Nimbus Group AB (publ)

STO:BOAT

Earnings Call Transcript 2022-Q3

[Operator]

Hello, and welcome to Nimbus Q3 Report for 2022. [Operator Instructions] Today, I'm pleased to present CEO, Jan-Erik Lindstrom; and CFO, Rasmus Alvemyr. Please go ahead.

[Jan-Erik Lindstrom, executive]

Thank you. And again, welcome. As we say then, healthy sales despite disruption in delivery flows.

If we then start at Page 3, the highlights of the third quarter 2022 versus then -- the same quarter 2021. We had a sales increase then by 13%, up to SEK 402 million. And that actually then give us all-time high on running 12 basis of slightly then SEK 1.7 billion. EBITDA amounted to SEK 45 million, and the margin was down, as we said, a good 11.1%, not exactly according to our plans, but taking into consideration the ongoing then supply chain disturbances, but also then our investments in the very interesting market, in U.S., but we will come back to that later on in this presentation.

The order book, slightly above then SEK 1 billion. We have then also launched in the Aquador series -- the brand Aquador -- the new series of 2 to 3 boat models in the range 25 to 38 feet, and that is actually the biggest investment done in Aquador for more than 20 years. So this will be very interesting to follow, of course.

As we said, continued supply chain disturbances, and here, maybe I should point out also because the overall picture is getting better, no doubt, but we still have a lack then on the engine side that make this disturbance then.

We noticed a softer demand of commodity boats, we can say roughly then under SEK 1 million, and that is what we call the budget boat there. And what we see is that the customer hesitate -- we know that there still is a lot of money there, but taking into consideration the global geopolitical situation in the world, of course, then people hesitate what to do.

If we then flip page to Page #4. Short reminder, Nimbus Group founded 1968. We have a long history of international sales. We have our true house of brands, and also with our and well-known Scandinavian brands. And if we look at the brands, there are some surveys done of the brand, what we call the brand awareness globally, and we are -- most of our brands that are highly ranked in these surveys, which, of course, is good.

If we look a little bit on the modern history and maybe focus then on 2022, we can see that in February, we acquired Herholdt Andersen, and that is a part of our initiative to actually focus a little bit more on the Norwegian market and grow in the medium -- Norwegian market. In June, finally, we can say we had our own establishment in North America, Annapolis, and that was planned to be done for a couple of years ago actually. But since the pandemic arrived, we had to put that on hold. But now finally, we are there.

And again then, we also had -- now in August, we had the launch of the new Aquador series. And -- –but maybe I should say that the Aquador series is, of course, meant to be a global model -- series of models to be sold in practically the whole world. and that is a difference between this new Aquador and the old ones. Below, you can see then, of course, all our brands. I will not mention then at this time.

If we then switch page, also then, in a way, a reminder of who we are. You can say that, in general, we like to be asset-light, and then -- maybe especially then in the production and operations. And on the left side, you can see the footprints. We have 8 locations today where we built complete boats. 4 is run by our own, and 4 is then actually outsourced. And the [ white ] ones is the ones that we actually own them. We are growing, number of employees is growing, but to be noted is that most of the growth is actually then in our outsourced units, and that is according to plan then. We have said before that we like to have somewhere around 50% outsourced regarding this.

If we look in the middle, we talk a lot about -- we like to have as much variable cost as possible, and of course, it's about scaling up and also scaling down. We base it more or less, you can say on base then. And the thing is that we want as quick as possible then if we need to scale up or if we need to scale down. That is the way we, so to say, organize ourselves regarding this.

If we then look at the right side, of course, we then also work a lot with the production efficiencies, but a special thing here is then that we also work a lot with the modularity, and that you may say that actually still is one of Nimbus Group's characteristics. So far, we haven't seen anyone else that actually is focusing so hard as we do on that. And as we say, it all starts at the drawing table.

