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

Welcome to the Alimak Group Q4 2024 Report Presentation. [Operator Instructions] Now I will hand the conference over to the speakers, CEO, Ole Kristian Jodahl and CFO Sylvain Grange. Please go ahead.

Thank you and welcome all to this quarter four and full year call for 2024, then for Alimak Group. And with me, as always, I have Sylvain, which will come back a little bit later. Turning page, you recognize these pages, just to highlight again, that we have some fundamental drivers for success in this group, we are supported by global trends. The group overall have a leading market position where we operate. We have a large installed base globally, which also is a fundamental piece in our service business, that we drive globally, in all divisions. And we have a strong also balance sheet cash conversion, which makes this a solid group. Turning page. We also recognize the new heights program. And to the left here you see what we then launched back in 2020 -- late 2020. The three step program is our mission, the strategic house, the basic and also the divisional structure, which is then how we have been driven the group forward. And also, to the right, you see what I presented in the investor update we had just before Christmas in quarter 4, that we're now working on, what we call New Heights 2.0, and that's defining more detailed divisional plans for accelerating profitable growth towards 2030, something that we will come back with later in the year. Turning page, also slightly new page, but the summary of all the financial and sustainability targets and where we stand. And starting up left, you see on the revenue growth 6% to 10% we are below that during 2024, but if you look over the last year since we launched New Heights, we actually have a CAGR of 17.4% consisting, of course, both M&A as you very well know, but also solid organic growth in the time period. EBITA margin, we delivered on our 14% to 16% 1.5 year ago, 2 years ago, and now we are on the way to the above 18%, and we are well on that way. Leverage we are well below within the frame, we have the board also proposed now again a solid dividend payout, which I will come back to, which means that we are in the frame also this year. On the sustainability side, we are doing what we should on the -- or within the targets on CO2 reductions. We are on our way to reach our net promoter score, made another significant step in the year. We are also coming down on our injury rate, so towards our target, and we are driving up our ESG assessments. Turning page. Dive into the quarter. We end 2024 with another strong quarter, with the strong order intake, profit and cash flow. We do a step up in profitability again for Facade Access, which I think is a very important piece. It's been the division which has been lagging behind, but I'm very happy to see that we continue to drive and in the quarter we have a very strong result for that division. Cash Flow, of course, important for us, not at least after also the acquisitions we have made is very strong in the quarter, and we take down our leverage to bond 79 from 212 in quarter 3. We have also signed an exclusive partnership in the quarter with Skyline Robotics, a five year deal, where we will together focus on robotizing window cleaning on tall buildings, long term thinking that this will be done by people we do not believe. So it's a way of driving our technology leadership strategy, and then we are also making an organizational change now as we speak, where we get new leadership for HSPS and Wind divisions. As you all know, when we acquired Tractel, Philippe Gastineau which was the then the CEO of Tractel, he took on the job to lead both Facade Access, to drive that transition into profitability, and also to ensure a good transition of HSPS, so the core business of Tractel into the group, and he has done a remarkable job. But long term, of course, each division should have its own EVP. So what's happening now is Philippe will be 100% focused on Facade Access. Jose Maria, which has been then had the Wind division, he will take on HSPS. He has done the remarkable job with Wind, and now we can get his full attention to HSPS. And Rafael Pena, who has been the COO and been part of Avanti since 2011, he will then step up and take the Wind division. So internal moves, which I'm very happy with and proud that we are able to do. Turning page full year again, delivering on our New Heights program, revenue order intake -- it has been flat in a challenging market, but we have stepped up margins solidly to this 17.2% versus a 16.2% last year. We are also having a good growth as I said, you know, 17.4% CAGR, since we launched the New Heights back in late 2020 beginning '21. All divisions have continued to take step forwards. Façade Access, I would say, most notably, the success in execution on the transformation program, Construction we have managed to do well, in a very challenging market, been relatively stable on order intake and sales, even though there are still some effects on results, but well managed in a challenging market. HSPS relatively stable year, also affected by the weaker construction market. Industrial very strong year again, and wind also delivering a solid year overall and reinforcing its position in a very competitive market. Strong cash flow throughout the year. And as you know, the Board of Directors proposed a dividend of SEK 3 up from SEK 2.5 last year, and this is a 20% increase year over year. And we continue to invest and execute on our profitable growth strategy. We have done significant investments during also the year, which means that we enter 2025 with good speed. Turning page. Details of the quarter order intake was SEK 1,837,000,000 up 8% and also 8% at fixed rates. Strong performance in Construction and Industrial while Facade Access, HSPS and Wind reported a somewhat lower order intake. Revenue was up was SEK 1,817,000,000 down 1% or 2% at fixed rates, where we had positive contribution from Facade Access and Industrial while Construction HSPS was slightly down and flattish for Wind. EBITA adjusted at SEK 320 million, up from SEK 288 million giving us this margin of 17.6% in the quarter versus 15.7% last year, and driven by a strong performance in Facade Access and Industrial and as you know, also a weaker quarter for Construction on the results side. Turning page, service, service is a very important piece of the group, something that each division is driving, it's a key component for all of them. And happy to see that order intake again increased, and it was by 11%, 10% fixed rates to SEK 662 million, up from SEK 599 million. Revenue also increased by 8%, 7% fixed rates to SEK 726 million, up from SEK 675 million. And this is something that, of course, provides resilience, but also lots of opportunities and something we continue to focus and strongly drive in all divisions. Turning page, and diving into divisions. Facade Access delivered another good quarter with record margins. Order intake was SEK 480 million, down 6% or 7% at constant rates. But overall, this -- I would say, it's a good level because they also have a relatively high comparable to measure towards. North American market for especially BMUs continues to be soft, while we saw good equipment orders in China, Hong Kong, Australia, Malaysia. And we also continue to drive infrastructure projects and won a very nice one on the nuclear side in Europe. Revenue was SEK 526 million, up 4% or 3% in fixed rates. And yes, double-digit growth for service in the quarter. EBITA was SEK 82 million, up from SEK 30 million last year, giving this margin of 15.7% versus 5.9%, so very strong improvement. And it's driven by the activities that we have said, pricing, improvement in project management, but it was also boosted by the closure of several larger projects in the quarter. And when you have good control of them, that means that you also can release contingencies and you have a good end to projects, something which is also now part of the news that was not the way it was before in Alimak Group. So something I'm very happy to see. Turning page, and a little bit more of the update of Facade Access, as I said, we do this organizational change. So this means that Philippe now will be 100% dedicated to Facade Access. And