Nimbus Group AB (Publ) (BOAT) Earnings Call Transcript & Summary

Thank you and welcome again. First stage, strong sales development in quarter 3 2021. And if we then switch to page, you will see both me and Rasmus then of course, but we suggest that we switch the page again and it goes to Page 3. And some highlights of the third quarter of 2021. We had a sales increase by a fantastic 111%, so we are up to SEK 382 million. We have an EBITA amounted to SEK 41.9 million compared to SEK 5.6 million in the same quarter 2020. We have an EBITA margin then that is up to 11%, a big difference then compared to quarter 3, 2020, to 3.1%. We have an order book that is now SEK 960 million, and that is actually an all-time high for us and compared then to last third quarter, SEK 502 million. During the third quarter, we have put in a lot of efforts to, among other things then, a couple of new dealers then contracted both in U.S. or actually in North America and Asia. We have launched several aftermarket initiatives. And as you probably know that it's one of our focus areas. It's not that cyclical that our branch or industries in general, it's important for us. And of course, we have some capacity restrictions that have been obvious and we have a lot of initiatives taken to actually then both invest and increase the capacity during the quarter. Page 4, a short reminder, why invest in Nimbus? And this is then from the IPO process. We say that we have a strong underlying market, and we are talking about the recreational market, which we are a part of. And we have a couple of fundamental drivers, and I will come back to them a little later in this presentation. We have our true house of brands with a strong and distinctive brand portfolio. We mean that we have a very attractive position in the value chain with a lot of opportunities then to further improve the dealership offering, but also then again develop the aftermarket services. We have our asset-light and flexible production platform, and we're talking a lot about scaling up, scaling down, and I will come back to that. We -- I have an experienced management team, and we also then see this excellent growth opportunities, including geographical expansion, but also in this fragmented industry, the possibility then to do some consolidation, needed consolidation I should say. Page 5, short, this is Nimbus Group. We were founded in 1968. We have a long history of international trade, important already early '70s, we were out there. We started to sell, especially in the European market. We have our 7 well-known in Scandinavian brands. 2012 we got our new main owner R12, and with them a new business plan. And as I used to say, it's actually more or less the same business that we're still working with, but of course it's updated with new circumstances that we need to cope with. The proof then of our strategy with the House of Brands, 2018 we acquired Alukin, aluminum maker. And 2019, a little bigger acquisition then when we bought Balla Boats with their 4 brands at that time. 2021 in February then listed on the Nasdaq First North and in May, we had an acquisition then also of Marine Stores at that time still the biggest dealer network in Sweden. And with them, we also get a good portion of aftermarket sales because that is one thing that we are very good at. If we switch page to #6. Our true house of brands then and as we say here, for the dealers sake, we want to be an important part of the dealers' business and actually of their wallet. And to be able to be that, we need to have a relevant product portfolio. So this dealer, wherever he is located, but in this boating district, we must be able then to work and sell them, of course, to live of their things we're selling, and we want to be a big part of that, an important part. In the middle of this page, you see the share of the sales. You can see that Nimbus was the biggest one, this is sales per 2020. Nimbus was the biggest one, is still the biggest one, but we also then want to point out, as we usually do then, that both Aquador and Flipper is then very suitable for the team market, and this is something that we're working with them today. Actually, on Page 1, you saw our beautiful Flipper 900 DC and then if you look at the background, you can see it's clearly located already in Europe, and that is an important step for us. I was talking about the fundamental drivers. And the 4 that we used to mention is, if you look at our industry, technical development, it grows very fast. And if you compare with the boats 6, 7 years old, a lots have happened and the good thing with that development is, of course, and it's meant to make this journey with the boat less stressful and easier to handle, in-water handling there, easy boating, that is the key words to say. We have our aging boat fleet. So they -- I don't know if this is a 2020 figure, then back at 2020, 45% of, for example, the Swedish boat fleet was more than 20 years old. And the age of the fleet -- at that age then you need to spend quite a lot of money to keep it really fresh is important for us. We also have -- if you look at big picture, the recreational business, we have this increased clarity of vacation, and please note that this trend started well before the pandemic, the pandemic has accelerated this, but still it started and it's been ongoing, so to say. And these, but not late, the overall wealth plan is increasing. So actually, if you look at the 2020 figures, it's 2.5% more income, money in our pockets to spend on different things, of course, but also on the recreational business compared with year 2000. And if we switch to page then to 7, there is just a picture then to explain the asset-light production platform I was talking about. At present, we actually then buy complete boats from 9 locations, you can see 8 locations in this picture. 4 is wholly-owned by us and 4 is then -- actually then 5 is outsourced production. 2 of them is quite -- still quite small, but they are increasing. 400 employees directly in our own factories and 200 external ones for the moment. I was talking about scaling up, scaling down. And of course, this is -- we are living in the cyclical business and our way then to handle that is to look into our variable costs. So, we want to have a big portion of the variable cost. And we are talking about the time frame and as in this time, we should not say example, because this is actually -- but we're striving for that. The low-variable cost, it's more than 3 months, of course, but then we have the high variable cost and also the full variable cost, where we're talking about roughly around 3 months. And barely -- a part of that is then, of course, outsourced production, but it's not the only one [indiscernible]. Working a lot with the production efficiency. We have our house, for example, then we use also then the model of boats business process we use and offer cross-brand implementation, and that's also important, we're talking about the technical platform. And that work continues, and that's to say, it starts already on the given table. If we flip the page to Page #8, with the all-time high order book then. The third quarter order book increased by 31% from Q2. But if we then compare it with the Q3 2020, it's actually up 91%. And also important then to mention is that, since not all orders can be confirmed due to mostly then or the major part of it is the capacity restraints. There is today then a substantial amount of non-confirmed orders on top of the order book. So, it's not included, it's on top of the order book. And that is something that we, of course, work hard with to be able then to confirm these orders. That is a part of the capacity. It's also part of the supply chain difficulties you can say that's there today. And actually has worked for more than a year at this point. Pre-payment then at an average then amounts to 11% of the order book value. As you probably know, we have a target to reach 25%, but this prepayment is provided in 2 parts. First, we pay 5% as a signing fee to get the production slot and then closer to the start up of the building of this whatever model it is, you pay another part. So there is the reason that it's not 25%, it's actually down to 11%. If we then look into the sales development per market, interesting figures, it's Page 9. We can see then that Sweden is increasing. Please remember then that we had -- we bought Marine Stores. So a part of this is then acquired organic growth or sales. If you look at the figures without the Marine Stores, you can say that the Nordics, Europe and Sweden is moving approximately at the same level. What is interesting for us because this is one of our focus areas is that if we look at the other markets, and then it's mainly for us, it's mainly North America, we see an increase of 158%. And that is something that we appreciate, of course, because this is what we want to see with all the efforts that we put into it. So it's a strong growth on -- actually on all markets. And with that, I leave the word to Rasmus.