If we then switch page, we are talking about the fundamental drivers, how we [ spend ] the temperature in these identified drivers. If we look -- to start with, if we look at the overall wealth, is increasing, as we say. It is. And if we look at the 2021 figures, we now actually is up 2.8x more money as an average then global average. More money to spend if you compare to year 2000. This is, of course, likely to take a hit, taking into consideration the situation in the global economy, but it's still a very big difference.

And how do we then use this money? Well, we work a lot, as I say, and we are keen to have as high quality as possible regarding our recreational time, and we are also prepared to pay for it.

And how do we then spend the money? Increased popularity of Staycation. This is an old trend started way before the pandemic, as we have said before, and this is then actually continue. One thing to maybe notice here, which we find interesting, is that, if we look at the new boaters that we have in the -- I should say, from the customer point of view, new boat owners, it's actually -- more than 20% of them is in U.S. then, is new boaters, and we have actually had about 20% for 2 years in a row, which is important, and, of course, extremely interesting for us.

We have an aging boat fleet. And again, if we use the U.S. figures, 45% of the U.S. fleet is actually built before year 2000, and U.S. then is the biggest market in the world. It's slightly more than 50% of the world market. So this is, of course, an important thing. And there is a growing need then to replace the fleet, not only because it's old, it's also because of the technical development, which is the final driver that we will present here today.

And the technical content is increasing, and it is targeting, among other things, the in-water handling of the boat, and -- for them to make it safe and less stressful for everyone on board. It's also targeting comfort, which is an important thing. Refrigerators, air conditions, things like that, to make it more pleasant, depending on where in the world you are doing – you're boating, of course.

If we look at the total power boat sales, and in numbers -- and again, U.S. it actually decreased between '20 and '21 with 5.7%. But if we look at the value of the same market, it increased by 5.3%. So again, even if the boat is getting slightly bigger, absolutely, we tend to -- during our boating journey, we tend to buy slightly bigger boats for every time we switch boat. But also, we like to have more technical help you can say then, for -- to make this journey on the seas more pleasant and safe, of course.

If we then switch page -- and we are then on Page 7. Continuous growth in order book, and please remember, only planned production orders included. And if we look at the third quarter, we had an increase then by 9% compared with last year. We have a prepayment that amounted to 12%. Last year, we had 11%, so slightly up, and that is of the total order book value, of course.

A small thing there, this is a seasonal thing. This is the part of the year that we produce quite a lot of boats. And since we have -- this prepayment is actually in 2 parts. First, the [indiscernible] the real prepayment is paid. So meaning that, most likely then this share will increase the further we go of this production season then. And glad to say then, the order book in North America has then increased up to then today SEK 182 million, and that is actually then 100% up from last year.

If we then look at the total picture, we are actually then slightly above -- 17% of the order book is now U.S., and that confirms the position that U.S. has for us as a single biggest market, excluding then our home market for us. And that is, of course, something we're very pleased with. And finally, then on that page, it is actually -- so that we still [ haven't ] enough capacity to fulfill all the orders that are, for example, then in U.S. But we are expanding the capacity, and we see that we will, in the near future, reach a level that is sufficient. But still, this is something that we have to live with.

And with that, I leave the word to Rasmus.

[Rasmus Alvemyr, executive]

Thank you, Jan Erik. Then we look on Page 8. We continue to see a strong sales growth in the Nordics, Europe and on other markets. And Nordics increased by 174%, but still from low levels. Out of this, Herholdt Andersen contributed with SEK 7 million in the quarter. Sweden has decreased by 20% compared with last year, and amounted to SEK 171 million. The reason for this is both referring to supply chain-related issues with missing engines, but also a [ softened ] demand for smaller boats, which -- with market value up to about SEK 1 million, as Jan Erik mentioned before.

The missing engines has affected our own dealers to a large extent because of the seasonality with many boats intended to be delivered during the summer period. Also good to have in mind is that the demand in Sweden 2021 was extremely high because of the pandemic as well.

