Nilfisk Holding A/S (NF1.F) Earnings Call Transcript & Summary

Good morning, and thank you for attending the call. I am Antonio Tapia, Head of Investor Relations at Nilfisk. Today, we will present the announcement for Nilfisk leadership changes Q1 trading update and adjusted 2021 full year guidance. To present this announcement today, we have our Chairman, Jens Olsen. And before we begin, I would like to remind you that this presentation may contain forward-looking statements that, for a number of reasons, should not be relied upon as a prediction of actual results. I therefore encourage you to read the content on this slide in connection with the presentation. And with this, I will hand over to you, Jens Olsen.

Thank you, Antonio. And again, good morning, everyone. So first, I would like to take you through the leadership change. We have decided in the Board to appoint Torsten Türling as new CEO of Nilfisk; and Reinhard Mayer as the new CFO. Torsten will start no later than June 1 and Reinhard on June 1. Over the past years, Hans Henrik has listed Nilfisk, initiated new strategy, streamlined our business portfolio and operations and made a major cultural change in the company, amongst others. These have all been good and necessary changes that we can build our future on, and we are grateful to Hans Henrik. Prisca has joined later, but Prisca has also made a valuable contribution into the company, not the least for steering the company through the latest difficult times, including restructuring to save cost, preserving cash and also improving our financial governance. Thank you also to Prisca for this. While we have done all of these things, we have also lost some ground in the market. We would like to continue with the transformation but we would also like to ensure that visions and strategies are quicker converted into action plans and results. This is absolutely necessary for Nilfisk to continue to be a leader in the professional cleaning equipment industry. Torsten Türling has extensive international CEO experience in B2B as well as in B2C markets. He assumed leadership positions in the Linde Group and Carrier Corporation and successfully executed major performance improvement programs as the CEO of the publicly listed compliances company, Frigoglass; and since 2015 of private equity owned Ideal Standard, a leading manufacturer of branded sanitary ware. Torsten Türling holds a Master's Degree in Business Administration and Management from the University of Saarbrücken and from EM Lyon Business School. Reinhard Mayer is an accomplished finance leader with a broad international experience from medtech to consumer businesses. He has held several CFO positions in global manufacturing and technology companies, including Swedish-listed Getinge Group. His leadership experience also covers responsibilities for IT, legal and compliance, supply chain and M&A. Since 2017, Reinhard Mayer has been the CFO of Hansgrohe Group and part of a strong profitable growth journey. Reinhard Mayer holds a BSc degree in Business Engineering from Karlsruhe University of Applied Sciences. Making 2 major changes simultaneously can seem very risky, and the exact timing is not by design, but dictated by the fact that it takes a while to search and conclude a recruitment. And during COVID-19 restrictions, it takes longer and then it's also dictated by the timing of reaching an agreement with a new team. Turning now to our trading update. Based on preliminary unaudited figures, Nilfisk reports revenue of EUR 238 million, corresponding to an organic growth for the total business of 11.9% and an EBITDA before special items of EUR 36.4 million, corresponding to an EBITDA margin before special items of 15.3% for the first quarter of 2021. The strong performance in the quarter is driven by positive and earlier-than-expected development in demand recovery in the professional branded business and strong high season sales in the consumer business. In connection with the annual report 2020 on March 3, 2021, Nilfisk announced its financial outlook for the full year 2021 as follows. Organic growth for the total business expected in the range of 5% to 10%, and an EBITDA margin before special items in the range of 12.5% to 14.5%. As a consequence of current strong trading conditions in our key markets and improved visibility for Q2, including a strong order book, which, in particular, in the industrial segment can be the result of pent-up demand, we adjust the outlook for the full year 2020 as follows: organic growth for the total business is expected in the range of 8% to 12%, and EBITDA margin before special items in the range of 13% to 15%. The range provided reflects the better-than-expected performance of the business but also a continued uncertainty related to the development of the COVID-19 pandemic and supply chain constraints, including pressure on freight and raw material prices. To put slightly more favor on the release, we do see a recovery across all markets and growth, and consumer and private label continues to be higher than in the professional branded business. With this, we would like to open the floor for Q&A session.

[Operator Instructions] The first question comes from the line of Mikael Petersen from SEB.

I would like to ask if you get any flavor on the growth development in the first quarter. And to the certain regions, I know that APAC has been struggling quite a lot during 2020. So maybe give some flavor on that. And if you could split APAC into China and other Asian countries.

Yes. Thanks, Mikael, for the question. We will come back to a more detailed announcement on Q1. But again, as I mentioned before, we do see organic growth improving across the board, and that is also in Asia Pacific. It is also included in China. We also see a nice and solid development in the U.S. but again, also in EMEA, which is our core market.

Okay. And then maybe you mentioned also the consumer and the private label brand is performing well. Can you try to elaborate on exactly what is driving this?

Yes. I mean, as we've seen over the past year, we have seen actually a higher-than-normal organic growth in the consumer segment. And this, believe we have been driven by COVID-19 restrictions leading people to more home improvements. We have also here lately released new products in our consumer business, and that and the sales into the high season and continued COVID-19 restrictions in certain markets, we believe leads to higher than, I would say, expected organic growth, in particular in the consumer business. And private label is also improved by these facts as well.

