Qleanair AB

STO:QAIR

Earnings Call Transcript 2020-Q4

[Christina Lindstedt]

Thank you very much. Very welcome to our presentation of our Q4 and full year 2020 results.Page 3, please. First of all, I would just like to make a brief overview of who we are for those of you who might not know us so well yet. We are a global provider of premium indoor air cleaning solutions. And the main markets that we operate in are the Northern and Central Europe, Japan and the U.S. Traditionally, we've been addressing customer segments within logistics, industry, food, offices and cleanroom segments.We have more than 2,500 customers worldwide, and we have more than 9,500 of installations. We work with long-term rental contracts that typically run over 36 months, and we have satisfied customers. 75% of our contracts are either extended or renewed.Next page, please. Page 5, please. Looking at the key financial highlights for Q4. We delivered improved margins and increased recurring revenues. Sales in the fourth quarter were affected by corona, and we saw a currency-adjusted decline of 8.7%, and that is also comparing to a very strong Q4 in 2019. We saw an increase in our installed base, which is the base for our revenue generation. We saw an increase of that of 14%, and our recurring revenues in the quarter increased by 25% to SEK 64.6 million.On our order intake, we saw a negative impact from corona, and we saw a decline by 35% to SEK 66.7 million. However, we saw a strong increase in shorter rental contracts that are not included in our order intake, and we also had a very strong Q4 2019 in Japan on our order intake side because of the implementation of the Health Promotion Act from the 1st of April 2020. We delivered increase in EBIT margin, and it was at 19.3% and SEK 20.5 million. And the Board proposes to pay out a dividend of SEK 1.3 per share.Page 6, please. 2020 was a year where we saw a significant increase in the awareness of the importance of indoor air policy and an understanding that air cleaning solutions can contribute in a positive way to provide healthier indoor environment. So quickly during the outbreak of corona, we made -- we moved into a mode of putting solutions in the marketplace to provide healthier indoor environment. And in the first step, we reinvented ourselves and based ourselves on our existing talent solutions, and we launched an execution of our FS 70 with FS 70 HEPA and an air cleaning HEPA.Then we also started a product development initiative to understand and work closely with the health care sector and understand what type of solution would be optimal to help the health care sector to provide more safe and secure working environment. And through that work, towards the end of Q4, we launched our newest innovation, the FS 30 HEPA product, a quiet air cleaner, powerful and that is adapted to the health care sector, but also public places and offices. Page 7, please. During 2020, we have had a record year in bringing new products and innovations to the marketplace within our Facility Solutions. When we started 2020, we had 2 products. We had the AirQlean Low 115, and we had the FS 70. Then step by step, we have extended and broadened our product offering. First of all, we have been sticking to the plan we had at the beginning of the year, and that was to introduce a product specific for the food segment, our FS 70 food-grade products that we launched in Q2.Then towards the end of Q3, we introduced the FS 90, where we target larger industrial areas. So we maintained the plan we had, disregarding the turbulence that happened out of corona. But in addition to that, we then launched a number of new applications, targeting the need to provide more safe and secure working environment. So we leave 2020 and entered 2021 with a significantly increased and extended product portfolio. And the product portfolio that is broader than it had been had not corona happened.Page 8, please. And we've extended and improved the product portfolio. We also see, as a result, in the increase in order intake. And in Q4, we had a number of breakthroughs. We received the biggest order today when it comes to our Facility Solutions, and that was for the school sector in Germany where we obtained an order worth EUR 500,000 approximately. And we continue to develop and deliver to the health care sector. And moving into 2021, we continue to see the positive impact from our expanded product portfolio by getting orders for our new product for our company in Japan, and we also gained a second large order for the food sector in Germany.Page 9, please. Then I would like to highlight a couple of customer cases where we provide more safe and secure working environment in different customer segments, the first one being the health care segment and the customer being Karolinska University Hospital, where they, during the outbreak of corona, understood an urgent need to improve the working environment and reduce the virus concentration in their premises. And they asked for our support and help to provide some more safe and secure working environment. And so far, we have delivered 90 air cleaners to Karolinska University Hospital, and we have also continued our strong and close cooperation when it comes to innovation.Next page, please. Another example of where we contribute to providing more safe and secure working environment and where we can also contribute to making sure schools can remain open and society can remain open is that, within Germany, there has been a very strong focus from local governments to subsidize investments in air cleaning because a number of prominent sources like Technische University in Berlin and the German ECDC are highlighting that air cleaning via HEPA filters can be an efficient means to reduce virus, bacteria and other contaminants concentration. So we have delivered step-by-step air cleaners to the schools worth EUR 1 million in order value. We will continue to invest during Q1 here.And Page 11, please. Another example where we continued to providing more safe and secure working environment is towards the office segment and in Japan. And traditionally, we have a very strong position towards the office segment in Japan through our Cabin Solutions. And one example of such a customer is Yostar, a Tokyo-based gaming company that realized during the outbreak of corona the need to improve the air quality in their offices in order to take care of their personnel. And since they were happy with our Cabin Solution products since before, it became natural for them to turn towards us and have us deliver air cleaning solutions. And they have purchased