I'm sure that will also mean that we can drive the business development even faster and change agenda. We signed this partnership with Skyline Robotics, and they have already a proven demo unit, which has been tested and used in U.S. and we are now working full speed together to really do what we can to automize window cleaning globally. So that will be a very interesting project for us to drive forward together with Skyline Robotics. We also continue to drive the other change agendas like infrastructure projects, we have won some nice there, this nuclear project in France. We drive the retrofit refurbishment and replacement on the aftermarket side, we have won some nice projects there and also on the high-rise building, especially then in Asia, as I mentioned. Mammendorf closing is fully on track, so that's more or less done, but still there are some things that happens this year, but it's fully on track. And this new design services that we are entering and becoming also the consultant, the architect, helping the architects in the processes is where we then change the business model in the go-to-market is fully developing, and we have won some nice orders again on this, and the pipeline is just increasing. So a fundamental change in also how we drive this business. Turning page, Construction, mixed quarter, very strong order intake, but the softer revenue and weak results stemming from the weak order intake in Q3 and also an unfavorable mix of deliveries in the quarter. Order intake was SEK 468 million, up 47%, 46% at fixed rates. We saw solid new equipment orders in Middle East, North America and also Nordics now, and very strong on parts and services and also stable for rental orders in all countries where we do that. Revenue was SEK 401 million, down 9%, 10% at constant rates, and this is impacted by the lower order intake we saw in Q3. EBITA at SEK 44 million, down from SEK 76 million, giving this weak margin of 11.1% versus 17.2%, and again negatively affected by the lower revenue, but also the low deliveries of hoists and mast climbing work platforms. So this is -- that's the areas where we have the highest margins, but as you also know, we have been pushing hard on used machineries. We had a strong sales of used, but that does not carry exactly the same margin. But long term for us, that's also a very good business. And I should say that the order intake in Q4 was very solid on the new equipment side, and that was actually hoists and mast climbing work platforms. So that gives us a good speed now into Q1. Turning page. We continue to drive and as I've talked about the importance for us to really fundamentally put mast climbing work platforms into the market. So we have also invested more in business development in this side, but we are starting also to gain more orders. So that's nice to see. And as I also talked about some very nice hoist orders in the Middle East, lots of projects happening there, and service and parts all over the globe, it's also contributing to our business along also with the used part. So we are actually entering 2025 with good speed and the order intake mix will also mean that results will be back to normal in Q1. Turning page and HSPS, soft quarter on order intake, revenue and results, but that's driven by a softer demand in the quarter. Order intake was SEK 336 million, down 6% and also 6% in fixed rates. And we saw both the soft distribution business across most geographies, along with also elevated customers, which is an important segment for us, having some sort of a low point in their investment cycle. Revenue was SEK 317 million, down 9% or 10% at fixed rates. And again, here is more 1-to-1 in the book-to-bill. So it's affected by the lower order intake, but also some unfavorable phasing of deliveries in the quarter. EBITA at SEK 56 million, down from SEK 64 million, giving a margin of 17.5% versus the 18.3%, again reflecting the lower revenue, but also resilient margins, I would say. Turning page, business update. Yes, here, Jose Maria then, who has been Head of the Wind business, will now, from 1st of March, take on HSPS. So very happy to see that, that will give full-time attention to this division. We continue to drive the change agendas also here. We have had focus on certain verticals, and these are providing increased sales and growth for us. So it's something that works well. And also, of course, we are driving new product launches, and yes for the full range. So we do what we can here, but it's also about accelerating product development and go-to-market so we can fundamentally also get in a phase where we are growing this business faster. Turning page. Into Industrial, again, I would say, another very strong quarter. Order intake was SEK 436 million, up 14% or 13% in fixed rates. Strong growth in equipment, parts, services across most segments, APAC, North America delivering the most significant growth in the quarter. Revenue was SEK 422 million, up 4%, 4% also in fixed rates. And yes, significant deliveries to power infrastructure ports. EBITA, SEK 108 million, up from SEK 95 million, giving a margin of 25.7% versus 23.4% and it is driven again by good execution, higher revenue and the project management. Turning page. We see and continue to see nice growth in multiple segments like ports, infrastructure, oil and gas, but also many more. And this is also the way we continue to work with this. Industrial has been -- that was part of the new heights to really create a separate organization for industrial and then segment by segment, also more and more digging into each segment, and this is what we really see paying off. That also leads to more product development, more targeted. So this entry-level lift that we talk about here, the SE 240L is a light-machine meant to compete with stairs and it's relevant for power segment, cement, food and agriculture, etcetera. So targeted product development based on more segment knowledge. And then we have also launched a nice replacement opportunity. It's an existing machine there, has been there out there for many, many years. And we are launching here a new machine that you can just swap into the mass structure that is there. So it should be an easy, cost-effective, sustainable solution for our customers. Turning page. Wind, stable quarter. Order intake was SEK 132 million, down 7% and also 7% at constant rates. But also remember, this is normally the lowest quarter in the year, so we feel it's okay. New equipment orders were strong in APAC. We continue to see soft market development in North America, while also Europe was at a lower level due to some quality issues with one major OEM that we have some nice projects with, but which is now then standing still, but something which will come back. Aftermarket contributed positively in all regions. Revenue was SEK 166 million, flat to last year. Continued stable sales, and again, aftermarket contributing. And China is also continuing to deliver well for us. We have a good position there and an important market for our Wind business. EBITA at SEK 29 million, up from SEK 25 million, margin of 17.4%, up from the 14.9% and it's driven by continued process optimization and good work in the division. Turning page. Here also then a consequence of all the changes that Rafael Pena, who has been then the COO in Wind division and has been part of Avanti since 2011. He will now take on the role as EVP, so very happy to welcome him on board in the leadership team. And else, we continue here to do what we are good at, develop our technology leadership. We have launched -- developed and launched a very nice rack pinion machine here, together with the customer. We are working on free climbing devices, et cetera. And the aftermarket continues also to give us a good momentum. Of course, the market is more uncertain with the Trump administration and in U.S., he has halted wind investments. And then also the customer duties might affect us somewhat there since we actually manufacture our ladders for the U.S. wind market in U.S., but where we import aluminum. So time will tell how this will be, but we see good development in the rest of the world. So we are not really afraid of this business, but it is some turbulence in U.S. now, as you all know. And with that, we are into profit and loss, and I hand over to Sylvain.

