Nimbus Group AB (publ)

STO:BOAT

Earnings Call Transcript 2023-Q2

[Operator]

Welcome to the Nimbus Q2 presentation for 2023. [Operator Instructions]. Now I will hand the conference over to the CEO, Jan-Erik Lindström; CFO, Rasmus Alvemyr; and Head of Investor Relations, Gunilla Ohman. Please go ahead.

[Jan-Erik Lindstrom, executive]

Thank you, and again, welcome, Ben. I'll start then with some highlights of the second quarter 2023. A fairly good quarter. Sales increased by 4% in total then SEK 756 million. We had an EBITDA that amounted to SEK 83.3 million at decreased level, but we will later on in this presentation, elaborate a bit about that. EBITDA margin, 11% compared to 18.2% last time. Order book increased to SEK 1.103 billion. The strong order book then developed, especially then in North America, which we then, of course, is very glad for and now actually representing 56% and is then actually then by far, our biggest market today.

Continued slower demand for boats under the value of SEK 1.5 million especially then affecting our own Nordic dealers then. It's a Nordic thing, so to say. And since we have most our own dealers in the Nordics, that is then affecting us more. But we will come back to that also later on in the presentation.

During the quarter, we also finalized the acquisition of the EdgeWater Power Boats. It was completed on May 31, actually then almost a month later than we have planned for, but now they are on board, and we are, of course, very happy for that.

Europe developed well during the quarter and actually then becoming a bigger market than Nordics, excluding Sweden. And we have also then done the divestment of the property in Långedrag. The history then in short, as we say here, this is Nimbus Group. We founded in 1968, a long experience on boat building. And we also have a long history of international sales. We started almost immediately from we were founded to export to -- especially then at that time, Europe and the other Nordic countries.

We have our true household brands, well-known brands, and that is scoring very high in the brand awareness that we do then frequently. If we look at what we have done, I will not repeat everything that you see in front of you, but if we look at 2023 then, especially then, we have then done the presentation in Düsseldorf actually then in January, just boat show. And where we then presented in Nimbus 465 Coupe. And besides that, it's always fun to introduce new boats. This is also a totally new segment for us, which is very important, meaning then that we are broadening our offer to the market and a special market in this case now. And then again, then in May the acquisition of the EdgeWater Power Boats.

And if then on the next slide, this is an old picture, but it's always important to go through this because this is part of our DNA then. And if we look at the left side there, the footprint, we talk a lot about our flexible production and as you probably know, we have a target that we want to have actually done more than 50% of our production outsourced. And the white dots you see is our own production then, our own capacity and the light blue is then outsourced.

And there, we, of course, then are happy to add to this picture -- down in the picture, you see the Florida and that's the EdgeWater premises where we're now planning to, of course, continue to produce EdgeWater boats, but also to use some spare capacity to produce Nimbus boats down. The picture from the Nordic perspective or the European perspective has changed slightly. And you can see that it's actually 1 dot in Poland that has disappeared, and that is in line then with -- that we decreased the capacity for the small boats because they are not needed in that amount and focused on increasing the capacity on the bigger boats.

Individual, we talk about -- it's all about scaling up, scaling down. And from our perspective, it's important then to look at how long it will take the time that we have for scaling up or scaling down. And then, of course, already on the drawing table, it's important that we find as much efficiency, as much modularity as we can. If we then look at what we see, what is the key drivers on our industry, and as we say here, the fundamental global drivers, which is important. We have talked about this before, but fact is then that the overall wealth is increasing. Of course, we have an inflation for the moment that, that affects the value of the money. But still, it's a very high number if we compare to 2020.

The available money in our pockets, so to say, has increased then roughly then 2.8x according to Credit Suisse. The staycation, we discussed that a lot during the pandemic, but what the pandemic did was that it accelerated an old trend. So this trend started actually way before the pandemic. And it is like that we tend to spend the money, the money from above them on quality. And since as I used to say that we work a lot, and that means that when we have our spare time or free time, we want to have quality and we are prepared then to pay for this quality.

If we look at the industry itself, also a fact then that we have an aging boat fleet, for example, then North America, 45% of the fleet is actually built before year 2000, meaning that it's older than 20 years.

And if we then take into consideration the last, on this slide, the technical development and put them together, we all understand that the technical development is actually then done by the industry itself. And you can say that it started really maybe 10, 12 years ago, and it has -- the speed has increased, and it's about easy boating, and it's about in-water handling.

And if you combine these 2, you get for us then a pretty nice picture, because, of course, a boat that is more than 20 years old or roughly than 20 years old, doesn't have these technical features that makes it more easy to handle the boat and lowers the stress factor for the driver, but also then, of course, for the passenger.

