Asetek A/S (A31.F) Earnings Call Transcript & Summary

Ladies and gentlemen, thank you for standing by, and welcome to the Asetek 2020 Annual General Meeting. [Operator Instructions] I must advise you that this conference is being recorded today. And I would now like to hand over the conference to your speaker, Peter Madsen. Please go ahead.

Very good. Thank you, Sarah, for the introduction, and welcome to this Asetek 2020 Annual General Meeting. These are indeed absurd times. And due to the COVID-19 virus, we have requested that everybody stays away physically from the actual board -- no, the Actual General meeting here. And we are grateful that you have lived up to that request. That also means that we are only -- and we have to suffice here with the absolute bare minimum of physical presence. And if I just run through the actual participants here in the room. We have the Chairman of the meeting, who is also our attorney, Mr. Tyge Rasmussen. Hi, Tyge.

Hi.

Then we have our Auditor, Mr. Henrik Trangeled Kristensen. Hi, Henrik.

Hi.

And we have another Auditor, Mads. Mads Melgaard. Hello.

Hello.

Very good. And then we have our CEO, André Sloth Eriksen.

Yup. Hello.

He is here. And myself, I'm the CFO. I'm here, too. And then we are pleased to have via phone, the Chairman of our Board, Mr. Jukka Pertola. Hi, Jukka.

Hello. I was calling -- yes.

There you go. Thank you, sir. And then we have the Chairman of the Nomination Committee, Mr. Ib Sonderby. Hi, Ib.

Hi.

Very good and Board member, Ms. Maria Hjorth. Hi, Hjorth.

Hi.

And finally, board member Mr. Erik Damsgaard. Hi, Erik.

Hi.

Very good. So that was to tell you, we are all present, whoever is listening in, we are in listen only mode. This is not -- technically not an electronic general meeting. So we are offering this as a service to our shareholders that you can listen in to what's going on. And with that, I'd like to hand over the microphone to the Chairman of the meeting, who has been appointed by the Board. Our attorney, Mr. Tyge Rasmussen.

Thank you, Peter. Normally, when I start out with a general meeting, I start out announcing whether fire exists and stuff like that is, but it seems irrelevant given the format of this meeting. So we'll jump directly into the formal confirmation of formalities in announcing and then holding this general meeting. Firstly, I have noted that there has been an announcement of the date and time line for forwarding specific items to the agenda and this has been announced more than 8 weeks ago. So that is informed correctly. In accordance with the Articles Association of section 7 and 5, and Danish companies section 19. Further, the General Meeting was notified and convened by the agenda and a full tax proposal forwarded and announced on the company's homepage on 30th of March 2020. And thereby, the Articles Association Section 77 and the Danish companies X section 19 -- 94 has been consulted. Further, it's confirmed that the agenda is in accordance with the Articles of Association clause A2, which is a minimum agenda for the General Meeting. So that is also in accordance with the law under Articles. And further, it's -- the note is convening with general meeting, the accurate number of shares and voting rights have been noticed. Documents to be submitted to the General Meeting and the agenda and full text proposal has been available on the company's homepage since 30th of March, and the annual report has been available on the homepage since 25 February 2020. And this in accordance with the Articles Association 0.81 and Danish companies at section 99. Therefore, in conclusion with the formalities necessary for making this a lawful General Meeting has been [indiscernible] and therefore, this is a lawfully convened General Meeting. At this meeting, no shareholders are present, given the COVID-19 circumstances. And thank you for, as Peter said, for respecting that. But there have been, by proxy or post to vote be given 8,419,094 votes, and they are, therefore, present at this General Meeting. Thus, the General Meeting has the necessary power to carry out decisions which are on the agenda today. Therefore, we can move on to the agenda, and it is as general as stipulated in the notice of the meeting. And the first item is the Board of Directors report on the company's activities during the past financial year. And for this item, I'll pass on the word to the Chairman, Jukka.

Thank you, and on behalf of Board of Directors, I thank you all for participating this year's Annual General Meeting of Asetek. Due to the very unfortunate situation brought by the COVID-19 virus, we have been forced to implement extraordinary measures around this meeting, and we cannot meet in person. But I'm glad, we are able to meet via phone at least. So a warm welcome to all of you who are listening. I hope that you can hear me clearly because I have to say that I heard the first speech usually the bit -- with a little bit broken line. But hopefully, you can understand what I am talking about.

We can hear you clearly.

