Investor Presentation • Nov 4, 2021
Investor Presentation
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Hannes Niederhauser, CEO Richard Neuwirth, CFO
4 th November 2021
› Chip prices increase during the crisis
› Business Impact:
| Q1-21 | Q2-21 | Q3-21 | FY 2021 |
|---|---|---|---|
| 10.2 | 38.3 | 80 | 40 – 110 |
| 300 | 334 | 340 | 1,400 |
| 294 (Act.) | 306 (Act.) | 313 (Act.) | 1,330 – 1,400 |
| 9.6% | 10.0% | 8.7% | ~ 10.0% |
| 28.2 | 30.1 | 27.3 | 133 – 140 |
| Revenues Impact | Due EUR 40 to 110 Mio. delayed shipments revenue guidance 2021 was adjusted to EUR 1,330 – 1,400 Mio. EUR 40 to 110 Mio. not shipped orders in 2021 will boost revenues 2022 to catch up backlog |
|---|---|
| EBITDA Impact | Margins remain at ~ 10% and are not significantly impacted by chip crisis |
For 2022 the delayed shipments will be a significant tailwind
REVENUE
(in EUR Mio.)
317.7 0 50 100 150 200 250 300 350 9M 2020 | 9M 2021 + 9.2% + 9.4% GROSS PROFIT (in EUR Mio.)
9M 2020 | 9M 2021
(in EUR Mio.)
31.12.2020 | 30.9.2021
NET INCOME AFTER NCI
We expect to convert backlog to revenues in the next quarters and significantly lower working capital
Q3 is the peak so far of the chip crisis – we expect improvements based on discussions with chip manufacturers going forward
| Mio EUR |
30/09/2021 | 31/12/2020 | 30/09/2021 | 31/12/2020 | |
|---|---|---|---|---|---|
| NON-CURRENT ASSETS |
512 0 , |
506 0 , |
CAPITAL AND RESERVES |
405 6 , |
409 5 , |
| Fixed Assets |
471 2 , |
469 3 , |
Equity | 405 6 , |
409 5 , |
| of , plant and Property equipment as |
130 3 , |
135 1 , |
of shares Treasury as |
-46 8 , |
-26 2 , |
| of Goodwill as |
206 7 , |
199 5 , |
NON-CURRENT LIABILITIES |
365 3 , |
353 8 , |
| Other Assets |
40 7 , |
36 6 , |
loans and borrowings Long-term |
242 7 , |
218 8 , |
| CURRENT ASSETS |
722 6 , |
740 7 , |
Other Liabilities Non-Current |
122 7 , |
135 0 , |
| Inventories | 200 5 , |
159 9 , |
CURRENT LIABILITIES |
463 6 , |
483 4 , |
| Trade receivables |
194 9 , |
204 5 , |
Trade payables |
191 0 , |
210 0 , |
| from Contract Customers Assets |
36 5 , |
23 6 , |
Liabilities from Contract Customers |
69 5 , |
69 7 , |
| Cash and cash equivalents |
218 6 , |
281 9 , |
Short loans and borrowings -term |
63 4 , |
42 8 , |
| Other receivables and prepayments |
72 1 , |
70 9 , |
Other Liabilities Current |
139 8 , |
160 9 , |
| Total Assets |
1 234 5 , |
1 246 6 , |
Total Liabilities & Equity |
1 234 5 , |
1 246 6 , |
| Equity Ratio |
32 9% , |
32 8% , |
|---|---|---|
| Cash/Net Debt* Net |
-87 5 , |
20 3 , |
| Working Capital excluding 15** IFRS |
204 4 , |
154 3 , |
* Definition Net Cash: Cash and cash equivalents less non-current and current financing liabilities (excl. liabilities from leasing according to IFRS 16)
** Definition Working Capital: Inventories plus trade receivables less trade payables (excl. IFRS 15 contract assets and liabilities)
| IN TEUR | EBIT ADJUSTMENTS Q3 |
|---|---|
| 11,728 | STATED EBIT Q3 |
| -370 | Expenses stock options |
| -521 | Severance payments / restructuring USA |
| -153 | Increase on contingent purchase price liability paid |
| 305 | Impact by accrual changes via PnL |
| -739 | ONE TIME PROFIT EFFECTS |
| 7,060 | R&D Capitalization |