Thank you very much, Ole. Good morning, everybody. Once again, we are pleased to report an adjusted EBITDA growing more than revenue. It's 11% growth versus a flat revenue and I will come back to the drivers behind on the next slide. Items affecting comparability relate to the closure of the Mammendorf facility in Germany. As Ole said, we are well on track in that project. We believe all costs have hit P&L by the end of 2024. We will leave the site later this year, and we expect to sell the site by the end of this year as well. Below EBITDA, quarterly amortization is in line with our expectations. And as said in the previous quarter that some intangible assets related to the Tractel acquisition would be fully amortized by the end of 2024. And that means we expect looking forward, an amortization charge to be closer to SEK 40 million in the coming quarters. Finance net in the quarter is significantly down due to the reduced debt and some one-off items as well, in particular, foreign exchange impacts. Looking forward, we expect this charge to be closer to SEK 40 million in the coming quarters. Taxation rate in the quarter is higher than in Q4 2023, but Q4 2023 was exceptionally low. And this rate for the quarter is still below our recurring expectation, which is closer to 25%. So a higher adjusted EBITDA, lower ASE, lower finance net leads to a very strong increase in the net results, plus 60% in the quarter versus Q4 2023. The full year picture is less spectacular, but still very positive with a 6% increase in adjusted EBITDA and a significant decrease in the finance net, again, mostly due to lower debt and some lower interest rates as well leading to an increase in the net result for the full year of 21%. Moving now to gross margin and operating expenses, so the gross margin was actually down in the quarter versus Q4 last year. And the GM evolution was not uniform in the quarter. We had a very good improvement in the Facade Access division. The industrial margin increased as well, driven by higher revenue, strong project management and execution. On the other hand, as mentioned by Ole, we had a lower gross margin for the Construction division, and that's driven by the lower volumes and an unfavorable product mix. The full year gross margin, though, is still 40 basis points above the 2023 margin. And the most significant contributor to the improvement in the year is the Facade Access division, but Industrial and Wind improved as well, whilst Construction and HSPS were slightly down in the year due to lower volumes. As a percentage of revenue, operating expenses were down in the quarter and even if one excludes the impact of ASC and despite the cost inflation, typically labor. This is in particular due to the Facade Access and Construction divisions, which have made some footprint optimization, which is starting to pay off. And those savings are partially compensated by some specific additional expenses such as sales in the Industrial division or product development in Construction and HSPS. And we see those expenses, as mentioned earlier, as an investment for the future. Moving now to the results for the period. It was SEK 194 million in Q4 2024 versus SEK 121 million in Q4 2023. As said earlier, it's a 60% increase. Excluding IAC, the result for the period was SEK 200 million versus SEK 151 million in Q4 2023. It's a 32% increase. EPS was SEK 1.83 versus SEK 1.13. Adjusted for IAC and acquisition-related amortization, EPS was SEK 2.21 versus SEK 1.72 in Q4 2023. Moving now to operating cash flows. Q4 was definitely a very good quarter as far as the cash flows are concerned. In fact, this is the best quarter ever we have had in the group. And I said in the Q3 presentation that we have made some temporary working capital increases in the Construction division, which we are expecting to see reversed in Q4, and that did happen. But beyond the Construction division, all divisions performed very well in the quarter. In fact, we reduced working capital by SEK 200 million in Q4 2024 and SEK 100 million in the full year. So that's very pleasing and a sign of how much we focus on cash flow generation. Looking forward, I'm sure we can repeat this strong decrease in working capital every year. So we would expect working capital to be overall stable as a percentage of revenue. Regarding CapEx, as said at the Q3 presentation that we would have some catch-up in Q4. This did happen. We ended the year with a CapEx as a percentage of revenue around 1.8%, slightly below our expectation of 2%, but that's definitely a sign that we will continue operating a CapEx-light business model. Regarding the net debt, we had a significant increase in the quarter, down to SEK 2.6 billion, and that's mostly driven by operating cash flows. Leverage at the end of the quarter was 1.79, down from 2.12 at the end of Q3 2024. And that's, of course, well in line with our policy, our target of being below 2.5. And as I said earlier, we will continue to focus on operating cash flows. Our capital allocation priorities remain unchanged. We will invest in organic growth. I referred to some expenses in sales and R&D. We continue to actively work on acquisition opportunities allowed by the decreasing leverage. And we are committed to delivering on our dividend policy. Also ultimately, this is a board proposal and AGM decision. One final word on ROCE, which is a key metric for us. We are glad to see that ROCE is increasing in the quarter. We are now close to 10% ROCE overall and 24% ROCE, excluding goodwill, and that is a reflection of an increasing EBIT and a lower working capital, and it will continue to be very important for us in the future. On that note, I hand over to Ole, who will be making some concluding remarks.

