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

The Nederman Holding Q1 2025 Report Presentation. [Operator Instructions] Now I will hand the conference over to speakers, CEO, Sven Kristensson; and CFO, Matthew Cusick.

Good morning, and welcome to this session where we are presenting the Nederman interim report for Q1 2025. If we start with some summaries, we can say we had very strong orders received. Three of four divisions had solid order intake, and two of them actually had record quarters in a very turbulent time. We continue to advance our positions in a number of areas. We have an extremely challenging macro environment. We have finalized and are still building on some further investment in operational efficiency. We do have a very high level in the newly inaugurated innovation center in Helsingborg, and we do have much better presence in structurally growing industries, which has been important in order to get a good order intake. And we also, during last quarter, finalized the acquisition of Euro-Equip in Spain. And a few words about Euro-Equip. Why did we do it? It strengthened Nederman's Process Technology division in foundry, metal recycling market and, as we say, hot air applications. It's a strong market position. They are selling equipment to foundries, metal recycling and especially aluminum smelting markets. Nederman and Euro-Equip has a very long working relation where we have cooperated for decades. It gives us a sales structure and a support structure in the Iberian Peninsula and parts of Latin America. They have a headquarter in Lezama, in north part of Spain, Basque Country. And we paid about EUR 15 million for a company that has a turnover of EUR 22 million last year.

If I move on to some key financials for the Nederman Group for the quarter then. As Sven mentioned already, orders received was rather strong, just over SEK 1.5 billion, a very small reduction versus a strong quarter 1 last year as well. It is the first quarter since Q1 last year where we've been over SEK 1.5 billion in order intake for the group. So we're generally satisfied, and this is with obviously only three of the four divisions having a strong position. Currency neutral, we were down slightly, still 1.8% versus Q1 last year, organically minus 3%. Then if we move on to the sales. Currency neutral, I had to check if my calculations were correct, but it was exactly 0.0% change versus last year, SEK 1.406 billion versus SEK 1.397 billion in the same quarter last year. That's obviously lower as we were flagging already after Q4 that we were entering the year with a lower order backlog than we had 12 months previously. What is positive for us, of course, is we've built up a backlog of approximately SEK 95 million in the quarter. So that bodes slightly better looking forward. When it comes to profitability, ultimately, EBITA was down by SEK 31 million to SEK 143 million versus SEK 174 million last year. There are some one-off effects that impact the result quite significantly that we ought to flag there. We mentioned already in Q1 last year, there was a comparative figure boost. Q1 last year was boosted by SEK 11 million, which was a pure accounting booking relating to a subsidiary liquidation that we completed in quarter 1 last year. The impact of the strengthening Swedish krona as well and the rapid depreciation of the U.S. dollar, particularly at the end of the quarter, also made a big impact. So approximately SEK 20 million of impact that hits comparability. We also, a little bit further down the income statement, have obviously some acquisition expenses. We did a full thorough due diligence in relation to Euro-Equip and that's been expensed now. So that -- there's nothing we apologize for, although it does ultimately impact earnings per share. Earnings per share in the end ended up at SEK 1.69 versus SEK 2.57 per share in the very strong quarter 1 last year. Moving on to the cash flow and net debt. Euro-Equip, obviously, an acquisition for almost SEK 150 million, has an impact on cash flow. We acquired them just prior to the end of the quarter. So we have the debt on the balance sheet but very little income from them yet. That will obviously change going forward. Cash flow from operations in the quarter was positive, SEK 15 million, is down significantly versus last year. The main reason behind that is the reduced order intake in Process Technology. Large orders in the Process Technology division, on receipt of them, they're typically -- we typically see large down payments from customers as well. A lack of those has impacted the cash flow from operations somewhat. Other working capital has remained rather constant in terms of inventory and receivables and such. When we move on to net debt, I've given the figures, you see the chart, including and excluding IFRS 16. The impact of the leases on these two premises that we entered into last year is quite significant. You see the turquoise on the charts there. But net debt, nevertheless, excluding IFRS 16, has increased by approximately SEK 130 million, SEK 140 million versus 12 months previously. During that time, we have acquired Euro-Equip, Duroair and Olicem as well in Denmark. So three acquisitions there obviously making an impact on the net debt. That's a brief summary of the financials for the group as a whole. If we move then on to the divisions, Sven, and start with Extraction & Filtration Technology first.

