NCAB Group AB (publ)

STO:NCAB

Earnings Call Transcript 2021-Q1

[Peter Kruk, President & CEO]

Thank you. So I'd like to start by talking about say, a very strong first quarter we've seen. We've seen a surge in order intake, bring us up to SEK 979 million, which represents an increase of 74% compared to prior year. And if we can look at our sales in U.S. dollars, which is the predominant trading currency we use, we are at 100,000 -- a 100% increase from prior year. And if we look at comparable units, the increase in U.S. dollars is 62%.Part of the order increase we are seeing, where none insignificant part of the order increases in the quarter are related to sort of orders with longer lead times. The acquisition of Prevent took place in February, was announced on February 22, that has procedure to plan has been well received by customers.Our sales in the quarter grew by 40%, 47% in U.S. dollars and 28% in SEK and our EBITDA margin continued to improve and has reached 9.5% in the quarter.If we move to next page, to give some background on NCAB. As a company, we are dealing with printed circuit boards and our mission is to provide printed circuit boards for demanding customers, delivered them on time with 0 defects, produce sustainably at the lowest total cost. And that means that we normally not maybe the cheapest in terms of pricing, but we provide superior value for our customers. And our aim is to be the #1 PCB producer wherever we are, and we are already in our position to be the global #1 in our field. In total, now we are around close to 500 employees in our company.If we move to the next page, printed circuit board, again, our product is -- with the products to the left, which is the basis for any kind of electronic products upon which components amounted to former printed circuit board assembly, which then goes into any form of intelligent or electronic product.Moving to the next page, you can see that our focus in this industry, the global market for printed circuit boards, is a USD65 billion market. We are focusing on the market, which is characterized as being high mix, low volume and also demanding customers. This part of the market we anticipate represents roughly a third of the global printed circuit market. And some of the characteristics of this market is that these products have generally a higher product value in relationship to the cost of the printed circuit board. Also, these customers have very high quality demands on their products and the printed circuit board is a key component to secure quality in the final product.That results in a lower price pressure on these -- on the printed circuit board itself, and many of these customers also are of the size where they have challenges to buy from the leading factories themselves and here we can provide the opportunity of aggregating the needs of many customers and give those customers access to the leading factories on the best technologies available.Our company for moving to next page has been -- was established in 1993 and it's been a continuous journey of profitable growth. It started out in Sweden, expanding into the other Scandinavian countries, and then further into Europe and the world. If we look upon our growth since 2008, we have had a compound growth rate of more than 15% annually and that has been predominantly organic but also with additions of acquisitions. And in the recent years, in 2020, we made 2 major acquisitions of Flatfield in the Netherlands and Bare Board Group in the U.S., and as earlier communicated, we made the acquisition of Prevent in Italy in February of this year.Anders, will you?

[Anders Forsén, Chief Financial Officer]

