long history of international sales and trade. We have our true house of brands. And again, then I have mentioned that before, but we do it for the dealers. We want to be a big part of the dealers business. We have our well-known Scandinavian brands and actually then we have a very high brand awareness, and this also goes for the global picture.In February '21, listed then on Nasdaq First North. May '21, we did our acquisition then of Marine Store, biggest dealer net in Sweden. In February '22, we also bought a Norwegian dealer, successful Norwegian dealer, Herholdt Andersen, and that is a mark for us that we now start our journey into Norway. We sell quite a lot of boats in Norway, but Norway is an important market and we have a feeling that we underperformed in Norway. So we want to change that picture. And this is then the first step on that journey. And as I said before, we have now our own establishment in North America, from June actually then, and this will then be really interesting to follow for the future.If we then switch Page to #5. Shortly, we live now under certain condition, you may say, we have a geopolitical situation then with, for example, then war in Ukraine, and we also see that the inflation is on a very high level. Important then to bring with you is that already from, you can say, 2012 to 2013 in our strategic plans, we said that we want this asset-light production platform. We're talking about the flexible production and things like that.Today, we produce them in 8 places where we buy complete boats, 4 of them is by our own and 4 of them is outsourced then. And that is on the left side of this picture. In the middle, you see exactly what I was talking about. We're talking about scaling up and, of course, then scaling down. And we want to have a high share of variable costs in our business. It's a slightly higher cost. But from a risk management perspective, of course, good, no doubt about that. On the right side, we see the -- our philosophy behind not only production efficiency, but also the product development, which is the first step on this. And it gives us a more efficient production, it gives us a higher quality, and it actually also gives us a barging power that we then can gain from.If we switch to Page to #6. And this is also, you can say, a reminder, I used to talk about this. But when we have this uncertain picture I was talking about before, it's also important to actually understand that if we look at the overall wealth, for example, we see a tremendous development from on year 2020, for example, I usually use that as an example. We actually have 2.5x more money to spend. And where do we spend this money? Well, we spent a lot of them actually then to have our recreational time as high quality as possible. And this staycation trend that I'm talking about then is -- that is an underlying trend. It started then well before the pandemic. And I think it's -- even if we now have pandemic, a new wave, so to say, we still can say that, okay, we'll work through the pandemic situation as we know it from 2020 and 2021. And we can also then clearly see that this outdoor trend continues and that people want to have this high-quality recreational time then. And we also tend to spend a lot of this money then -- a big part of this money closer to our homes.Aging boat fleet. North America, important for us. 46% of the North American fleet is actually older than 20 years. And if we combine that with the fourth fundamental driver, the technical development, of course, a boat that we launched today is environmental friendly. It is more efficient, not only to drive but also to be an owner of. We have focused a lot then from the industry and also from Nimbus Group, in what we call the in water handling and the easy boating. And this then together gives a less stressful journey for not only for the captain of the boat, but also then for the passengers. So if you combine the aging boat fleet and the technical development, we have still a lot to do from that point of view.If we then switch Page to #7, short of our order book. If we compare then the order book we have today, quarter 2, '22 with quarter 2, 2021, we have then an increase of 45%. And I think it's important to keep in mind then that 2021 was a really, really good year. But still it's actually then increasing and despite the environment I was talking about earlier here. The prepayment amounted then in this order book to 11% at the moment. And actually then not all orders confirmed due to still then capacity restraints. We have more -- we don't have enough capacity yet to actually then deliver to all the customers out there that wants to have a boat from our product portfolio.And with that, I actually then leave the word to Rasmus.