Thank you, Sylvain, and then we are at the summary slide. So yes, I would say we have created a sustainable, resilient, highly profitable and growing industrial company now, and this is coming from the new height strategy that we launched now soon 5 years ago and the good execution on that all the way through. So -- and that also means we are continuing to deliver on our financial and sustainability targets as we have done. We have a strong cash flow generation and done a significant deleveraging after the acquisitions we made. And we have also been able to constantly push up margins in a very challenging market for the group. While at the same time, also continue to invest in all parts of the business. So it's not done to starve ourselves, but we have still been heavily investing. So the New Heights strategy continues to serve us very well. And the key things of that has been this customer obsession, focusing on the customers that is paying for everything we do, technology leadership, operational efficiency and recognizing our people being the most important asset. We have established and we can see now we have an effective, well-structured decentralized organization with a strong culture, which means we have an effective engine creating value every day. The announced custom duties by the U.S. administration will, of course, as we are a global company, affect the group to some extent, but we can't really see that it will have any material effect, but it means that we are on our toes and we follow this closely, and we will take actions as needed as we have done. So it's nothing really special around this, but it's also something that, of course, we follow closely and we act upon when needed. The focus now for 2025 is organic growth. We believe and that we will deliver on that. We focus on acquisitions, and we also believe that, that will be something we can now do in 2025, and of course, also as we have been talking about further margin improvements. So -- and this means in short that we have focused on delivering our commitment to the market on our financial and sustainability targets. And also, we are entering 2025 with good speed. So with that, I would say thank you to all our employees, customers and partners for providing us another great year. And with that, we turn page and move to the Q&A.

