Nimbus Group AB (publ)

STO:BOAT

Earnings Call Transcript

[Operator]

Welcome to the Nimbus Q3 presentation [Operator Instructions] Now I will hand the conference over to the CEO, Johan Inden; CFO, Rasmus Alvemyr; and Head of Investor Relations, Gunilla Wikman. Please go ahead.

[Johan Inden, executive]

Good morning, and welcome, everyone, to the Nimbus Group presentation of the Q3 report. This is Johan Inden speaking. And before we flip to the next slide, I'd just like to introduce one of our new products, the EdgeWater 250 center console. It's a family-friendly sport fish that we have just introduced to the American market. And then let's introduce myself. It's my first Q3 report. I joined Nimbus Group as the CEO from September 1.

And on this first report, I thought we might spend 2 minutes just on my background. I've spent the last decade and some in Volvo Penta's executive team. I started out running technology and purchasing for Volvo Penta, which is exposed then to the Global Marine business as well as industrial sales to industrial companies. And then the last 7 years on the commercial side as the President for the Global Marine business. So in a simple way of saying it, the world's boat builders were my customers, including Nimbus, and now I'm happy to join the Nimbus team.

And prior as well, I spent a number of years with technology investments and venture capital. I think I bring a deep understanding and also network in the global marine industry, a strong industrial foundation on how it is to run a global industrial company as well as a good understanding of technology-based companies, building value and seeing the investor perspective. I think those are -- will be useful traits in my new job and really happy to join this group.

So let's go to the performance and how we are doing then in the third quarter. First of all, I must say the quarter has been characterized by a challenging market environment. There are 2 things that I would say, run through the report when it comes to our performance. First of all, it's a significant drop of the market in North America, and we'll come back and dive into the details of that. And second, is accelerated restructuring of Nimbus Group, activities that we have started several quarters back, which are now both starting to take significant effect, but we also have effects of the ongoing, for example, move of our production or consolidation of our production into our outsourced partner, moving production from Finland, for example. And we'll come back to that in the details as well.

But looking at the results, net sales amounted to SEK 263 million. We dropped from SEK 378 million in the comparable quarter. North America in itself dropped by SEK 130 million. And if you do the calculation on the group level, you see that the group dropped SEK 115 million, which means that -- outside North America, we balanced the drop and some, so to say, but North America is the significant delta in our sales. This, of course, drops to the gross profit, where the biggest gap between the outcome then of SEK 8 million as compared to SEK 47 million last year is loss of volume and also loss of margin due to the fact that we are still working to reduce some inventory.

This falls also into the EBITDA level where we see that we are turning the trend on the cost level. We made minus SEK 45 million as compared to minus SEK 66 million last year. And as I mentioned before, we see that our cost savings initiatives actually give us good traction. On the other hand, they are not enough to balance the lost volume that we see in the market. This is as well consistent through cash flow, where we ended the quarter minus SEK 43 million, whilst we had minus SEK 69 million in the previous quarter. So same here. We see that our initiatives are really taking effect, but they are not enough to balance the drop in volume that we see.

When it comes to the order book, we also see a reduction in the order book, again, concentrated around North America, where we've actually made a precautionary adjustment of the order book as well. We know that when the market drops this fast as we've seen in North America, you need to be very careful with your order book in order to not end up building inventory. That's why we've seen even a negative development of the North American order book. Finally, our available cash amounts to SEK 248 million end of quarter, divided between cash in the bank of SEK 48 million and a credit facility of SEK 200 million. So that is just a quick summary and some highlights of the results for the third quarter. We'll dive deeper into all of the items through the presentation.

So to share some observations on the order book development as well as the market environment, I've already highlighted the weak market in North America. And when we take a step back and we look at the global volumes in the marine market, we see that they are at the lowest point in over a decade, I would say. And this is an important observation to understand that the volumes are low, not only in North America, but we see it in Europe, we see it in Nordic, we see it in rest of world. And then you need to dive into the details to understand what does this mean.

Of course, we have the softening market in North America. That's the biggest, so to say, transitionary change we've seen, and it dropped significantly down to SEK 71 million in the quarter as compared to SEK 201 million the quarter before. Then when we dive into the details, we see that there is a low retail pace in the market. You know our business model, I'm sure, we sell wholesale to dealers and then dealers retail sell. And it's extremely important in this industry to watch the retail pace. So what the dealers are selling out to end consumers. And we monitor this retail pace or retail sales on a continuous basis.

