Good day and welcome to the NKT A/S Q1 Report 2017. Today's conference is being recorded. At this time, I'd like to turn the conference over to Mr. Michael Hedegaard Lyng, Group Executive Director. Please go ahead, sir.
Thank you, operator, and good morning and welcome to the NKT webcast, covering the results for the first quarter of 2017 that we released this morning in the form of a Q1 report for NKT and a separate Q1 report for Nilfisk. My name is Michael Lyng, President and CEO in NKT, and today's presenters are unchanged compared to last time. So with me today I have Karina Deacon, CFO in Nilfisk, and also Basil Garabet, CEO of NKT Photonics. I will start with a short presentation on where we are on preparing the split of the company, and we will continue with some overall performance comments for the total group before I make a deep dive into the cable business. After that, Karina and Basil will do the same for their businesses before we then will end with a joint Q and A session.
If we look at slide 5, the intention to split NKT into two separate listed entities remains unchanged, and that is also what is illustrated here in the way that we are reporting numbers for Q1, where Nilfisk in the NKT accounts are treated as discontinued operations and then supported by a separate Q1 report for Nilfisk. The plan is unchanged, and we also received the mandate, or the BOD received the mandate to prepare and also to execute the split of NKT. What is also here worth to mention is that we have changed the name of NKT Holding into the future name, just being NKT. And you can also see that the logo of what used to be called NKT Cables are now just NKT, and you can see the new logo here on the slides.
So we are preparing everything, and if we look at the next slide, you can see the expected timeline for the split. Today, we have the Q1 report, and then early August, we expect that the new CEO of Nilfisk, Kent Michael Lund, will join us formally. It is also here worth mentioning that he already today is spending significant time with the company and with the group in order to really get into the business so that he can hit the ground running in connection with August and also release of the Q2 interim report August 17th. After that, we then expect to do the split in the second half of the year, and hopefully be done with that before the release of third-quarter announcement here set to be November 15th.
Another thing that is worth mentioning here is that by somehow dissolving the NKT Holding as a group center or conglomerate center, we have now included all the NKT Holding costs into the former NKT Cables business, now just called NKT. With that technical explanation, we can move on to slide number eight, looking at some of the highlights for Q1 2017. Let us start with NKT, the former Cables business. Here we saw revenue of EUR 180 million, which is slightly up compared to last year, EUR 22 million up. Here it is also worth, from a technical perspective, to mention that we completed the acquisition of ABB High-Voltage Cables March 1st, 2017, and thereby, they are consolidated into our accounts from that date onwards.
If we look at the organic growth, we are reporting -8%, and that is more or less purely related to the ABB business, which is year-over-year down with 7% in March this year compared to last year. If we adjust for that element, then we see a more or less flat development in the former NKT Cables business. Looking at the operational EBITDA of EUR 17.8 million and margin of 9.6%, we can conclude that we are up compared to last year, where we reported 12.1% and 7.4% adjusted and including for ABB. Again, here we can see that there is a limited correlation between the top line and the actual earnings, and that is, of course, purely related to the project business as we have discussed many times before.
Another highlight for the quarter is that we introduced the world's most powerful underground DC cable system, 640 kilovolts, and I will come back to that later on in the presentation. It is also worth mentioning here that we finally divested our automotive business, not impacting the first quarter because it was closed end of April this year. But from that day onwards, it will not any longer be consolidated into the numbers. So overall, a good performance in Cables business, and underlined here by the margins, where we have continued to do and drive the company transformation. If you look at NKT Photonics, we saw a revenue of EUR 7.5 million, which is slightly up compared to last year. However, we do see a negative growth of 18% in the quarter, but we should not really be so afraid of that.
We are still guiding a solid organic growth of 10% in the full year, so we expect to see some strong quarters ahead of us, also supported by a very strong sales pipeline. But Basil will give more flavor to that later on in the presentation. For the Nilfisk business, we saw a solid performance in the business, and we are reporting organic top-line growth of 5%, divided into 10% up in U.S., EMEA up 6%, and then a flat development in APAC. However, still worth to mention that we saw positive growth in China. On the back of that, we also saw increased growth margins, and we also saw the fixed cost ratio declining, but Karina Deacon will put more flavor on that later on in the presentation.
