Nederman Holding AB (publ) (NMAN) Earnings Call Transcript & Summary

Ladies and gentlemen, welcome to the Nederman Holding Audiocast with Teleconference Q4 2021. Today, I'm pleased to present CEO, Sven Kristensson; and CFO, Matthew Cusick. [Operator Instructions] I'll now hand over to the speakers. Please begin your meeting.

Good morning, ladies and gentlemen, and welcome to this teleconference where we are presenting the Nederman Group Q4 2021 results. We take some bullet points. We would say that we had a good finish to an, what we would say, excellent year considering the obstacles, the challenges that we have had. We had a high order intake growth both versus 2020, which was fairly easy, but also compared with 2019, it was a little bit more challenging. We have increased profitability, and we've been able to surpass our profitability target on EBIT level, which is 10%. And this has been the fifth consecutive quarter. We have had a very good cash flow based on strong order intake in Process Technology, where an advanced payment has kept rolling in. We have made a minor acquisition but interesting technology that will be fully integrated in our Nederman Insight offering. And the Board of Directors have proposed a dividend of SEK 3.50 per share. However, having said all these things that has gone our way, there are some continued concerns that is component availability. It's area from aluminum, steel, electronics, et cetera. There are also combined with these transportation issues and component -- lack of component, the prices on the market is sometimes skyrocketing and very unpredictable. And again, the transport difficulties has been and is still a concern. On November 15 last year, we acquired the U.K. company Energy Save System. We have here got the leading technology for energy savings in industrial air filtration processes. So this has been mainly shorting in our own potential development time and time to market. The product is aimed at businesses that want to improve air quality and decrease environmental impact in industrial applications and wood working has been one of the major ones, but also metals work, food processing, et cetera. Through this acquisition Nederman has access to the technology, and we strengthened our marketing offering in, I would say, all divisions. But it's included in Nederman Monitoring & Control Technology, and it will be their technology. And their algorithm will be fully integrated during the deal in the Nederman Insight offer, where we then can have a much better way of presenting it to the user using our own developed algorithms to do different calculations. So we are very pleased, and it will definitely help us going forward.

Moving on to Slide #4. If I give you a little bit of information on orders and sales, for quarter 4 incoming orders were SEK 1.35 billion. That's currency neutral, 48% up versus Q4 2020, 24% up versus 2019, which is like Sven mentioned, it was a slightly more challenging target. There is some difference in the intake when we look division by division, which we will come back to. Sales for Q4 were SEK 1.15 billion, which is 23% up versus 2020 Q4 and 11% versus the same quarter in '19. We can see for the full year, now we achieved SEK 4.623 billion in orders, and that's 39% higher than last year and 20% higher than 2019, currency-neutral. Sales, we managed to get over the SEK 4 billion, again SEK 4.042 billion, it is 15% up versus 2020 currency neutral. What we can see on the charts here maybe at the bottom of the page, the incoming orders, we have -- since the bottom in Q2 2020 when the pandemic was hitting hardest so we've had 6 consecutive quarters of growth. Moving on to Slide #5 and profitability. The adjusted operating profit was SEK 127 million for the quarter, SEK 94 million in 2020. We achieved 11% adjusted operating profit, 10% in Q4 last year -- sorry, in Q4 2020. Profit after tax, SEK 85 million gives earnings per share of SEK 2.41 in the quarter. For the full year, we were up at SEK 431 million in adjusted operating profit, which is 10.7% of sales. Profit after tax, SEK 305 million gives earnings per share of SEK 8.70 or SEK 3.15. Adjusted operating profit, we can see now SEK 431 million, and that has been continually increasing quarter-by-quarter for the -- throughout the 2021. A little bit more on numbers before Sven gets into the details on the operations. Slide #6 shows cash flow and net debt development. We've had a very good cash flow throughout 2021. Q4 was no exception. It was slightly behind an exceptionally good Q4 in 2020, but we have had this positive cash flow spread throughout the year this time. We can see the rolling 4 quarters cash flow from operations is actually up over -- it's a bit over SEK 500 million. That will dampen somewhat as we start to execute on some of these projects where we've received down payments on, particularly within Process Technology. The chart on the right-hand side, we can see that net debt has come down by approximately SEK 400 million in the year, following the good cash flow development, good profitability and that is despite some significant investments made in our IoT, not least in our IoT-related solutions and our Insight application. Moving on to Slide 7 in Extraction & Filtration Technology. Sven?

