Cavotec Group AB (CCC) Earnings Call Transcript & Summary

Thank you very much. Hello, everyone, and welcome to this audio cast. My name is Mikael Norin, CEO of Cavotec. And as you heard, with me, I have our CFO, Glenn Withers. We have today issued a press release, announcing a new focused direction for Cavotec. And to summarize, we have, following a strategic assessment, concluded that market trends and regulatory requirements will drive significant growth in demand, important industry electrification in general and more specifically, for some of our core areas, Shore Power, automated mooring and so on in the future. With an expected accelerated adoption of electrification and automation solutions at thousands of ports around the world in the coming years and the growing interest in connectivity and electrical operations in general industry, we believe we have a unique opportunity to capitalize on these trends and strengthen our market-leading position. So we will be focusing on our core products, such as traditional and automated Shore Power, automated mooring, Reels, e-truck charging as well as our wide service portfolio to support our customers in those areas. At the same time, we believe that the Airports business is, in many ways, quite different to Cavotec's core. And we, therefore, believe that, that business, the Airports business, would be much better suited under the leadership of a company that has a broader position in the aviation industry and the ability to invest and grow that business. So we are now going to initiate the divestment process for the Airports business, something that we expect will be concluded during 2021. That was a summary. Anything you'd like to add to that, Glenn?

Yes. Thank you, Mikael. Really just to emphasize a couple of points from the press release this morning. First, that -- from a numbers point of view, the Airports business has about 240 employees and accounts for approximately 1/4 of Cavotec's revenue today. And then developing on from that, but starting with the interim report for the first quarter of 2020, we will separate out the Airports business. And in the press release, we announced that, that report, the first interim report for 2021, will be released on the 12th of May.

Okay. Super. Thank you, Glenn. So let me just conclude then by saying that with the strategic change that we are announcing today, we're really going to double down on our commitment to developing profitable sustainability solutions that contribute to improvements in efficiency and productivity, while at the same time, reducing environmental impact. We have a lot of things brewing in this area right now. So I hope you stay tuned as we are going to make further announcements on product, technology and capabilities as part of the implementation of this new focused strategy in the coming months. I think I will leave it there and open up for questions.

[Operator Instructions] We have a question from the line of Karl Bokvist from ABG Sundal Collier.

What a way to finish the week. Interesting to hear about this strategic decision. My first question is that -- well, to begin with, I think we -- based on recent comments from previous management a few years ago, the Airports business, and more specifically, the INET acquisition was impacted by various factors and therefore, reported a loss for quite a few years. So it would be interesting to get some details on, did this part of the business report a profit? And in kind of what magnitude in 2019, given that 2020, I can imagine, is a very, very special year?

Glenn, why don't you take that question?

Sure. As you're aware, through our reporting, we report 2 segments externally. The Airports & Industry segment and Ports & Maritime segment. And what we're talking today is about the divestment of a part of a segment. That's the first thing. Then secondly, talking about our financial performance, as you've heard, during 2019 and 2020, pandemic included, our focus has been very much as part of the transformation journey, focusing on developing and having a consistently profitable base business that generates cash. And that initiative and those results that we've proven over 2019 and 2020 apply to all of our business units, including Airports scale.

All right. Understood. And the follow-up then would be, you announced this decision today. My question is, perhaps, when did you start feeling that this part of the business will be better off outside of a Cavotec organization? And have you already perhaps had discussions with competitors or interested parties? Just to understand the timeline going forward.

Yes. Thank you, Karl. We, as any management, constantly look at our portfolio of businesses from a strategic point of view. And look at where can we really grow the business, the best and what kind of initiatives are needed to grow the business. And as we've been doing that now, when we come to a position that Glenn talked about, where we have improved all of our businesses, we felt that the next step was to look at the opportunities in each of our business. And we came to the conclusion that we have good growth opportunities in all of our business. But to really capitalize on those opportunities, we need to invest in them. And unfortunately, we don't have unlimited resources so we can't invest everywhere. And that was really what drove this decision to see where can we create the most value and where can we really grab the biggest opportunities. And as a result of that, we saw that the business that we were not really doing justice today is the Airports business, and that it would be much better for that business to be housed with someone who has the bigger opportunity really to grow -- to really invest and grow that business, someone with a broader presence in the Airports industry. So that's the reason for the decision. The second part of it was interested parties. And again, this is a decision that has not been driven by an approach from someone. It has really been driven by what I just said, a strategic assessment of our portfolio and where do we have the biggest opportunity for growth.

Understood. And then my follow-up is on the physical and legal structure of airports. Let's say that this goes according to plan, and you can divest this in 2021, just to understand the kind of -- do you have any overlap with the other businesses today that would need -- that needs to be addressed before this can be fully divested?