Okay. And then maybe a final question regarding the profitability, which seems quite high in Q1. Do you have any like, temporary savings or any special items that is affecting the profitability positively here in Q1? Or is it just simply the underlying improvement in the business that's generating the high margin?

I mean it is, first and foremost, the leverage from higher revenues that flow through to the bottom line. Having said that, if you do the math, you will see that there's a higher flow-through than normal. And just to remind you that we are still not having the regular OpEx that we normally have in our business. There's still travel restrictions. We still contain cash. We still contain spending. And I would say -- so that works positively in our favor. On the other side, we do see -- and this particularly hits us on the gross margin line, we do see increasing inavailability of certain components. We see higher freight rates. And then, of course, has a negative impact on our gross margin. But all in all, it is positive. And maybe we see a slightly higher flow-through at the moment than what you would normally see from the revenue development.

The next question comes from the line of Kristian Johansen from Danske Bank.

A couple of questions from my side as well. So Jens, you say that this process of recruitment has taken a while. Also, I obviously noticed that you're able to get the new leadership to start within just a few weeks. So would it be fair to assume that the decision to make this change and initiating this process was started long ago before you had clarity on Q1 performance?

Yes. I mean -- thanks for the question. I mean maybe just to state the obvious. The second decision is arrived at, we, of course, reported to the market. Deliberations have been there for a while. And of course, it takes a while to identify, first of all, to realize that we potentially want to make a change, but also to realize -- to identify suitable candidates, to interview candidates. And that takes longer than normal at the moment due to COVID-19 restrictions. But it is not until yesterday that we actually made the decision, and we're able to sign with a new team.

Okay. I understand. Then you state that you have lost ground in the market. Can you maybe elaborate a bit on that? Where is it exactly you feel you've lost ground?

Yes. I mean, it's, of course, easier to compare with our listed peers, but also when we compare across the board, we have seen less or negative organic growth for a while, in particular in the U.S. market, but also more likely in the Asia Pacific market. And here, we have lost ground to local competition in both places. In EMEA, we feel that we have more than held our own -- or not feel, we know that we have more than held our own. But the European market has grown just by less -- simply by less than, say, the U.S. market, which has seen higher growth for quite some time. And when you add all that up quarter by quarter by quarter, and we consider ourselves a global player, then we are, in fact, losing ground.

Understood. Will there be changes to the management layer below CEO and CFO as well as a consequence of this?

No, that is definitely not the intention. We have a strong management team. Hans Henrik has built a strong management team and they are all experts within their field. And I think, in fact, one of the major changes Hans Henrik has done in the company is to sort of increase the pride of working in this industry, but also to make a cultural transformation in the company that has enabled us to recruit very, very good people. So we are very pleased with the people we have.

Okay. Then as you also mentioned, there's been a lot of strategic changes, a lot of -- I mean, special item costs to execute this. When you now get a new leadership team on board, will they be allowed to totally revisit the strategy and make changes if they feel necessary or what's our mandate?

I think the strategy is always a continued process. And of course, the new leadership team also has to have a footprint of the strategy. But that the strategy is decided between the new leadership team, the existing leadership team and the Board. And I think directionally, the new leadership team also feels that we have the right strategy, but of course, they have to get in here and do [indiscernible] with the leadership team, of course.

Okay. And then just my last question. I have to ask now, you're getting a new leadership team on board. Your biggest competitor, Tennant has also changed their CEO. Is this the opportunity to get in dialogue again with Tennant?

That, I don't know. I mean we do believe that there's room for consolidation in the industry. We think there's a lot of merit of consolidating the industry. But whether the timing is now or later or never, that is too early to say.

The next question comes from the line of Stefan Lindblad from Ambergate Invest.

Stuart Stefan Lindblad here. I have sort of a question on the leadership change. When you do sort of the restructuring that you've done, many times, it sort of takes away focus from sales because you have to sort of integrate the business. And you've made a lot of acquisitions in the past. It takes away sort of the focus on the sales. Is the change now sort of done on the back of that to sort of focus more on sales to grow the business and that the structure is sort of set in place?

Stefan, good to hear from you. It's been a while and thanks for the questions. I mean, I think in businesses, you continue to have to change to progress. Having said that, I think we have made a lot of changes. And I think, in particular, in our product organization, in our -- and in our supply chain organization, we have made a lot of changes. We've consolidated factories. We consolidated distribution centers. We have pruned the product portfolio. And in fact, if you consider our strategy, this is a year of turning back to organic growth. And it's good to see that -- I know the year-over-year comparison is fairly easy at the moment, but we do see solid organic growth at the moment, and that is driven by not only product introductions, it's also driven by the strong sales team we have, it's driven by good inroads into bigger and more national accounts in the various markets and also driven by, frankly, an improved distribution setup when we go in direct and not direct. So we can see a lot of things that have been set in motion actually starting to work. So it's definitely not the plan to move away from organic growth. We think with the margins we are seeing at the moment, organic growth is very, very profitable. So sometimes you need to restructure before you grow. And I think we have a lot of restructuring behind us. But still, there's still a lot of things we need to get done, interfaces between procurement, product development, sales, this whole flowback mechanism from what do customers want to, what are the products we develop and how do we produce it with a few components as possible, things like this, that takes a while, and that continues, but we have the right team to do this. And while we do that, I think all the commercial efforts and we have invested quite heavily in our commercial efforts. All the commercial efforts, of course, continue with full effect. So no plan to move away from organic growth initiatives.