[Operator Instructions] The next question comes from Anna Widström from Carnegie.

My first question is, given the current inflation levels and the initiated and speculations on tariffs, have you made any price increases into 2025? And do you maybe intend to do additional ones during the year?

Yes, we are making price increases targeted where we see that's the right thing to do. So we have done that. And of course, if needed, we will do more. And we have no intention on sitting with the tariffs ourselves. So that, of course, we will do what's needed to ensure that we are pushing forward, what should be pushed forward, but also to do what we can internally in the group to also offset what's possible to offset but absolutely, price increases is an important part of how we manage.

Okay. Perfect, very clear. And could we maybe get some details if there are any maybe regions or divisions that would be more focused on price increases, or if it's very general across the whole group?

I would say that's general. It's a very important piece in all parts of our business. So they will all -- we are doing price increases wherever we feel it's appropriate in all parts, and that we will continue to do. If the question is more on -- maybe on the tariff side, we don't produce a lot in U.S. It's really wind that have some manufacturing in U.S. where we import steel, which would be affected short term if that were to happen, but we also have alternatives. It's also possible to source the steel domestically -- sorry, aluminum domestically, if needed for that piece. For the rest towards U.S., we are in the same situation as also most of our competitors. So we don't really have domestic competitors that can sit and enjoy no tariffs. They will all -- we will all be in the same boat. So overall, we don't see a big risk, but still, it will be turbulent if this environment continues and things will be implemented.

Okay. Great. And my second question is on how we should think about the Facade Access margin development in near term, given that there were some finalized projects in Q4?

Yes. The margin in the quarter is somewhat boosted by the effects of several significant projects that have been closed. So I've been talking about this at several locations when you close projects and you manage them properly, like the former Tractel organization now is putting procedures in place in this group like they have done before themselves. That would mean that you have contingencies normally to release when you close projects. So the more projects you close and the bigger they are, the more you can actually get positive effects in that quarter. But that doesn't mean you do that to the same scale every quarter or every month. So this margin level that we saw here was somewhat absolutely boosted in the quarter. So don't expect that to be the new level or the floor, but that we continue to drive our profit improvement journey, and that's what you should continue to see in this business, absolutely.

