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

Welcome to the Nederman Holding Q3 2024 Report Presentation. [Operator Instructions] Now I will hand the conference over to speakers, CEO, Sven Kristensson; and CFO, Matthew Cusick. Please go ahead.

Thank you and good morning, everyone. We are here to present the Nederman Group Q3 2024. And the headline, we have had high level of activity and good orders received, especially in 3 out of 4 divisions. If we look at some of the highlights, we have continued investments in -- in a more challenging market. We have a continuous strong focus on operational efficiency and a high rate of innovation. The operational efficiency you'll see we have now taken over the new manufacturing and logistic site in Helsingborg, and are moving in, and it will take a few months more. We have also there taken first part of the Thomasville with Nordfab Now in the duct and filter, and we are continuing to build further warehousing and manufacturing for the heavy-duty side of it. And we had a very good inauguration ceremony in Chesterfield, U.S., close to Detroit for RoboVent, where we also now have the possibility to work in a more efficient way. We have also launched a number of new products and systems. So what we see is that we are advancing our position in a slightly or in a weaker market. We had good orders. We had organic and currency neutral order intake growth in 3 out of 4 divisions, and we continue to get orders for Nederman new target industries. We consider [indiscernible] having a solid profitability and we had a strong cash flow. And again, we made a smaller acquisition of Duroair Technologies and it gives us a complement with new solutions, combining traditional Nederman RoboVent solutions to new sectors such as defense, aeronautics, et cetera.

If we go on to the key financials now and on to Slide 4, orders received. As Sven mentioned, 3 of our 4 divisions saw organic and currency-neutral growth during quarter 3. Orders for the quarter, SEK 1.437 billion versus SEK 1.488 billion in quarter 3 last year. If you look at the chart -- if you see the chart on Slide 4, directly below that, you can see there's quite a large currency impact, negative during the quarter versus quarter 3 last year. The Swedish krona, among other things, appreciated approximately 5% versus the U.S. dollar during quarter 3 this year -- in the same quarter last year, it was actually sliding. So that makes quite a big impact. Organic growth in 3 of 4 divisions, the other 3 didn't quite compensate for the drop in Process Technology, which we'll come back to. Orders received now on a rolling 4-quarters basis on around SEK 6 billion. For the year-to-date, order intake is now SEK 4.37 billion versus SEK 4.538 billion at this point last year. That's currency neutral, 2.9% down. Again, it's the Process Technology division with the large projects that is the main reason behind that. If we look at sales, a couple of lower sales in the quarter versus Q3 of last year. That must be said. We had fewer major orders at the start of the quarter. We received quite a few towards the end. Those did not then materialize into sales in time to be booked in quarter 3. And obviously, Process Technology, as we know, have fewer large projects in their backlog right now. We'll come back to backlog for that division. Sales for the quarter, SEK 1.416 billion versus SEK 1.574 billion, very strong comparative figures last year. Currency-neutral growth of minus 6.8%. Again, we see a currency impact of minus SEK 52 million in the quarter versus the same quarter last year. Year-to-date sales, SEK 4.28 billion versus SEK 4.687 billion by the end of September 2023. Currency neutral at 7.8% down, once more that is largely Process Technology division. We have some acquisition growth. It's a relatively small percentage of our overall sales, approximately 1% contribution from acquisitions this year. Profitability was solid and our margins improved. Adjusted EBITA, SEK 161 million versus SEK 175 million in the quarter last year. That gave us an EBITA margin of 11.4% versus up from 11.1% in Q3 2023. Profit after tax, SEK 70 million, which gives earnings per share of SEK 2.00 versus SEK 2.43 in Q3 last year. For the year-to-date, now we're on SEK 523 million in adjusted EBITA versus SEK 543 million at the year -- after 9 months of last year, that's a margin of 12.2%. So that's up 0.6% versus the 11.6% last year. Profit after tax, SEK 258 million, gives an earnings per share of SEK 7.34, which is slightly below the SEK 7.51 that we were at this point last year as well. Cash flow, Sven already mentioned, a strong cash flow. This is very important for us that we continue with this. It enables the investments in these growth-enhancing activities that we have, the investments in the factories and the operations and in the product development. Quarter 3 had cash flow from operations of SEK 181 million, which is up from SEK 137 million in quarter 3 last year. Year-to-date, now SEK 351 million in cash flow from operations, is slightly down from the SEK 364 million at this point last year. Net debt appears to have increased significantly. The -- it must be pointed out in this SEK 1.761 billion that we now see in net debt, there's a significant increase in the IFRS 16 calculated debt. This is related to the new leases that we have entered into for both the Helsingborg premises and the one in Chesterfield, Detroit, U.S., for RoboVent, they impact the balance sheet significantly there. And if we look at net debt, excluding IFRS 16, we actually reduced clearly in the quarter. If we move on to the divisions and make a start with Extraction & Filtration Technology, Sven.

