Alimak Group AB (publ) (ALIG) Earnings Call Transcript & Summary

Ladies and gentlemen, welcome to the Alimak Group Interim Report for October to December 2020. [Operator Instructions] Today, I'm pleased to present Ole Kristian Jodahl, CEO. Please begin.

Thank you, and welcome to the Quarter 4 call for Alimak Group. With me today, I have our Interim CFO, Bernt Ingman. So if we then turn to Page 2, the agenda. We will go through then the quarter 4 results and also look at the full year 2020, before we move into status update of the New Heights programme and in the end, Q&A session. We will then turn to Page 3, quarterly highlights. And then to sum up the fourth quarter of 2020, after an improved start to the quarter, the second wave of lockdowns and restrictions combined with the U.S. elections and negative currency translation effect, we saw significant impact on our order intake and revenue in the quarter. The cost savings part of the New Heights programme is on track. And in the quarter, we took the last SEK 26 million as planned and announced as well as an additional SEK 60 million in nonrecurring costs related to reservations and provisions. And these are things that should have been taken earlier. So it was not something that we are too happy with. However, I'm glad to see that already now the improved underlying margin continues and we ended up at 13.7% EBITDA adjusted in the quarter. As of January 1, the new organization is in place, together with our group strategy, vision and values, and we have now entered the second phase of the New Heights programme. So then, if we turn to next page, Page 4, group quarterly summary. Order intake decreased 21% in the quarter, of which 14% was organically and 7% coming from negative currency translation effect. I'm pleased to see that both Construction and After Sales reported organic growth in the quarter. Rental had a little softer quarter while the full year saw a strong organic growth. Industrial Equipment reported a weaker quarter driven by continued delayed investment decisions in the uncertain market conditions. Revenue decreased 11% organically, the result of lower order intake in previous quarters and some delays in project execution. We have had some shipment delays in ports and also some delays out of our own factories due to increased sick leave, and this is then people staying at home as soon as they feel any signs of being sick, to be cautious and not to get any outbreak of COVID in our factories. And of course, we also are at a very lean base now. The underlying profitability improved with EBITDA adjusted margin at 13.7%, up from previous quarters in 2020 as well as an improvement year-over-year by 0.5 percentage points following our cost reductions. Next page, please, Page 5, and full year 2020. 2020 was a challenging year for the group with the impact from the pandemic with lockdowns and delays in investment decisions, and also then the negative currency translation effect that we have seen in the last 2 quarters. All business units were down on order intake, except Rentals, which reported a strong organic growth of 9% for the full year, and this is also driven by what we have said, that we have seen a preference of renting versus buying throughout the year during the pandemic. Wind also showed resilience with a long stable investment cycle, but we have stepped away from more tower internal business when it has not brought the right profit level. Construction was weak already at the beginning of the year, moving into the pandemic, and have been further affected by the market uncertainty brought on by the pandemic. General industry and BMU has been the businesses hardest hit by the pandemic, where the oil and gas business has been very weak and also investment decisions in BMU has been and continues to be pushed forward. From a geographical perspective, USA has been a very weak market for us throughout the year and driven down both by the pandemic and also the election. All business units reported lower revenues, driven at first down by lockdowns and travel restrictions and later by a lower order backlog, something we will continue to see the effect from in the coming quarters. Full year EBITDA adjusted ended on 10.6%, down from 13.7% last year for the full year, driven down by lower volumes. Temporary and permanent measures have been implemented, and we have reduced number of employees with 237 during the year and seen an improving underlying profitability quarter-by-quarter, making us well positioned for 2021. Dividend for the financial year 2020, the Board of Directors proposed an ordinary dividend of SEK 2.00 per share. In addition, the Board proposes an extra dividend of SEK 1.00 per share, and this total level takes into consideration the current market conditions and also prioritization of a continued strong balance sheet to support our growth ambitions. Next page, and then Construction Equipment, quarter 4, Page 6. As already mentioned, a highlight of the quarter was that the order intake for construction was organically up with 8% year-on-year, but also up 19% on quarter 3 comparative and also, of course, contributing with the order in U.S. from Morrow of 46 units. The revenue decreased as a result of the lower backlog, but the SEK 126 million of revenue represented a sequential improvement from quarter 3. This resulted in an EBITDA adjusted margin of 10.8%, driven down by the lower volume as well as less deliveries to Americas, which usually has a higher profitability, but being the best quarter this year and a solid improvement from quarter 3. Another notable item for Construction Equipment, we launched our new product in China, a construction shaft hoist, which is done for the Chinese market. Next page, Rental. Despite the strong development in France, Rental reported lower order intake compared to the same quarter last year, down 5% organically. This was a result of a soft quarter in Germany and Benelux as well as also Australia, though Australia market is showing improvement. For the full year, order intake development was strong with a 9% organic increase, as mentioned. The revenues decreased by 11% organically in the quarter, mainly driven down by the Australian market. Though notably, again France showed good development, which has led us to increase investment into this fleet during the quarter. The margin of 11.5% is lower than the previous 2 quarters, and result of volumes or lower volumes as well as increased costs, and these are [ permanent ] and even by the need to put in temporary staffing due to quarantines and extended sick leave in some markets. Next page, Industrial Equipment. Order intake for Industrial Equipment was down 31% organically for all -- and down for all business units. For BMU and general industry, this came from customers continuing to delay investment positions, especially towards the end of the quarter. We see the oil and gas business has been very hard hit in the quarter but also throughout the year, and also bigger projects in general that are being pushed forward. For Wind, this softer quarter came from us continuing to step out of low profit to our internal business, in line with our profit before growth topic and what we have announced. Revenues decreased by 10% organically, the result of a lower backlog and some delayed shipments within general industry. We also continue to see delayed project starts for BMU as customers push back completion dates and the timing of approval delay. Despite the lower volumes, we managed to improve profitability, both compared to the same period last year as well as significantly above previous quarters in 2020 and ending with an EBITA adjusted margin of 60.7%. The improved profitability was seen in all business units as we see effects from our cost-saving program. Next page, After Sales. Very pleased to see that for After Sales, the order intake improved, and we had 6% organic growth in the quarter. Europe showed strong development, and I'm pleased to see the increase in services booked for BMU customers compared to the same period previous year. This is according to what we tried to achieve. Revenue was flat organically. Remaining restrictions from COVID-19 continues to affect our business, but to a lesser extent than what we have seen earlier in the year. So we have better and more safety measures now in place that let us perform daily services. We saw an increase in refurbishment revenue as well as online training, which is also part of our strategy. EBITDA margin adjusted ended up at 25.6%, slightly better than last year. And then we turn to next page, Page 10, and I leave it for Bernt.