These 2 drivers -- or these 4 drivers combined then makes, from our perspective, the picture of the future actually then quite right, even then, of course, that we have challenges for the moment.

If we then look at the order book development and again then, we have actually then increased the order book since last month and also if you compare to the same quarter last year and it has increased 5%. And that is mainly then driven by North America. And again, North America, it's roughly then 50% of the world market important for us, of course, important for everyone in our industry.

We started to talk about that last quarter, where I think we mentioned that the quarter before also that we have a well-balanced order stock today. We have done, again, North America, slightly above 50%, but we also see that Europe is part of it increasing and actually then from a relative perspective, the Nordics decrease. And of course, the Nordics is our home market and we're keen to keep that position. But from a relative perspective, we like this picture that we see there, it is well balanced and that's also then, of course, important.

EW is not easy to understand, but that's EdgeWater and EdgeWater represents SEK 155 million of this North American order book also then in the total, of course. Also important maybe to keep in mind is that the order book in 2021 and the beginning of 2022 then was boosted by the pandemic that I mentioned before. But today, we have a normalized situation, still fairly low levels at dealerships, also important to keep in mind. And of course, we only have confirmed orders in our order book, meaning that we have a production slot for this order, and we have confirmed the order to the customer.

On the bottom here of the slide, we have shown them the order book, especially then from North America, and we can then see that we have a good progress, a good momentum for the moment. EdgeWater, again, SEK 154 million, but the big part of this increase is then actually the -- we can call it under traditional Nimbus Group approach that we started in 2017 and then has taken us to this position that we have today.

And with that, I will leave the word to Rasmus for a while.

[Rasmus Alvemyr, executive]

Thank you, Jan-Erik. The sales in North America continues to develop well and increased by 245% in the quarter to SEK 152 million. And out of that EdgeWater contributed with SEK 55 million since 31st of May. On a full year basis, this means that North America now has become our single largest market, as Jan-Erik mentioned before. Europe also developed well and increased by 47% to SEK 184 million and we have seen positive sales development in particularly Southern Europe and the increase is driven by mainly larger boats.

Other markets increased from SEK 8 million to SEK 20 million, which is possible -- positive, sorry, but still on low levels. Other markets mainly referred to Oceania and in previous quarters, North America has been part of other movers as well, but now it has been separated due to the size. Sweden and the Nordics dropped significantly compared with last year, mostly due to higher sales during the pandemic, but also due to the fact that the market situation today is soft. The change is mainly driven by lower sales volumes at our own dealers and sales of smaller boats dropped by 35% compared with last year. And this effect appears in Sweden, in the Nordics from our side.

Most of the sales of smaller boats are on a yearly basis, normally done in the second quarter in Sweden and the Nordics. Net sales in the second quarter amounted to SEK 756 million compared with the SEK 724 million last year, which is an increase by 4%. The sales of larger boats increased by 10%, while the sale of smaller boats decreased by 35%, as I said before. The organic growth was minus 5.4% and the difference against net sales is related to the EdgeWater acquisition and currency-related, mostly referring to euro.

On LTM basis, the net sales ended up at SEK 1.8 billion, which is an increase by 10% year-over-year and by 94% since the IPO in 2020. Sales to external dealers and direct sales, including spare parts, increased by 45% to SEK 436 million, including EdgeWater while sales through own dealers decreased by 24% to SEK 320 million. Last year, sales through own dealers represented 58% of sales compared with 42% in the second quarter 2023.

The EBITDA margin in the quarter decreased by SEK 49 million to 11% compared with SEK 18.2 million last year and amounted to SEK 83 million. The decrease is mainly driven by lower gross margin by 5.2%, coming from less demand for smaller boats, causing discounts on dealership business and lower share of double margin sales of own brand and products that affects the consolidated margin and also the effect from rapid depreciation of the SEK towards euro that has increased our costs to an extent that we have not been able to compensate for. And finally, the acquisition of EdgeWater has expected the gross margin negatively since EdgeWater today has a lower gross margin and the consolidated gross margin at group levels. But this is, of course, something that we will work on going forward to improve.

In addition to this, the OpEx was also higher due to the investments in the North American market organization. Pre-transaction costs of SEK 6.3 million for the EdgeWater acquisition and the divestment of the Långedrag property. The EBITDA amounted to SEK 90 million and the EBITDA margin to 11.9%. On LTM basis, the EBITDA amounted to SEK 146 million, and the EBITDA margin ended up at 3.1%.