Yes. Extraction & Filtration Technology, large customer bases, woodworking, metal industry, welding, et cetera, for those who do not remember. Some of the highlights is that we had the highest orders we see for a single quarter, currency adjusted, second only to Q3 2023. We have had strong growth in major orders, solid base business and increased number of midsize orders. The quarter ended with an all-time high order backlog, supporting good sales in the coming quarters. Something worth mentioning that a lot of the orders came slightly later than we had expected, that means that we were not able to ship not only because of storms, bushfires, and other excuses, but also because some of the orders came in later in the quarter than maybe expected. If you go a little bit for the division in the different regions, EMEA grew in orders received and in sales. There were a number of major orders secured for distributor channels. We had a better and a good level of midsize order with something that has been a bit lacking over a period of time here where we've seen a hesitation of maybe smaller customers or with activities may be postponing some of the investment. We had the strongest ever quarterly order intake in Americas. We had 6 major orders, 3 of them in the welding and 1 in the woodworking. And as mentioned, we had some deliveries that were delayed because of Helene. But, again, we will deliver them this quarter. So that's not a major issue, but it explains a little bit that we should have had a better sales figure. APAC saw some recovery in orders received. We had growth in Southeast Asia, Australia, but we do see remaining challenges in India and especially in China. We see weak sales in those regions. We now look at some of the key activities. We, as mentioned earlier, acquired Duroair. It's not a huge company, but it has active climate-controlled air filtration and it's focused on U.S. and Canada markets. It's a good complement to existing business where we are having the technology for on tool extraction and at source. Here we have encapsulating climate control environment and this fits very well for especially the aerospace and for some of the defense industries. It's being integrated in the sales organization, mainly of RoboVent, and they have now started to quote and see at least one a week. So let's see how we can further develop that business. We did launch a new ATEX Mobile high-vacuum series. It meets the latest standards on combustible dust environment. Again, we continue to launch with a steady pace, new latest technology both for the hardware as well as we do with the digitalization. We did participate in the largest -- I think it's the world's largest International Woodworking Fair, and that is -- it was this year in Atlanta, and we had lot of success with our digital solution, our integrated particle measurement integrating into our system, and we strengthened our position as the clean air company also in the woodworking industry. We have taken access -- we've got access to the new production and logistics facility in Helsingborg, and they have started to move in and modernize the facility. What we will have is a continuous move during the coming months, and it should be ready in February next year. We have RoboVent new plant. It was an operation that had divided in, like in Helsingborg, in several old facilities. Now we have a fully operational new site with better efficiency for both logistics and manufacturing for the future.