Okay. Good. So then 2019 was an exciting groundbreaking, but also a challenging year for Asetek. We delivered multiple new products on the Gaming and Enthusiast side of our business. The products cater to the market's ever-increasing demand for performance and features. We are now on our sixth generation of liquid cooling solution to this market. We are focused more on our own brand and telling the story about innovation, quality and reliability. Contributing to this is the newly launched eSports Academy in Aalborg. The Academy enables us to connect with our routes and provide ambitious gamers with the technology tools and comfort to excellent aircraft. We also launched the formation.com Community form for Gamers as well as technology enthusiast. In our data center business, we entered to political cities and connected with European Union politics in Brussels and national politicians around Europe. We were a bit hesitant in the beginning, knowing that it can be a big shift to turn around. The aim is to build on the growing climate agenda and get the societies to not that data centers reuse their enormous amount of otherwise basic energy. Is that a big goal? Yes, maybe but it has been done before in other industries. We can take catalytic converters on cars and seat pet in cars as an example. Those 2 products have probably not existed without politically driven requirements. It is certainly too early to declare victory here, but we have actually been impressed with the interest from our politicians. Not at least in Germany, who will soon take over the chairmanship in European Union and bring actual legislation proposals up for vote. All in all, it looks like there's a society's with focusing actual actions rather than just talk. André Eriksen, our CEO, is spearheading the efforts, and we are impressed with the results so far. Another important milestone in our data center businesses that in early 2020, we landed our most important data center agreement to date. This is Asetek's first ever design win with a true global server OEM and an important significant step in maturing our data center business. For 2019, our consolidated top line came in at around $54 million. A reduction by 20% compared to the record year 2018, not least driven by the trade form between USA and China. This complete is now -- for now overshadowed by the corona regime. The impact of which we cannot estimate at this point. So far, we are not seeing a negative nor positive impact in our sales forecasts. We have recorded some supply chain issues earlier in the year in China. But China as a whole seems to be back in business again. We hope the worst is behind us, and we maintain our guidance, which is 5% to 10% negative revenue growth based on the facts mentioned before, but with higher gross margins compared with 2019. In the end, I would like to extend my thanks to the Asetek team, to the management and to around 100 good people working tirelessly on bringing innovative, reliable, liquid cooling products to the world. And I would also like to thank my fellow board members. I joined the company last year, and I find that we have an inspiring group of board members with a good mix of both qualifications and experience. So with that, I will hand the floor back to the Chairman of the meeting. Thank you.

Thank you. Given that no shareholders are present, I allow myself to conclude that there are no comments to the report and that the General Meeting to note of the report. And then we can move on to the next item on the agenda, and that is the Nomination Committee's report on activities, that's [ Vitra ] A and [ Vita ] B to proposed remuneration to have paid to the members of the Board of Directors for communities and the Nomination committee. For the first trial, Ib Sonderby will shortly give a report. And I pass on the word to Ib.

Yes. Thank you. My name is actually Ib Sonderby, but that's okay. Most of the activity and the Nomination Committee in 2019 was in the period, leading up to last year's AGM, where we, as you know, elected 2 new members after having added a third member just a month before the AGM. So we had quite a lot of contract over the first period of the year. And we had 5 meetings in 2019 in the Nomination Committee. After having the Board in place at the AGM last year, we've had a smooth ride, and actually, most of our activity has been the yearly board assessment, which we performed recently. And I'm happy to report that I think, and the Board is so thinks that we have a very well-functioning board. So not much to say about the activity apart from the concentration in the first part of the year, leading up to the AGM last year and a smooth ride the rest of the year. That's about it on the activity in the Board.

Okay. Thank you, Ib Sonderby. And that leads us on to [ Vitra B ] where there is a proposal and then a note, in the notice of the general meeting. And if you take the first part, which is -- it was is a decision point, that is the first part of the notice where it says and the Nomination committee proposes that in accordance with Article 13.1 of the Articles Association and in line with the provisional of recommendation made in General Meeting in 2019, the Nomination committee proposes that it is finally adopted, but the aggregated remuneration paid to each of the members of the Board of Directors for the financial year 2019, will consist of a cash remuneration of USD 40,000 and that the Chairman of the Board of Directors receives an additional cash remuneration of USD 50,000. Further, the Remuneration Committee proposes that the remuneration to the Chairman of the Nomination Committee will consist of a cash remuneration of USD 5,000. And as to this point, and with reference to the proxies and the postal votes forward, the item is considered adopted by the General Meeting. Further, it should be mentioned here that the Nomination Committee made also recommendations for the next year's level of fee. And that is also mentioned in the notice of the General Meeting, where it says the Remuneration Committee further makes the provisional recommendation that the remuneration to each of the members, the company's Board of Directors in the current financial year 2020 will consist of a cash remuneration of USD 40,000 per rated in quarterly installments and that the Chairman of the Board of Directors receives an additional cash remuneration of [ USD 50,000 ]per rated accordingly. Board members directly representing larger single investments will not receive any remuneration and any work in various committees, including their Nomination Committee will not be separately compensated. The Nomination Committees filed proposal for remunerations for the financial year 2020 will be presented by the final approval at the General Meeting in 2021. Given that this is merely a proposal, and given that no shareholders are present, I conclude that the general meeting acknowledged the provisional recommendation. And then we move on to item 3 of the agenda, and that is adoption of the auditor's annual report. And before putting the approval for -- of the annual report to vote, I kindly ask the CFO, Peter Madsen to accommodate this item.