What I mean is sort of more of the opposite, Jens. You're aware, when you do the restructuring that you've done, it's difficult to do the restructuring and then focus on the customer at the same time. It sort of takes quite a lot of energy to do all this integration internally and to set up the structure that you have, and maybe the customer focus has lacked a little bit. Is the new management change now done to sort of move away from maybe the internal focus to more of external focus, if you know what I mean?

Yes. I mean we need organic growth to basically recover lost ground. So of course, the change is done to do exactly that. Having said that, I think our prior team was also organically growth-focused. But you're absolutely right, when you have to prune your product portfolio, when you have to prune your company portfolio, it does tend to take focus away from organic growth, and that has been seen at least in the first couple of years then we were hit by COVID-19. But I think now all the efforts are pointing in the right direction, and the new team will help reignite organic growth.

[Operator Instructions] The next question comes from the line of Casper Blom from ABG Sundal. Sorry, he just disconnected. Instead, we have a question from Kristian Johansen from Danske Bank.

Just a follow-up on special item cost, this leadership change, can you quantify how much that will add to special items cost in 2021?

No, I mean, there are no current plans, except for what we have guided for this year. And the special items that you see this year are primarily related to the cost reductions that we initiated. So no current claims.

So the cost of changing leadership will be included in the normal operating growth?

No, but that has not been -- that has neither been negotiated or concluded yet. So of course, there will be an effect from that, but that is not decided yet.

The next question comes from the line of Casper Blom from ABG Sundal Collier.

Jens, just a question regarding Q2. You mentioned that you have a fairly good order book looking into Q2. I think the previous team has often mentioned that there is normally quite low visibility. So I merely wanted to take it, is this sort of firm orders that you're looking at? And does it also stretch beyond the second quarter?

Yes. Thanks for the question. It is correct that our visibility is often fairly limited and orders don't really reach that far into the future. We do see a significant spike in our order book that our supply chain organization is trying to work down as we speak. But I think we and others are also, at times, impaired by -- or impacted by the lack of certain critical components, but also by difficulties in shipping the trade lanes. We -- our order book carry us further into the future right now. Of course, orders can be canceled if we do not live up to our delivery schedules. And certain orders can be canceled anyway because we typically never insist with our customers if they have an issue with something, we typically find a way out. But yes, we do have improved visibility. And this is also why we -- in spite of uncertain times that we actually dare to increase our full year guidance, both on the organic growth level, but also on the EBITDA, that is because of this improved visibility.

Great. Then a question to the profiles of the new management team. I recall that when Hans Henrik was hired some years ago, that was sort of a communication that he was a very short communicator. As really one that could sort of stand up and tell the story and market Nilfisk, which is probably also relevant in connection of the separate IPO. If you were to sort of put a couple of headline works on the qualities of the new management team, what would they be?

I would say, first and foremost, and this is not taking anything away from Hans Henrik because I could say the same thing about him, but first and foremost, good people, strong ethics, good values, and this is something we cherish a lot in our organization. They're also good team players, which is also -- it sort of fits very well with the culture we have in Nilfisk. So that is first very, very important. Then I would say both gentlemen have a strong skill set across the value chain of our business all the way from product development to sourcing, to manufacturing, to distribution, to sales, service, et cetera. They have both worked on the different ownership structures, listed companies, private equity, privately held companies, and they have great results. So I think both of them are actually -- they have a history of converting visions into actionable plans and results. So they can spend both from strategic leadership to, I would say, if I go into a lot of details, they are process-oriented. They are end result-driven. So I think it's a very good combination that can build on top of the listing of Nilfisk and the visions that we created for the company and the change of culture. I think this is a very good sort of second step to initiate into our company.

That sounds very promising. And just a specific follow-up on your new CFO. He has a past with Getinge in Sweden, another listed company. It's my understanding that tenure there was relatively short for personal reasons. Have we sort of tried to make sure that we won't see that, that have made...

Yes. I think -- I mean there were personal reasons and personal reasons, of course, are personal, but this is nothing that has any -- that raises any flags or alarms or anything like that, and nothing we find relevant in our company.

Thank you very much. If there are no further questions, I will hand the word back to the Chairman of the Board for any closing remarks.

All right. Thanks, everyone, for listening in, and thanks for the very good and relevant questions. So this is -- we are also, of course, available later today, should you want to have a follow-up. So thank you from Stefan, Antonio and myself. Have a good day.