7/25/2024

speaker
David Pagels
CEO (and Interim Head of the Industry Division), Cavitec

and welcome to Cavitec's second quarter presentation. I am David Pagels, the CEO of Cavitec, and I'm here today together with, as usual, Joakim Wahlqvist, Cavitec's CFO.

speaker
Unidentified Speaker
Presentation Moderator/Additional Presenter

So let me start with a short introduction to Cavitec, as usual.

speaker
David Pagels
CEO (and Interim Head of the Industry Division), Cavitec

Cavitech has close to 50 years of experience and next year we will actually celebrate our 50 years anniversary. Over those 50 years Cavitech has built a strong position as a leading cleantech company with a global presence. Our offering consists of the design and delivery of solutions to electrify ports, vessels and other industrial applications, heavy duty vehicles, that are used, for example, for the mining industry. Cavitec's largest product groups are shore power systems, motorized reels, crane electrification, and of course, automatic mooring systems. Our most important competitive advantage is that our solutions and our services contribute to the decarbonization of ports and terminals, as well as for vessels and ships, and of course heavy duty vehicles. A significant asset for us is our large installed base in over 80 countries. The installed base gives us a well established possibility to have good relations with our customers, good reference cases and also an important potential to continue to grow our important service business. Let's turn to the next slide and the mega trend that actually drives our market. The mega trends that I just mentioned that drive our market are the urgent need to reduce the greenhouse gases and also noise in critical infrastructures, such as ports, container terminals, and of course on board vessels. Our solutions are also supporting the reduction of emissions and noise in different industrial environments, and in, of course, the heavy-duty vehicles that I just mentioned. These megatrends are supported by international and local domestic regulations that enforces operations of ports, terminals, vessels, and industrial operators to reduce emissions and noise, walking away from fossil fuel into electrified solutions, of course. We operate within market segments that are critical to society and where our solutions are needed to lower emissions and to create a better environment. Cavitech plays a significant role here with our solutions and our leading technologies that are proven, reliable, efficient, and safe, and therefore perfectly suited to meet our customers' requirements. At the beginning of July, I had the pleasure of cutting the ribbon of our new facility in Chennai in India. This new facility will serve the large and growing domestic market in India with a range of products, including various types of reels designed for both industrial as well as ports and maritime customers. It will also improve our supply chain and sourcing, enhancing our production capacity of shore power solutions and will function as a supply hub for our supporting operations across the entire globe. I would also like to mention here that was a very successful event with a lot of customers, suppliers invited to that inauguration. In addition to this one, I also want to mention a couple of contracts which were pressed during the second quarter. The first one covers deliveries of substantial number of power fits for shore power units, those containerized solutions, for the global shipping-in company. The order is worth about 5 million US dollars, and deliveries will start later this year. Another example is of our businesses of the sales field, where we have signed a two-year service contract with Port of Salala in Oman. Port of Salala is one of the leading ports in the region, and they have already supported We have already supported them with our equipment in the birds there with 32 of our more multi-units. With these new service agreements, we will contribute to Port of Saladala's efficiency and throughput by minimizing the downtime, ensuring the continuous operations of the essential and the operation of the port. Now let's turn to the next slide and let me say a few words of another important integration, which took place end of June. This is a picture from the integration of our more massive units at DP World in San Antonio in Chile, the largest multipurpose port in the country. I was there together with a big crowd and invited guests from DP World. This is a key event since this is the first MoorMaster unit we have installed in South America. We have MoorMaster units across the world, but in South America, this is the first installation. Our unique automated mooring solutions attracted a lot of interest in Chile, and the integration was attended by Chile's Minister of Transport and its locations, among others. At the integration, I had the chance to talk to the CEO of DP World, and he told me that the port had been hit by a severe storm, and that's where they have on the coastline of Chile, a few days earlier, and the only part of the port that was actually able to continue the operation and load and unload containers during this heavy storm was the ship that was kept steady with our moormaster units. It just proves that our solutions is there and it really makes a difference for the operators when they load and upload the ships, the vessels. This is yet another testimonial that our strength, our brand, and our position as the leading supplier of solutions that are both efficient, climate-friendly, and also, for God's sake, safe. I'll turn to the financial performance in the second quarter that we're talking about. In the last quarter, we started reporting order intake to increase the transparency and understanding of the development of our business. It is very encouraging to see that order intake increased 11% in the quarter. This development is mainly driven by good demand from ports and maritime products, as there was a service offering attached to that. We report for the sixth consecutive quarter a positive EBIT and the profitability is steadily improving. The EBIT margin more than doubled from the second quarter last year, which is a result of the change program and strategic priorities we introduced about one and a half year ago. And also, the focus on the change program, we reported net profit for the fourth consecutive quarter as well. I would also like to stress the strong cash flow development, where operating cash flow improved from last year's loss of 4.6 million SEK this quarter to 5 million SEK. This is reflecting our group-wide focus on improving working capital, which we initiated last year. So with this short introduction into the figures, I will now hand over to Joachim walk us through the numbers a little bit more in detail.