Yes. Extraction & Filtration Technology. During the quarter, we saw the strongest ever orders received, which is a good thing. It was boosted by major orders, and it was particularly strong in America in contrary to what we will see in Process Technology. We also have been working, and we've been highlighting that for a long time, the aftermarket and service. And we have here in the quarter double-digit growth also for the service segment, which is important. We did have a much lower order backlog moving into this year, and that means that sales are lagging behind the comparative quarter. Eight out of ten major orders were in U.S. As I mentioned before, they are doing well in welding, wood, defense and green energy, EV batteries, et cetera. We are now also further negotiating to exchange some Asian filter supply to EV batteries in U.S. when they realize that they are not compliant and not working very well. We'll see how that comes out. EMEA saw stable order flow during the quarter, and there's a solid base business. APAC noted a slight slowdown, but we grew a little bit versus last year's Q1. And if we talk about the attitudes, it's quite interesting. It seems like Germany are getting more -- they're getting a backbone now and starting to talk about future instead of being overdepressed. So we'll see what that will lead to during the rest of the year. The key activities, relocation of production in Helsingborg was completing, and we had February 11 full inauguration. We have also seen that when we look at the tariffs and so on, division has a very significant manufacturing presence in U.S. The vast majority of materials are sourced in U.S. And we will, of course, continue to monitor effect of the change in tariffs, but roughly 85% of the content is America origin for this division in U.S., of course.

On the financials for Extraction & Filtration Technology. Orders received, obviously, a strong increase, 10.7% versus last year, up to SEK 684 million versus SEK 616 million last year. Sales, SEK 50 million lower than the order intake, so SEK 635 million, was almost in line with the same quarter last year. And with the acquisition of Duroair, they have a cost increase. That means that, that results with the sales being flat, a reduction in profitability. I can't blame the full EBITA reduction on the Duroair, it must be pointed out. Big positive here, 11% increase in order intake. Quite clearly very strong for the division. Process Technology then, Sven.

Yes. Process Technology, we had low order intake in the quarter. There's a lack of major orders in the first quarter here compared to a slightly better Q1 2024. We have seen that there has been a hesitancy to sign the final papers for large orders, especially in U.S. And we've seen a few orders that we expected in the pipeline to maybe be materialized to orders during this quarter that has been pushed forward. So we also had a lower order backlog when we moved into 2025. And then again, of course, since it's long term and long cycles, we have lower sales as well in Q1. And as mentioned, there is a very cautioned customer base, especially in U.S. And it's not so much the tariffs in itself, it's more the uncertainty that is spread. We do have a very strong quotation pipeline. And it's also so that we are entering into negotiations with lost orders or orders that we walked away from due to the fact that competitors have filed for Chapter 11, they have not been able to finalize the project, et cetera. So there are a few that we are coming back to again. So we are cautiously optimistic that we will see some change during the latter part of the year as long as the fog is lifting from this turmoil around tariffs and so on. If we look at textile and fiber, there's a continued overcapacity in spinning, and we can see that has an impact. However, sales were in line with Q1 2024. We are taking market share. There are competitors that are leaving us. Foundry and smelters, Euro-Equip acquired and is a very good strengthening on market areas or especially geographical areas where we haven't been as strong. Low orders received but the profitability is still solid. When it comes to customized solutions, we had low orders received and sales. And this segment is particularly reliant on major capital investments. So it's a clear risk of continued dampened demand in this segment. Key activities, of course, integration of Euro-Equip. And as mentioned, the U.S. tariffs have not had any material impact on the division's product flow, but we will continue to look at it. Where it has the impact is the uncertainty that it creates.

Financials for the Process Technology division then. Order intake, SEK 344 million versus SEK 486 million. So it's down, currency neutral, nearly 30%. It must be pointed out, Q1 2024 was the strongest quarter, I think, in the last 2 years. So it's tough comparatives. But nevertheless, SEK 344 million is low for this division in order intake. Sales, SEK 354 million versus SEK 392 million. Again, we were flagging for this with the backlog going into the year was low. This is the lowest sales quarter almost since pre-pandemic times. Adjusted EBITA, still at 6.8%, SEK 24.1 million. But that's clearly down versus SEK 31.5 million and 8% that we did in the quarter 1 of last year. And a little look the chart on the top right of the Process Technology slide, you can see the backlog is lower than it has been for quite some time. But nevertheless, there is still a backlog there. If we move on to Duct & Filter Technology, Sven.