Flip to Page 9, please. The net sales in the quarter amounted to SEK 402 million compared with SEK 355 million last year, which is an increase by 30%. The organic growth was 10.8%, and the LTM sales amounted to SEK 1,684 million, which is an increase by SEK 48 million from last quarter, corresponding to 3% and plus 16% compared with full year 2021. Sales through own dealers represented 40% of the sales compared with 53% last year.

Flip page, please. The EBITDA margin in the quarter amounted to 11.1% compared with 12% last year. The gross margin increased to 21.1% compared with 20.3% last year because of increased underlying margin improvements, but it was also negatively affected by a lower share of sales of products with our own double margin.

Marine Store and Herholdthas continued to only sell external brands because of -- that we don't have enough own branded boats to provide them with, due to the capacity shortages that we have. OpEx increased in the quarter and has been affected by investments from establishing the North American organization, and also from cost referring to this supply chain disturbances.

On LTM basis, the EBITDA amounted to SEK 188 million, representing an EBITDA margin of 11.2%, which is fairly in line with what we have seen in the last quarter's LTM figures.

Next slide, please. The net working capital in the quarter increased to SEK 347 million compared with SEK 160 million in the last quarter. An increased level of net working capital is expected in the third quarter because of the seasonality, where the second quarter normally is the lowest part of the year. But in addition to this, we have also seen seasonality effects in terms of supply chain disturbances causing delays that has affected our inventory levels, both in transit and trade receivables.

And the net working capital in relation to LTM sales amounts to 20.6%, which is higher than what we have as a target level. During the quarter, we have, therefore, increased the focus on net working capital and launched several initiatives to reduce this, and we will, of course, continue to have a high focus on this also in the fourth quarter.

Next slide, please. These are our financial targets that we have communicated earlier. First, we should have an organic growth of plus 10% over a business cycle, including acquisitions of dealers, but not brands. Compared with the full year '21, the growth rate was plus 16% as per the third quarter. The EBITDA margin should reach 10% in the medium term, and the actual figure is 11.2%. We should have no senior debts, except for real estate-related debts. And as per today, we have no other financial debts except for real estates.

And finally, we have a dividend policy to pay out up to 30% of net earnings, taking into account the financial position, cash flow and growth opportunities of the company. For 2021, we paid out the dividend of SEK 1.50 per share, corresponding to 22% of the net result.

And then I hand over to Jan Erik again.

[Jan-Erik Lindstrom, executive]

Thank you. Yes, a little bit -- finally, a little bit about the North American market. We participated in the Fort Lauderdale International Boat Show 2 weeks ago. This was actually then the first time we were there by our own brands, so to say, the Nimbus Group. We have been there before, but then it has been through dealers. And what we can say there is -- that it was a really good show for us. We sold several boats. We have a lot of interesting quotations out.

And it actually then -- was a good spirit. It was a lot of interest around our boats, which then actually tells us that our products are well suited for the North American market, and also for the special demand that this different customers has, depending on where the boating area is in U.S. But with the brand Nimbus that we have started with, we cover more or less all of these different boat districts.

We are new to the market, but we can also see -- still new to market. It's a couple of years now, but we can see that it's a great interest from the public, so to say, to look into our boats, and also for the other brands. And next then for us to introduce in U.S. is then [indiscernible], but also then, again, Aquador. We did a new shape with the new models.

If we look at the key features then, we have said a couple of them already, but the orderbook at record level then, SEK 182 million, that's 100% up from last year. And that is then, of course, more or less, you can say, according to plan, but it's good to see that it actually works. It is the world's single largest multi-boat market. Again, it's slightly above 50%. It has itself its aging fleet then, which makes it maybe even more interesting. It's good to remember that today's market is well below the record market, 233,000 versus 305,000. So it's quite a big gap still.