Yes. Thank you, Jan-Erik. And then we can flip to Page 10. Sales in the third quarter increased by 111%, as Jan-Erik described earlier, to SEK 382 million compared with SEK 181 million last year. And the sales through our own dealers increased to 49% compared to 44% last year, and this increase comes mainly from the acquisition of Marine Store, which contributes with SEK 76 million in sales in the quarter. The LTM sales reaches SEK 1,455 million, which is an increase by 41% compared with the full year 2020. Flip to Page 11, please. The trend of continuing improving margins in the last quarter has continued also in the third quarter. The EBITDA margin LTM amounts to 10.8%, which is above our financial target of 10% now for the first time. The increased margin comes from both improved gross margin and also from scale advantages in OpEx. In the quarter, the EBITDA margin amounted to 11% compared to 3% last year. But worth to mention here is that the Marine Store only sells external brands, which means that it has not contributed with any double margin in the sales in this quarter and not either in the second quarter. So if you flip to Page 12, please. And then we come to net working capital. And what we see here is that the net working capital has increased a bit in the quarter to SEK 85 million. The reason for this is mainly payment of trade payables from the Marine Store acquisition, where a corresponding cash was received from the acquisition. So -- but despite this increase, net working capital is still on a very low level compared with previous periods, which you can see below. And this is something that we are, of course, very satisfied with. Net working capital in relation to LTM sales now amounts to 5.8%. If we flip to Page 13. This is to remind you about our financial targets that we communicated in the IPO and to compare away with actual figures. We said that we should have an organic growth of plus 10% over a business cycle, including acquisitions of dealers, but not brands. Year-to-date, the organic growth is 53%. We should have an EBITDA margin reaching 10% in the medium term. And now our actual figure is 10.8%, as I mentioned before. Regarding capital structure, we should have no senior debt, except for real estate related debts. And today, we have only real estate debts, no senior debts. We have also a dividend policy to pay out up to 30% of our net earnings taking into account the financial position of the company, cash flow and our growth opportunities. And I hand over to Jan-Erik again.