speaker
Joakim Wahlqvist
CFO, Cavitec

Thank you, David, and good morning, everyone. We'll start with the revenue. And as you can see, the revenue dropped slightly in the second quarter versus the same quarter last year to 42.6. That's a drop of minus 7%. This is a reflection of the fact that our business is still project driven. We have very large projects to a big extent, and it can fluctuate a lot between the quarters depending on which projects have been completed and which milestones have been achieved. As David described earlier, we continue to see a very strong interest in our solutions. And we're supported by both the megatrend of the will to reduce emissions, but also the international and local regulations. Let's move over to the order intake. And we have seen a strong order intake actually in Q2 this year versus last year, up 11%. mostly driven by ports and maritime. And we can see, though, that we have a decrease in our backlog from last year, which is an active decision and a consequence of our focus in 2023 to increase the profitability in the water backlog and not only focus on volume. In the last quarter, we've concluded also that the profitability in the ports and maritime backlog has now been normalized. We feel comfortable with the profitability that we see in ports and maritime, while we still have a lot more to do in the industry division. We move over to the EBIT. improvement. And as David said, we see a steady improvement in EBIT and EBIT actually doubled from the same period last year and more than doubled in terms of percentage. This is to a large extent thanks to the successful execution of the change programs in port and maritime. However, we are in no way finished with the transformation of Cabot Tech, and we have a lot more initiatives and changes on our to-do list, which will contribute further to the value creation. This will affect not only the underperforming industry division, but also ports and maritime. And David will come back to that a little bit further down in our presentation. Here, I would also like to mention shortly the cyber incident that we had in the quarter, which had an impact on the operating result of about 0.6 million euros in the quarter. We see no further impact of this incident. It is now controlled and closed. And I would also mention that we are covered by cyber insurance. We move over to the net profit. And we continue to show a positive net profit. And that's something that is very satisfying to see. We're also showing a positive earnings per share for the third consecutive quarter. And this is a clear proof of our ability to transform Cavitech and the strength of the strategic priorities in the change programs that we introduced one and a half year ago. David mentioned earlier about the good cash flow in the quarter as a consequence of our work to improve profitability and the focus on working capital. We can report a good operating cash flow in the quarter of 5 million euros. Also very nice to see the continued strength in financial position with our leverage ratios, which is now down from have improved from 1.09 to 0.82 and this is also to be compared with the same period last year where we had 3.73 in leverage ratio. So a very good improvement year over year. We can conclude that we have made significant improvements, but we have still a lot more to do and working capital will continue to be a focus for the rest of 2024. Key words on ports and maritime division. Ports and maritime offerings offer solutions to decarbonize ports and vessels, such as automated mooring that David just talked about here, and shore power solutions. These offerings are sold as projects, which means As I earlier explained, that revenue can fluctuate quite a bit between quarters, depending on which projects have been completed and what milestones have been achieved. Fortunately, Maritime chose to study profitability development over time, which is, as you know by now, a consequence of the strong focus on implementing the strategic priorities and our change programs. As part of our strategic priorities, which we also mentioned earlier, we have decided to take further advantage of our installed base by improving our service offering and also work a lot with the penetration. This has led to us taking more service business and have a positive impact on our profitability. Let us now move over to the industry division. Industry shows a stable development, but we are not satisfied with the development. We see there is much more to do, not at least when it comes to the implementation of the change program and profitability. And as you know, we informed earlier that David has taken on the interim role here as head of the industry division. and has started a lot of activities here to accelerate our change programs. We're also in search of a new head of the division, and that person will continue to implement the changes to improve the performance. By this, I will hand back to David to say a few words.