Hello, everyone. So next Page 7, where you can see from info about PreventPCB acquisition we made in February, and it was of course a good start for us to make another acquisition. Italy has been a focus market for us and we think Italy is a very interesting market going forward. A lot of smaller PCB factories that have some financial problems, and we think that our needs will grow in Italy, so this is very good for us to take the broader marketplace in Italy. The company we acquired had a revenue of roughly EUR20 million and with good profitability. So far, the customer reactions have been very, very positive and I think also we had done a great work with integration and all the people are very happy to work with us, and we see a good alignment with the team in France and with our own team in [indiscernible] which is about 1 hour away from the other office. So that is very good.And looking further on next page. As you know acquisition is an important tool for our growth going forward and during 2020, we have been looking into mainly Europe and USA, to find more acquisition opportunities. We have identified about 120 companies that are -- could be suitable for us, and I mean the market consist of very many small companies, typically started benefactor of about maybe 10, 15, 20 years ago and the growth of certain size. So the market is fragmented with many small players. We are looking for companies in the high mix low volume segment. They should be profitable. They should have the right customers.So it's important of course for us to find companies that use the NCABs model and where you're working. And on the shortlist out of this 120 company, we have identified 30 companies, which we are now in progress of contacting and setting up meetings with, and we are in the discussion with the number of those companies. Of course it always take more or less, long time but anyway, it's good to see that we are in progress and have a lot of discussions. And we can also say that the corona pandemic have had a great impact on the possibilities for further acquisitions, because mainly of the smaller companies without presence in China have had severe problems getting relationship with the factories and they don't have the same priority. So I think here we can see that our presence in China is really useful and that gain us an opportunity in this case.Our next slide, we have to give you a small example of how we do with the integration, because I think we, compared to many other companies work a little bit differently. We try to form that client companies into NCABs company, that may normally take 12 to 18 months. We focus on it quickly on changing the brand to NCAB Group, and then of course main focus the first, maybe 100 days is focus on customers and employees. It's important that we meet the customers in the acquired companies so that we can explain what we can add for benefits for them and so on. And typically, we can add a lot of benefits, because we have -- our strong position in China is a 1, and they can still keep the relationship with the salespeople they have acquired in the companies. And then of course we need to take care of the employees in the acquired companies because the people are the most important assets. So we do a lot of work with that.After that we focus on operations, how to implement the factory in our team in China. How to work with sustainability in a good way in both companies. We looking into IT tools, we try to learn the best for the acquired companies and it also emerged into our IT systems, and then of course, we try to find some benefits of scale from banking contacts insurances, et cetera.So after typically 1.5 year everyone should be fully NCABs office, that's the plan.So if we then summarize in numbers, the first quarter for us, we can see that our net sale is amounted to SEK 617 million, so an increase of 28% versus last year. In dollars, the increase goes then to US$74 million, an increase of 47 million, 47%, sorry, and our EBITDA number to 58.4% and up an increase of 54% versus prior year and an EBITDA margin of 9.5% which is an increase of 1.7 basis points.People look upon our different regions, on the next page, I think that is also very positive that the growth we are seeing is something that is not just special, 1 special region or a few regions, but in fact we are seeing organic growth in all of our 4 regions. And then of course, we see the growth in Europe and North America further being boosted by the acquisitions that have happened in the last year. And we have also seen the margins, which will come into more detail where we have Nordics and East continue to perform at a very good level, but we're also seeing clear improvements in Europe and North America.Coming back to the growth, as you can see on the next slide, we have a robust solid growth. We see that the gross margin is little bit -- slightly lower than before, but that's mainly due to acquired companies that has been on the lower EBITDA margin. If we compare the same comparable units, we should have been on 31.4, so it's little bit down compared to 2019, you could say for the current company. Anyway, we continue to deliver good added value.Next page turn, we see that we have, as Peter said, had a fantastic growth in sales, 47% in U.S. dollar and 28% in USD and also for comparable companies in USD18%. So it's good to see that it's taking over in most segments. But of course, the order intake is the really positive thing with this 100% in USD and 74% in SEK. And we have to remember of course, Peter said that some of these orders are for a bit long-term deliveries because customers are placing orders more in advanced than they have done before.So yes, strong quarter in that way. On the EBITDA side, on the next page, we also see a solid development, where we increased to SEK 58.4 million and an EBITDA margin of 9.7%, 9.5%, sorry. If we then exclude the transaction costs for PreventPCB, we reported SEK 60.6 or EBITDA margin of 9.8%, and that should be compared to 2020 of 9.0% because we had some transaction costs for Flatfield acquisitions, to be honest.Earnings per share was little bit lower, '21 versus '20 and the main reason is that we had roughly SEK 15 million in the exchange rate gains in the first quarter of 2020. So that is the main reason why we have a lower earnings per share.And going into the segments on next page. Nordic, we can see that the Nordic have had a little bit slower start or slower recovery than rest of Europe. Still we show a growth in -- with 12% in revenue but measured in SEK gets little bit down 3%. Anyway it's good to see that order intake is taking up. So we increased by 46% in U.S. dollar and 27% in SEK. This is in most areas in Nordic countries but mainly driven from Norway, where we see a big boost in electric vehicle chargers for that's really booming in that market. EBITDA slightly down compared to a strong 2020, but still we are in our normal level around 40%, 50%, sustained in the statement.If you then go to Europe, it's the segments where we see the most growth and we see very, very strong recovery in all our markets. Based on numbers of course, Germany, Netherlands and U.K. has shown the strongest upturn, but we can see almost all markets in Europe is growing extremely well. And then we have to remember that the corona impact was very limited first quarter last year. We saw a huge impact in second quarter, but first quarter '20 was still a lot strong, and we can see that the orders have increased by 148% in U.S. dollar and even for comparable units, it's close to 90% increase. And we see that in the new customers, we see that in customers, of course, placing order for longer deliveries, but a lot of new part numbers. It's a solid robust recovery in the European market. So that's really great.We also see the good benefit from the Flatfield acquisition. The trend has been really positive and they have shown the good growth, and we also see that order intake in PreventPCB has developed very, very strongly during the time we have had the company. And as this also reflects in the EBITDA which more or less doubled compared to last year. So we increased to SEK 23.5 million corresponding to an EBITA margin of 8.2%. So we see a strong recovery in Europe, which is good.North America then, also here we can see a good growth mainly driven by the acquisition of Bare Board Group. We see that orders are increasing 19% for excluding Bare Board Group and revenue was up 6% excluding Bare Board Group. EBITDA also went up to 8.1% and we can see more and more as we have some synergies from the acquisition of Bare Board Group, and we can see that we can align the business in the better way. So we are very happy for that as well.Finally segment East. Also, here we see a positive development. Order intake increased 66% and net sales, 26%. Here on the other side, we can say that the corona pandemic effect the China business rather negative in first quarter 2022, so here we do have some positive impact with comparison '20. EBITDA also went back to normal level. I think also here comparison with 2020 were affected by the corona situation. So the line -- about 12% is back on a normal level for East. It's also good to see in China that we're able to meet customers. We had the first big exhibition in Shanghai around couple of weeks ago. So there is very positive drive in the Chinese market.Okay go to next page then, look at some KPIs. Return on equity 22% was at 36% last year, mainly driven by the share issue we made in April 2017. Net debt has gone down, also of course driven by the share issue, still some balance is very good. Net working capital as you know, we are running a very asset-light business model, we don't have much working capital and we are yet below 8% of last 12-months revenue. So I think in that way, very efficient in how we use our capital. And still we have a strong cash about SEK 458 million in available cash, so we are still geared up for further acquisitions in that way.