Yes. Extraction & Filtration Technology, our largest division, mainly working under the brand name Nederman, it has typical applications composites, welding filtration, woodworking, et cetera, et cetera. The development during the quarter has been good when it comes to sales growth, but we've seen a slight decline in order intake. And there has been a clear difference in demand between the regions and also typically in application, but we have continued to deliver a very strong profitability. If we look at EMEA, there has been an absence of larger and definitely fewer midsized orders. This is mainly been connected to the automotive industry or the Tier 1, Tier 2 and even Tier 3 suppliers that we mainly supply, which is important when they have had the difficulties in the auto industry, also the subsuppliers and the auto industry has focused on other things than continuing their business and orders in this area. The base business from product sales has been growing, which is the distribution on plug-and-play product and -- directly via our partners and our partner web shop has been successful to continue doing business. If we go west and go into Americas, we've seen a solid growth, especially in U.S., which, of course, is natural since that is the large market in that region. Midsize orders, and it's been very strong where we have an absolute leading position in the secondary wood industry, where we continue to have success. We have also seen a growth in the aftermarket, which has been a target for some year. In APAC, demand we can say, is still subdued in several markets with the restrictions we have, the lockdowns in India, the lockdowns in Australia, the lockdowns in Thailand has had a negative effect. But Australia now opening up for business have shown a bounce back in the last quarter. We hope for more going forward. Key activities has, of course, been the acquisition of Energy Save System, which will organizationally be mostly integrated into the MCT organization. It will boost the division's wood segment here in EFT because it gives in the cooperation with the 2 divisions, MCT and EFT, a very strong offer to the market, where we can offer not only the best filtration, not only the best insight and IoT solution, but also the saving -- energy saving algorithm will improve. We have launched smart filters, a filter solution suitable for different industrial dust application. It's been wood agriculture, waste management and recycling among others. We have launched a configurable industrial vacuum cleaner, a new series for the extraction of liquids and coarse particles. We have also, in order -- in this new, even more digital world -- launched the Clean Air World Tour where we have digital event on most recent trends in air filtration, industrial process and we started with Germany and U.K., and we continue with the Nordics and other markets. This is the new normal that we have the much more digital events, and that will continue even if we are now allowed to travel. We have seen that customers who want to learn more about their own processes and what they can do and how we can help them are willing to take a few hours if they can avoid having long travel distances. And so we hope that, that will continue to develop our marketing effort. Again, freight and supply chain. You've heard it before in other industries, and we are continuing to say the freight and supply chain challenges do continue. We had by very strong actions 1.5 years ago when we stopped up a good situation when got to supply. But since this has been very [ out for ], we now see that there are things that we have to jump around in order to supply in a good way.

So I'll briefly go through the financials for Extraction & Filtration Technology. Orders incoming, as Sven mentioned, have dropped. They went down by approximately 10% currency neutral from what was a very high SEK 450 million in 2020 to SEK 411 million in Q4 2021. Total sales, SEK 482 million is very strong and led to an adjusted EBITA of SEK 82 million or 17% of sales. If we take the full year, SEK 1.78 billion is where we ended up in order intake and SEK 1.76 billion in sales, extremely strong profitability of 17.5% or SEK 309 million. If I move on to Slide #8 and Process Technology.

Process Technology is where we are selling -- developing and selling mainly larger systems under brand names like Nederman MikroPul, Nederman Luwa, et cetera. Different applications are smelters, foundries, it is also textile fiber manufacturing, et cetera. During the quarter, we had a continued strong order intake. We had the highest-ever quarterly order intake. And what's interesting, we've seen during the last year, it started with the fiber and textile and has now increased also with the waste recovery and smelters, et cetera. We had also 55% sales growth. Very good working capital development and good cash flow management plus receipt of down payment on projects. If we look at the different applications, textile and fiber, it's been continuously doing very well when it comes to order intake. India, that has been sort of closed down on and off for almost 2 years, had a very good trend for -- where also international buyers were moving to India suppliers. So that is also to do with China, et cetera, and tension here. Extra production shift in Indian plant has continued, and they are working very well. Project execution being impacted negative by freight challenges and higher material costs and material costs easier in contract, but the freight challenges has been severe during this period. In foundry and smelters, we have seen increased demand for project to recycling industry. That's not so much automotive foundries for chips, cables, et cetera, since we are going more electric, but has been in significant demand for recycling. There has been a sustainability trend in foundry and smelters segment, and we have several orders where we have secured, including recycling of aluminum, steel, et cetera. Customized Solution. Medium-sized orders were registered. We had a very strong order quotation pipeline, again, also very much related to different sustainability areas. We have also started, what we call, the MikroPul Solutions Lab and it's generating interest from customers. What does this mean? Yes, it means that we let the customer come with a question and a problem. And we, with our engineering capability, give them a suggestion how can you solve this with one or several alternatives, and it's been very appreciated and it creates a pipeline. Now our challenge going forward is, of course, to convert that pipeline into orders, firm orders. What are the key activities? We have significant long-term contract signed for service and monitoring of installed equipment throughout the life cycle. Clear trends towards what we set out as a vision some years ago when we started this clean air journey, and that is Clean Air as a Service. We have contracts where we will guarantee the lifetime or at least part of it, 10 years as long as we are supplying a full insight, the full measurement package and full service during this period. We have a continued focus on growing service business and that has been particularly in textile and fiber, where margins are currently under most pressure. But with all new projects being able to also sell in, what we call here, [ DESA ], which is IoT solution, measurement and control systems, we see that we, with the message that we are future proof gets more attention, and we also launching a workshop for our customers to make it easier to find and buy spare parts. That has again, you've heard it before, challenging supply chain and logistics.