It's also -- if you look at the compounded annual growth rate, before it has been slightly above 5%. If we look at the U.S. market, it's forecasted to be slightly below 4.6%. But of course, it's a lot of business deals done every year. And we are in -- you can say, roughly slightly above 2000 deals per year. Here, we are talking about only in U.S. 233,000 deals. So it's a huge market. And again, it's well suited then for Nimbus Group's product portfolio.

And with that, I leave the word to Gunilla.

[Gunilla Ohman;Media and IR Contact, executive]

Yes. And this is the ownership, the largest shareholders in Nimbus as of last September. So our main owner is -- our main owners are still the same, R12, [indiscernible] family [indiscernible], and the [indiscernible], ODIN Fonder, and then a couple of other fund also a part. So we have a very stable ownership, and there has been a few changes since the 30th of September, but not major.

So just reminding you of our Q4 report, it will be on February 7th in the next year, ‘23.

So, then we open up for questions.

[Operator]

[Operator Instructions]. Our first question comes from Victor Hansen at Nordea.

[Victor Hansen, analyst]

A couple of questions from my side. First off here, do you expect your demand in the U.S. to benefit from Hurricane Ian in Florida, which caused quite large damage to the boating population?

[Jan-Erik Lindstrom, executive]

Not really. It damaged definitely the boating community and a couple of boats, but it was local. Of course, the picture that we see from this disaster shows -- it's a tough picture, so to say, but still it's local. So the Florida boating itself in total, this is a very, very small share we are talking about.

So far, we haven't heard anything that any of our boats will be involved in this. But still, we'll see that -- we don't see any effect from that -- if I understand your question correctly, we don't see any effect from that at all, actually.

[Victor Hansen, analyst]

Maybe I'm more positive and more forward leaning down than you, because Brunswick mentioned that there will be a huge replacement need. But we'll see. It will be interesting to follow us.

[Jan-Erik Lindstrom, executive]

Yes. But -- okay, I misunderstood a little bit, because -- that will be, of course, really interesting, because we have the momentum on the market, which seems to be likable, so to say. So of course, when the customers want to switch boat because it's -- the old one is destroyed, that is really interesting. But I interpreted your question as if we were affected by the storm, but okay. So that is positive, absolutely.

[Victor Hansen, analyst]

And then I'm wondering here on your overall backlog, it was flat quarter-on-quarter in Q3, while it was up about 41% last year sequentially, which, to me, suggests weaker demand. And I'm wondering if you have any comments here?

[Rasmus Alvemyr, executive]

Well, we don't really see it in that way, because what happened was that, in the second quarter, we had about SEK 100 million that we know was pushed to a later time. So actually, the comparative figure is a bit bolstered in that way. So the order intake has been in the third quarter as well. But what needs to be kept in mind here is also that, since we limit, so to say, the order book in terms of production capacity, and we only confirm orders that we have in accordance with our production plan, there is also, due to the setup we have today, a bit of a limitation of how to build the order book actually can be. But we are looking into this right now to see if we can open up for more orders for future, but that's not the case at the moment.

So you have to see it as a staircase. So we are at a certain step. You can say we have capped our capacity, and we have to open up more capacity to actually then get more orders. But again, remember that we had an overdue backlog in quarter 2.

[Victor Hansen, analyst]

And a follow-up here. So could you give some flavor on -- do you have any production capacity left for your larger boats in 2023? Or is it full?

[Jan-Erik Lindstrom, executive]

Of course, we're working with that, and I don't think we can present the plan, so to say, at this point. But of course, we work with it. And -- for example, which is well known and communicated is that we are building a new building then in [ Lumnas ] in Sweden to increase the capacity, and that is ongoing now. And we also do similar things then both in Finland and in Poland.

So we are increasing the capacity. Then also worth to mention, we see a softer demand on the smaller boats. It's not a big thing for us, roughly, I should say, 15% of our revenues are related to the smaller boats. But now we also switch in some production lines from producing smaller boats to actually bigger boats. That will give us a little bit more capacity there. So we do a lot of different things. There's a lot of parameters involved, of course, but that is important for us.