| -3,235 | R&D Amortization |
| 3,825 | IMPACT R&D CAPITALIZATION |
| 8,642 | ADJUSTED EBIT |
| -2,523 | PPA Amortization |
| 11,165 | ADJUSTED EBIT BEFORE PPA |
| IN TEUR | INTEREST COSTS ADJUSTMENTS Q3 |
|---|---|
| -2,579 | STATED INTEREST |
| -536 | Application of WACC on variable purchase prices |
| -2,043 | ADJUSTED INTEREST |
| IN TEUR | OP. CASHFLOW ADJUSTMENTS Q3 |
|---|---|
| -1,972 | STATED OP. CASHFLOW |
| -3,655 | Increase in A/R factored from 30.06.2021 to 31.09.2021 |
| -674 | Cash effect from one time profit effects in Q3 |
| -4,953 | ADJUSTED OP. CASHFLOW |
| ORGANIC GROWTH | ||
|---|---|---|
| in TEUR | Q3-2020 | Q3-2021 |
| Stated revenue | 297,749 | 313,232 |
| M&A adjustment Iskratel | -22,623 | |
| M&A adjustment HCS, Axino, PSB | -4,368 | |
| FX adjust | -420 | |
| ORGANIC GROWTH | -4.0% |
ACCRUALS ANALYSIS (in TEUR) P&L impact 2019 2020 9M 2021 Comment TOTAL ACCRUALS no 84,348 67,319 Accruals added by acquisitions no 57,651 * 2,567 897 * thereof EUR 54 Mio. Kapsch Accruals used via P&L no -24,238 ** -21,600 ** -8,148 ** thereof EUR 32 Mio. Kapsch Accruals added via P&L yes 9,190 8,110 2,381 Accruals released via P&L yes -14,086 -2,202 -3,410 P&L impact by accrual changes 4,896 -5,908 1,029 Q3 2021 isolated: 305 TEUR
| RECURRING REVENUES* (in EUR Mio.) |
2019 | in % | 2020 | in % | 9M 21 | in % |
|---|---|---|---|---|---|---|
| Recurring Revenues |
288 | 25.6 | 344 | 27.4 | 312.8 | 34.2 |
* Stated Recurring revenues include Software, SLAs and maintenance (not Hardware sold with SLA, info to come 12/2021)
| GEOGRAPHICAL SPLIT 9M 2021 (in %) |
Revenue | EBITDA |
|---|---|---|
| Europe | 80.6% | 88.5% |
| North America | 7.9% | 2.9% |
| Asia | 5.5% | 3.4% |
| RUS/BY/MD | 6.0% | 5.2% |
* 3 rd Party revenue including intercompany revenue in Mio. EUR
** EBITDA before charged management fees from S&T AG (part of IT Services Segment); EBITDA after management fees: MEUR 37.7 (9M 2021), MEUR 27.9 (9M 2020)
*** HQ-fee adjusted EBITDA in % of external revenue
3,307 0 500 1,000 1,500 2,000 2,500 3,000 Design wins 239 592 95 927 320 778 136 1,234 0 200 400 600 800 1,000 1,200 IT services IOT Europe IOT America Backlog 31.12.2020 30.09.2021 1.20 1.35 1.57 1.31 BOOK-TO-BILL RATIO YTD 2,702 + 22%
| BACKLOG DEVELOPMENT REMAINS POSITIVE | 2021 DESIGN WINS | COUNTRY | VOLUME EUR | ||||||
|---|---|---|---|---|---|---|---|---|---|
| BOOK-TO-BILL RATIO YTD | Control systems for high-speed train | CZ,LIT,DE,FR,UK,BG | 112 Mio. | ||||||
| 1.20 | 1.35 | 1.57 | 1.31 | + 22% | US ministry | USA | 51 Mio. | ||
| 1,234 | 3,000 | 3,307 | Machine builder | GER | 32 Mio. | ||||
| 2,500 | Autonomous driving | USA | 22 Mio. | ||||||
| 800 | 927 | 2,702 | Machine builder | GER | 21 Mio. | ||||
| 778 | 2,000 | TOP CUSTOMERS 2020 | COUNTRY | VOLUME EUR | |||||
| 600 | 592 | 1,500 | Medical respiratory machines | GER | 33 Mio. | ||||
| 400 | 1,000 | Social media compression system | USA | 25 Mio. | |||||
| 200 | 320 239 |
500 | Global leader in medical equipment | USA | 22 Mio. | ||||
| 0 | 95 136 |
0 | Control for high-speed train | UK | 25 Mio. | ||||
| IT services | IOT Europe | IOT America | Backlog | Design wins | Avionics Entertainment System | CN | 16 Mio. | ||