Very good. So thank you, and my comments are an abstract of the annual report. So no surprises should be expected. If we start out by the profit and loss, our revenues in 2019 came out at $54.3 million, representing a decrease of 19% compared to 2018, which was a record year. The revenue decline was significantly coming from the uncertainties relating to the U.S.-China trade relations, macroeconomic headwinds across all markets, by the way, and then one significant OEM customers reduction in purchases. Our gross margins, they increased to 42 points of just about from 39 the year before. The increase reflects a combination of higher sales prices on average, especially in our Gaming and Enthusiast product lines as well as a stronger U.S. dollar in 2019. When the U.S. dollar is stronger than the China's renminbi is lower, and hence also the cost of goods is lower. Exchange shifting to our total operating expenses. They came in at $22 million, which was a 0.9% increase from 2018. This was, however, significantly impacted also by the exchange rate, not so much to the Chinese renminbi, but between U.S. dollars and Danish Krone. The Danish krone was on average 6% cheaper in 2019 compared to '18. And since around 80% of our operating expenses were denominated in Danish krone then this 6% exchange rate difference is a significance -- is significant. Net then comes down to an income before tax, which was positive of $1.4 million versus $4.9 million to the positive in '18. Income tax expense, which primarily was a noncash charge was $2.1 million in 2019. And all this leads to an income after tax of a negative $600,000 compared to an income in -- other positive $3.7 million. Then there are some currency translation adjustments, and that all ends down at a total comprehensive income at a negative $1.1 million, which is a positive $3.5 million the year before, which corresponds to an income per share of negative $0.02 in 2019 versus plus $0.14 in '18. If we then share -- shift the focus to the balance sheet, the total assets at the end of 2019 was $54.1 million compared with $51.4 million at the year before at the end 2018. And in these amounts -- this $54 million amount is included in cash and cash equivalents, which increased by $5.9 million to $24.5 million in the bank at the end of 2019. Another increasing factor was the fact that we had by mandate by -- our authorities had to change our capital accounting policies, it's called IFRS 16 related to capitalized leases, et cetera. So that -- those were the increases on the balance sheet. There were some offsets also. We have a rather large deferred tax asset, as I mentioned before under the profit loss. So that got decreased. And also, we were able to reduce our trade receivables and our inventories. Total liabilities, they increased by $2.7 million in 2019. Again, this has to do with the accounting policy change, from the accounting -- from the [indiscernible] leases and the debts associated with that. Shifting to cash flows. Net cash provided by operating expenses in 2019 was almost $9 million versus just $5 million and $4 million the year before. And this is primarily due to net reductions in trade receivables and inventories compared to the year before. We invested $2.2 million, mainly related to capitalized development projects and fixed assets. Almost $2.2 million compared to $3.7 million in '18. So quite a significant reduction in investment in these assets. We then spent $600,000, paying off some leases and all that result, as I stated before, in a positive cash flow of $5.9 million compared with a -- around 0 in the year before, and that ends us up at the cash balance at the $24.5 million. If you need further details, then, of course, the annual report is available online. And there are also further details that you will find on our website. Back to you, Mr. Chairman.