Yes, thank you. Well, looking at it from an organizational point of view, Airports is actually, today, a fairly stand-alone business in terms of the sites that we have and the people that are engaged in that business. So we have dedicated sites for the airport products. There are some overlaps in terms of supporting functions and also some overlaps in services where we have some people also working across that. But that is minor. So we don't see that an issue. And in terms of legal entities, there is not a lot of overlap. They're either -- it exists in some instances, but we don't see that as an issue for this process.

All right. And my final one for now is to do with let's -- when you divest this, you will receive some form of consideration, obviously. And today, you are already running at the net cash balance sheet, excluding IFRS 16. So it would be interesting to hear your thoughts on the resources you feel are required in your future projects organically. Or is the consideration you receive now from Airports might be considered extra headroom for inorganic growth? Or if you feel that you already have that headroom, therefore, it might be seen as shareholder repatriation.

What we've announced today, Karl, is a strategic shift, a strategic change for Cavotec. Now we enter into tactics, the tactical phase and the implementation phase of this strategy. What we have talked about is investments and that we need to invest in these areas where we believe we have great opportunities. We're now going to spend time over the coming months here in detail, looking at those investments in technology, in capabilities and other resources, and anything else that we can do to fully support this new strategy. That includes also the possibility for acquisitions, if we find the right targets that will really support this strategy. We will be communicating during the time here now when we have significant news regarding how we're doing with the new strategy, obviously, to the market.

[Operator Instructions] We have a follow-up question from Karl Bokvist from ABG Sundal Collier.

All right. So not too many questions now. Just mainly one. If, let's say, that you decide to invest this to a competitor, could you just give some comments on the competitive landscape? And if you think that there would be any form of obstacles for a competitor to acquire this business in terms of regulatory hurdles, market share, et cetera.

I don't want to go into speculating about what the divestment process will look like or who would be a potential buyer and so on, Karl. We will be announcing any news on that when we have it. I think it would be very premature to speculate about that now.

Okay. Understood. And then just something just to clarify. When you say 25% of revenues, should we assume that this meant 25% of revenues in 2020? And also if it's possible today to get some form of insight into what this business accounted for in 2019?

Yes. What we provide is the general guidance of where the -- where we see the proportion today. So it's just general guidance. It's about 1/4 of the business. And I think just to add to that, Karl, like we said for our first quarter interim report, intention is to separate out Airports in a way that you can see the -- what that proportion looks like. But the guidance is the 25%, 1/4.

We have a question from the line of Vincent Champion from WorldCargo News.

I've got one question, which you may not want to answer or may not be in position to answer. And then I've got a couple of specific ones. First of all, have you got any idea what the sale of the Airports business will raise? I mean, have you got sort of low and a high or maybe that may not be something you can comment on? And more specifically, within the context of Ports & Maritime, how do you see the Centers of Excellence going forward? You've got, obviously, the new facility in Nova Milanese, which you opened, can't remember, either 2 years ago or 3 years ago. And of course, recently, you announced that you were setting up 1 in Rotterdam, which I believe, you said would focus on Shore Power and MoorMaster. I may have got that wrong. Could you -- well, that's my questions anyway.

Thank you very much. Well, on the first question, as I said, we're not going to speculate about the -- how the divestment process will proceed or progress or what we expect from that process right now. We will announce any news when we have it. The second question is, you're absolutely correct. We have a dedicated facility in Nova Milanese. We also have a facility in China that supports the Ports & Maritime and the Industry business. And then we have recently announced that we're opening up an innovation center in Rotterdam, and that is really to support these ambitions that we have to look at new technologies and also to look at new features and products within the areas that we have in Ports & Maritime. Now as I said before the call as well, we are going to look at any additional investments that we need to make to fully support this strategy. And that may include also manufacturing, but this all depends on the interim analysis that we're now going to make.

Okay. If I can just ask a follow-up, and it's very specific and is connected with, if you like, MoorMaster. A couple of years ago, Tallinn investigated the possibility of new types of electromagnetic mooring, but they decided against it because they didn't think the technology was ready. Do you have any ideas on this? Do you have any work going on in this as opposed to vacuum mooring, which as offered by at least one other company as well as Cavotec. Do you have any idea where electromagnetic mooring, automotive mooring might go in the future? Is that something you're looking into?

Yes, thank you very much, thank you for the question. We actually don't speculate in terms of new technology or new products that we may or may not be looking into. What I can say, though, is that, as you may be aware, we, a couple of months ago, very proudly launched the new generation of vacuum mooring, MoorMaster NxG. So we are very committed to automate vacuum mooring. We think that, that is a great technology that has a great future, and we're very dedicated to that. And we're looking forward as part of this focused strategy to put even more resources and effort into broadening that market.

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

All right. Thank you very much then for your intention and your interest in Cavotec. And we hope that you have a fantastic Friday afternoon and a great weekend. Thank you.