Yes. Duct & Filter Technology for Q1, again, strong orders received, and it was in many areas, but mainly driven by Nordfab U.S. We had a continuous flow of major orders from manufacturers. EV batteries, we have sharply improved sales. We have a solid backlog, continued positive trend in the quarter. So if we go -- especially in the Nordfab, where orders received and sales in the U.S. grew sharply versus the comparative Q1 2024, and we have strong profitability. We had new record order intake for duct into the EV battery segment. Orders and sales grew in EMEA versus a modest comparative quarter. And there are still clear fluctuations in orders and sales between quarters in APAC. Positive development in Australia and new laser welder installed in Thailand to improve efficiency and quality. Menardi's orders received increased well versus Q1 2024, and our rapid delivery capabilities have resulted in several new orders during the quarter. We are a niche player, and we focus to support our own business. And when we are close to the market, manufacturing is mainly in U.S., we can supply on short notice. Key activities is the expansion of the facility for larger dimension ducting. And we have, as you possibly remember, already earlier last year, inaugurated a completely new addition to the facility where we do the traditional QF duct. Now we are expanding also where we do the large dimension ducting. We have also during the quarter inaugurated the completely automated warehouse in Thomasville, which is another efficiency boost, which you can see drives also up profitability. At present, the impact of tariffs is very limited. And most of the manufacturing is local for the market where we are operating.

If I run through some very strong financials for Duct & Filter then. SEK 224 million in external order intake, is up from SEK 184 million, up 19%. Sales at SEK 240 million versus SEK 207 million last year is 14% growth. And then the EBITA increases from SEK 43 million to SEK 53 million and an EBITA margin for the first quarter of the year of 22.1%, which we are obviously very happy with. If we move on to Monitoring & Control Technology then.

Yes. Again, strong orders received and, again, a division that had a new record order intake for a single quarter. January was very slow but picked up in February and especially in March. NEO Monitors is starting to benefit from increased production capacity and efficiency. We are continuing to shape up that manufacturing site in Oslo, Norway. Profitability, clearly up versus Q1 last year. EMEA, we have seen order intake growth. We do have a strategy to grow in service business, and that is developing well. We started -- when we started and we acquired this company, it was a very low portion that was repeat business and service. We have gradually increased that, and we also incorporate our digital solutions that enhance the capability of doing remote service, remote calibration, et cetera. Collaboration between the business unit is increasing further, and we have an ongoing adaptation of Auburn FilterSense product line for Europe. We have also a full test setup in the new innovation center here in Helsingborg, where they have a long-term test, a capability we didn't have a year ago to do in-house. So we are looking forward to see the capabilities here and the result. We will also start selling in larger scale AFS products in Europe end of the year. In APAC, several major orders received, especially in China, and we have here an increased focus on direct sales. Especially NEO Monitors has performed very well with orders and sales going up. The local service grown for a new hub in China, we have set up a small service hub in our factory in Suzhou, where we can do service, we can do calibration. And instead of having to send and ship over to Oslo, we can now do the basic service in China, which has been received very well among our customers. In Americas, orders received increased sharply. All business units reported favorable growth. Auburn FilterSense delivered in line with its current capacity. So we come then, continued key activities is to increase NEO Monitors' production capacity. It's also been taken a decision to increase the production capacity in Boston, U.S. and it will commence in near time. Production in U.S. is in one site, and we have in Europe two sites. It's, as I mentioned, Boston and it's Oslo and Helsinki. There's no major change to product flow currently planned, and there are contingency plans in place for change in tariffs, including for some component sourcing if deemed favorable and necessary.

Financials for the division then. External orders received, SEK 249 million, which is very strong for them up -- a record quarter, as Sven mentioned, up 6.6% from a strong quarter 1 last year of SEK 234 million. Total sales, clearly below -- a long way below orders received, almost SEK 50 million below. SEK 198 million in sales versus SEK 187 million is still an increase of 5.8%. So on sales of less than SEK 200 million, the division has managed to do an 18% EBITA, which is SEK 35.6 million. The outlook going forward then, Sven, the crystal ball.

Yes. Absolutely interesting to try to do. But demand continues to be slightly slower. Investments are a bit -- investors are a bit hesitant. But our base business, our growing service business and the very strong digital range enable us to assert ourselves well in current market. We do take market share. Even if the performance of our divisions are largely positive, there's a risk that current very uncertain market environment can continue to impact customer investment decisions in the quarters ahead. We don't know. Some are doing very well, some are doing less well. And I think we have to see and we will see that pattern. Our order backlog remains good, and we have a strong offering, enabling us to advance our position even in this challenging macro environment. And again, in a world with growing insight into damage that poor air does to people, Nederman, with its leading industrial air filtration offering, has a key role to play and good possibilities for continued growth.