Thank you, Ole. I will start to run through the main impacts of the profit and loss in the quarter. Compared to quarter 4, 2019, the biggest negative impact came from the lower operating result as well as the nonrecurring costs taken. EBITA adjusted was down SEK 24 million, primarily due to the lower volumes and despite a lower operating expenses. Another impact of SEK 42 million came from the nonrecurring costs taken in the quarter, SEK 24 million higher than quarter 4, 2019. From the SEK 26 million was stemming from the New Heights programme, of which SEK 23 million are related to COGS and SEK 3 million to OpEx. For the additional 16 million, SEK 3 million are related to COGS and SEK 13 million to OpEx. Adjusted for the net -- the nonrecurring items, the unadjusted EBITDA was SEK 86 million. Then we have less amortization than last year, SEK 9 million versus SEK 11 million the year before. And the financial net had a positive impact of SEK 11 million compared to Q4 2019. And finally, the tax expense for the quarter was SEK 21 million and SEK 17 million the year before, corresponding to a tax rate of 29% compared to 16% the year before. All of these are taking us to a result for the quarter of SEK 50 million compared to SEK 88 million last year. Next page, please, the results for the period and EPS. Lower net profit was the result of lower operating profit despite cost reductions as well as higher nonrecurring expenses. This led to a decrease in earnings per share to SEK 0.92 compared to SEK 1.62 corresponding year quarter before. And SEK 3.37 for the full year compared to SEK 7.28 the full year 2019. Next page, please, cash flow. Despite the lower revenue and the operating result, we maintained a strong cash flow of SEK 164 million in the quarter, following a strong focus on receivables and other working capital was reduced by SEK 51 million in the fourth quarter. For the full year, cash flow from operation improved to SEK 505 million compared to SEK 502 million in 2019. Next page, please, net debt. Our strong operating cash flow, together with limited investments helped take our net down to SEK 680 million by the end of the year. So despite the lower EBITDA result, the lower net debt made our leverage end up at 1.5x by end of December, below our target of 2x, and we maintained our strong financial position. In addition, the group has SEK 1.8 billion in unutilized credit facilities, which give us financial flexibility in the future. Thank you. And now I return the word to Ole for a final summary. Next page, please.

