Nimbus Group AB (publ)

STO:BOAT

Earnings Call Analysis

Earnings Call Transcript 2024-Q2

[Operator]

Welcome to the Nimbus Q2 Presentation for 2024. [Operator Instructions] Now I 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 then to our presentation of the quarter 2 report. First picture. Actually, we stop there a little bit. What you see there is actually the 495, our newest model and actually across a new segment, which is very interesting. And that particular boat you see is actually down and doing some service now during the Båstad Grand Prix here in Sweden in tennis. A lot of expectation, but I will come back to that. Lovely picture.

If we switch page, then of course, it's me and my companion, Rasmus, that will take care of that. If we have any new listeners, who am I? I have been CEO at Nimbus for 14 years, meaning then that I have quite a lot of experience. And of course, I have seen a lot of different things. And among other things was the worst downturn that we have seen in the -- in our industry, and that was actually then connected to the Lehman Brother crush. And that was then something completely different that we see today. It was a financial meltdown. And what we see today is maybe best described then as a mild recession, and I think that's important to take with then when you're listening into this presentation.

Next page. We've done some slight changes in our presentation. I hope you like that. So we will actually be more [ programmed ]. The first part of it, I would describe in more general picture, less figures, and the figures then will come on Rasmus part of the presentation, where we focus more on them.

But still, we need to mention some figures and start with then with the sales that amounted to SEK 623 million. And then that is actually then a drop by year-over-year, a drop by 18%, 17% of that is organic. If we look at the first half year, same picture. We have a decrease of 9%. And that is also one thing that you have to keep in mind that if we look at our peers, we actually then have a far better outcome than our peers. And I have talked a lot during these presentations that we have the momentum. And the only way I can see it at this point is that this momentum actually still is there.

We had an EBITDA of SEK 45 million. Last year the same period, SEK 83 million. The difference then, as we say here, mainly due to temporary effects in the Finnish operations and EdgeWater. And we have talked about that before. I will not go into that again. But what's important for me is that what we have promised that we will step-by-step increase our gross margin in our core business, that has actually happened. So important also. So we are strengthening our core business, the underlying core business.

On the negative side, the market in Europe is actually weaker than we anticipate, and it's down 25% for our business. And that is not our performance. That is due to the softer market. But still, we expected more, and let's see now what will come for the future.

A lot of different reasons, and we talk about that in the report. You can read the report to get some more flavor on it. The 495 again, we have had the precedent for the international press, the boat trade press, and that was a success. So now in all the magazines around the world, we have a lot of PR for this product, which is, of course, very good for us.

And we have then actually delivered during the quarter the very first end customer sold 495. And there's more to come. We're producing it from [ speed ] here in Sweden. And what that means then is what I said in the beginning, that we actually then officially has opened this new segment for us, and we are confident that this will be very good.

And maybe then remember that we have had the official launch of this project that will be in the Cannes boat show during September. During the quarter, we have also started production again then in EdgeWater, and its gradual then ramp-up, and we're actually running full speed from June this year. And as you remember or hopefully remember, we stopped the production due to, as we saw it, unhealthy inventory stock levels.

We have also started the production again in Finland, and that is then what we call them the value boats. And what we have produced is, of course, ordered boats to fulfill orders. But we have also produced some of these high-volume models that we stopped at the first stage, and there is only then to fulfill the batches. But the major part is actually ordered boats.

And good for us and hopefully for you, too. The very first Nimbus has then been built in U.S. and will be followed of many more and is then to be delivered here in July or is actually [ delivered today ]. If we switch page.

A short flashback of us then. Founded in '68, long history of international trade. I usually tell you that we started actually already the year after with the international trade and has done so since then. We have our true house of well-known brands. And again, we do it for our dealers. We want to be a big part of our dealers' business, and that's important. And then you have to have a certain number of models depending on what boating is in their particular district.