We see that retail pace is low. But we also see in combination with this, that dealer stock is now on low levels. As an example, for EdgeWater, our brand in -- based out of Florida in the U.S., we've seen 8 quarters in a row of reduced dealer stock. So whilst retail pace remain low, we also see that dealer stock is low. And when dealer stock goes below a certain level, you'll start to see production orders and you start to see a balance of the business. If we look at our total commercial order book, then it's at SEK 297 million. I already mentioned the fact that we've made a precautionary adjustment then towards North America. I'm also really glad to see that the retail sales order book continue to show health, and we actually see growing numbers quarter-to-quarter over the last -- not only the last quarter 3, but also the year before.

So our retail business then which is exposed in Sweden, Norway and the U.K. shows a healthy sign in the order book, and it also correlates with what we see in the market movements between the different continents. The Nordic was first into the down cycle, and we see signs that Nordic is stabilizing and even growing on the retail level right now.

When it comes to me then joining as the CEO in Nimbus, I spent September as part of the quarter and then the weeks in October as the CEO for the business. I wanted to take the opportunity and share some observations with you. And of course, the observations leads to actions and how I intend to influence the business going forward. And first of all, I must say I'm extremely impressed by the engagement and the commitment across the global Nimbus Group organization. It's an organization that stands back to 1968, and it's a very strong foundation in the group.

We have a portfolio of premium brands. They are exposed to a global market, and we have presence globally, so to say, not only in the Nordics, but also Europe and North America. We also see a long term, and this is a general perspective on the global marine market. It is a long-term growth perspective, although it has its cyclicality. And then third, I really want to stress the opportunities within the work both and defense segment. We have our brand Alukin, where we are now working towards the Swedish defense with an order, which has been released before over 15 years. It's a SEK 400 million order.

And if recent press releases, the gate has now been passed and the boat is in testing. And the boat, which you see on the right-hand side is a consumer version or a smaller consumer version of the boat that we are now developing together with F&B extremely important segment for us. It has a very different cycle to the consumer part of our business.

So coming to my observations, which are also then influencing what actions we are now taking in the company. First of all, we need to turn the trend in North America. We see a very tough quarter in North America. At the same time, North America is roughly half of the boating industry volume that we can reach in the consumer segment and succeeding in North America is imperative for the Nimbus Group strategy over time. We have our foothold with EdgeWater, and we are selling our brands, both then EdgeWater, Nimbus, Aquador and Alukin into North America.

Turning the trend means that we are now looking at our portfolio, the competitiveness of it. We look at our distribution. Do we work with the right dealers? Are we working with them in the right way? Are we incentivizing in the right way? Are we training them in the right way? Do we have the right organization in place and the right ways of working between our EdgeWater facility, between our Annapolis facility, et cetera. So we're doing a review of our commercial capacity and our ways of working in North America to make sure that we improve our performance over there.

Second observation and area of work is to secure that we have a product portfolio and brand portfolio which performs. For those of you who've spent the time reading the CEO note on the report, you know that my philosophy on a brand and product portfolio is very simple. Each brand, each product in the portfolio has to be able to defend its own existence. That means we all have to perform across this portfolio and the portfolio as such is not an objective. So we are right now walking through our portfolio. We're reviewing the performance and market presence of each brand and each product.

And from that, we will set our investments, and we will curate our portfolio. And we've already taken some actions, as you might have seen in the report. We have decided to close or initiate the sale of Stream Propulsion, which is a venture where we are part owners directed towards electric outboards for small boats. So both the fact that it's directed to part of the portfolio where we are reducing our activities by outsourcing or selling Bella and Flipper and for the fact that the electric transition takes time, longer time than I think everyone expected a few years back, we've decided to now initiate the sale of Stream Propulsion.

With the move of factory capacity from Finland to our outsourced partner, we are also -- have also decided to stop a few models, which are then not presented to the market anymore. And we'll come back to more details on these product portfolio development going forward. Third, we need to improve our commercial capability and price management. Here, we are looking at, again, then, as I mentioned, for North America, but from a global perspective, how are we then working with our dealer network. We have a wide dealer network. But in my experience, when you work with dealers, you need to also have a strong educational part where you educate the dealers on how to work with the products. You also have to have a stringent process on how you build business plans, challenge and develop the dealers.

So we are reviewing those procedures as well as then price management in terms of both price and cost and margin for the product, but also competitive pricing, which needs to be driven from a local perspective on the different markets. So improving our commercial capacity is one of the key items in improving our performance as a group. And we've also recruited a new colleague on the team, Christina Evans, who joins as Deputy CEO and Head of our Commercial Sales. And I'm really happy to bring her on board here from 1st of October.