Thank you, Bernt. So then we are at Page 14, the New Heights programme set for Phase II. And now as we then have put 2020 behind us, we also have put the first phase of the New Heights programme behind us after the launch in October 2020. We have, of course, been doing a lot of work behind the scenes since to get the new organization up and running, now entering Phase II, where we then put profit before growth in 2021. Next page, please, then we are at Page 15, status of the New Heights programme. Since January 1, we now have the new customer-centered organization in place with the 4 divisions: Construction, Industrial, Wind and BMU. We have moved from a heavy matrix organization to one that emphasizes closeness to the customers, responsibility, accountability and a mandate to act. And we will drive the group forward based on our strategic pinion wheel with the elements of customer obsession, technology leadership, operational excellence, people development, digitalization and sustainability. The group has not managed to build a solid fundamental after the doubling of the group in 2017 with the 2 acquisitions of Facade Access and Avanti, that we do now. And this means it's not a quick fix, but we know what to do and we are already well on track. Starting from the next quarter, for quarter 1 results, which then will be released in April, we will start reporting according to these new divisions, and we're also switching away from EBITDA adjusted as the key measurement of profitability to just EBITDA. So we are removing the adjusted element. Since announcing the New Heights programme, we have made further changes to the group leadership team. And I'm very happy to -- as I announced earlier this week that on May 17, Thomas Hendel, who has more than 30 years of controlling and CFO experience, will start as our new CFO. He has spent a lot of years first within ABB, and now the last 8 years within Saab. So he brings a vast industrial experience and also experience from complex project-based business. As also announced, we have recruited Annika Haaker to the important role of Chief People & Culture Officer, to focus and help us drive the most important aspect of the group, our people. And she will also then join us -- or she will join in April. She also brings a lot of knowledge and experience with her, and she comes lastly from HL Display, where she has been the group Director of Human Resources. The recruitment for a permanent Head of the Industrial Division is very soon to be ready. We are in the middle of developing the strategies for each of the divisions, and these will be presented at the Capital Markets Day that we will host in mid-June. And more information around it will soon come. The cost-saving program is ongoing, and we have taken the nonrecurring costs announced as well as an additional SEK 60 million in quarter 4. We are already starting to see the savings coming through and are on track to fully deliver on the targeted annual savings of SEK 60 million beginning of the second half of this year. I feel very good about all the changes that we do and are really looking forward to 2021 and the years to come, to build a group that will deliver on its commitment in a sustainable way. Next page, summary for quarter 4, Page 16, the fourth quarter's highlights. Growth improved underlying profitability of the group and 13.7% EBITDA adjusted margin, and it was also that we saw organic growth, both within Construction and After Sales. Currency and renewed lockdowns continued to put pressure on orders and revenue, though October was better than the following month. We have held up a solid cash conversion, both in the quarter and also for the full year. The year 2020 was a challenging one for the group, but also one of repositioning as we launched the New Heights programme and are now then set to securing margin improvements as we continue to invest our efforts into R&D and digitalization. Following this, the Board proposed a dividend of SEK 2 plus SEK 1 per share; in total, SEK 3. While our team rollout is now ongoing, we expect to see an improved business line up in 2021, though the first half we expect to remain challenging with uncertainty of the speed in vaccinations and the spread of the more contagious mutated virus. As this sums up my first half year with Alimak group, I want to say a heartful thank you to all our employees, shareholders, analysts and business partners for the warm welcome, and also for the way we have been able to navigate this half year together. So thank you, and then we move to next page and the Q&A.

[Operator Instructions] Our first question comes from the line of Mattias Holmberg from DNB.

My first question is on the margin in Industrial Equipment and where we saw pretty impressive improvement. And I read that you directed somewhat towards an improved gross margin in BMU. And I'm just wondering if you could help us understand the dynamics behind this a bit more, sort of is it project-related temporary boost? Or is it more of a structural increase in the margin as a result of the work that you've done to improve the profitability in this business?

Yes. It is a mix of it. We -- definitely, it's our cost improvement that are affecting and helping the results quite significantly in the quarter, but it's also a mix effect, and that's the nature of that business, but also all our business. You know that we -- it's project-based, a lot of it, and both geographical and project mix. So that also affects into it, of course, to some extent.

And I know that you usually don't comment on the order book, but could you give us any sort of comments at all to better understand the dynamics now for the first half say, roughly speaking, what your order book is at the end of the year compared to a year earlier?

Yes. I would like to actually comment also more around that. So we are looking into whether we should bring a bit more in as we move forward with the new reporting and the new structure, so that we have to come back to in quarter 1. But I think it's -- you can look back into the order intake during the last quarters, and that will give you a good indication, of course, of the order book that we have. But again, it's also so that it varies a lot. Some of our business is very instant, that we turn it into sales relatively quick after an order, while in other parts of the business like BMU, it might be 2, 3 years until we start -- or the project is delivered. So it's also there, a big mix between the different divisions. But I can't give you much more flavor of it now, but we are looking into whether we should start to report more on order book.

That sounds great. And just a final question for me. On the tower internals business, could you elaborate based on how much more you have to exit here and if there will be a significant drag on orders and sales in the coming quarters?

Yes. It's a good question. It's been a drag for 2019. It was a heavy drag for Wind business. It's been a little bit of a drag for us this -- or in 2020. Still there is quite a bit of this business in that division. But we also do believe actually that we can retain and do quite a bit on it. So -- but there is also heavy competition, and I expect that we will stand out in some more in this year, but not enormous figures. But there is something constantly that we are evaluating and making sure that we make the right profit on. Else, we don't do it. But it is when we have projects where we can combine the whole thing in a good way, and that value is clear to the customer, and it's something they are ready to pay for, then we do it. So it's not so that we are moving out of it completely.

[Operator Instructions] Our next question comes from the line of Kenneth Toll from Carnegie.