a large number of air cleaner products.Next page, please. Page 12. So to wrap up on Facility Solutions, we have broadened and extended our offering during 2020. And during Q4, we start gaining groundbreaking big orders for these new solutions so they will help us to drive growth going into 2021. And we continue to see growth opportunities within our core traditional segments of industry, logistics and food, and we have increased our offering towards these segments during 2020. We are developing new markets in terms of geography with our introduction in Japan and within our customer segments, and that has also resulted in a strong increase in order take for shorter contracts. We saw in the quarter an increase in our sales performance of 11% compared to the same quarter last year. And the average over the last 5 years, we delivered an average annual growth of 18%.Page 13, please. Looking at Cabin Solutions, 2020 was our best year ever, and we delivered a sales level of SEK 393 million, representing an average annual growth of the 5 last years of 9% and growth this year of 9.5%. We had an exceptionally strong Q4 and first half of the year 2020 in Japan because of the implementation of the new Health Promotion Act. So in that segment, we saw a decline compared to Q4 2019, but it was the biggest and stronger sales performance to date when it comes to Cabin Solutions.Next page, please. Page 14. When it comes to Room Solutions, our primary market is the U.S., and our customer segments in the U.S. are pharmacies within the hospital systems and independent compounding pharmacies, and they have been largely impacted by corona. And we have seen longer decision processes within our customers when it comes to investments. We entered 2020 with a very strong pipeline, so we see only a minor decline in our sales level compared to 2019. We ended at SEK 54 million compared to SEK 56 million in 2019, but we had a weak quarter in Q4, and we had challenges on the order intake side. However, the year ended with the biggest order to date when it comes to Room Solutions. And we received an order of approximately USD 1 million in value, ending 2020 in an upward trend also in the U.S.Next page, please. So this is raising new ground, number two. This large cleanroom of USD 1 million that we received an order for in -- at the end of December and that we will start implementing as of Q1 2021. And here, the need from the customer was the cleanroom, which is compliant with U.S.C. 797 and U.S.C. 800, and they also needed a flexible solution so that they can -- could continue with a compounding operations while the new cleanroom is being built. And there, our modular flexible solution works very well for these customers. And this is cleanroom #6 for this U.S. University Hospital system, so it is a very satisfied customer.Next page, please, Page 16. So to summarize, in a business perspective, we have maintained a high-activity level. We have introduced more solutions and products than ever before. We have obtained a number of groundbreaking business opportunities, and we have developed new customer segments. And I'd just like to highlight our business model and performance during 2020. And this is our installed base that drive our sales, and we saw an increase during 2020 of 14% of our installed base. However, when it comes to our order intake of our long-term rental contracts and direct sales for products to customers, we saw a decline compared to last year because of the corona situation. However, at the same time, we saw a short increase in the number of shorter contracts which are not included in the order intake statistics, and that increase was 492% or 231 units.And when it comes to our sales mix, this was an increase in our recurring revenues of 35% during the year, landing at SEK 259 million. We saw a decline in our sales to finance companies, and we ended up at SEK 130 million and saw an increase in our product sales and ended up at SEK 104 million. And in total, sales were up by 9%. And when it comes to our increase in recurring revenues, one explanation for this is the acquisition of SFS Finance in December 2019, so we have increased the book value in units in our own balance sheet to SEK 46.4 million from a level of SEK 23.6 million in 2018. So we have consequently increased our investment in loan book of SEK 22.8 million.At the same time, we have seen an increase in our recurring revenue from SEK 164.8 million in 2018 to SEK 258.7 million in 2020. That's an increase of SEK 93.9 million in net recurring revenues, so an investment of SEK 22.8 million towards an increase in revenue of SEK 93.9 million. And we increased our recurring revenues to 52% compared to 41% of our total business.Next page, please. Page 17. And our installed unit gives us visibility into 2021, and our recurring revenues that come from our own units in our balance sheet and both our own contract and contracts in finance companies secretly ran for 3 years, and more than 75% of the contracts are extended or renewed. So that means that also for our contracts through finance companies, we had an element of recurring revenues because after 3 years, they are most oftenly renewed. And we also have recurring elements from our service and maintenance income, and we have good visibility when it comes to when contracts will expire so we can address and work proactively or maintaining and increasing our installed base.Next page, please, Page 18. Prior to releasing our report, we also released a press release about how much clean air we delivered, and that is a natural consequence of our installed base. The higher our installed base is, the more clean air we deliver. And we delivered at the end of 2020 a figure of 9.77 numbers of the global arena per hour of clean air, and that was up by 13%. So in short, we have had challenges in our fourth quarter when it comes to our order intake, and we have been negatively impacted by corona on our sales level. But we also have seen the positive effects of our significantly expanded and broadened products they're offering in facility, gaining good traction in terms of order intake in Q4. And we have a resilient business model which ensures our friend during challenging times like corona, where our increased installed base and our increase in recurring revenues is comforting. And we have maintained during 2020 a high-activity level in the organization.And then I'd like to take the opportunity and thank the fantastic team at QleanAir for all their contributions and the dedication and passion to make this happen. And then I'd like to hand over to our CFO, Henrik Resmark.