When it comes to financials for Extraction & Filtration Technology, orders received, as Sven mentioned, highest ever for a single quarter if you adjust for currency, unfortunately, with the U.S. dollar weakening against the Swedish krona, we were very slightly below Q3 of last year. SEK 674 million in orders received is reasonably pleasing, though SEK 676 million last year. Currency neutral growth, 2.5%; organic growth, 1.3%. And year-to-date, it's a rather similar picture. Currency neutral growth is now 2.4% for the division, SEK 1.962 billion in orders received so far. Sales also grew currency neutral, but slightly down versus last year. SEK 633 million was a tiny bit behind our expectations for the quarter. These delays, as I call it, from the hurricane were a little bit or were better than expected, SEK 653 million last year comparative figures. The EBITA margin now 12.4% gave us SEK 78 million in adjusted EBITA versus SEK 83 million in quarter 3 last year. Year-to-date, now 13.5% EBITA margin is in line with where we were at this point last year given that sales are slightly higher than this point last year, the adjusted EBITA now SEK 260 million versus SEK 256 million at this point last year. With that, we move on to Process Technology.

Yes. Process Technology. Here, we are in hot air application, meaning recycling of metal, waste, et cetera. It's also #1 globally on high-end filtration and climate control for spinning industry and weaving industry and some others. Here, we had a development with fewer major orders. There is a continued slowdown in cyclical industries, and we have had a period of lower orders received, which has been expected as we've seen the development coming this way. We also had a lower sale, but a clear increase in margins gave us a strong EBITA, and we continue to develop the aftermarket service business and it gives us a stable and profitable development. We see that even though the volumes are short, we can make profit in this more cyclical division. If we go to the textile and fiber, which is mainly sold on the brand Luwa, it's been a very challenging situation. We have a high market share, and we are impacted by a weaker demand and low capacity utilization in the global spinning mills. There's been especially a very weak trend in China and Turkey. However, in U.S., we have booked and secured 2 major orders, and we see a continuous tendency of in-shoring to the U.S. market. When it comes to foundry and smelters, we had an increase versus the same quarter last year. We had 3 large orders, including 1 to aluminum recycling. As mentioned before, we have a big focus. We have good strong cleaner solution for metal recycling, which is a growing trend. And if you look at aluminum in Europe, we have about 85% recycled aluminum, U.S. less than 40%, China less than 10%. I admit they are few years old figures, but you get the rationale here that there is a possibility for further investments in this area. There is a strong underlying sustainability trend, and that will continue the demand for these recycled products. If we go to customized solutions, both orders received and sales were lower than last year. There's a reduced activity in European, read German chemical industry. The fabulous prices of energy and those problems have made the chemical industry in Germany very hesitant to further invest there, which has had an impact on us as well. The strategic and sustainability-oriented investment ins, for example, mining and petrochems are expected to increase demand in the long-term or mid-term here. We see possibilities here, but maybe it's not going to happen in our strong position in Germany, but in other geographies. Key activities, new sandblasting, paint line, et cetera, are now fully operational in our facility in Friesenheim, Southern Germany. And we have, by that, increased capacity and reduced manufacturing costs. So we are continuing to invest to increase the -- our positive development. The rollout continued of the division's new energy-efficient fan for the textile industry, which is, again, an important aftermarket or upgrade possibility on existing business and customers. And as energy prices are soaring, we've seen a large interest in what we can see small but very innovative new products.

Financials of Process Technology. External orders received in the quarter, SEK 353 million versus SEK 419 million in Q3 last year, is 13% reduction. Sales, SEK 403 million versus SEK 555 million is a clear -- it accounts for the entire decrease for the Group in quarter 3 this year, 24% down for the division. Despite that, adjusted EBITA SEK 46 million versus SEK 51 million in Q3 last year gives a margin for this quarter just finished of 11.4%, which is extremely strong for this division versus 9.1% last year, which was not bad at all, it must be said. Year-to-date now, orders received SEK 1.19 billion versus SEK 1.45 billion last year, is 17.5% down. Sales, SEK 1.205 billion, is approximately SEK 0.5 billion down from this point last year, 29% reduction in sales. Again, despite that increased margin now up 11% for the year-to-date gives a SEK 132 million in EBITA versus SEK 167 million at this point last year. Duct & Filter Technology, Sven.