[Victor Hansen, analyst]

And then 2 more questions here. The share of own dealers declined quite a lot year-on-year. Where do you think the gross margin would have ended up if your own dealer sales share would have been unchanged year-on-year?

[Rasmus Alvemyr, executive]

We have not really communicated such figure in detail before. And so we don't have the intention either to do so right now, but it has a large -- it has an effect since -- if the ratio goes up -- we have a double margin, and it will be almost -- on such boat, it will be about a double margin. So -- but we have not communicated in detail how big the margins are. So we are a bit careful, yes, because that's a bit of internal knowledge.

[Victor Hansen, analyst]

And my final question here. Maybe competitive wise, yes. And I'm wondering here, how large sales effect do you expect from selling on boats to your acquired dealers in 2023? Do you have any in your backlog or…

[Jan-Erik Lindstrom, executive]

Can you repeat the question, Victor?

[Victor Hansen, analyst]

Sure. So you acquired Marine Store and Herholdt, and I'm wondering how many -- how large will the sales effect be from selling to this to dealership networks in 2023? Do you have any -- in your backlog now, orders for your own boats from these 2 dealership networks?

[Jan-Erik Lindstrom, executive]

And here we are on -- interesting question because, of course, we plan to sell earlier -- at the earlier stage, sell our own brands. But since the capacity was full and it was -- we're not actually able to deliver enough boats to our own dealers, so to say. We said that, okay, fine, we have to postpone that to at least then 1 year. And this year, it has now arrived. And what we are doing is -- and it is slightly complicated, and I will not go into details, but what we are doing is that, we start with a couple of our brands, not all of them. So we will continue then for next year to also work with the traded boats. We will probably continue forever with traded boats because we need to have a good product portfolio for that certain boating area then. And we don't have all solutions in our product portfolio. But we will start with a couple of them.

But then we also have things like -- Marine Store is a [ Yamaha ] dealer, and that means that we have to launch Yamaha engines on them. And that is also part of this process. So it's a -- again, a lot of work. It sounds easy just to switch, but it's a lot of work behind it. And the number of boats -- if we could give you a share, I should say that it will -- it's a ramp-up. But my guess is then -- or maybe I should say the plan is then, 20% to 25% of the boats will be by our own brands, to begin with, when the season starts in Sweden, and then it will increase. And the picture is similar in [ Tunsberg ], but [ Tunsberg ] , we have a better position, so to say, because we bought [ Tunsberg ] at the beginning of '22. So they will more or less immediately start this ramp-up there I'm talking about, but from low levels then. So it's important to know. So it is – it's a journey. I hope that was the question you were looking for.

[Victor Hansen, analyst]

Maybe a small clarification. So have you seen an effect in your -- a positive effect in your order backlog from this to -- yes, from orders for your own boats through these acquired dealers in 2023? Or will this come at a later stage?

[Jan-Erik Lindstrom, executive]

It will come at a later stage. You don't see that yet, so to say, because you have to start to show the boat, so to say, and to introduce them to the customer in that area, and also from a technical point of view, you need to educate, of course, not only the customer, also our own people. So it will take a little bit more time than that.

[Rasmus Alvemyr, executive]

But we need to fill up with the models to start with, and this is something that we not have done yet either. So it will take some time.

[Jan-Erik Lindstrom, executive]

And same reason that we had a lack of capacity.

[Operator]

[Operator Instructions]. As there are no more questions at this time, I hand the word back to you, Jan Erik Lindstrom for any closing comments.

[Jan-Erik Lindstrom, executive]

Okay. Then I was -- maybe then just add that -- the financial calendar then. The quarter 4 '22 report will then be launched in the 7th of February '23.

So with that, thank you for listening in, and goodbye.

[Rasmus Alvemyr, executive]

Thank you.