But all in all, we are reporting solid 13% margins in the quarter, significantly up with 2.3 percentage points from first quarter last year. Let's move on to the outlook for 2017 on the next slide, and we can do that pretty fast because we are reconfirming our guidelines. We updated the outlook in the beginning of April where we included the impact from ABB into the numbers for NKT, and here we are maintaining what we said back April 11th, a top line of EUR 1.1 billion measured at the standard metal prices. If you calculate that into market prices, it is approximately EUR 1.4 billion, of course, a little bit depending on the development in the metal prices. Then we are looking at an operation EBITDA of EUR 140 million.
For Photonics, we are maintaining organic growth of around 10% and margins of 15%, and Nilfisk are also maintaining the organic growth guidance between 2%-4% and margins between 11%-11.5%. But also here, we will put a little bit more flavor on the numbers when we are making deep dive into the different businesses. On the next slide, we are looking on a lot of numbers, and here you can see first quarter this year versus last year for the continuing operations, but also numbers including the discontinued operations. I will mainly comment on the columns here with including discontinued operations. So overall, we saw a revenue increase of EUR 65 million. Out of that, EUR 14 million relates to Nilfisk driving the growth mentioned before we are then down to the 51 that are related to the continuing operations.
Out of that, EUR 29 million relates to metal prices, FX prices or changes being more or less flat. Then, of course, we have the impact from acquisitions, EUR 48.6 million, relating to the ABB business. We are also seeing a negative impact of 8.2% from the divestments that we did. This is mainly related to China that we divested last year, but also to the cabinet business that we also divested last year, before we are then down to the organic growth. If we look a little bit on the composition of operational EBITDA margins where we can see an increase of 12.5%. Then, as mentioned before, approximately EUR 8 million of that relates to Nilfisk, where we have seen margins in the quarter increasing from 10.7% to now a solid 13%. Adjusting for that impact, we are down to approximately EUR 5 million related to the continuing business.
EUR 6 million of that relates to NKT, where also we have seen margin increases in NKT Cables from 7.4% to now 9.6%. Then we have a negative impact on approximately EUR 2 million related to Photonics. The quarter is, of course, impacted by some one-offs, EUR 18.8 million, whereas the biggest part of that relates to transaction costs and integration costs related to the ABB acquisitions as illustrated in the box number three.
What is also worth mentioning is that you can see the impact cash flow-wise from the acquisition of ABB of EUR 633.4 million. Then it's also worth mentioning here that we see a significant decline in working capital, supported by strong development in NKT, but also in Nilfisk. So overall, we are able to reduce working capital tie up from EUR 308 million last year in the first quarter to now EUR 156.7 million first quarter this year.
If you move on to the next slide, a lot of this is illustrated in the cash flow here. I will not put a lot of flavor on this slide. You can see the significant change in the debt level from acquisition of businesses. Although we also had some acquisitions impacting cash flow negatively last year, where we did some acquisitions in Nilfisk. If we move on and look at the development in the net interest-bearing debt, we see a significant pickup, because now we have paid the majority of the acquisition of the ABB High-Voltage Cables business. We are now reporting a net interest-bearing debt of EUR 617 million end of the quarter. The number will still increase when we take into account that we have paid for the vessel in April. That will increase the debt level with a value of EUR 126 million.
Based on all this, and based on adjusting the LTM curve, where we now include the ABB into the numbers, we are reporting a ratio of 2.2x debt to EBITDA. If we take into account that we will still need to pay for the vessel, the number will increase to 2.7%. So significantly lower than the 3.2% that we somehow hinted to when we announced the acquisition in the mid of last year. The reason for that is really, as mentioned before, strong cash flow, a lot of focus on working capital, et cetera. What will also happen here is that we will see the impact from divestment of the Automotive business in second quarter, where we will see a net cash inflow of approximately EUR 30 million coming from that.
With that, I would like to conclude on the overall picture and move into the NKT, the former NKT Cables business. If we start by looking now at the composition of the very new split, we are a 50/50 business between the project business and the product business. That should not really come to a surprise. As mentioned before, we closed the ABB deal March 1st, and we are now really focusing on integrating the businesses. Of course, a lot of organizational work there is going on. By doing that, we also expect to realize the synergy potential of approximately EUR 30 million. I am also happy to be able to confirm that that is still the number.