Then finally, on what we have our focus, cost control and cash management, managing your working capital and your cash is everything in the Marine business. It's a production cycle, which ties significant cash and making sure that you are financed in the right way, making sure that you're managing all the way from your order book to your retail sales in the right way influences your net working capital significantly. And we are now reviewing and streamlining these processes. And cost control, we know that we are doing negative results. We have initiated a number of activities since before. We will keep a very strong discipline and cost control to make sure we navigate in a good way forward.

Those were some observations. I wanted to share those with you to give an idea of what's on my table and the company's table going forward. Then of course, this business is about presenting fantastic products to the market. And some highlights from the market. We have then continued to expand our dealer networks with appointments in Switzerland, Turkey, Florida and Oslo, Norway. We have, as I already mentioned, got the design approval towards the Swedish Defence Material Administration, FMV then in Swedish with the Alukin boat. We have launched the EdgeWater 250 center console, as I showed you on the introductory picture for North America then.

We are also nominated with our Aquador 400HT newly launched products, and we're nominated to best of boats in the category best for family during 2025. And this award ceremony is end of November. So we'll be curiously looking at how we are then coming out. And finally, and I think very importantly, we have the public launch of our flagship, the Nimbus 495 Fly for North America at Fort Lauderdale International Boat Show. That boat show is next week. It's one of the most important boat shows across the world.

And as I've already talked through North America and you understand the challenge we saw in the last quarter, it will be extremely important to be there to sense the pulse of the market, but then even more so for us to present this fantastic product to the market in North America. With that, I would like to hand over to Rasmus Alvemyr to give you some more details on the financials.

[Rasmus Alvemyr, executive]

Thank you, Johan. Then we start with some key financial items. As Johan showed earlier, the EBITDA dropped to minus SEK 45 million in the quarter, and that included restructuring costs of SEK 17 million. The adjusted EBITDA amounted to minus SEK 28 million versus minus SEK 7 million last year. The restructuring costs in combination with different campaigns to reduce inventory, including costs from cost under absorption effects from low sales and production has pushed down the gross margin to 2.9% in the quarter. Out of the restructuring cost, SEK 12 million is allocated to gross profit.

In relation to last year, the sales volume dropped SEK 150 million, which gave an effect on the gross profit by minus SEK 40 million, while the price and under absorption effect amounted to minus SEK 10 million, which you can see in the chart to the right. On top of this, there is also a negative currency effect from U.S. dollars amounting to minus SEK 4 million. Altogether, this pushed down the consolidated gross contribution significantly from SEK 47 million to SEK 8 million. On the cost side, OpEx decreased due to cost saving activities from SEK 57 million to SEK 45 million, which is down 21% year-over-year.

The finance net amounted to minus SEK 18 million versus minus SEK 20 million last year. And as Johan mentioned, due to a strategic decision, we have decided to write down the investment in Stream Propulsion down to 0, and this had a negative effect on the consolidated finance net of minus SEK 6 million. Together with the other owners of Stream Propulsion, we have started a process to initiate a divestment of the Stream Propulsion.

As Johan mentioned, Stream offers electric outboards, and it's not in our ambition to become a supplier of output engines going forward. Our share of the company is 50%. The finance net was also affected by FX effects from intercompany balances affecting the finance net with about SEK 7 million referring to U.S. dollars.

Then we move to the commercial sales. Commercial sales dropped 38% in the quarter to SEK 165 million, driven by a soft start -- soft start of the quarter. Market-wise, the decrease is related to North America, where both sales and order intake dropped significantly versus last year. Sales went down by SEK 130 million to SEK 71 million and the order intake came out net negative by minus SEK 26 million versus SEK 93 million last year.

And as Johan talked about, the reason for this is that we have made an adjustment of the order book based on the soft market situation. And in practice, this means that we have reevaluated preorders of about SEK 60 million that we believe might be risky going forward. In Europe, the sales went up to SEK 74 million, which is in line with the increased order intake that we saw in the second quarter. Sales in Nordics dropped by SEK 11 million, but important then it's from low levels.

Then we move on to the retail business. The retail sales dropped by 40% in the quarter to SEK 98 million. The drop was driven by less traded and used boats. Sale of own brands was up 5% to SEK 45 million, which is positive and also preferred balance from a consolidated perspective. The order intake was fairly in line with last year and amounted to SEK 131 million versus SEK 134 million last year. Owned brands increased by 5% to SEK 60 million, while traded boats and used boats went down by 13% to SEK 55 million. Service and Accessories was also better than last year and decreased from SEK 14 million to SEK 16 million.