[Rasmus Alvemyr, executive]

Thank you, Jan-Erik. And then we flip to Page #8. We continue to see a strong sales increase in Europe and on other markets. Europe increased by 48% and other markets with 107%, even if it is from still quite low levels. Both Sweden and Nordics are slightly below last year because of the engine disturbances when excluding acquisitions. The total value of sold boats that Jan-Erik mentioned before, that is still in stock, but missing an engine, was about SEK100 million. And most of these boats were intended for Sweden and Nordics.Page 9, please. Net sales in the quarter amounted to SEK725 million compared with SEK633 million last year, which is an increase by 14%. The organic growth was 13%. The LTM sales amount to SEK1,637 million, which is an increase by 6% from the first quarter and 13% from full year '21. Sales by own dealers represented 58% of the revenues, which is lower than last year. The reason for this is mostly referring to those missing engines.Page #10, please. The EBITDA margin in the quarter increased to 18.2% compared with 17.8% last year. The gross margin is 1% lower than last year and amounted to 22.2 [ Phonetic ] This is caused by a product mix effect with higher share of sales coming from external brands and fewer boats that has a double margin effect. As mentioned before, both Marine Store and Herholdt Andersen has only sold external brands so far. The reason for this is that we have not been able to provide them with our own brands because of the high demand from other dealers and other markets. But for future, we do see a possibility to add own brands as a complement to their present portfolios, which will then increase the margins. Overall, the gross margin effect has been compensated by operating leverage in operating costs, which has decreased from 5.7% to 4.3%. And on an LTM basis, the EBITDA amounted to SEK186 million, representing an EBITDA margin of 11.4%, which is in line with the full year '21.If we flip to Page 11, please. Net working capital amounted to SEK159 million, which is SEK100 million less than in the first quarter. Net working capital in relation to LTM sales was 9.7%, which is a good figure considering the inventory circumstances with temporarily increased stock levels. From a historical perspective, we continue to see a positive net working capital development when having in mind that the business today has expanded by 77% since full year '20 in terms of sales. 2 significant cash flow transactions are noted in the quarter. Firstly, finalizing payment of Herholdt Andersen acquisition with SEK90 million, as Jan-Erik described. And also secondly, sale of the Mariestad property with a net positive effect of plus SEK67 million after repaid loans from -- and transition costs.If you Page to #12, please. This slide shows our financial targets and compare with actual figures. We say that we should have an organic growth of plus 10% over a business cycle, including acquisitions of dealers but not brands. Compared with full year '21, the growth was plus 13% as per the second quarter, EBITA again reaching 10% in the medium term and the actual figure is 11.4%.And regarding our capital structure, we should have no senior debt, except for real estate-related debts. In the second quarter, repayment of the Lugnas factory loan was made with SEK14 million. And as before, no other financial debt, except for real estate debt exists. And we also have a dividend policy to pay out up to 30% of net earnings, taking into account financial position, cash flow and growth opportunities of the company.And I'll hand over to Jan-Erik again.

[Jan-Erik Lindstrom, executive]

Thank you, Rasmus. Okay. Then back to maybe the biggest growth potential then, the North American wave, as we call it. This is a picture then from the IPO, and we have then slightly updated it. And if you look at the picture of U.S. then, actually then in this case, U.S. is not, as you all know, not the only part of North America. And if we have added Canada, we have actually seen then a couple of deals also there, and that is an interesting market for us. But as you can see in U.S., the number of dealers has increased quite a lot. And you should also then bear in mind that we couldn't take on more dealers during the pandemic years because as Rasmus pointed out earlier here, we simply didn't have the boats to deliver to them. And that is something that we see for the near future that we can change then.If we look at the key enablers for 2022 then, we have then our local organization established, important. It's a real-time setup, so to say, with the technical expertise and things like that to support the dealer network. We have then the office itself in Annapolis, in Maryland. The key recruitment, important, the Vice President and Justin Joyner, experienced -- really experienced guy from our industry. We have, as we see it an attractive product portfolio, and that is actually then ready for the market introduction. And among other things, we have chose them to go first with the Nimbus brand, and they have done it trendously, of course. Today, Paragon is present and also [ Indiscernible ] but we still then have to introduce both Aquador and [ Indiscernible ]And lately then, we have then contracted several new dealers, and it's more to come. And if you look at the market itself, it is the world's single largest motorboat market, it's roughly then actually 50%. I was talking about the ageing fleet, same -- you can say the same situation as we more or less see in the Nordic countries, with 4% to 6% being built before year 2000. We are well below the record still. And important to point out that we are talking about our addressable market, but it's still a lot of headroom between the record figures and what we see today. Well suited for the Nimbus Group products from a lot of perspectives, but the price point, it's a premium pricing. The technical level is done on a level that is very comfortable for us, etc., etc.And with that, I leave the word to Gunilla.