speaker
Unidentified Speaker
Presentation Moderator/Additional Presenter

Thank you, Joachim.

speaker
David Pagels
CEO (and Interim Head of the Industry Division), Cavitec

Let me then briefly summarize our key priorities for 2024. In the ports and maritime division, the execution of the change programs will continue in order to further improve and drive efficiency. Ports and maritime has over the past quarters been successful in reaching out with its improved service offering, and we see that there is still more potential in this area. As Joakim mentioned, we see that there is a lot more to do within the industry division when it comes to implementation of the change programs and actually drive the business and the order intake. We hope to be able to soon communicate the appointment of a new head of the industry division, and I'm really looking forward to that. But at the same time, we're not waiting. We're doing and driving the business until that could be announced. I started this presentation by talking about the integration of our facility in India. This new facility is part of our strategy to review and improve our supply chain and sourcing capabilities. We have identified a number of actions, big and small ones, in our supply and sourcing process, which will improve efficiency and the value creation. We have taken the decision to review and enhance product development within the group to protect our leading position and secure our future proof offering. This will include appointments of new development engineers and invest in that in the future going forward, as well as creation of a more efficient organization. And as Joakim stated earlier, the whole group will continue to focus on capital improvements throughout 2024. Finally, the board has given Cavitek management team the assignment to assess the possibility of moving our registered offers from Switzerland, Lugano today, to Sweden, Stockholm. The reason for this assessment is that Cavitek's investors are largely based in Sweden, and the company's listing on Nasdaq in Stockholm, so it makes sense to have the headquarters to be registered even here. We will communicate more about These ones, the assessment has been done, but we have no more, we have no schedule at the moment, and we're just starting that based on what we have agreed with the board.

speaker
Unidentified Speaker
Presentation Moderator/Additional Presenter

So let me quickly summarize some of the key points about Cavitec before we open up for questions.

speaker
David Pagels
CEO (and Interim Head of the Industry Division), Cavitec

We continue to see a high business activity with a good order intake in the quarter. The market is there. We have demonstrated yet another quarter with a steadily improved profitability. I'm really pleased with that one. I feel that we have a strong momentum in the organization, which is a conclusion that I can draw from my visits in our global organization and to the colleagues and also when I'm visiting customers. Our financial development also shows that we have clear strategic priorities and that the change programs are effective and contribute to building a stronger Cavitech going forward. To conclude, Cavitech has a strong position and is a key player in a strong market, driven by the needed creating of more sustainable and emission-free world. By this, We have ended our second quarter presentation and we are now ready to take questions. You can either call in or to ask questions or write your questions here in the webcast. Let us first start with the questions over the phone. Do we have any questions over the phone?

speaker
Conference Operator
Operator (Teleconference Instructions)

If you wish to ask a question, please dial pound key five on your telephone keypad to enter the queue. If you wish to withdraw your question, please dial pound key six on your telephone keypad. The next question comes from Lara Motadi from ABG Sundal Collier. Please go ahead.

speaker
Lara Motadi
Analyst, ABG Sundal Collier

Hi, it's Lara here from ABG. I would like to start off with some questions regarding the cybersecurity incident that occurred early in the quarter. You write in your report that you took on costs of 0.6 million associated incidents. Could you maybe specify what the costs include? Also, you stated that the incident delayed certain deliveries. Does this mean that we will see more deliveries in the third quarter?