Yes. So almost finally then, Page 14. We are delivering on our targets. So what we have said, the 5 cornerstones actually then difficult to find 5 corners, but develop our current offering and organization. We are launching new growth models, important for us. We have done some very interesting recruitments, and we continue to work hard with the outsourcing. We also said that we will expand and densify the dealership network in Europe, and that is exactly what we have done. So we have densified the dealer network. We will continue to do that, of course, but several new dealers in Europe even for the whole Nimbus Group. Improved aftermarket offering and presence. As I said earlier, it's a focus area for us, and we have new articles and services under development. We have our increased presence. And again, we also acquired actually one Marine Store, which has a quite huge part of the aftermarket sales. And increased presence in North America, same thing there. We have densified the dealer network. And as you probably maybe remember, we said earlier that this must be done in balance with the present capacity. And now we feel that we actually then can take on more dealers again. So that is, of course, very positive for us. And value-accretive acquisitions and forward integration, and again, then the acquisition of Marine Stores, it's a proof of that of course. So if we then switch Page to #15, and we leave the word to Gunilla.

Yes. And here is our ownership, the major owners, and it's a very stable situation since the IPO in February. And what we have seen is our Finnish brands, OP Fonder have increased somewhat. The rest is quite stable. So with that, let's go to the final page, just reminding you that our Q4 report will be presented on February 22, next year, the '22. So with that, we open up for questions.

Thank you. [Operator Instructions] Our first question comes from Victor Hansen with Nordea.

Hope you can hear me. So my first question is on the order backlog. If you could provide a split between orders from end customers and if there are any pre-orders from dealerships, please?

We don't really communicate that split in-between end customers and dealers. From our perspective, we consider dealer as the customer. But of course, several of those boats are connected to an end customer, but we have not communicated that split.

In general then, of course, our own dealers, then it's not a end customer, otherwise, it will not be in this backlog, of course, but in general, you can say that small boats, they are sold to the dealers and we don't have the visibility of the end customer to the same extent as we have on the bigger boats sales, 2 of our brands then is in, what I call, the small boats, Bella, Falcon, there is a sales mechanism which is slightly different there.

But what we can say is also, as you pointed out, what we see in many markets is that many boats are -- had an end customer because they are low stock levels at the dealers today. So many of the boats haven't had any customers, but we don't communicate an exact figure for that.

Okay. I think [indiscernible] mentioned minus 62% versus Q3 '19 in terms of dealership inventory. So it should be a restocking effect once demand goes down. And then about -- you talked about increased capacity. Did you see any of this come through already in Q3? Or is this more of a theme for next year? And then perhaps if you could also tell us how large you expect the capacity increase to be?

We have increased our capacity quite similar than during the year, and it's actually been plus 13% at an average then we have increased more on certain sites and less on other ones. And we are currently investing -- that will not be during this year, it's more for the annual year than '22 that we will see the difference. Then of course, we will continue to work also with the outsourcing part of it to put more models out there. So -- but on the short-term and the effect on Q3, it's not that big, so to say, but of course, we have worked with the whole year. So where we have more capacity today than we had [indiscernible]. I also want to comment on the stock levels because you mentioned [indiscernible]. We keep track on the stock level out at our dealers -- dealerships, of course, and as Rasmus said, low and actually I should say very low. So today, the boats that are ordered is to a very high extent is meant to delivered to the end capital, so the ability to understand that there is no real stock between us and the end cap. And that is a situation that we have to keep on making for a while.

Okay. That sounds promising. And then if you could provide an update on M&A if you have any live deals or ongoing discussions and perhaps what geographies you are prioritizing M&A in?

No. We do not communicate, so to say, I should not say that early because this is something we're looking into all the time, this is a way of living more or less for us. So continue to be looking on potential acquisitions and of course, but this is not anything -- nothing that we could communicate more than that we are expecting from ourselves and actually to give some clever positions. And it is a fragmented industry that we are living in. So it must come. So we continue to work with it, but we do not communicate areas and things like that.

Okay. Understood. Just a follow-up on M&A sourcing. Are you sourcing your potential for brokers or proprietary? Are you contacting them yourselves?

Both ways, both ways.

Okay. And then the integration of Marine Store and incorporating your own products, could you mention anything on how that's going? Did we see any of this in Q3? Or will it all come in '22, '23?