Okay. Thank you. And with reference to the proxies and posted postal votes, which we have received. This item is considered adopted by the General Meeting. Then we can move on to Item 4. And that is the appropriation of profit or loss as recorded in the adopted annual report. And it was proposed that the profit should be appropriate in accordance with the adopted annual report. As recorded in the annual report, the Board of Directors have proposed that no dividend should be distributed. And with reference to the proxies and posted votes, all want that the item is considered adopted by the General Meeting. Having said that and concluded Item 4, we will move on to Item 5, which is election of the members to the Board of Directors. And in accordance with the Articles section 11 of Articles of Association, not the Nomination Committee proposes a reelection to the current Board of Directors, thus, as suggested that the following business are reelected. Jukka Pertola, Chris Christopher, Jørgen Smidt, Maria Hjorth, Erik Damsgaard. And the Board of Directors agrees with the Nomination Committee's proposal and are willing to receive reelections. Information on the nominated candidates has been available on the homepage of the company and are still available as it appears from the notice of the General Meeting. And in order -- with regards to the material cost hit by the candidates in other days and foreign ongoing enterprises, references made to the annual report Page 54, which lists such offices. And given that there are no further persons here in the room, there are no, you can say, other persons putting themself into the election. So therefore, and the reference to proxies and posted votes forwarded, I hereby consider reelection of the Board as adopted. So congratulations to the Board of Directors under reelection. Yes. And then we move on to Item 6, which is the election of members to the Nomination Committee. As it appears from the notification of the General Meeting, the Committee proposes -- Nomination Committee proposes reelection of the following members: Ib Sønderby and Claus Berner Møller. And further, it was proposed that Jukka Pertola is elected to the Nomination Committee. And with reference to the proxies and posted votes forwarded, reelection of Ib Sønderby and Claus Berner Møller has been adopted. And further, it's been adopted that Jukka Pertola is becoming part of the Nomination Committee. So congratulations on your election.

Thank you.

Then we move on to Item 7, and that is election of the auditors. And in accordance with the recommendation received from the Audit Committee, the Board of Directors proposes the reelection of the PWC state [indiscernible]. And before putting the suggestion to vote, this should be mentioned that the Audit Committee has informed us that the committees become paid and its free from influence by any third-party and no clause -- contract ended into with any third-party restricting the choice by the General Meeting to certain auditors Audit Firms has been imposed on the Audit Committee. And the reference to the proxies in posted votes forwarded, reelection of the auditor is hereby considered adopted. This leads on to item 8 of the agenda, which is proposed by the Board of Directors or shareholders. There has been any suggestions by shareholders. So this is [ Vitra ] A, B and C as it appears from the notice of the General Meeting. [indiscernible] A, it appears that reference to the notice is suggested that the Board -- that the Board of Directors for the period until the next annual General Meeting should be authorized to allow the company to acquire own shares, representing up to 10% of the nominated share capital of the company, provided that the company's total holding of own shares does not at any time exceed 10% of the company's total nominal share capital. The purchase by state for such owned shares must not deviate by more than 10% from the listed price on other stock exchange [indiscernible] at the time of the acquisition. With reference to the proxies and posted votes received, we consider hereby -- I consider hereby the suggestion adopted. Then we move on to [ Vitra ] 8B, which is a change to the remuneration policy. And it's been prepared by the Board of Directors, and they are available to -- on the company's homepage and in it's -- the changes -- derived some changes in legislation and the new sections 139 and 139A of the Danish company stack. With reference to the proxies and posted votes forwarded, there's not majority for the revised remuneration votes. Therefore, there is no reason to put this item to a vote. This means that we fall back on the existing policy and that the new policy is to be suggested on the next year's Annual General Meeting of 2021. With that, we can move on to Item 8C of the agenda. And according to the new Section 139b, subsection 4 of the Danish Companies Act, an advisory vote on the company's remuneration report for the last financial year must be held each year at the Annual General Meeting. This will apply from the General Meeting in 2021. As a consequence, it is proposed to add this vote as a standing item on the agenda at future Annual General Meetings and accordingly to amend Articles Association. So that this now is [indiscernible] item 4, saying that presentation and adoption of the remuneration report is a standing item and then the current item formed and selection of directors is now the new 5, and then the new -- the current 5 and the new 6 and then 4. The proposal on this item 8c of the agenda can only be adopted by majority, if not less than 2/3 of all votes cast and of the share capital represented at this meeting. With reference to the proxies and posted votes forwarded, the items is considered adopted by the General Meeting. Having concluded Item 8, overall, we can move on to item 9, and that is the authorization of the Chairman of the General Meeting. And the part of the directors have proposed that the general authorizes the Chairman of the General Meeting, the right of substitution to file and register the adopted resolution that the business authority and to make such amendment to documents filed with the Danish business authority as the Danish business authority may request or find appropriate in connection with the registration of the adopted resolutions. And with reference to the proxies and posted votes forwarded, this item is considered adopted by the General Meeting. And with the adoption of Item 9, it is concluded that there is no further business to transact on the agenda of this General Meeting and that all proposals has been adopted except for item 8b. And with this formal part of the General Meeting being concluded, I will give the word back to the CFO, Peter Madsen.

Thank you, Tyge. The meeting is over. Thank you for your understanding of these very special circumstances around this year's meeting. We hope to be able to go back to a more normal set up next year. This meeting is over. You may hang off your phones. Thank you.

That does conclude our conference for today. Thank you for participating. You may all disconnect.