We have communicated earlier on that we expect that to be a little bit back-end loaded, and that you should not expect to see the number kicking in before end of 2018 with LTA, with the 12 months running impact, and that is also reconfirmed. The synergy potential, as illustrated on the slide here, is divided into three different buckets. One being commercial synergies, one being bottom line synergies, for example, from procurement, and one being manufacturing synergies. They are more or less split with one-third in each box. A lot of integration work is ongoing right now, and we are on track with that. If we look at the next slide, that being a very technical slide, we are looking at the first cut on the allocation of the purchase price, the so-called PPA, and that is illustrated in the right side of the slide.
You can see that we are looking at a goodwill amount of approximately EUR 385 million. We are looking at the tangible assets of EUR 355 million and intangible assets of EUR 115 million. Net working capital, as reported here, is expected to be negative in this business. But on this line, there are still an element of moving parts, and we will see some small adjustments to this allocation during the next coming quarters before we are, hopefully end of this year, able to lock it down finally. Of course, the integration and the impact from this business impacted the outlook for 2017, as mentioned before, now with the EUR 1.1 billion top line standard metal price revenue and EUR 140 million in operational EBITDA. That was it.
If we move on to the next slide on the vessel, I already mentioned that you will see the negative cash flow impact of EUR 126 million in Q2, so please bear that in mind. The vessel was delivered in the beginning of April, according to plan. We have talked a lot about the vessel, so this is more or less a repetition that this is among the world's most advanced cable-laying vessels with a lot of different cutting-edge features, some of them being mentioned here. We had a large customer event, including the christening of the vessel in the beginning of May, just a couple of weeks back.
Many of the analysts and also some of the investors and a lot of customers had the opportunity to be guided around the vessel, also guided around the factory in Karlskrona, and we also had a lot of other customer events related to that seminar. What was also good to see is that we actually were able to operate the vessel while we were doing the christening, because the vessel had to leave for its first installation job immediately after the christening, and now the vessel is operating a large installation job up in Scotland, where it will deliver or install cables in two slots. A big part of that being loaded at the beginning of May, and now it will install it, and then it will return to Karlskrona for the second slot later this year.
Everything here is according to plan, and it's fair to say that the customers are extremely positive and surprised also with the features that the vessel has had, and that it somehow segments NKT as being a turnkey solution provider in this business. If we turn to the next slide and look at some of the market trends in both the project business but also the product business, the offshore market continues to be good. We see a lot of traction when it comes to traditional offshore wind projects, but we also see a lot of projects within the more sophisticated interconnected DC segments. A lot of tendering is ongoing, and we of course expect to get our fair share of that in order to fill up backlog for remaining part of 2018, but of course also looking into 2019 and 2020.
We remain with very good visibility for 2017 and a big part of 2018, but we have room to do more, and we are working hard to close that window. In the product business, we saw a negative growth of 4%, and that is more or less related to pricing, very much related to the so-called photo year in Central Europe, where we saw a very strong market last year in first quarter, also impacting the prices very good. The 4% is very much price-related. If we adjust for that and look at the volumes, we are looking at flattish volume development.
All the factories that we have supporting this segment are actually very busy, and that is also driven by a Nordic market that continues to be pretty strong, in particular Sweden, being able to offset a slightly weaker market in Central Europe, in particular in Poland. Next slide is just highlighting our visibility into the market, full visibility in 2017, and also a good visibility into 2018, and a little bit less to 2019. You can see the composition of the backlog with the name of different projects here, and some of them being AC offshore projects, but also a lot of them being interconnected DC business. On the Borssele Beta, it is still a potential order.
It is still the situation that the customer is having a call option to call the project, and it is probably fair to say that we strongly expect that to turn into a real order within the next coming months. On the next slide, 19, we look at the margin development up from 9.7% last 12 months to now 10.1%, and we are reporting nominal EUR 18 million compared to EUR 12 million first quarter last year. Here we, of course, should bear in mind that we do have some significant impact from seasonality into the numbers, where we, in the product business, see very strong second quarter and third quarter, and weak first quarter and fourth quarter. That is, of course, impacting the numbers.
But also in the project business, we of course normally see strong second and third quarter, because that is where we normally see an installation window in the market that we typically are serving, being Europe. Bear that in mind, and we also commented on earlier that we expected to see a significantly lower operation EBITDA in first quarter compared to the remaining three quarters. Next slide illustrating the working capital development down from 9.6% to now 6.4%. Of course, that is a little bit impacted by ABB. But despite ABB, also before taking ABB into account, we actually saw a very nice working capital development indicator business over the last coming years. We are moving closer to our target of being around 0% tie up.