[Henrik Resmark, Chief Financial Officer]

Thank you very much, Christina.Moving into the financial information, please move to Page 20, please. The recurring revenues are increasing full year 2020, plus 35%. We have an increase of installed units with 14%, and more than 75% of our long-term rental contracts are either renewed or extended. It is very clear that QleanAir has a satisfied customer base.Page 21, please. As mentioned, order intake is down by 35%, and sales is down by 9% versus fourth quarter 2019. We are a growth company. We are launching new products and hence, we need to meet our new customers to be able to sell. A large part of the market in Europe and the U.S. have been closed or have had restrictions, also Japan to some extent. But comparing fourth quarter with the third quarter 2020, we see an increase in order intake and revenues. That is a positive sign. And full year 2020, we delivered a growth of 9% in a year that we have had tough market conditions for most of the year. And again, our installed base are driving our long-term revenues.Page 22, please. In fourth quarter and full year 2020, EBITDA and EBIT improved in absolute numbers and also the margins. EBIT margin was 19.3%. We have an efficient business model, meaning when sales are not developing according to plan, we have the opportunity to defend the margins in combination with continuous cost control. Full year, the recurring revenues are up and the cash flow is improved. Profit per share was SEK 4.51.Moving to Page 23, please. On this page, I would like to highlight: first, the equity ratio improved to 27%, up from 16%; net debt reduced to SEK 199 million, down from SEK 237 million. We have a clear strategy to reduce the net debt over time according to scheduled amortization. Operating cash flow of SEK 20 million, up from SEK 10 million. Improved cash flow and the business model is efficient also in challenging markets. Cash-generative business model and strategy to pay dividend to shareholders, dividend of SEK 1.30 per share is proposed by the Board.Having said this, I hand over to Christina again.

[Christina Lindstedt]

Thank you. I am very pleased to conclude that for a year like 2020, we managed to reach our financial target. When it comes to organic sales growth, we have an average annual growth target of approximately 10%, and we achieved 9%. We have a profitability target of 15% to 20% of EBIT margins, we delivered 19.3%. And we have a policy to pay out 30% to 50% of our net profit in dividend, and that is in line with the proposal from the Board of paying out SEK 1.30. So I'm very pleased that we, in challenging time, managed to obtain our targets.And then to summarize QleanAir as an investment on the next page. We have a unique service offering based on a holistic approach to Clean Air as a Service with full-service rental contracts. We have proprietary air cleaning technology and back office solutions, providing substantial barrier to entries. We have long contracts with a high degree of exemptions across a diversified blue-chip customer base, generating strong and predictable revenues. And we have an asset-light business model with limited CapEx needs, providing strong free cash conversion and equity.Then I would like to hand over to the Q&A session.

[Operator]

[Operator Instructions] We have a question from the line of Anders Roslund from Pareto Securities.

[Anders Roslund, Analyst]

Yes, I would like to know a little bit of how '21 will look like. You will obviously start with some negative sales growth versus a very strong Japanese development in the first and second quarter, but I assume that you also expect a stronger growth, specifically in Facility Solutions and maybe also in Room Solutions. How do you see '21 looking like?