Okay. Perfect. And then just a final one as I think the balance sheet is looking quite well, and you mentioned M&A is one of the focus areas for 2025. If you could maybe give us some details on sort of your sense of the current M&A market and maybe if you already have located some focus areas.

Yes, I think the market is relatively okay. We have been working, as I've also said for quite a while on the funnel. So I feel we have a good funnel, and we absolutely have things that we can hopefully execute on in the year, that's what we plan. So our target is from now on that we should also do some acquisitions every year. And I hope and I plan for -- and we plan for that '25 is a year where we will start to see this. Focus is, as I've also said several times, it's many areas, it's service, it's products, it can be technology, it can be geographical presence. So it's multiple areas also in that sense, but we also have different businesses in all 5 divisions. So that also opens up the different opportunities. So yes, but it's an important piece, of course, where I expect to see something happening during the year.

[Operator Instructions] There are no more phone questions at this time. So I hand the conference back to the speakers for written questions and closing comments.

Yes. Thank you. We have a couple of written questions here. So one question is it seems -- I read the question. It seems like the investments compared to depreciation, amortization is pretty low. Should we expect investment going up more towards that number in the coming years? Some thoughts on CapEx, OpEx would be appreciated. So maybe, Sylvain, do you want to?

Yes, I think it -- I partially addressed the question in the presentation. Although we had some catch-up in Q4, we had a slightly lower CapEx in 2024. We expect CapEx as a percentage of revenue to be at 2%, 2% plus versus 1.8% in 2024. So -- but we don't expect a significant increase in CapEx. As I said, we are still a CapEx-light business model. When it comes to amortization, this is related to the intangible assets, which come with acquisitions. And there, of course, it will be a factor of any acquisition we may make in the future.

Yes. Okay. Good. And then we have a last question here, which reads the following: -- focusing on organic growth in 2025, what segments do you see is the most likely you will see organic growth in? And what is the reason behind this?

I would say, in general, we expect, I would say, in general, organic growth in all. Industrial should continue to show organic growth. We also do believe that we will see it in wind. There's some fundamental basics there. We have the uncertainty about U.S., but the rest of the world, it seems to continue to develop for the things that are affected by the construction market. We have said it's still a challenging market entering '25, but we have good speed actually also in several of these areas, and we are driving change like infrastructure focus into access, et cetera. And the fact that this construction market has been quite depressed for a long time. Interest rate starts to come down, even though it's more a certain long term what will happen. We do believe that there is some fundamental things that should start to happen in that market towards the latter part of the year. So we should also be able to see some market support. But the main thing is what we do and what we have continued to do throughout the whole new heights and also during 2024, we invest in our resources. We have more feets on the ground closer to customers. We have developed new products. We continue to do that. We drive R&D, we drive partnerships. So we also expect to both take market share, but also to open up new opportunities for us, which hasn't been there. So there are a multifaceted thing, which leads to that we take ownership for our situation, and we focus on delivering growth this year.

Then we have another question just popped up, adjusting the adjusted EBITA margin in Construction, adjusting the adjusted EBITA margin in Construction to a normal margin, the group delivered an adjusted EBITA margin above target of 18%. Do you still stand with your target of 18% or should we expect margin above that going forward? I think the answer is very clear from my side. If you look into -- again, what we did when we launched the New Heights program back in late 2020, we made financial targets, which was relatively close in time but we said we will focus on this, and we will deliver this. And that we actually did the margin target, the group had never done 14% to 16%. We did that after 2, 3 years. Then we said within 2 to 3 years, we should be north of 18%, and now that's our focus, and we feel comfortable that we have speed. And also, as you allude to here, the group is on its way to make that target. We have not announced the new targets after that, but it's something we need to talk about and we will look at when we reach these targets. But we make them relatively close at hand, so we can all focus on delivering upon them. And yes, then time will tell what we will do after there. Okay. That was the last question on the screen here. So with that, I would like to say thank you again to everyone in the group helping delivering these great results and also all of you listening in and until next time. Thank you.