In the third quarter, we have not seen any effects on that. All sales in Marine Store is external sales, and it will continue to be so for a while because of the capacity restraints that we see. So -- but of course, we have an ambition to widen their -- the product range that they can offer also with our own brands. But this is for future actually. We can really -- not really tell today exactly when this will happen since the capacity is in our stores today.

Okay. And then I'm wondering how will you prioritize your sales volume since, Rasmus, you just mentioned that your capacity constrained. How will you prioritize your sales volumes in terms of geography going forward? Will you allocate more to your new dealers in Asia and North America, just added Canada and are growing quickly in the U.S. as well. And if you do prioritize these geographies, will this be detriment of current dealers in Sweden, Nordics and Europe? Or how should we think about that?

What we actually do is, this added capacity, as I was talking about, it is [indiscernible] percent for this year, so to say. And also we expect some more for the next year. That is the part that we use for, what we call, the strategic markets at North America [indiscernible] and possibly also Asia. Asia, we will start quite slow, you can say in the same way that we started in North America. But that's the thing. So maybe we cannot provide the present markets, they would be more at least for beginning of next year. But there will be at least at the same level as we have seen this year.

Okay. Just one final question for me. And that would be, if you could provide a sales growth split in terms of you adding new dealerships and more volume through your existing dealers.

Can you please -- can you clarify the question a bit, we are not really sure what you are looking for?

Yes. Yes, sure. So as you've grown a lot year-over-year, for instance. And I'm wondering how much of this growth is through you adding new dealerships? And how much is through more volumes through your existing dealers?

Okay. Great. Then we understand. What we -- what is important for us is to have a balancing between -- when we talk about the sales distribution, it's important for us to have the balance in between external and internal sales through own dealers. So we don't want to increase that further in that way. So we want to keep that balance. So when it comes to increase, I would say that most of it comes, of course, from our own production -- our own brands. So it's supported through the dealers.

Okay. Maybe I can add, because I think that -- maybe you asked how much of this -- our sales is coming from new owners. That is actually what you're asking.

Exactly the year-over-year growth. Yes.

Yes. Yes. And then I should say, it's -- we are in the area of maybe 90%, it's still growing, we are growing in the present dealership network. And then roughly then maybe 10% is actually from, what we can call, new dealers. And then the new dealers, each year the dealer arrives 1 month ago, well, then you have, of course, order a couple of boats, that we might be seeing yet, but this is the new ones that we maybe have taken on for order the last year there.

Wonderful, thank you for the -- yes.

We don't follow that figure as you understand in that way. [indiscernible] so we'll keep up with that.

Thank you. Our next question comes from Gustav Osterberg with Carnegie.

Thank you, operator. And Good morning Jan-Erik, Rasmus and Gunilla and congratulations on a great report. Just starting off, I'd like to follow-up on sort of the outsourcing strategy and maybe if you could clarify and elaborate a bit on sort of over 2021 compared to 2020, are you seeing the most of the volumes going to your existing capacity? Or are you seeing sort of higher incremental share on the outsourcing production? And maybe if you could comment also what you're seeing ahead given that you're approaching some capacity constraints in some production areas?

I think you know, Gustav, then that we are striving to have roughly 50% of our production outsourced. And if you look at 2019, it was roughly then 40% at that point. And then we plan to increase that. And actually, today, it's more or less the same picture because we have invested in our own production capacity in a way, simply because it's a little bit quicker to add, to put some pressure on this question. But at the same time, we are taking on a small outsourced units, but also then increasing the other one. So I should say, the balance, we haven't been looked into that just recently, but I should say the balance is roughly the same as we had then in last year.

All right. And then in the report, you mentioned that you're signing new dealers in North America, firstly. I was wondering if you could provide more color on sort of are we seeing new dealers in the same geographical areas as you're currently present already? Or are we sort of looking at new geographical areas?

Good question. It's actually a little bit of both, then. But we are talking about 10 locations at this point and 8 of them is in, you can say, new areas.

All right. And so just to be clear that sort of the trajectory that you see for these new locations is quite similar to what you've seen before, i.e., sort of a ramp-up period of 1 year to 3 years and then reaching higher volumes in 4 years or 5 years? Or are there any differences compared to sort of the historical patterns we have seen before?

No, no.

No, no.

Okay. Great. Then there's also a mention of Asian dealers and that's pretty new to me. So can you elaborate a bit on kind of how you arrived at that decision and what's the strategy from here? And maybe if you could mention how many locations?