speaker
Joakim Wahlqvist
CFO, Cavitec

Thanks, Laura. I can take that, Joachim, here. I would say that it's three different... Positions that are main main positions when it comes to this one is the incident response, which is stands for roughly half of that bottom line impact. We have some betterment costs and also we have some delay or would say lost lost business business from the business interruption and I would say that stands for for them for half of that. roughly. So it's 50-50 from the business interruption and the betterment and the incident response.

speaker
Lara Motadi
Analyst, ABG Sundal Collier

Okay, thank you. Very clear. And obviously it's nice to see that your change programs are paying off within ports and maritime. However, in your report you expressed that you're not satisfied with your development in the industry segment. When do you expect your initiatives to start paying off within that segment or within industry?

speaker
Joakim Wahlqvist
CFO, Cavitec

Fortunately, we have our industry president here also, David.

speaker
Unidentified Speaker
Presentation Moderator/Additional Presenter

Yes.

speaker
Joakim Wahlqvist
CFO, Cavitec

Put on the other hand here.

speaker
David Pagels
CEO (and Interim Head of the Industry Division), Cavitec

I can clearly see that we are now already starting the momentum within the industry division with a clear focus on order intake, focus on customers, and really to drive the efficiency of how we do things and what we do. It's unfortunate we ended up a little bit where we are, but at the same time, I'm confident that we already now see a growing momentum and an exploration within the industry division. It's not me alone. I'm doing that together with a couple of other guys as well here in the organization to drive it, but we have now created a structured way of dealing with business reviews, order intake per region, per prototype, et cetera. in order to have them broken down in a lot of subgroups. But, of course, it takes some time before you're starting up. It's only a couple of months ago since I took over this job as an interim here. But I can really now see that we have a better focus and we have a better visibility in the order intake and we're doing the actions there. But, of course, it's natural that it takes a couple of more months before we start to see the order intake growing again.

speaker
Lara Motadi
Analyst, ABG Sundal Collier

Okay, thank you. Very clear. And to my final question, you wrote in your report that the board has decided to look into the possibility of moving your office from Switzerland to Sweden. What do you see as the advantages and the disadvantages of this?

speaker
Unidentified Speaker
Presentation Moderator/Additional Presenter

First of all, I can see, first of all, we're moving the

speaker
David Pagels
CEO (and Interim Head of the Industry Division), Cavitec

registered office that means that we're going to continue to have also an office in in switzerland so we're not moving a lot of people in that case but we are in we're listed in sweden we are and we have majority of our investors in sweden but we're still a little bit of an unknown company in sweden and that also would now want to change of course and in addition to that one we are now complying with the listing rules in sweden at the same time We are also complying with all the regulations and the corporate regulations in Switzerland. And that is a little bit of double hassle in a way. We try to fit them to both. But over the time, we see a benefit of only concentrating and making sure that we follow the corporate rules in Sweden as well as the leading rules in Sweden. And then we have the investors in Sweden. So it makes sense.

speaker
Lara Motadi
Analyst, ABG Sundal Collier

Okay, thank you very much. That was all from my end.

speaker
Joakim Wahlqvist
CFO, Cavitec

Thank you very much.

speaker
Conference Operator
Operator (Teleconference Instructions)

There are no more phone questions at this time, so I hand the conference back to the speakers for any written questions and closing comments.

speaker
Joakim Wahlqvist
CFO, Cavitec

Today, we have a few written questions here. One is from . Thank you. Congratulations to a strong quarter. Thank you for that. There is a question regarding if there's a need to continue to strengthen and increase the number of employees in the sales and marketing area, because there has been an increase over the last year here in number of employees. And maybe, David, you can say a few words on the feet on the street here.