Yes. So going over to Duct & Filter, where we're under the name Nordfab and Menardi, sells filters and ductwork and suppression system. If we look at the development during the quarter, we've had a good level of orders, and we have secured orders also in new growth segment. We had growth both in U.S. and EMEA and the good and very strong profitability continues. This has been positively impacted by the investment in production facilities and machinery. We have definitely improved. We are automating the processes. We have new equipment, and we are now currently also installing the [ ADV ] is for more automated handling and the Nordfab Now, which I'll mention later. So again, Nordfab had orders received in sales in U.S. grew strongly. We have new orders in battery manufacturing and other segments. Investments being made in increased manufacturing and additional warehousing capacity also for heavy gauge ducting, which is large ductwork that goes into some of our internal use for this hot air application, recycling of metal, et cetera, and also in battery and all other. We have increased significantly our capacity. We are taking market share with our Nordfab Now concept, and we are adding also this second line of heavy-duty with more modernized new equipment, also increasing the capacity here. Nordfab Now with deliveries within 24 hours have continued to drive order volumes in Thomasville. We have and here comes also the need for the ADVs, the modernization of the semi-automated or automated warehousing and distribution because we are now unique in this that we can supply most of standard product within 24 hours. Menardi's orders received remain on historically high levels. We have efficient deliveries and high manufacturing utilization, have good profitability. We've got 1 large order, very large order, high profit, but lower margin, but very good order anyway. Helene negatively impacted manufacturing because it was in South Carolina, where we have our main factory for Menardi. The key activities is a continuation of our digitalization journey. We have now introduced BIM Object, and we are continuously rolling out that to customers and resellers, and it generates a large number of product downloads. So a combination of our efficiency in manufacturing and distribution, combined with the digitalization and simplification of the order process and also for architects to utilize our products is giving us a strong position. New laser welding system for the facility in Thailand is being installed during this quarter, and it will raise the product quality for the entire APAC region. It further increased the distance to the local competition that cannot meet this quality level.

Orders received, as Sven mentioned, was developed well in the quarter, 7.4% currency neutral growth, leaves SEK 203 million in order intake for the quarter versus SEK 195 million in Q3 2023. Year-to-date, that we are now clearly positive 2.7% currency neutral growth, SEK 592 million versus SEK 582 million in the first 9 months of 2023. Sales for the quarter, SEK 221 million, up 8.6% currency neutrally from Q3 last year, gave us a very strong EBITA margin of 20.4% or SEK 45 million, up from SEK 39 million or 18.5% in Q3 last year. Year-to-date, now the division has SEK 137 million in EBITA. That's up from SEK 121 million last year, and that is an EBITA margin of 20.6% for the year-to-date versus 19% last year. On to Monitoring & Control Technology division, Sven.

Yes, we take Monitoring & Control Technology. And during the quarter, we had strong orders received. We have a large order backlog, and that led to a slightly higher sales versus Q3 last year. NEO Monitors reported strongest growth followed by Gasmet. Sales declined slightly in Auburn FilterSense against, which we have to remember, very strong comparative quarter. Geographically wise, we have in EMEA, in sales terms, the strongest region during Q3, substantial contribution from successful project deliveries from NEO Monitors and Gasmet. Orders received were largely in line with Q3 2023. APAC orders received declined slightly, and this reduction was linked to the weak performance of Chinese economy. We saw a decline in demand here during the summer. However, NEO Monitors and Gasmet still booked several strategically important orders in the region. So it's not doom and gloom, but compared to the strong growth we have had in the region. Earlier it was a slight decline. We've also seen in APAC delays on certain deliveries, and that has been due to the request of the customers. And some of the sales is now pushed into Q4 and mainly because their facility were not ready to take on board the equipment we should ship. In Americas, orders received increased sharply in Americas, especially a strong development for NEO Monitors. We had 2 major orders to the oil and gas industry. And following introducing Nederman as a clean air company, the capability is backing the smaller company, NEO Monitors, and we are now allowed to work directly with the larger petrochemical activities. Key activities, continued investment to increase production capacity and efficiency for NEO Monitors. It's needed. We need to increase our capacity there, and we are continuing to work with that, and that's work that will continue throughout the year here. Ongoing preparations in our OTC, Operational Technology Center, for launch of the next generation of Insight products. We have got a new certificate obtained for the newly launched GT6000 Mobilis. It's a very advanced new product, which include market analysis, training for sales and partners, external webinars, and we've seen a strong interest in this new, very efficient measurement -- mobile measurement products.