Of course, significantly higher in the product business, but then being offset by flat or even negative working capital tie up in the project business. Strategic priorities on the next slide for 2017 is very clear, and they remain unchanged. It is really about developing and grow part of the business, in particular the AC/DC offshore segment, but also the DC interconnect onshore segment and the accessory business supporting that. There are some of the businesses where we actually are satisfied with the performance that we see, where it is more about maintaining margins where they are and being able to offset the price pressure that we do see in the more commoditized business.
Then we have some turnaround focus on AC high voltage onshore, in particular in the low end of the segment, that continues to be very tough market throughout Europe, and maybe less important for the total consolidated numbers, but also the railway business is having a tough time with not a lot of orders in that segment. To summarize on the next slide before I now hand it over to Karina. We saw a good quarter.
We are satisfied with earnings. We are satisfied with the impact that we see coming from the acquisition of ABB High-Voltage Cables. It's good that we finally were able to divest and close the deal around the automotive business. It took a little bit longer than expected, and we are also happy to be able to confirm the outlook for 2017 as illustrated here on the slide. With that, we are able to finalize the Cable part and hand it over to you, Karina, to the Nilfisk. Please.
Thank you, Michael. Let's turn to slide 24 and look at Nilfisk and the overall organic growth numbers which are shown here. As Michael said initially, Q1 2017 was a solid quarter for Nilfisk. You've seen from the numbers already, we had solid top-line growth, and at the same time, we increased our earnings. That's very satisfactory. However, it's important to know that we did get a little bit of help from the fact that in 2017, Easter was in April compared to March in 2016, and that meant that we did have more working days compared to the previous quarter. The flip side of that, we will of course see in the second quarter to come.
Looking at where the growth came from on slide 24, we show a different segmental split, and that is to be in line with our organizational structure, where we have carved out our specialty business from the geographically organized sales organizations. This means that we will no longer discuss the pure geographical split, but we will show the three geographical regions as well as the carved-out segment we call specialty. Looking at this dimension, we were pleased to see that the organic growth came from both EMEA, but not least the U.S. In EMEA, where we showed 6% organic growth, we saw solid growth from both our mature markets in Western Europe, such as France, Germany, and Spain, but also from the smaller countries in Eastern part of Europe.
In the U.S., the strong growth in our, what we call U.S. floor care business, which we saw took off in the third quarter and the fourth quarter of 2016, continued, and that was the particular the case for our national accounts division. Also, our commercial business grew well, while we continued to see softness in the industrial segment, which we have talked about also in 2016. Looking at the other regions in Americas, it was also encouraging to see that the growth outside the U.S. was very strong. Both Canada and the countries in Latin America, they grew more than 20%. In APAC, we saw flat growth. As Michael also mentioned, it was very pleasing for us to see that China is back on double-digit growth after a period of time where they had negative growth.
However, some of our smaller countries, for various reasons, had negative growth in the first quarter, and that meant that in total, APAC, they reported a flat year-on-year development. In our new carved-out business, we saw negative growth overall. Our industrial vacuum cleaners and the food business, they did very well. But there were two other areas that made the consolidated growth negative. That was particularly the case for our outdoor business, where we simply didn't see much project work in the first quarter. Going into the second quarter, we see a slight pickup, but we're still looking for real growth in that area. We also saw negative growth in our consumer business. We knew upfront that we had lost a relatively large account, so we did expect negative growth. But on top of that, we also saw lower sales due to the cold spring.
So with Easter in April and a very cold March, we simply didn't see the expected level of activity for our high-pressure washers. If we turn to slide 25 and look at our earnings, it was encouraging to see that at the same time as realizing solid growth, we saw a nice increase in our earnings, proving the leverage that we talk so much about. Our EBITDA after special items increased by 2.4 percentage points to reach 13% for the quarter. And as illustrated on the graph here, that means an 11.6% on an LCN basis. We saw strong development in gross profit margin in the first quarter and reported a year-on-year increase of 1.9 percentage points. This came from a deliberate focus on product mix and also with the help of pruning of some of our products with low profitability.