[Gunilla Ohman, executive]

Yes, thank you. And I just wanted to update the ownership which has been very stable since our IPO in February last year and there has been some increase by ODIN Fonder, but the rest is -- and the entry of Mandarine Gestion as the 15th, but the rest is very stable and with the growing number of shareholders, which is very nice.So then I hand back to you, Jan-Erik.

[Jan-Erik Lindstrom, executive]

Yes, and then it's more or less time for me to say thank you. We have our financial calendar. The quarter 3 report will then be presented on the 9th of November, and the quarter 4 report for 2022 then in the 7th of February 2023. So with that, I leave it back to the administrator for questions, possibly.

[Operator]

Thank you. [ Operator Instructions ] Our first question is from the line of Gustaf Osterberg from Carnegie. Please go ahead.

[Gustaf Osterberg, analyst]

Thank you, Operator, and good morning, Jan-Erik and Rasmus. A couple of questions from my side here. Firstly, on the strong profitability in the quarter. Normally, you would expect to see some dilutive effects on the margin from nonintegrated dealers. So I was just wondering what's driving sort of the strong underlying profitability? Or are there any other effects to take into account in Q2?

[Rasmus Alvemyr, executive]

I think it's the same picture as we have seen before. So from our perspective, there's really nothing new here. It is a mix effect, of course, improved that effect. And -- but we don't really see any changes in what we -- in comparison to what we have seen before.

[Jan-Erik Lindstrom, executive]

The products -- the change in products that Rasmus is talking about is that it's more of the new developed progress where we have a higher margin. So they're taking a bigger share of the sales today and also the product portfolio itself, so to say, the premium part of it is increasing now, slightly bigger boat, etc., etc.

[Gustaf Osterberg, analyst]

Got it. And just -- are you producing max capacity on the WTC series? Or is it -- or is there still room to improve the mix further?

[Jan-Erik Lindstrom, executive]

We have taken some steps there. Today, it's a maximum capacity, no doubt. It's actually that we wish to have more capacity. But we are taking some steps for next year then. So we will, for example, increase the capacity on the smaller B2C and they are not that small, but in the series they are slightly smaller. So we will produce -- have more capacity than to produce in Finland, for example, where we then built the 8 meter and also the 9 meter will have some possibilities in Poland.

[Gustaf Osterberg, analyst]

And that will also allow for shipping to the U.S.? Or is that purely for the sort of home market?

[Jan-Erik Lindstrom, executive]

That will allow us to ship to U.S. But of course, it's an important question you addressed there. We have -- during the pandemic, we have, of course, sourced the U.S. market in production capacity. They have a similar picture as we have. So it's not that easy, but that is something then to, of course, bear with us that maybe at least a couple of models should then actually be produced in the U.S. But not being signed yet. It's a part of our ongoing business, so to say, to source. So it is for -- also for the U.S. market that we are talking about the capacity that I initially talked about.

[Gustaf Osterberg, analyst]

Got it. Thank you very much. Just a quick note on sort of the OpEx levels. I see that selling costs are down by roughly SEK9 million year-on-year for Q2. Is that sort of just the timing effect of where those costs fall in the quarter and the full year should be relatively similar? Or are there any sort of leverage changes here to keep in mind going forward?

[Rasmus Alvemyr, executive]

I'm thinking of that is actually both that you mentioned. Of course, there is a bit of positive timing effect here since you mentioned here, all [ Indiscernible ] are negatrive, for instance, that we have had most of the revenues on the first half of this year. And of course, we will have costs coming up in the autumn. But also we see the trend that we have seen before that as we become bigger, our OpEx does not develop in the same way as our revenues does. So we see scale advantages in OpEx, and that is actually a bit -- that is part of our plan. But we -- the OpEx effect becomes clear as we become bigger. We have seen that for some years now.

[Gustaf Osterberg, analyst]

All right. Thank you very much. And then following up with a question on demand. If I just do a very quick calculation, looking at the changes in the order book and the reported sales in the quarter, it appears that the implied the order intake sort of is roughly flat year-on-year, meaning that demand is still at a pretty high level. Is that sort of observation correct? And what you see sort of looking at the market today?