Financials for Monitoring & Control Technology. Orders received up 10.1% versus -- currency neutral versus Q3 last year, SEK 208 million now. That clearly exceeded the sales of SEK 190 million. Like Sven mentioned, there were some delays on deliveries that or postponements on deliveries that impacted negatively at the end of the quarter, but still 8.3% sales growth there. The EBITA margin down somewhat to 15.8% gives us SEK 30 million in EBITA versus SEK 37 million in Q3 last year. If we look year-to-date, now we can see that order intake is SEK 626 million, that's significantly more than the sales of SEK 583 million. So we can see -- anyone analyzing this can see that the order backlog has increased in the division in the quarter, which bodes well for coming quarters. Adjusted EBITA, SEK 97 million versus SEK 104.6 million for the first 9 months of last year, means that the margin is now 16.6% versus 19.7% for the first 9 months of 2023.

So if we -- coming into the outlook, we can say that demand is slightly slower, but our base business and strong digital range mean we are asserting ourselves well in the current market. Even if the performance of our division is largely positive, there is a risk that, for example, current interest rates, weaker economic development will impact customers' investment. And we have already seen that. Whether that's going to continue or not, that's -- we will see. Of course, geopolitical uncertainty is another one. But with our large order backlog and our ability to increase our share of sales in the industry with good structural growth, we take a cautiously positive view of development in the coming quarters. Even if the outlook in our industry could be temporarily dampened by various external factors, the long-term potential remains. And in a world with growing insight into damage that poor air does to people, Nederman, with our leading position in industrial air filtration, has a key role to play and a good potential for continued growth. So it's also so that it gives opportunities in a tougher market situation, we continue to strengthen our position in this current environment. And as our Englishman in front of me, we can say that Winston Churchill said never let a good crisis go to waste. It also opens up for good moves and strengthening of our position. So some upcoming dates. The year-end report for 2024 will be released on the 13th of February next year. The Interim Report Q1 will be on the 25th of April. The Annual General Meeting then 4 days after on the 29th of April. Q2 report will come out on the 15th of July and the Q3 report on the 23rd of October next year, some dates for your calendars there. And with that, I think we can open up for any questions that listeners may have.

[Operator Instructions] The next question comes from Lina Blume from Handelsbanken.

So firstly, on Group level, is it possible to give some color on which industries that are currently driving order intake? Is it still industries such as battery, renewable energy, and metal recycling that demonstrates higher growth versus the more traditional industries? Or what can you say about that?

It's not as simple. But generally speaking, metal recycling has had, as mentioned, not only aluminum but others also there, there is a lot of recycling and need of upgrade. We have aluminum, we have lead recycling and et cetera, where there's still some activity, where we've seen that it's a little bit weaker or definitely weaker in some European is the woodworking industry due to the lower activity in construction industry as well as consumer in -- yes, furniture, et cetera, that has been definitely been weaker. So everything that goes for recycling is doing better than the rest.

Perfect, thank you. And then also, there has been a lot of discussions regarding overproduction of battery manufacturing in China, affecting competition and driving price pressure across several other markets as well. How is this impacting Nederman?