We have then -- here, we only mentioned the last things starting in 2022. A lot of other things has, of course, happened. But what we can say is that the 3 out of 4 is actually related to U.S. And as I point out here at the bottom, that U.S. is today our single biggest market counter-wise. And as you don't probably know, North America is actually then 50% of world market. So this is big and this is something that we, of course, will gain from for many years to come.

We then switch page again, yes. So thinking about the order book development. The order book amounted then to SEK 508 million compared to over SEK 1 billion last year. And then it's important that you have some background to analyze that figure. Normally, it is a seasonality in our industry and especially for us, depending on which market we are active on.

And the biggest order stock we had in quarter 3. And if you look at quarter 2, the year that we then compare with, we actually have a higher figure in quarter 2 than we had in quarter 3. And that is depending on a couple of things. And I mentioned here that we, of course, bought EdgeWater and then we bought [ order ] stock, which is important to keep in mind. And then also at that time, we get a lot of new dealers. And they, of course, did their initial orders, which is bigger than the normal orders, so to say, the normal factory order. So that is affecting the quarter 2.

And then, of course, we have the pandemic during a couple of years. And we should not compare to that one because that was not what we call the normalized picture. So we, for example, look at the quarter 2 2020, then you see a normal figure. It's SEK 189 million, that year ended up in roughly SEK 1 billion. And that is more, so to say, the normal one.

And the normal one, we said we have a clear indication then that the pre-pandemic order book pattern, as we say here, with shorter timeframe and then the possible order intake for quarter 3 is what we actually see now. But since it not has happened, we have to then say possible order intake. But keep that in mind, the normal seasonality.

And then, of course, it's making it less -- slightly less predictable actually than now. And again, that's normal for our industry, planning for the production schedules and things like that.

In order book, we have premium boats then at a stable figure today, actually then. So now we are well above 90%. And this time, 94% is done related to what we say that is our core business, meaning premium boats. And of course, only confirmed orders in the order book. And again, then depending on what market, the majority of them is then prepaid as according to our business model.

And with that, I leave to you, Rasmus, for a while.

[Rasmus Alvemyr, executive]

Thank you, Jan-Erik. Then I start with the sales development per market. In the second quarter, the sales in North America dropped by SEK 14 million to SEK 138 million. The drop was driven by lower sales from EdgeWater. Sales from the Nimbus brand has remained flat, which is positive since the U.S. market has dropped about 20%.

Positive is also that the number of end customer sold boat has increased from the 50% in the quarter year-over-year, refers to both the EdgeWater brand. The Nordics has continued to be soft and the sales dropped by 50% year-over-year to SEK 343 million. But there are signs indicating that we now might have the softest period behind us. In the second quarter, we saw that order intake year-over-year increased and that the sales drop was significantly lower than in the previous quarters, the first quarter, fourth quarter and the third quarter.

Sales in Europe dropped by 25% compared with last year and came out as a disappointment, as Jan-Erik mentioned, with almost 0 in for our sales in the period, which we would have expected to see because of the quite soft order pattern since autumn 2023.

Other markets went down from SEK 20 million to SEK 5 million, but from low levels. On LTM basis, other markets corresponds to 7% of the sales. On LTM basis, it's also worth to mention that North America has increased from SEK 287 million to SEK 690 million, corresponding to an increase of 116% year-over-year and an organic growth of plus 40%.

Then we move to sales development in total. The net sales amounted to SEK 623 million, which is down 80% year-over-year. The change is driven by a softer market situation than last year. Sales to external dealers and direct sales, including spare parts, amounted to SEK 338 million, which is down 22% year-over-year. The sales from our own dealers went down by 11% from SEK 320 million to SEK 285 million.

On an LTM basis, the net sales ended up at the SEK 1.806 billion, which is flat year-over-year. The EBITDA in the second quarter amounted to SEK 45 million, corresponding to an EBITDA margin of 7.2% versus SEK 83 million and an EBITDA margin of 11% last year. In relation to last year, the EBITDA was negatively impacted from EdgeWater. And in the quarter, that figure amounted to SEK 13 million coming from the stop production in the first quarter.