speaker
David Pagels
CEO (and Interim Head of the Industry Division), Cavitec

I think it's an ongoing, in all companies, it's an ongoing review of how can we best serve customers, and which forums and which regions and which markets do we meet the customers? Do we have the right number of people on the feet on the street, as Joakim mentioned, and make sure that we operate Cavitec as efficient as possible. I don't foresee us that we will have any kind of dramatic increase in that, but we need to use the resources in a more efficient way. And of course, we need to give our employees the most training and the best possibility to actually do their job and support them also with the back office and within engineering. But I don't foresee us increasing the number of employees drastically. I think we can do more with the existing organization. But of course, we need to make sure that we have the right guys in the right spots to actually do the job and win the customers. And on top of that, we also then have a very, we strongly believe in a decentralized, close to customer field service technicians, so that we will also make sure that we not just delivering our product, but we also have people on the ground

speaker
Joakim Wahlqvist
CFO, Cavitec

supporting our equipment and by that of course capturing the sticky of the market possibilities there okay and we have one more question here when do you expect to see visible signs of improvement in the industry division could we expect that already within two to three quarters uh i i expect definitely to see an improvement in the industry division within the two to three quarters

speaker
David Pagels
CEO (and Interim Head of the Industry Division), Cavitec

We could see a slight change in the curves to the positive side already now, but it's too early and it requires quite a lot of job. We all know that it takes time to win a customer's confidence and then going from a tender phase into actually delivers. So it's going to take some more time, but I'm confident that by the end of the year, we will have a better trend of the curves also for the industry.

speaker
Joakim Wahlqvist
CFO, Cavitec

Okay, here's another question. Interesting with the new factory in India, what does the new Indian factory mean for Cavitech?

speaker
David Pagels
CEO (and Interim Head of the Industry Division), Cavitec

India factory is, I'm a strong believer in India as a market. It's a booming market. It's a, it's a, it's a lot of attention from, from everyone around the world at the moment. We need to be in India for multiple reasons. First of all, the booming domestic market. I was myself traveling around in India a couple of months ago visiting customers on the port side, as well as I've been there visiting customers on the industry side. There is a lot of customers who also then, similar to what we do, they have footprints and operations in the world, and they also have in India. And of course, when they have operations in India, they want to be served by equipment close by, so therefore we are there to serve our customers. In addition to that, one is part of the booming domestic market, and also India takes seriously the reduction of emissions, et cetera, and the port's efficiency. In addition to that one, we also see India as a good sourcing hub where we can supply from India, from our suppliers in India or from our own facility in India to our other facilities across the globe. So sourcing hub internally. But in addition to that one, of course, we also see the export possibilities. We have big exportable possibilities today in Shanghai, but we want to have something in addition to that one also, and therefore India will play a vital role. We already have production going on in India, and I'm pleased with the quick development there, but it's important to point out that we have not built a brand new factory, and we have lots of people standing there waiting for a job. We will ramp it up. We have a facility where we have equipped, and it's very, very well good looking and it's ready and we will grow in line with our customers. So it's not the big investment that is now we need to fill in a rapid way. We will grow the business and we grow the organization in line with the orders coming in.

speaker
Joakim Wahlqvist
CFO, Cavitec

Okay, here we have another good question. Order backlog declined slightly compared to last quarter. Have you now reached a more normalized backlog and can you start to grow the backlog now? Yeah, it's a good question, and we feel that we have normalized the situation, especially in the ports and maritime division. We are, like David said here, putting a lot of effort on the feet on the street, making sure that we continue to grow that backlog, but in a profitable way. we feel comfortable that the orders that we do now have in that backlog also is profitable orders. So, all in all, I feel that we have stabilized the situation and are now ready to slowly press the gas pedal for growth. Okay, and we also have another question here, then this one I will Maybe direct to you, David. Order intake was strong. Do you feel that it's a good market demand in your segments?

