Specialist
Former Cluster Director at Ammega Group BV
Agenda
- Market growth outlook – industry CAPEX and replacement cycles
- September 2018 Ammeraal Beltech-Megadyne merger and synergy execution
- Servicing competitive landscape and offering build-out
- Distribution dynamics and roll-up outlook
Questions
1.
Could you explain the difference between Ammega’s replacement and the new equipment businesses? In a previous Forum Interview [see Ammega – Free Cash Generation in a Downturn – 9 October 2020], pre coronavirus market numbers indicated a typical 70/30 split for replacement vs new equipment, but Ammega is closer to a 90/10 split and more focused on replacement. Is that pre-pandemic split accurate? How does Ammega have such a high level of replacement business?
2.
Do you think the end user or the replacement type of work has fully recovered? I understand that belts need replacing quite quickly and consistently when in use because they’re vital for the plant running and are relatively cheap to replace.
3.
What is notable about belt intensity in different verticals, particularly in warehousing and the conveyor belt set-up vs newer robots on grids, such as the Ocado or AutoStore systems and other non-belt-type operations? How does the average number of belts per square foot develop over time? Is it relatively stable, rising or decreasing?
4.
Which other industries typically have a fluctuating intensity of belts or belt usage?
5.
What’s the typical gross margin for a classical belt vs an engineered belt?
6.
How well-positioned is Ammega in engineered belts vs classical belts?
7.
Which player leads in the engineered belt segment?
8.
How big could the engineered belt market be vs the classical belt segment in the next 3-5 years?
9.
What’s your best estimate on pricing and volume growth outlook for 2021?
10.
How does cost pass-through typically work given that price increases are driven by commodity prices? What percentage can be passed through and how frequently can cost pass-throughs occur?
11.
What usually happens to transmission belt margins when raw material costs increase and there are challenges to passing through those costs?
12.
How would you expect transmission volume and margins to have trended? There seems to be a margin hit from the cost increasing and not being able to pass through all of the existing cost into pricing, alongside a volume hit due to losing customers.
13.
What margins are the China- and Turkey-based suppliers willing to accept? What’s their end game? Are they willing to take very thin margins or have they got lower production costs, meaning they can afford to charge lower prices?
14.
You mentioned the 50/50 split within the end user and the OEM [original equipment manufacturer], but are all customers in the end user segment quite willing to accept price increases?
15.
Is there anything to add about transmission belt pricing and volume dynamics?
16.
I understand that Ammega is exploring acquiring distributors. To what extent could this change the pricing dynamics with the end users and with the distributors on transmission belts?
17.
How many of the distributors and how much of the market’s volume could Ammega acquire? It seems that some large distributors could have potential, but acquiring the small tail of distributors might not have much impact. Do you think Ammega can reasonably acquire a meaningful amount to change its pricing dynamics with this customer category?
18.
What’s your margin outlook for the Megadyne business? Can the company make meaningful EBITDA margins after five years?
19.
How would you expect pricing to develop across the different channels in the conveyor side? Is it possible to pass through a meaningful portion of the cost increases?
20.
Is 3-20% total COGS increase a reasonable assumption in the conveyor segment?
21.
What proportion of customers would accept a cost pass-through?
22.
What competitive dynamics would you note? You said China and Turkey’s suppliers are creating pressure in the transmission belt segment. Intralox also has some interesting product developments coming. Is product differentiation meaningful for customers? Are they willing to pay a pricing premium to secure volumes?
23.
Do any product-related service elements impact the conveyor business? There’s a thermo-splicing conveyor belt which seems to make it very easy for Intralox to replace belts because it can splice them together. Do any similar products enable the servicing to be structurally better for players?
24.
How does service quality compare for Ammega vs Intralox and other competitors?
25.
Is the Intralox belt less durable than an Ammega belt?
26.
If OEMs want to supply the spare parts, what’s the risk of them supplying Intralox belts as spare parts and servicing for the end user, which might capture market share for Intralox?
27.
Do customers typically want to work with Ammega or the OEM? Do customers know that Ammega supplied the belts or would they decide that an OEM machine should be serviced by the OEM?
28.
Would the engineered belt customers think the belt manufacturers are more important because the belts are more complicated, or would the OEM be more crucial because the overall system is more complicated?
29.
What would you highlight about the Ammeraal Beltech-Megadyne merger? The synergies in combining a conveyor and transmission belt player make sense but do you think the execution of the merger has gone well? Company culture has probably been the biggest challenge. Do you think the merger has been a success?