Since June, the production is now running again with normal speed. And going forward, therefore, EdgeWater will deliver in a positive way to Nimbus Group. The Finnish production of [ value boats ] has also started in small series during the second quarter and had a negative impact of SEK 25 million in relation to last year.

On a full year basis, I would like to mention that the EBITDA in the second quarter has been affected negatively by approximately SEK 50 million from both EdgeWater and the value boat business. On the positive side, we see that the gross margin has recovered from the former negative SEK currency effect that affected 2023 and partly also the first quarter this year. The margins are now restored with updated price lists reflected in the order book.

On a year-over-year basis, the EBITDA amounted to SEK 39 million and the EBITDA margin ended up at 2.2%. Let me move to net working capital. And the net working capital improved in the second quarter and ended up at SEK 548 million, which is down SEK 78 million since the first quarter. Net working capital in relation to [ LGM ] sales amounted to 30% versus 25% last year and 32% in the first quarter. In relation to last year, the difference is mostly driven by high levels of inventory due to both timing effects in both in France and to U.S. and a weak European market with less [indiscernible] sales than expected, which Jan-Erik talked about earlier.

And then I leave the word back to you, Jan-Erik.

[Jan-Erik Lindstrom, executive]

Thank you, Rasmus. And then short about the financial targets. The simple way to put it is that they stand. We keep them exactly the same way as we have done. Of course, we have some gaps to fulfill. But we then have as a target then growth during a business cycle then of above 10%. And we have achieved that before, but now we can then say that it's a new start of that journey.

EBITDA margin, 10% on a mid-term basis, and that is our target. That is what we want to achieve in that perspective then. The capital structure that no financial debt, and we have no senior debt and we should not have debt. And the only allowed one is then except property, but we have none today.

And of course, the dividend policy, 30% out of the net result. And we then, at that point, we take some consideration of the current cash flow, of course. But otherwise, this is then the same financial target, and we continue to have that as a financial talk.

And with that, we have had this presentation. I think I'll leave the word quick to Gunilla to talk about the last big event.

[Gunilla Ohman, executive]

Yes. So thank you very much. And we will open up for questions. I just want to remind you of our third quarter report, which is due the 25th of October. So please let's open up for questions.

[Operator]

[Operator Instructions] The next question comes from Henrik Christiansson from Carnegie.

[Henrik Christiansson, analyst]

So a question here, let's start with the cost savings program. You mentioned that in the report, and you said it has some impact already, but that will come through more in the autumn. Could you quantify a bit what you're doing and the cost savings target on that? And what -- if there will be any costs associated with that?

[Jan-Erik Lindstrom, executive]

The short answer is then, and we have talked about that a bit before. But since we have had this tremendous growth during the year, all the way from 2012, actually, we haven't had the time to consolidate our business, so to say. And as an example, then we have looked through the organization. We have some thoughts around that. I mentioned partly in my wording in the report about that.

And when you do such things, of course, you then see how should I put it. It's a lot of opportunities to make things more efficient. So it's not a big cut or something like that. This is the more in always improved mode, so to say. It will be some decent figures out of it, and it will definitely happen because we do things that we don't need to do. We do things twice, you can say, and things like that. So it's more related to the process itself than to some kind of cut of people.

Then of course, we decreased the capacity. We have done that during the year depending on -- especially maybe the softer market on the value boats, but also then rest of the capacity, so to say. So it's related to that. Was that an answer to your question?

[Henrik Christiansson, analyst]

Yes. But there's not going to be any sort of one-off costs related to this? That's 1 question that wasn't answered perhaps.

[Jan-Erik Lindstrom, executive]

Not planned for in this, no. Not in that per se, no.

[Henrik Christiansson, analyst]

Good. Okay. And then the second question I have is on the signs you see and the recovery in the Nordic market. Could you provide a little bit more color there? What are the indications that you see? You mentioned order intake you can hear in Q2 in the Nordics, but is there anything else that sort of indicates that, yes, the market is improving?