[Peter Kruk, President & CEO]

And if we just look upon our medium-term financial targets, we can see that we have an average growth target of organic growth of 8% and in the quarter for U.S. dollars we are exceeding that target, although in Swedish kronas, we are below on the organic side. EBITDA target we are exceeding the medium-term target. Our net debt versus EBITDA is considerably lower than the limit of 2x, and regarding the dividend, we have proposed a dividend of SEK 5 per share for the -- for this year.If we then move to our strategic plan, we continue on the -- on our -- on execution of our strategic plan on our path to further increase market shares in Europe, USA and East, there are a lot of opportunities for us to grow in these markets. We also work on deepening our collaboration with existing customers. The long we work with customers, it enables us to provide greater value and also become both growing sales, but also increase our margins. Then to this, there is also the opportunity of further expanding geographically, outside markets where we're already present, or potentially opening up new regions in larger markets like the U.S., as an example.And on top of this, as Anders mentioned, the PCB market is extremely fragmented which also means that there is a -- there are opportunities for us to drive consolidation through acquisitions.

[Gunilla Ohman, Head of Investor Relations]

So thank you very much Peter and Anders. So we are open for questions.

[Operator]

[Operator Instructions] And our first question comes from Robert Redin from Carnegie.

[Robert Redin, Research Analyst]

Congrats on a good result. Couple of questions, maybe first on the extremely strong order intake and you've been clear about that it's more stretched out in time the order book. But my question was, if you expect to deliver all of that before year end, the order intake you had in Q1?

[Peter Kruk, President & CEO]

Yes, I think the order intake we've seen in Q1, yes, we anticipate to deliver that during the year. That is correct.

[Anders Forsén, Chief Financial Officer]

And the order book to build around SEK 300 million, SEK 400 million in Q1, it will be delivered.

[Robert Redin, Research Analyst]

And could you say something about the order strengthening into the second quarter kind of backlash on the strong Q1 order intake or is it still in some kind of similar level?