| 31.12.2020 | 30.09.2021 | Top 10 customers account for 19% of Revenues, totally >3000 customers |
Record orders of EUR 410 Mio in Q3 => EUR 1.31 new orders on each EUR shipped → strong growth once we manage chip crisis
Project Focus helps to a) acquire bigger tickets b) take a global IoT approach c) up the value chain technology wise -> 1 major closing in 2022
| GUIDANCE | 2021 | AGENDA 2023 → 2025 INCL. FOCUS |
|||
|---|---|---|---|---|---|
| Revenue: | EUR 1,330 – EUR 1,400 Mio. |
5 years plan | 2018 | Ag2023 | Ag2025 |
| EBITDA: | EUR 133 – EUR 140 Mio. |
Revenue | 990 Mio. | 2,000 Mio. | 2,000 Mio. |
| EBITDA | 90.5 Mio. | 220 Mio | 260 Mio. |
VISION 2030
| Digitalization | SMART | Transformation to | M&A | Project Focus |
|---|---|---|---|---|
| Technologies | 50% GM, 15% EBITDA | Strategy* | Evaluate to divest |
* Major M&A activities in IoT after divesting IT services **shortterm (2022)
› MDAX membership
RISKS
› Q: You mentioned EUR 80 million overhang - what's your visibility that you can fully deliver the overhang next year? Is there any risk that this will be carried on forward maybe even two years?
› Q: Could you tell us what was the cost of the re-designing? So, the reengineering to get rid of the older chips. What was the approx. cost in Q3 and how high was the cost in the first nine months?
› S&T: Chip makers increase their capacity, and we have some feedback that complex chips will be delivered starting by in Q1 next year, so our feeling is that by the end of Q1 a reasonable part of the 80 million could be delivered. Let's say 40-50 million in the first half of the year. 30 million of overhang is based on chips where we still see problems to get them during the full year 22 but we see a reasonable chance to replace them by new designs - to design out those chips within six months. That's why we expect to finish FY 22 with a reasonable amount of 10 million overdue shipments or less.
› S&T: We started the project with the re-designs in Q3, so Q3 and 9 months is the same amount. The level was around EUR 1 million in Q3 and will continue until Q4 2021/Q1 2022 and we will be finalized by then.
› Q: You said part of it was capitalised or was the entire 1 million capitalised?
1) most of our frame work contracts have something that would be called "PPV" - purchase price variances and if chip prices get higher, we have the right to charge that to the customers under certain conditions. Not our total prices increased by 7%, but only of 25% of our business (Kontron).
2) Within the 300 or 350 million of revenues that are impacted, still 80% of the chips are delivered quite normal. There are no excessive prices but there are some chips which are not available, for example higher channel length FPGAs. Those chips usually cost 10 euro and suddenly on the spot market they come to 100 euro. If you put that all over the other chips, you come to the 7%. According to our frame contracts we can charge the customer if the chip costs e.g. instead of 10 euro are 100 euro - then the customer will get the additional point on his invoice - 90 euro of PPV's. On top of it there is general price increase. We will slightly increase our gross margin with the price increases.