We also continued our efficiency measures in production, where particularly our consumer division was able to increase profitability. On the overhead side, we did increase overhead in nominal terms in line with our expectations. We did see the positive effect of our Accelerate+ initiatives, but as we've said before, we also continue to invest in our business. The net effect of these two things meant that we saw an absolute increase in overheads. However, looking at the ratio, we saw an improvement over last year, again, proving the leverage of our business. Looking at slide 26, this table should be familiar to you because this is where we follow and track our Accelerate+ savings, and we continued our work with the cost-saving program into the first quarter.
We did execute further levers amounting to around EUR 2 million in the first quarter, and we've now executed EUR 30 million of the expected EUR 35 million overall target. In our P&L for the first quarter, the overheads were reduced by around EUR 3 million relating to savings from this program, and the majority of that was from the initiatives executed in the fourth quarter of 2016, which had full effect in the first quarter. We talked about at the year-end that the execution of the next levers will take a little bit more time. They are of a more structural nature and require more planning before they can be put into place. We do have solid plans for the realization, and I'm confident that we'll see the savings come through, although the exact timing is still being considered.
We intend to continue to report on our progress every quarter in the same format as you see here on slide 26. Turning to working capital on slide 27. We have worked intensively to reduce working capital in 2016, and we continue to do that in 2017. You'll see that in the working capital percentage measured here over LTM basis. We've improved from 20.1% in Q1, which was also quite high, to now 16.9% at the end of Q1 2017. I look at this as being on the low side because we're still running a little bit low on certain parts of our inventories in certain areas, which was also the fact after year-end. But also in nominal terms, we reduced working capital significantly over last year. If you compare with year-end, in line with normal seasonality, our working capital at the end of the first quarter is higher.
As you might recall, our working capital at the end of the year was unusually low, particularly in our inventory. Therefore, you also see a relatively large negative development since year-end. When you turn to the cash flow statement, you will see a relatively high negative cash flow impact simply because we had a very low starting point in the beginning of the year. Slide 28 summarizes basically what I've said on the previous pages.
Just worth noticing that based on the improvement in our earnings and also the improvement in working capital, we saw an increase in our return on capital employed by 3.4 percentage points. Finally, just to mention the outlook, we reconfirm our outlook for 2017. We don't see any changes compared to when we made the outlook previously. So that's why we maintain the organic growth of 2%-4% and the EBITDA before special items of between 11% and 11.5%. With these words, I'll hand over to Basil.
Thank you, Karina. In NKT Photonics, Q1 came in as expected and slightly ahead of our forecast. In the market area of imaging and metrology, which accounts for 50% of our revenue and is our focus growth area, we had positive organic growth, adjusted for the impact of the acquisition of Fianium, which completed at the end of the first quarter in 2016. In that market segment, we had good progress in our key OEMs in several industrial areas, mainly the semiconductor industry, in microelectronics manufacturing industry, and in bioengineering. In our market sector of sensing and energy, which is an established area for us, we had revenues which account for revenues of about 38% of the total. There was an impact by customers' delays on a number of contracts, but we will catch up with those in the next couple of quarters. We're not worried about that.
We've also managed to sign several contracts and supply agreements, especially on the service side, which is a growing area for us in the U.S. In the final market segment of material processing, which is a new and exciting area for us, it's a new growth area we're concentrating on. Also, the fastest-growing business area we have. We continued getting a number of orders, and we actually got our largest-ever fiber order for enabling the manufacturing of ultra-fast lasers. It's an exciting area of growth for us. We move to the next slide on page 31, which is a summary. Our revenue of EUR 7.5 million was up 4% versus the first quarter of 2016. We did have negative organic growth, but that is really expected to change to positive again due to the second half of the year, and it's due to the timing of the acquisition of Fianium.
Our EBITDA is lower due to investments in growth opportunities, especially with hiring a number of employees to enable the growth that we're seeing. This growth is reflected in a sales pipeline that is at the highest level that we've ever had, our record levels, which also reflects the increased level of activities that we're seeing in all the industry, all the exhibitions and conventions that we're going to, showing positive growth areas. That's also reflected in the industry in general. Finally, the outlook for 2017 remains unchanged. Our organic growth, we're forecasting at 10% and our operational EBITDA at 15%. This concludes a summary for NKT Photonics. Thank you.
Good. So operator, we are now ready to move on with the Q and A session. Are there anybody with a question?