[Jan-Erik Lindstrom, executive]

Yes. Yes, I should say you are correct. I had a call this morning and it's important then to understand our core business from the Nimbus Group point of view is then, of course, the premium portfolio, so to say, the premium part of our brand portfolio. And that is still then doing well or even extremely well since we don't have enough capacity. The other part of the order book, the smaller boats, it's harder to see through that. It's not an important part of our business, but still it is a part of our business. And the answer of that, we will not know that until maybe after the vacations in the end of August, beginning of September, because that's the way the business looks for us than the business model, so to say. So that is still to be proven, so to say, what will happen there. But what we see is it's a bit slower in the showrooms on the smaller boats then.

[Gustaf Osterberg, analyst]

Got it. And just to sort of how is that reflected in your order intake? Are those or those sort of in-for-out orders where you get the order and can deliver within the quarter? Or are those orders that will sort of stay 1 or 2 quarters in the order book before delivery?

[Jan-Erik Lindstrom, executive]

A quite big part of it is, you can say then in-for-out inside a quarter then. A big part is in-for-out. But it will also be visible, the boats that we will deliver during the spring '23 will then start to be a part of our order book.

[Gustaf Osterberg, analyst]

Perfect. And then just the final question from my side on the supply chain constraints. You mentioned the roughly SEK100 million impact in Q2, sort of seeing that roll over into Q3 in terms of deliveries. Do you have any update sort of on the inter-quarter development there? If it's sort of -- you're seeing towards the end of the quarter, if it's virtually unchanged?

[Rasmus Alvemyr, executive]

I'm thinking it's a bit too early to say at this point exactly where this will take place. It's -- we are -- we are not that far into the third quarter yet to be able to tell that. But during autumn, we can say. But things need to be a bit more clear than what it is today.

[Jan-Erik Lindstrom, executive]

What you can see is that this development of the order book because, again, compare it with the similar quarter last year, which was a very good year, it still then is 44%. And that is for us then, of course, a good sign. But new boats selling or new models are selling. And we have now introduced, for example, the new Aquador series. It's not possible to put an order on 2 of them -- sorry, 1 of them, but you can put on order on 2 of them. So that, of course, pushes the order book a bit now late and important. I don't know if that's an answer for you.

[Gustaf Osterberg, analyst]

No, no, that's a good clarification.

[Jan-Erik Lindstrom, executive]

Yes, and one thing to mention, I don't know if I did that during this call, but I did this morning is that we actually then canceled a part ourselves, canceled the part of our order book, and that is roughly the same figure that we were talking about. Because of the engine shortage when we took the decision as this is not -- it's not a good thing to produce this boats because they would be standing on our yards around Europe without an end. And that is...

[Gustaf Osterberg, analyst]

But just to follow up, that means sort of from a technical standpoint that is not reported in the order book, but it's still an order from the customer, right?

[Jan-Erik Lindstrom, executive]

Yes, but it was in the order book, but we canceled it from the order book and now we are waiting for the customer that you can say then hopefully, he will put in the order again, but with model year '23 instead. And that is, so to say, what we expect. But let's see, as Rasmus said, we don't see it really until the autumn, so to say, when we are putting the orders and that type of boat forward in that segment.

[Rasmus Alvemyr, executive]

And maybe I can clarify also that those smaller boats is different, of course, compared with bigger boats, where you have a more defined boat, preordered boat, that particular boat with that particular equipment. So that is a bit different compared with those smaller standard boats that can more easily be in -- you can easily take another one, so to say, instead of those more defined order boats.

[Gustaf Osterberg, analyst]

Yes. Perfect. All right. That's all questions from my side. Thank you very much.

[Jan-Erik Lindstrom, executive]

Thank you.

[Rasmus Alvemyr, executive]

Thank you.

[Operator]

Thank you. As there are no further questions in the queue, I would now like to turn the conference back over to Jan-Erik Lindstrom.

[Jan-Erik Lindstrom, executive]

Okay, and then again, thank you for joining in, and have a nice summer. We'll see you in next quarter, the November 9th again, quarter 3 report. Thank you.

[Rasmus Alvemyr, executive]

Thank you.