speaker
David Pagels
CEO (and Interim Head of the Industry Division), Cavitec

Yeah, I must say you should be, of course, careful of talking too positive about markets in general. I don't really want to mention ketchup effect or anything like that. However, we see that there are regulations and there are certain deadlines. for shore power when our customers need to be equipped with shore power. The deadline is there. It's not changing. And therefore, we see a lot of activities right now in the tender phase in order to be able to meet those regulations and requirements that are there. So it's a strong demand for our products. There's no doubt about that. In addition to that, there are also the automated mooring systems. It's also a lot of interesting prospects there. It's driven by the efficiency, of course, in logistics in general, but also the safety. We should not neglect that. The safety, the port of San Antonio that I just visited a couple of weeks ago, they have problems with up to 100 snapping mooring lines every year. And when a mooring line on a big container vessel snaps, it is super dangerous. It's super dangerous, and it could injure, or even people can get killed. Our more master system will then increase the safety, and they have, in the port of San Antonio, they have up to 100 mooring lines per year that is snapping off, and they expect to have down to a bare minimum, if any, with our solutions. So I'm really positive to what we see there. So in general, but then of course, it's also important that within the industry segment where we have mining customers, the mining industry in general is very strong. Mines, we all know that raw materials such as copper, et cetera, we have an increasing demand. And therefore, the mining industry is important for us. And we see also good outlook there in terms of market size and growth.

speaker
Joakim Wahlqvist
CFO, Cavitec

Okay, we have some more questions here. Cash flow was very strong. Why was that? I will take the opportunity to take that question. We have been working with our working capital very hard over the last year and a half, and really tried to establish a financial awareness in all of Cabotek with also a focus not only on the income statement, but on the balance sheet. And we see this, I mean, we also have increased profitability that of course helps here, but we also have a much more focused organization on everything from inventory management to collection and work with our suppliers. So I think that will be my answer to that question. We had one more, I would say, probably financial question here. We had, let's see. It was a good margin development in this quarter. Was there anything unusual or should we expect a good margin development going forward? It's a good question. We feel comfortable without predicting the future. We feel that we have a profitable backlog now. We believe that we have established a higher level of profitability in Cabo Tech. Like David has said before, we are not happy 100% with where we are yet. We have a lot of change programs and initiatives still to continue to work on the profitability in the company, not the least with cost out in our R&D and materials with our sourcing organization. So we continue to work on it, but we feel that we have established a good level. I think that was here. We have a couple of more questions here. Given your impressive reduction of the debt level and leverage ratio, has this given ground for better lending conditions and covenants in your new financing facility? It's a good question. Yes, we have a very good dialogue with our lenders, and they also see the progress that we are making financially, and our more stable financial position, of course, gives us better lending conditions. So that will help us going forward. Will a move of registration to Sweden incur any extraordinary costs of any significance? That is a question that will come out of the assessment that will be done right now. We are in very early stage of evaluating this change of registered office. So we will come back to that question in later investment calls. hopefully we don't foresee that yeah that's okay i think that was all of the questions we had in this chat also uh if no further questions and i've voted david okay so then in that case uh i would like to thank you all for uh dialing in listening to the q2 report and and uh i it is with the

speaker
David Pagels
CEO (and Interim Head of the Industry Division), Cavitec

with good confidence and satisfaction that I see that there's a lot of investors believing in us now. I think we will be more visible. We will be more, when we do the actually transformation of our seed to Sweden, it will be easier to come closer to the investors and the capital markets. And that's the natural thing to do. Also then I'm satisfied with it, as I mentioned before, with the momentum in the organization. that we now have created a drive and an eager and really a push for driving this company to the next level, which of course gives us also then other financial muscles when it comes to growing in new products and other initiatives, et cetera. So by that, I want to thank you all for listening in and I am looking forward to some, maybe some vacation actually, and then see you later in for the upcoming calls. Thank you very much.

Disclaimer

This conference call transcript was computer generated and almost certianly contains errors. This transcript is provided for information purposes only.EarningsCall, LLC makes no representation about the accuracy of the aforementioned transcript, and you are cautioned not to place undue reliance on the information provided by the transcript.

-

-