Thank you. If you would like to ask a question, please signal by pressing star one on your telephone keypad. If you are using a speakerphone, make sure that the mute function is turned off to allow your signal to reach our equipment. Again, please press star one on your telephone to ask a question. We will pause for just a moment to allow everyone an opportunity to signal for questions. We have our first question today from Claus Almer from Nordea. Please go ahead.
Thank you. I have a few questions, one for Cables and one for Nilfisk. The first question, Michael, is about the ABB cables in March. The EBITDA margin was around 17%. Is this level equal to what you see in the backlog? That will be the first question.
Well, that would be nice, huh?
Yeah.
Of course, the EBITDA margin is in the project business, as you know, volatile from quarter to quarter. But of course, it shows the potential. What we are comfortable with reporting now is what you have seen in the full-year guidance, and then we need to take it from there. One month is not really representative for a quarter or a full year. But of course, the 17% margin, we know the business can deliver that, so it is within reach. But so far, you need to look at the guidance for the full year.
I actually lost you, Michael, for the last sentence or two.
Okay. What I said was that, I don't know whether you lost me or I lost you. But you can, of course, not look at just one month's performance for a project business. You need to look at it over at least a quarter or two. The 17% I can confirm, and we could also have seen another month where it is above 20%, and you can also see where it is below 17%. Let's look at the guidance for full year and use that as somehow guiding you where we think we can bring the business.
Okay, thanks. Then a question to you, Karina, about the strong performance in Americas. You mentioned floor care and also that it was driven by your national accounts. Is this a result of a few large deals, or do you also see a stronger performance in the more bread-and-butter business?
We do have individual large deals coming in, but it's not one specific big-time deal. I would say it's a mix, to be honest.
Okay, then just the strong EBITDA margin in the quarter compared to the full-year guidance. It seems very conservative with 11%-11.5% for the full year. Is there anything that we should take into account for the remaining three quarters of 2017 that would dilute the EBITDA margin?
Yes, I can at least share with you what I'm looking into, and there are at least three things that should be taken into account when you view the full year. We have, over the last couple of months, seen increasing raw material prices. I think we also briefly touched upon it at the end of the year, but we have seen them increase, and of course, we can't know exactly what's going to happen. But we do assume that that will take some of our GP away for the rest of the year. We saw already a little bit in Q1, not much, but increasingly in April, and we expect that to continue. That's one thing.
The other thing is that on our overhead side, when we made the plan for 2017, we did decide to continue to make investments also in our front end, for instance, by hiring more salespeople, more service technicians, and they have not been employed to the extent that we have in our budget. They will come over the remaining part of the year. The last thing I'll mention is that our product mix will have an impact on our GP.
Also closing 2016, we talked a little bit about the impact of private label, and the private label business, if you recall, was very strong in the fourth quarter of 2016, which meant that they were equally weak in the first quarter, and that's a normal seasonality, but the GP on that sort of business is, of course, lower. That will increase, particularly in Q3, but not least in Q4. Those three reasons are the majority of the reason why I don't perceive it conservatively. I think it's the right guidance maintained from our last guidance.
The price increases we saw from Tennant, and I guess you also mentioned that with the full year report, is that not enough to compensate for the raw materials?
No. This raw material increase that we've seen is above what we had factored in when we went out with price increases.
Okay, thanks.
Thank you. We will now go to our next question from Casper Blom, from ABG. Please go ahead.
Thank you. First of all, congrats with a good start to the year to all of you guys. My first questions are to Michael. You mentioned a lot about the lumpiness, the natural business in a project business, where you deliver big things. Can you shed any kind of light to what type of lumpiness we should expect here in the remaining three quarters, other than the fact that Q2 and Q3 are typically large quarters for the project business? Secondly, Michael, on the synergies, the EUR 30 million, you mentioned three drivers behind it, commercial bottom line and manufacturing. What have you learned about the split between those three after being handed over the keys to ABB? Any learning from that to share with us? That is my first questions for Michael.
Yeah. I do not know if lumpiness is the right word, but of course it is a more volatile business because you are depending on when you close the large projects and very often also depending on customers' final installation job, et cetera. If I look into my budget and my forecast for the remaining part of the year, I actually look at the three quarters being pretty much at the same level, closing the number up to our full year guidance. So that is what I look at. But we can easily be in a situation where Q2 could turn out to be stronger or weaker, offsetting the impact in third quarter. If we see a faster installation on a project and thereby risk releases materializing earlier or POC percentage being impacted positively earlier than we expect. But that is what I am looking into right now.