The upcoming -- financial calendar for the upcoming period then. The Annual General Meeting is next week on Tuesday, the 29th of April at 4 p.m. here in Helsingborg. The preliminary record date for the dividend that is proposed to the AGM is the 2nd of May, and the distribution is scheduled for the 7th of May. The interim report for quarter 2 will be released on the 15th of July and the interim report for quarter 3 will be released on the 23rd of October this year. 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.

As you mentioned in the report, it is expected that the growing geopolitical uncertainty will have a negative effect on order intake in the coming quarters. But is it possible to say anything about the current order trend, if you're already at the end of the quarter or now in the beginning of Q2 have noticed lower activity?

No. I think that it's been a very interesting Q1. Started very slow, turmoil in February, very good bounce back in March when it comes to order intake. And you can see that because it came fairly late, it continues. But it's very volatile. And the ones -- you see how good the specialties, MCT is doing, Duct & Filter is doing, and order intake also in EFT has been on a record level. Then PT had suffered or has suffered both in December and the first quarter, that these mega large projects where we are a small portion of has been pushed forward. And we don't know when they will start again. On the other hand, we are coming back and are invited again to orders where we clearly said to a customer or a potential customer, we can't do it this cheap. We cannot do it on sort of this light model that has been -- because it just won't work. We have 3 actual cases where we are now reinvited because one, doesn't work; two, the supplier has gone bankrupt during the meantime. So we still stick to our price discipline, high-quality supply, and we believe that there will be rather rebound later on. But the coming 2 quarters can be very, very volatile with the 90 days of tariffs and so on. Investor wants to see -- or the boardrooms want to see that we have -- the fog is lifting and we know what we can expect in that. So it's been very interesting period where we have growth in three divisions, record order intake of two of them, and one that has had a very, very weak order intake.

Okay. Perfect. And then in the Extraction & Filtration division, you mentioned that profitability was dampened by fewer medium-sized orders, but usually have higher margins. Is this a trend that you expect to continue, like in the order trend? Or is it usually something that can differ quarter-to-quarter?

If you look at Extraction & Filtration Technology, they grew their backlog by approximately SEK 50 million in the quarter. They were lacking these midsized orders that were in the sweet spot, but we've had a very good order intake this quarter. So we are expecting these orders that we've received will also boost the utilization in our factories as well. And I think you will see some bounce back on the profitability going forward. That is, of course, dependent on the continued order intake, which is the big question mark. But those midsized orders are nice to have, and we flagged already after Q4 that we were lacking a bit of backlog going into Q1. I think this is quite low margins in the quarter, and you should not expect that level going forward. Anything to add on that, Sven?

Yes. But I think into the volatility, if you look on the last month of the quarter, the picture would have been significantly different, if I put that way.

Perfect. That's clear. And then just a last question from me, also in Extraction & Filtration. You mentioned that orders were secured in data centers. Could you give some color on what your offering is to the data center industry? And would you say that this is a growing industry for you as a share of sales?

I wouldn't say it's a growing industry for us. We have some niche products that we are -- again, we have high-quality products that can in some areas be used. I would say the key development is rather that we are now getting into battery manufacturing, where the normal Asian supply has not functioned as it should and it's not fulfilling all the regulations. So that is an area. We are also coming back into other areas where we have not traditionally been present. As you know, we have been very strong and still is in welding, wood, composite, et cetera. We are now coming into more areas like food, mixing stations, chemistry, and so on as an alternative to a weaker demand in the traditional industry like wood. You all know about the housing market, the furniture market, windows, doors, et cetera, has not had a good demand. And we have altered that into a number of others and broadened our scope because it's the same product, it's just a different application. And we are always cautious. So when we go into new applications, we try and put a foot in the water and see can we handle this and how do we do it, how do we know and handle the processes. But generally speaking, it's exactly the same product. It's just how you build the system around it.

[Operator Instructions] No more questions at this time, so I hand the conference back to the speakers for any closing comments.

Thank you very much. Thank you for taking the time listening. And the takeaway from this is that it's turmoil, uncertainties, but we have a very strong order intake and we are committed to continue to develop. And we see that despite the turbulence, we are continuing to strengthen our position as the market leader. And we, therefore, have a positive view for the rest of the year. However, the turbulence might make it a bit bumpy on the way. So thank you for taking time listening.