› Q: You mentioned that you got some signals from Intel, that the procurement of chips should be easier, probably in Q4. Any other things you may want to mention to getting us a bit more confident that Q4 is not getting worse but getting better and maybe you could add some flavour on what has happened since October on this topic and associated when you catch up the lost revenues 2021 next year, margin wise when they come, shouldn't they be better for you because obviously cost have already be booked (development, design, etc.) So, shouldn't we expect a positive margin contribution from these revenue portions when they come in in 2022?
› Q: It seems that the embedded computer industry in that sense is in a disadvantageous situation, right? Because you rely on older chips to some degree. Does that also limit your end of live margins which are usually very high?
› Q: Increased cooling is not in not an issue but rather the opposite so because it's more energy efficient than?
› S&T: It will be more energy efficient for sure. If this embedded computer takes 5 Watts or let's say 50 watts is not a big thing. But for sure it will be less.
› Q: Looking at the Q3 cost ratios, your gross margin profit margin was in fact up slightly YoY but the other expenses the other operating expenses were up quite significantly. I'm a bit surprised by theses dynamics I would have expected gross margin to be down given what you said about the raw material price increases and maybe the other ratios to look at bit better given that overall you had positive top line growth. Yes, it was driven by M&A but nevertheless. Why did other operating expenses and the personnel rise so strongly disproportionally to sales?
› S&T: There are effects in we had this year. E.g. we had this year 2 customers in avionics that we had to write off, in America. I don't see that this is a development that will go on. Also, if you compare this year to last year, Iskratel was in this year, but not last year.
› S&T: The 500 to 700 million is a first feedback. We don't have a firm offer on the table, we are far away of this, we are preparing the data and we didn't take the decision yet so it's just too to give information on what is our target. If we will achieve it, we don't know yet but after the first 5-6 companies we talked to, we have the feeling we could get it. The end balance sheet is not even done so we don't know how much cash we would hand over. It won't be a high number, for IT services it will be probably in the 10-20 million range.
"Focus" as the name already says, is not an opportunistic approach to get a high price for IT Service but it should give us a clear focus to be a IoT company only. During the past 8 year at roadshows 50% of the investors asked to divest IT Services because the synergies to IoT are not high enough. The clear idea really should be, instead of being an European IoT and IT Services company, we want to be a pure IoT player and that globally.
› Q: The Americas segment is obviously struggling this year to get a 3 digit revenue. It is a relatively small segment, and you were talking about M&A to increase the focus on IoT, should we expect M&A strengthen the Americas segment? What do you have in mind here? You want to avoid high prices on the other hand if there is a strategic step in the Americas and it's probably hard to achieve, isn't it?
› Q: I wondered how you do this practically when you say you want to avoid fighting with private equity? Given targets are on the market I mean they probably look at them. So, what makes you confident succeed over private equity?
› S&T: You should get what you pay for. America is a strategic target as well China. As said, we want to become a global IoT player and we feel IoT Europe is doing much better because we have the software engineers here, we are closer to the customer, and we are better in Europe because we are close to the customer with our engineering resources. We need to get that going in America and China as well. That will be done with M&A.
You can expect American acquisitions even if "Focus" will not happen but if this divestment will happen, for sure. I mentioned that we have 7 major entities that we are currently checking and looking at out of this 7, 4 outside of Europe.
› S&T: There's two issues. Private equity has more money than we do. If we are a strategic buyer and when we buy something with good synergies with our existing, particularly software competence, then we will have a better result than private equity in the end. So, in this case, with high synergies, we have a chance to win over private equity in acquisitions. Restructuring cases - could be that the private equity doesn't even want them. If we look at our highspeed train business which is now a pearl inside S&T - that company was highly lossmaking and private equity wouldn't have been able to turn it around because it didn't have the engineering resources and synergies. Things like that make sense and private equity won't touch in these cases.
› Q: OK so that should then obviously continue to be low for a while until the tax loss carry forwards have been consumed.
› Q: What we see in the P&L is IFRS accounting. But is there also a change beneficial for you on the cash flow than? So, meaning that you have actual lower tax payments as an outflow?
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