[Rasmus Alvemyr, executive]

Yes. What we have seen, and that goes back actually a half year ago or even more, is that we gradually month by month see a trend wherein which we has more -- in which we have more activities in the market, we have more people visiting us. And so it's more of a soft trend that we see. But we can definitely see that there are several indicators pointing out -- pointing on that the interest is increasing.

But as you saw in the figures, the sales have not increased in the second quarter, but the soft indicators points in that direction. So that is what I can give you, I think.

[Henrik Christiansson, analyst]

Good. Then a question on liquidity. That's the final one for now. Liquidity. I mean quite a weak cash flow in Q2, of course. Lower inventory release than you typically have, and then you have payables as well, which weighing a bit. So now you have SEK 77 million in liquidity, including your credit facilities. I mean you're entering now a period that typically is a bit weaker on the cash flow side. How does that SEK 77 million in liquidity, how is that compared to your plans? I mean is that sufficient for the weaker cash flow quarters ahead? And what are the levers that you can use to improve in liquidity or come through that period?

[Jan-Erik Lindstrom, executive]

If I start and then you can fill it up, Rasmus. What we have done, and exactly as I said, maybe we expected a little bit more cash release from the inventory. But we have an inventory. And that is, of course, then affecting how much we should produce for the autumn.

We are also quite clear because we are a global company today. We are still selling. The European vacation period has not started yet. It will actually start in a couple of weeks. So it's a lot of things that still will happen before the autumn. But we have also then, of course, decreased the capacity, as I mentioned before.

So the picture is not, in that perspective, it's not a normal picture. But the important thing to bring with you is that we have actually done an inventory that we would work with, of course.

[Rasmus Alvemyr, executive]

And if I fill in there, we are, of course, following this question very closely, and we have a very stable plan regarding our cash forecast, which we follow closely. So we don't see any issues on that topic at all, actually.

[Henrik Christiansson, analyst]

Okay. Good. Can you perhaps provide just a follow-up there. How could you work with your inventory? I mean, in the U.S., there's a lot of floor financing, for example. Is that something that you could use in Europe as well? Or what are the levers that you can sort of use to improve cash flow if it is a soft season in the coming months as well?

[Rasmus Alvemyr, executive]

Firstly, it's good to have in mind that we have, as per end of June, we have quite many deliveries on its way to the U.S. We are expecting short-term payments now in July to happen. So it was a bit of boasted in that way as per end of June. So that is a temporary delay caused by delayed effects. So that will even out that effect, and that will improve our cash situation. So that is good to have in mind.

But then, of course, we can increase floor planning to extend that to more dealers. And we can also extend our own floor planning, which we use for our own dealers. So there, we have a capacity as well.

[Jan-Erik Lindstrom, executive]

And if I add there also, we have -- if you look at our inventory out at the dealerships, we have very healthy levels, and that's also important to understand. So immediately, when a boat is sold, we will then get the orders for the replacement, so to say. So the stock level is not high at any respect, it's actually on a very healthy level.

[Rasmus Alvemyr, executive]

And even in some cases, low even.

[Jan-Erik Lindstrom, executive]

But of course, the dealers hesitate because they want to see the customer on the bridge, so to say. So it's more that effect that we need to work with to make it happen, so to say. And that we do, of course, that's a part of our daily of that.

The inventory level on a very healthy level. And so it's no space to, so to say, high sales. They will immediately then affect the production schedule.

[Operator]

[Operator Instructions]

[Gunilla Ohman, executive]

From the Web, 1 is about inventories, as maybe you elaborated a bit on that. But this question from Gratitude Capital asks if we could elaborate a bit on what we expect with regards to development in the current quarter, #3 that is. And also what considerations we make in terms of the overall status of the inventory, age, size, segment, et cetera. Rasmus, is that a question for you?