Net working capital decreased in the quarter by SEK 42 million to SEK 478 million, including EdgeWater corresponding to 26.5% in relation -- net working capital in relation to LTM sales. In relation to last year, we still have higher levels of inventory at own dealerships due to softer market situation than both 2022 and 2021. In addition to the increased levels of finished boats, net working capital is also still affected by higher levels of safety stocks, but on lower levels than what we saw in the fourth quarter and in the first quarter. We expect this to level out during -- gradually during 2023 on the remaining part.

The temporary effect from foreign VAT has continued and amounted to SEK 27 million as for the second quarter, which is less than the first quarter when we had SEK 47 million but still, it affects the net working capital in relation to LTM sales by 1.5%. This is expected to be normalized during the mid-autumn of 2023.

Regarding our financial targets, we still believe that these are relevant and we see that our U.S. initiative will have a positive impact on our business going forward and will enable us to strengthen the EBITDA margin. As part of the divestment made in April of the Långedrag property, we repaid a long-term loan of SEK 60 million. Consequently, we don't have any senior debts in the group left as per today.

Then I hand over to you, Jan-Erik again.

[Jan-Erik Lindstrom, executive]

Thank you, Rasmus. Yes. And then the final slide, and again, then North America, which as you understand, is important for us, and it also has been the #1 initiative from our side during the recent years. What is then important? Well, the acquisition of EdgeWater Power Boats, we have been into that before, but we of course, get very interesting premium brand that we will then continue to develop. But we also get a full organization because if we will -- should be able to continue our growth in North America, it's important then that we have the right resources. And of course, also, as I mentioned before, the outsourced target the part of how much we will produce. It's also important. And the ability to do that will increase, of course, if we have a fully functional organization in place.

We have launched recently, but also during the years, new products and of course, already from the drawing table, again, we have taken into consideration, the recent years and maybe especially last year and this year, strength, the dealer network. We have also done strengthening our group presence, as we say here, with a local selling organization, aiming then for what I call them the old Nimbus Group organization before EdgeWater and also then have a headquarter in U.S. in Annapolis. But also then, of course, the total presence then is today strong. We are definitely a player.

If we then look at the market key takeaways, as we say here, and again, then the order book is now at a very decent level. And as we also say here, it's a new record level of SEK 640 million. And that is actually 305% growth year-over-year then. It is the world's largest multi-boat market, as we have said here, roughly half of the market. We have then, as I also have mentioned today, the aging fleet, 46% being built before 2000. Today's market, both for the North American market, but also the total market is well below the record levels that we had a couple of decades ago actually. So it's still room to beat that target. And the market itself then, of course, not all of it, but the major part of it is well suited then for the Nimbus Group products.

And with that, I leave over to you, Gunilla.

[Gunilla Ohman, executive]

Yes, and we open up for questions.

[Operator]

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

[Victor Hansen, analyst]

Quite a few questions from my side, and I hope that's okay. So the first one here. When will you start producing your existing brands in the EdgeWater facility? And I'm also wondering, when will the -- will the production cost and gross margin be similar in NAS in your current manufacturing footprint?

[Jan-Erik Lindstrom, executive]

I think I mentioned that maybe last time or the time before that, but we have then to begin with aiming to produce, you can call it, then the smaller boats. And since we have started in the U.S. only with the Nimbus brand. Now we have -- now we're selling Alukin, for example, and we will, for sure, sell Aquador during the autumn. But the main focus is on the Nimbus brand. And there, we will start to produce the smaller boats, the boats that are more affected of the freight cost. So that means that it's the 8-meter and the 9-meter Nimbus that we will start to produce in the U.S. And then in EdgeWater, we will produce the 8-meter Nimbus boat. And that planning has already started, of course, and I think I promised that give us 8 months and then we will have the production up and running.

Cost-wise, we then, in this case, comparing with Finland and Finland and Sweden, we have a highly -- high cost levels. So from that perspective, we can see it's actually done from that perspective. The material is mainly the same price, but the working force is cheaper in the U.S. where we are located or tend to produce.

[Victor Hansen, analyst]

Okay. Great. And then -- so we got Q2 sales and net income for EdgeWater here since its consolidation into our numbers. And I -- when I try to calculate this, I get the profit margin to just 0.3%. Is this representative for EdgeWater's run rate currently? Or how should we view that?

[Rasmus Alvemyr, executive]

If I start there, I think that is a quite low figure, and it's not -- it should not be on that level going forward. The impact is quite small in the quarter. It only represents SEK 55 million. So we have not given any official figures yet, but the actual margin is a bit higher than what you have actually calculated there.