The order book amounted to SEK 61 million, which is higher than both 2023 with SEK 36 million and 2024 with SEK 55 million. Last year, we saw a positive development in the retail business starting off late Q2 and continued during the third and fourth quarter, all the way up until escalated tariff debate in late Q1. The pattern so far seems to be similar or better than last year regarding the retail business. And then we have the cash flow and net working capital. Operating cash flow in the period improved versus last year and amounted to minus SEK 43 million versus minus SEK 69 million.

The net working capital amounted to SEK 661 million, which is down SEK 3 million since the second quarter and also slightly lower than last year, which is important since this is the first quarter since fourth quarter 2021, where the net working capital has been flat or at least not increased. This is a positive signal that confirms that taken actions has started to have effect. And finally, then we have available cash amounting to SEK 248 million, including unused [indiscernible]. And with that, I'll leave the word back to you, Johan.

[Johan Inden, executive]

Thank you very much, Rasmus. And on our final slide before moving to the Q&A is the financial targets, which has been consistent since previous reports. And with that, I will not -- I don't intend to walk them through. You've seen them before. So with that, we will actually take us to the Q&A.

[Operator]

[Operator 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.

[Unknown Executive]

Thank you very much. We have some written questions. And the first one comes from [ Wilgot Arnold ] at DNB Carnegie. And he asked that North America remains very weak, while Europe improved sequentially. Where do you see the first signs of demand recovery? And what actions are you taking to regain momentum in the U.S.?

[Johan Inden, executive]

Thank you, [ Wilgot ], for the question. When it comes to the first side, the signs of demand recovery, I think our -- we talked about retail sales in the Nordic. I spoke a bit more about retail sales that that's where we need to monitor to understand how the market develops and the fact that we have quarter-to-quarter improvements in the Nordic retail sales, I think it's a sign that Nordic is moving forward.

When it comes to Europe, we had an improvement in sales, as you could see. But we have a flat development of the order book, which means that we need to continuously monitor Europe to understand how Europe develops, but a good sign over the quarter in Europe that sales is improving. And then when it comes to the U.S., as you are on to here, it's extremely important to regain the momentum in U.S. I talked through it as one of my top priority points.

We've already initiated a few actions on the commercial capacity in the U.S. So we've added, for example, a resource, Florida-based resource. Florida is one of the absolute biggest markets in North America. We need to improve our performance there. We've added sales resources there. And we are now going to Fort Lauderdale International boat show, both then to present our new products, but also further analyze what actions do we take on the commercial side. But it's extremely important to activate that market more.

[Unknown Executive]

Thank you. And the next question is from [ Ola ] and he asks, could you provide a status update on the sale of the existing inventory and production equipment for Bella and Flipper?

[Johan Inden, executive]

For sure, we can. Those actions have been initiated in the previous quarter. But in this quarter, we actually accelerated the activities relating to move then production into our outsourced production partner, which is already the partner for, for example, the Nimbus WTC models. We have moved the equipment. We've taken the majority of the cost of moving these activities in the quarter. We'll have some slight, and I would say, insignificant effects with us into Q4. And when we close Q4, we will be done with these activities.

[Unknown Executive]

Very good. And third question comes from [ George GC ]. Can you talk a bit about the inventory situation, including small boats?

[Johan Inden, executive]

Absolutely. And as I mentioned, monitoring the dealer inventory primarily then is very important to understand how retail sales, so to say, takes boats from dealer stock or it will actually produce then factory orders. I mentioned one of the KPIs that we are monitoring is this dealer stock, and we've seen for EdgeWater then, as an example, 8 quarters in a row of reduced dealer stock. Then you could always discuss, is the dealer stock on a healthy level.

And that, of course, relates to the market, the size of the market. So we see reduced stock, significantly reduced stock at the dealers. At the current low level of the market, we perceive them to being in balance, which means that when the market moves forward, we hope that we'll see more retail sales converting to factory orders. But that is something we have to monitor closely in the coming quarters. If you look at Europe and the stock situation, there our judgment is that dealer inventory is now on the low level.

[Unknown Executive]

So thank you very much, Johan and Rasmus, and thank you, everyone, for listening in. And just a gentle reminder that our Q4 and full year '25 report will be published on February 4. So very welcome back.

[Johan Inden, executive]

Thank you, everyone, for calling in.

[Rasmus Alvemyr, executive]

Thank you.