Financials for Process Technology then incoming orders, this was the highest-ever order intake quarter for this division, not surprisingly at SEK 646 million, is a huge increase of 168% versus SEK 248 million Q4 last year. For the full year on orders, we were almost SEK 1.8 billion versus SEK 992 million is 2020. On the top-right of the Slide 8, you can see the order intake in sales as it's developed quarter by quarter and also the backlog, which you can now -- we now see is extremely high or as high as it's ever been for Process Technology. One must -- we must point out about this backlog is that not all of the orders that are in the backlog are for delivery in 2022. Some of these particularly textile and fiber projects, they can -- some of those orders are for 2023. There are often extremely long processes that are involved there. Sales SEK 398 million for the division in quarter 4, gives an improved adjusted EBITA of SEK 23 million, which is 5.8% of sales. That's up from SEK 9 million in 2020 Q4. And for the full year, the division made SEK 51 million in EBITA, which is 3.9%, slightly less than 2020. Moving on to Slide #9 and Monitoring & Control Technology, back to you, Sven.

Yes. Starting with the development in the quarter. We have strong sales and order intake, excellent profitability. There are some signals that activity levels are getting back to more what now normal is in these times, but more normalized. Again, strained supply chain is a constant challenge and we've been mostly affected in AFS in Boston, U.S. Short term, but this can change -- we have so far been able to mitigate a lot of it or most of it and kept the customers happy with us. So in the different regions, EMEA, good order intake growth versus both Q4 last year and Q3 2021. We have a number of large OEM orders that have been secured and emission-related business displayed continued strong growth, I would say, in Q4. APAC, strong trend for orders received continued despite travel restriction. China, in particular, has been driving growth. We have a world-leading, top-notch technology in both AFS, NEO Monitors and Gasmet and that is a significantly higher technology levels than local Chinese competition, and that's driving sales here. In Americas, order -- sorry [ for ], and it was sales when legislation is getting tougher in China, and they need better measurement. In Americas, strong order intake, better activity among customers in the region. We have strengthened our sales and it definitely seems so that Americas are ahead of Europe in the recovery process. Travel restriction. Europe and North America were main obstruction to more rapid growth because they were plans we have had to do over Teams, Zoom whatever. And even though they have been very good at it, we are seeing opportunities that we will continue to develop and hope that we can speed up now, then we come back to more opportunities to meet and do what we have planned. Key activities. We, as mentioned before, acquired Energy Save System -- hardware, software for monitoring and control of filters systems in order lower energy consumption, reduce environmental impact and improve filter performances. ESS strengthens as Nederman's market offering in all divisions and market and we, as say, will fully integrate it in our very strong Nederman Insight program, myAir program, et cetera. Internal cooperation stepped up to counter supply chain challenges. We've been helping each other in the divisions, in between the divisions and also with other good friends in the business in order to handle the situation.

So financials for Monitoring & Control Technology, incoming orders SEK 166 million. As Sven mentioned, we've got a number of OEM orders in there, but SEK 166 million is extremely strong. And despite selling SEK 155 million in the quarter, we managed to still build backlog, which we are pleased with. Adjusted EBITA for the quarter SEK 41.3 million exceeds even the SEK 34 million that we did in 2020. There is some favorable mix impact in there between the products that we have sold. Adjusted EBITA margin in the quarter, 26.5%. For the full year, SEK 562 million in order intake is 16.5% up versus 2020 currency neutral. SEK 537 million in sales is 8.9% currency-neutral growth and SEK 121 million in EBITA gives us a 22.5% EBITA margin.