[Peter Kruk, President & CEO]

I would say that overall the Q1, I mean, we started to see an order intake in Q4 of last year, which is sort of strengthened during the year. I think in Q1 it has sort of been very strong and here in Q2, we're having -- we're just entering Q2 and it's, -- I'd say it's still a strong market.

[Robert Redin, Research Analyst]

Then maybe Nordics, the result was the bit more sort of news. Is there a mix there with maybe monthly related, demand being down or what's driving that? I presume that the general industrial trend with high PMI in France and Sweden should be relevant for some of your customer groups, what are you seeing exactly?

[Anders Forsén, Chief Financial Officer]

I think it is profit-wise strategic to the mixture. I think we have seen stronger growth in Norway and Denmark than we have seen in Sweden and we have generally little bit lower margin in those markets than we have in the Swedish market, so that's part of the profit reduction. I think also you can see, I don't know, Swedish customer, we do have some projects that we have been transferred to some other areas and we have no -- some project moved into to Europe, which can affect also a little bit of a growth. But in general, I think you will see a little bit slower recovery at our customers in order compared to Europe. But as you can see anyway, the order intake in first quarter was back to be a strong lever for Nordic as well so. So I think it was just sort of a -- we saw that little bit slower order intake start in 2020, and of course, that will affect the revenue in the first quarter.

[Robert Redin, Research Analyst]

So you're expecting kind of a pickup done in Q2 with the order intake in Q1 in order?

[Anders Forsén, Chief Financial Officer]

Yes, probably I think.

[Peter Kruk, President & CEO]

And I think it's during last year, Nordics was the region that saw they say -- was -- held up the numbers longer in the period, where they say Southern Europe dropped very quickly in last year in Q2, whereas Sweden or Nordic countries actually performed quite well in quarter 2 last year. And I think there the comparables will be different this year.

[Robert Redin, Research Analyst]

And finally from me, on the M&A pipeline. So you have this slide with the 30 or so companies in the short list, and could you say something about the average size of those? I mean the 3 most recent acquisitions are being fairly large of SEK 200, SEK 300 million. Well, I guess, the longer-term trend is more for acquisitions averaging at SEK 100 or SEK 150 million. So could you say something about the size?

[Peter Kruk, President & CEO]

Yes, you are correct I think, I mean the ones we have done now has been on the larger side, there might be a few left in the size of SEK 200, SEK 250 million, but I think in most of the 30 companies in the pipeline are in the range between SEK 5 and -- SEK 50 million and SEK 150 million in revenue.

[Anders Forsén, Chief Financial Officer]

So I mean typically be smaller companies.

[Operator]

[Operator Instructions] There appear to be no further questions. I will turn the conference to -- no, I'm sorry, we do have a follow-up question from Robert Redin.

[Robert Redin, Research Analyst]

Just 1 other question. Last quarter we talked about pricing with the communicated price hikes in the market, with the order intake so strong, is that the continuing or have they been more price hikes announced?

[Peter Kruk, President & CEO]

Yes, I mean I think the -- as we said, we started to see price increases coming in quarter 4 of last year and that was partly also boosting the order intake as people -- we were helping customers place longer-term orders to want some of the price increases, but price increase have come into effect in several steps and are continuing to be a topic in discussion with our customers. But we also see that the order intake has been so not just purely related to avoiding a price increase, but also to secure supply of product going forward. The price increases are something that has been sort of continuing throughout the quarter 1.

[Anders Forsén, Chief Financial Officer]

And you can see that we got a little boost in the order intake during fourth quarter or until end of January, because many customers placed order before the price increases, but after Chinese New Year, you can say that the price spaces have been in full effect. So the orders we have received in February, March, are with the new higher prices. Then of course we will not see the effect on that on the gross profit or gross margin until probably Q3 this year, because we were deliver orders placed before the price increases during the second quarter. But of course the prices will going forward also support growth a little bit.

[Operator]

Thank you. And as there appear to be no further questions, I return the conference to the speakers for any closing remarks.

[Gunilla Ohman, Head of Investor Relations]

Okay, thank you very much. And I just want to remind you that our next quarterly report or half year report is due on 22nd July, so let's see and hear you again then. Thank you very much.