Absolutely. I said at the beginning, we have a long history of international trade. And actually, we have sold during the year then, sold quite a lot of boats to Asia, and maybe especially Japan actually. And we are selling boats, not that many, but we are selling, every year we're selling a couple of boats. So Asia is not unknown for us, so to say. But if it should be a good presence for us in Asia, we need to have a very good dealer of course, and this needs to be a dealer with muscles. And we are not focusing, not for now, that will come later on Asia, but if every -- you can have a check in the box, so to say, on all these different things that we want to see from a dealer, then of course you should go ahead. And that is what we did in this case. And this particularly dealer then is a big one, they have muscles, and they are located -- they have quite big units then, but they're located in 5 different locations around Asia. So it's actually 5 different countries that they are present.

All right.

For the future, absolutely.

Yes. That's very interesting. And then just finally for you, Rasmus, perhaps a comment on the very strong margin in the quarter. I mean, aside from volumes and M&A, are there any sort of other -- are there any one-off effects here? I mean the year-on-year mix is not that different compared to 2020. So I'm just trying to understand sort of is there any one-offs in the result?

Yes, there is, of course, a product mix effect here also. We have launched new models last year, and the demand for those increases, this is something that we can see. And our experience is also that we tend to have higher margins on new released products, so this supports us. And also, we can say that as we become a bigger player, this also enabled us to get scale advantages in the production. So this also supports our gross margin. So I would say those are the biggest parts. We can also say that price increases from suppliers, we have been managed to cover up for, we think. So we don't have -- not lost money there. So I would say that those are the biggest effects here that supports the increased gross margin. And then we can also say that as we have become a bigger player, we also know that our OpEx costs does not increase in the same way. And this, of course, supports the EBITDA development. And this is something that we have -- this is part of our business plan to do so. So this is not unexpected for us.

All right. And just sort of a more long-term follow-up here on the sort of internal-external dealer mix. I mean for a few quarters now, you've obviously increased the share of own or internal dealers. I mean, looking ahead, is this sort of a level you're comfortable with? Or should we expect any larger changes here in the dealer mix going forward?

We are quite happy with that level that we are on at the moment. Of course, this will change over time compared to when we do acquisitions or not. But we would like to keep this ratio as it is at the moment fairly. So that's -- we are happy with the present level.

All right. That was all questions for me. And again, congratulations on a very, very strong result.

The next up, we have a follow-up question from Victor Hansen with Nordea.

Yes. I have a follow-up related to the global component shortages. It will be very interesting to -- if you could clarify what you're seeing perhaps in terms of engines, specifically on this front.

To start with, I mean, this has become quite a long story now. We have lived in this situation actually more -- well more than 1 year then. And in a way, this is the new normal, you can say. And of course, we don't want to have it like that. But for us, it's more or less a daily business then. The lead time is much longer today than was the normal picture, so to say before. But if we can plan well and that is, of course, then what we are striving for, it really, in that respect, it doesn't matter. Then of course, from time to time that there could be tougher, so to say, for very short time to reach the perfect supply chains, so to say, the logistics, the just-in-time printing may be that we then cover up with the security stock and things like that. But that's the way we handle it. It's a lot of work into it. But so far, we have managed very well. If we're looking -- we should not look forward in that respect. But what we have seen then is, of course, for example, the plastics, there were some shortages that was maybe half a year ago or something like that, but that has stabilized. The price level is slightly higher, but again, the deliveries have stabilized and getting shorter. And we see that also on other components. When we talk about specific engines, we're using the Brunswick and the Potenza and they are the biggest ones that's there in the segment outboard and inboard. And the Potenza had some problems with their factories because they switched factory code for some -- certain part of this engine. And they had some start-up problems. But what they're communicating is that they have that under control. And again, we have solved that with security stock. And hopefully, we can start them to decrease the safety stocks on that side. But we will still keep a certain level. The outboard more or less looking is similar, but there it's -- because the outboard part of the business is growing a little bit faster than the inboard. So there is -- you can say in a way then it's a tougher picture. But again, we are one of the absolutely biggest in Europe. So of course, we -- so to say, we use that. And again, also, we are able to plan quite a long term ahead, so to say. So we are managing, but it's a work, it's work all the time, tough work.

Thank you very much for that clarification. And have a nice day.

So right now, we have no further questions. I hand back over to our speakers.

Okay. And I didn't really -- exactly there is lots there. But with that, I think we can say then thank you. And that's all from us for today.

Thank you for listening.

Yes. Thank you for listening.

Thank you, bye.

Bye.