Duct & Filter Technology. Here, we sell internally as well as external filter solutions or filter for the solutions duct work for solutions, and duct work under the brand name Nordfab and the filter under the brand name Nederman, when it's not included in our own sister division's sales. The development for the quarter, good growth. The expansion has slowed somewhat compared to Q3, but it was still a very good growth. We had a solid order intake and a solid sales development with very strong profitability. Some negative margin impact from products within Q4. There was a higher proportion of filter sales. And it's also so that there are issues with fast-growing material prices. If we start with Nordfab, the duct work, we have had a strong growth compared to last year. We have increased prices to mitigate the changes in raw material. And then the development has not been as extreme as you've seen in the figures, but it's still been an organic growth. Cost levels increasing as a result of high inflation in especially now the U.S., where we can see that clearly. There is a positive trend in Europe both from new customers and high volume from existing where we are developing existing customers as well. There are significant frame agreements signed with the U.K. kitchen manufacturer. And again, through the lockdowns in Asia, especially in Thailand, there has been a slower, more dampened trend in that area. Menardi. Sales of filter solution under Menardi brand name grew organically 50% in the quarter. Very volatile. So sales clearly higher also compared to Q3, which is a good message. Growth is despite the continued lengthy delivery times for filter media. High order backlog moving into 2022 bodes well for the first part of this year. The key activities. The automated duct production line completely new one installed in our plant in Denmark. It's a new 2-meter long ducting that we have launched in Europe in December. We have also our interactive 3D tool, QFV and it's attracting major interest and resulting in new customers and orders in the U.S. The European launch is pending and is planned during Q2. Worth to mention is that this innovative tool that we have developed won an innovation award at the Woodworking Fair in Las Vegas in Q3. There are still concerns remain in the availability and price of important raw materials and again, transport cost, both internally in U.S. -- domestically in U.S. as well in Europe.

When it comes to financials of Duct & Filter Technology, external order intake increased by 24% in quarter 4 to SEK 128 million. Sales increased by 28% to SEK 138 million, and adjusted EBITA was SEK 24.4 million, which is 17.7%. You'll note that that's slightly lower than the EBITA margin for the full year as we see some impact from material price inflation and also a slightly negative sales mix within the division in more filter sales as a proportion of total sales. If you look at the full year, external order intake grew by 31.4%, currency-neutral up to SEK 495 million. Sales was SEK 541 million, which is 26% up versus the full year 2020 and adjusted EBITA reached SEK 104 million or 19.2% as I mentioned. So if I move on to Slide 11 and we summarize the quarter and the year, Sven?

Yes. For the quarter, a strong finish to what we have to say, under the circumstances, an excellent year. We had a very good Q4 intake for the group with some divisional and regional variations, as mentioned before. We showed strong profitability and a very strong cash flow development. For the total year, we have a record order intake and profitability for the Nederman group and a very, very strong cash flow development. Following that, the Board of Directors proposed a dividend of SEK 3.5 per share. So we conclude that we have advanced our position with our clean air concept in a market that continues to have potential.

We do have an outlook, Sven?

Yes. What we say that our base business and a strong digital offering have enabled us to asset ourselves well in the current market. We now see that demand for more major projects is picking up. However, geopolitical concerns have increased, and there is also a clear risk that the supply chain problems, high material price and logistics challenge will continue to impact both customers' investment decision and our own production and ability to deliver. Generally, however, we are cautiously optimistic about the next few quarters but can see increased uncertainty in our markets. Nederman's long-term potential continues to strengthen. Insight into the damage that poor air does to people is increasing. Nederman has a leading offering within industrial air filtration and a key role to play, which provide clear possibilities for growth. What is needed is even more political will throughout the world to use regulations and incentives to work to reduce the risk that millions of people need to die prematurely each year from breathing in dirty and hazardous air.

Financial calendar is the last piece of information we have for you. The annual report for 2021 will be released on March 18. The interim report for Q1 will be April 22 and the Annual General Meeting is April 25 this year. With that, I think we can now open up for any questions that people might have to us.

[Operator Instructions] And there seems to be no audio questions, so I'm handing it back to the speakers.

If we've been so clear, we thank you for listening and taking the time to listen to us and wish you a good day. Thank you very much.

This concludes our conference call. Thank you all for attending. You may now disconnect your lines.