[Victor Hansen, analyst]

Yes. Okay. Makes sense. I think the EBIT margin was about 6% last year. So 0.3% very low compared to that, but it's only consolidated for 1 month. Yes. Okay. And then your very large backlog here in North America. When is that set to be delivered and booked as revenue. Is it H2 this year or 2024?

[Jan-Erik Lindstrom, executive]

Well, it's actually both, and that is more related maybe to our production capacity. They will start immediately to sell. But we have talked about that also before. It's a slightly different approach in the U.S. from the dealer perspective. They have more locations or usually, they have more locations. So if you onboard a delivery in the U.S., you can have -- well, you can easily have 10, 15 locations.

So what they order now is that, of course, they want to have the boats as quick as possible and we will then start to sell, you can say, immediately after summer, and then we will continue this backlog that we see in front of us will then be delivered in the early 2024, also then some of it, but most of it will be during the autumn absolutely. And depending on that course also.

[Victor Hansen, analyst]

Yes. Okay. But if I understood you correctly, it's most -- mainly in H2 of this some SEK 600 million in backlog.

[Jan-Erik Lindstrom, executive]

Well, yes, it's mainly, but we should -- it's mainly could be 90%, but it will also be 52%, so to say. So it's quite -- it's the capacity that will decide how quick we can do it.

[Victor Hansen, analyst]

Okay. Understood. And then I'm just wondering here, how much of your inventory currently on a group level here is tied up in both transferring to the U.S.

[Jan-Erik Lindstrom, executive]

Well, I should say nothing at this point. It's always boat in transition or boats in transition that you actually see then as tied up in the working capital because they travel over to U.S., for example, but nothing more than this transition then or in transit.

[Victor Hansen, analyst]

Okay. And how much is that, boats in transition? Does that impact your inventory levels, right?

[Jan-Erik Lindstrom, executive]

Yes.

[Rasmus Alvemyr, executive]

I would assume that we are talking about the boats in transit. It was quite low at that time, that was good to be remained -- does not figure for future. But I would say it was about SEK 15 million, something like that. But it was low at that point, due to logistics -- so it was due to logistics. So we had good deliveries in just at the cutoff situation.

[Victor Hansen, analyst]

Yes. Okay. But it's quite low then. That's good now. And then a few more questions. I hope that's okay. So you bought the property with the EdgeWater acquisition. And I believe it was USD 3.5 million. I'm wondering if it would be possible to do a sale leaseback here to reduce the debt.

[Rasmus Alvemyr, executive]

Absolutely. It's possible to do with such a sale and leaseback. We have not taken any decisions on that, but it's absolutely possible to do so.

[Victor Hansen, analyst]

Yes. Good to know. And on a group level here, the margin declined quite a bit year-on-year. Would it be possible for you to say how much of this is driven by your lower sales for own dealers, so we had less double margin?

[Rasmus Alvemyr, executive]

You mean quantifying the amount of the double margin effect?

[Victor Hansen, analyst]

Yes, how much of the margin decline was -- can be explained by the lower sales to own dealers because that impacts your mix?

[Rasmus Alvemyr, executive]

Yes. If I put it this way, the sales of own dealers decreased by approximately SEK 100 million and most of that sales in the second quarter would come from double margin sales, but we also have external brands, of course, that we sell in the second quarter, but I would say that most of the sales would be related to old branded products that we actually have missed. So the effect is substantial.

[Victor Hansen, analyst]

And my final question here. On your -- on the cost initiatives that you mentioned in the report, I'm just wondering what magnitude are we speaking of here in terms of savings and timing-wise?

[Jan-Erik Lindstrom, executive]

To begin with, of course, we look over the total picture because as I said earlier today, we have had tremendous growth for many years. And now we then, of course, take this opportunity to look over the total picture, the total organization, where to produce and things like that. But the major part then will, of course, be related to smaller boats. And as we have said before, we have transferred the capacity to big boats because we still need more capacity in the big boats. And we have done what we can from that perspective. So now we are then, of course, start looking more to the smaller boats capacity. And it's no need to have it, if you cannot use it, so to say.

So that is where we have the major part, roughly 15% of our business is related to small boats. Important to mention is that it's not completely dead this market. We are selling boats. Every week, we're selling a couple of boats, so we still need capacity, but we don't need that much. So there is where you will see this decrease. I'm not confident to mention figures, but it is -- from that part of our business, it's a quite big part of it that we will then work with and decrease the cost levels. I don't know if that was a perfect answer, but it was an answer.

[Operator]

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

[Gunilla Ohman, executive]

And there are no questions on the web either. Just a gentle reminder that our third quarter report will be published on October 25. So thank you very much for listening in.