[Jan-Erik Lindstrom, executive]

Maybe it's more for me then. Jan-Erik. Quarter 3 is our second biggest quarter, and a lot of things will happen, as I mentioned before. And that is then still to come. Rasmus talked about this transition that we have between us and North America. Today, we have a rough SEK 70 million locked in that transition process, which is important to keep in mind. But that is now on a steady level, but it will be SEK 70 million, around SEK 70 million also for the next quarter and the quarter to follow because that's the way the business model and the financing around it looks. So that will not differ.

And if you look at days of inventory, which is also important, that is something that the banks typically follow very closely. We have a different view of it. If we look at the U.S. side, they are talking about half year in stock is a suitable number, which then in Europe, we more look at the specific both in this case then.

And again then, as I was talking about before, we have demonstration boats on all places, which we didn't have before. So that is fulfilled. And then we also have a certain number of boats in stock. Very few in Europe because we don't have that business model. It's definitely more in the U.S., but it's well below this half year.

And if I give you some flavor, if we look at Brunswick, which is the biggest active we have in our industry, they are talking about 36.1 week, which they find a topic in their last report. And that is the way the U.S. market works then, and we are well down the figures from that perspective.

So we don't feel that, that is an obstacle, so to say, a topic. And of course, we, in the daily business, we follow this very closely. But the days of inventory is on a low level, both in U.S., different model, but also in Europe.

What we have then in stock, and we talked about that before, that is unwanted stock, so to say. That is on the value both side. We have expectation then on the cash release then for this year in that industry, and we have had that and it's actually then visible in the report. But then when we, at the same time, increasing our deliveries to U.S., some of that will actually then ends up in that process instead.

[Gunilla Ohman, executive]

Okay. So another question from gratitude Capital is about the order book in North America that we previously reported, SEK 404 million starting the year and SEK 614 million last second quarter. Do you have that number, Rasmus?

[Rasmus Alvemyr, executive]

I'm afraid I don't have it in my head. But in general, I can say it's a bit lower than what we had in the first quarter. And I don't have the exact figure, unfortunately.

[Gunilla Ohman, executive]

Okay. We'll see if we can publish that later on. That's all the questions that I had from the Web. Do we have any more questions on the telephone, Honey?

[Operator]

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

[Jan-Erik Lindstrom, executive]

Okay. Then we just say thank you. And please then remember quarter 3, the 25th of October.

[Rasmus Alvemyr, executive]

Sorry to jump in again, we have 1 more from the teleconference, just show up. Honey, go ahead.

[Operator]

The next question comes from Henrik Christiansson from Carnegie.

[Henrik Christiansson, analyst]

Yes. Let's finish off with 1 more then. On the EdgeWater situation, you say that you're now in full production and that will be a positive contribution going forward. So how should we think about that going into Q3 and Q4 then? Because I guess there's a bit of seasonality as well. So it was SEK 13 million negative in Q2. Will that revert to positive number over in Q3? Or how should we think about that?

[Rasmus Alvemyr, executive]

Yes. Since we are now running in the production, we expect EdgeWater to deliver in the way that they should do, so to say, since we would not have any [ stored ] benefits in this -- from this production stop. So that is what we mean. So we don't give any guidance in exact profit out of EdgeWater, but they will come back to their normal contribution, so to say.

[Henrik Christiansson, analyst]

Yes, I guess it's right. Is Q3 typically a profitable quarter for EdgeWater? Or is that SEK 13 million going to something bigger than 0?

[Rasmus Alvemyr, executive]

The third quarter is a quite normal quarter for EdgeWater. They have a bit of a seasonality pattern, but it's not that strong as we have here. So the fourth quarter is a bit weaker, but the third quarter is a normal quarter, I would say. And if I may comment upon also, the order intake has increased in each quarter also.

[Jan-Erik Lindstrom, executive]

Okay. Then we say thank you.

[Gunilla Ohman, executive]

Thank you. Bye.

[Rasmus Alvemyr, executive]

Thank you.

[Jan-Erik Lindstrom, executive]

Bye.