[Christina Lindstedt]

Yes. We see a little bit of a mixed picture. I mean we have still in Q1 2021 a challenging situation with corona with continued lockdowns in many parts of the world. And I mean, for us, it is important to have access to open markets and conduct physical meetings and so on, so that is one challenge. But then, as we have described, with our expanded and deepened product offering, we'll see continued possibilities to grow in Facility Solutions and equally, in Room Solutions, a growth area for QleanAir. So it's a little bit of a mixed picture.

[Anders Roslund, Analyst]

Yes. If we just elaborate a little bit more on the growth areas, the Facility Solutions, we have seen several large orders, and I assume there will be some minor orders as well. If you look at the installed base, the installed base is developing much more favorable than your order intake, showing clearly that you have a larger share of your installed base with shorter contracts, probably in the Facility area, while you have less of long-term contracts.

[Henrik Resmark, Chief Financial Officer]

The first part of your question is that, yes, I mean, we see a continuous order intake, and we'll only go with press release on the larger, of course. And yes, the installed base is positively affected by also short-term contracts, and that is the total installed base globally. And that, again, is driving the top line, of course. So the -- and the order intake isn't the full order intake from that perspective, as we have described earlier, and that is the reason why you see that difference.

[Anders Roslund, Analyst]

We've seen very positive comments from the Facility Solutions area, but you have only got 1 large only. You have got 1 large order in Room Solutions, but how do you see the Room Solutions area developing in this year?

[Christina Lindstedt]

This was an exceptionally high-value, the Room Solution order that was announced in December. And then, of course, we don't announce all the orders in our ongoing business. I would refer a little bit to what I said before that 2021, going into that year, we still have the corona situation, and that is part of the reality also in the U.S. But we see a very good underlying growth opportunity within our Room Solution business going forward, absolutely, so it's more short-term related to corona uncertainty, but the underlying potential is not changed when it comes to Room Solutions.

[Anders Roslund, Analyst]

Yes. But the Room Solutions will be more affected by the closed towns and the tough conditions for the health care sector in the U.S., that's what you're saying?

[Christina Lindstedt]

We have continued in 2020 to proceed with our installations, and we delivered 2020 that is almost in line with 2019. So we have been able to navigate and maneuver there also in a challenging year of 2020, but what we have seen is somewhat longer decision processes at the customer side which had an impact on the order intake side.

[Anders Roslund, Analyst]

And then finally, coming back to Cabin Solutions, what is the new normal in Japan now, since a very strong surge up to the second quarter? What do you think will be sort of the new normal in Japan?

[Christina Lindstedt]

In the short term -- I mean also, Japan is affected by corona, and we have seen a shutdown situation also here during the second wave of corona in Japan. So short term, we see less impact, also for Cabin Solutions in Japan. And then as we have outlined, the first half of 2020 was very strong based on some fantastic opportunities, and we don't see those onetime opportunities reoccurring in 2021. But we see a strong opportunity for us to continue to develop our Cabin Solutions business in Japan and grow in the medium to longer term.

[Anders Roslund, Analyst]

And in Cabin Solutions, how do you see the development in Europe?

[Christina Lindstedt]

In Europe, we see a more mature market when it comes to Cabin Solutions, but more mature and stable. So it's more in Japan that we have the growth opportunities within Cabin Solutions.

[Anders Roslund, Analyst]

Excellent. And what do you expect when it comes to new products? You introduced several new products now last year in Facility solutions. Are there any news on that respect for this year?

[Christina Lindstedt]

We will present product news when we are sort of getting closer to launching them, but we will continue to have a high focus on innovation and bringing new solutions to the marketplace. That is part of our DNA and will continue to be so.

[Anders Roslund, Analyst]

And regarding markets, you will -- you remain on the present market structure. You opened up sales of Facility Solutions in Japan that was presented last year. How does is it -- is that the sort of the new loans you have in market respect?

[Christina Lindstedt]

Yes. That is a very important step for us. We have been very successful in our Cabin Solutions business during many years in Japan. And we have a very strong customer base with our office segment, and that is a segment where also Facility Solutions are very relevant and especially so with the corona situation. So we have been able to expand our offering to our current customer base. But step by step, we will implement our whole Facility range in Japan as well.

[Anders Roslund, Analyst]

So there is something going on gradually during this year?

[Christina Lindstedt]

Yes.

[Operator]

[Operator Instructions] There are no further questions at this time. Please go ahead, speakers.

[Christina Lindstedt]

Thank you very much.