On the synergy potential, with the EUR 30 million and approximately EUR 130 in free cash flows, that was also the view we had before we got the keys to the business. Another way to ask the question is if we have seen any negative or positive surprises, and we have really not seen any surprises. We look into a business that are very much in line with what we have looked into when we did the adjusted business case as a base for the valuation of the business. Of course, now we start to execute, we can turn out to be wrong in some areas, being then hopefully offset in others. So I can confirm that the potential of EUR 30 million definitely are there.
Good to hear. Yes, that was another way of asking the question. Just one question for Karina. I recall that after your Q4 results, you talked about a growth pattern in Nilfisk in 2017, where Q1, two and three would be roughly in line, and there will probably be an acceleration of growth in the fourth quarter. Is that still the road map that you see for Nilfisk?
To be honest, the growth in Q1 was a little bit stronger than I anticipated. I thought it would even more out. What I can see from now going into the Q2, I say overall it holds up. So when we even out the Easter effect between March and April, then we will see, as I see it now, a first half and a second half being more or less the same.
Okay. That is clear. Thanks a lot.
Thank you. As a reminder, ladies and gentlemen, if you would like to ask a question at this time, please press star one on your telephone. We have a question now from Kristian Johansen, from Danske Bank. Please go ahead.
Yes, thank you. First question is on the NKT business. I guess it is a bit untraditional to include the acquired business in your organic growth rate, but I guess it does give some visibility on performance here. First of all, can you just confirm that organic growth for the ABB business was around -25% and elaborate on why the figure is so significant?
I do not know where you have that number from. Let me answer the first part of the question. What we do when we do organic growth calculation, and we also do that in Nilfisk, is that we also adjust in the comparison number for the impact. Then we do the calculation of organic growth. We are looking at the -8%. If I am not wrong, the -7% relates to ABB and -1% to the remaining NKT business. That is the number that you should take into account. Then you should remember that is one month, looking at March, with a very volatile top line in the projects.
Maybe I am not getting the math here, but if the organic rate for the total business is -8%, but is -1% excluding ABB, given that the revenue of ABB compared to the remaining part is much less than the organic decline for ABB must be much more than 7%.
Then I suggest you take it with Michael on the side in order not to be too technical into the numbers here.
Okay, fair enough. Then on the products business, you state that the -4% organic growth primarily relates to price. In connection with Q4, you stated that you renegotiated one of the larger contracts at a lower price level. Can you just elaborate on how much of this decline relates to that contract, and how much relates to more general declining prices?
In the product business, you're looking at a large number of projects. I think maybe I'll just use one of them as an example. But what we see is that in the northern part of Europe, being Scandinavia, we see a fine market. We don't see any negative price impact in that market. But it is relating to the so-called photo year, and I think we have touched on that and explained it before, so I'll not repeat that.
But the photo year is somehow bringing up demand significantly within a year. In medium-voltage segment, driven by high demand from utility players, and then in the years after, in between photo years, you see a flattening out and significant decline. What we are looking at, for example, in Germany, is a medium-voltage market that are 10%-15% lower pricing wise this year compared to last year. That is, of course, a big impact, a big part of the negative growth that we see here.
Okay. My last question is on the NKT business. The Race Bank and Galloper projects, were they completed in Q1, or is final completion taking place in Q2?
That's a tricky question. We have not seen any finalization of large projects in first quarter.
All right. Clear. Then just one question for the Nilfisk business. You highlight this mix impact to benefit your gross margin. Can you just elaborate on this sale to national accounts in the U.S., is that beneficial to gross margins? I mean, selling directly opposed to through distributors, I guess, would have a higher gross margin. Is that part of the mix impact, or how should we think about that?
Yeah. No, when I refer to mix impact, it's not really from the national accounts. It's simply by product level and down to each individual project, whether you buy product A or product B. We have been analyzing into detail what products to push, and also, as I said, prune some products with lower margin. When you look at whether it's direct or indirect sales, it is a fact that direct sales normally have higher GPs because we have a higher supporting structure in terms of overhead. Then when you come to big national accounts, of course, there's also some leverage in the sheer size of the business. The national accounts in itself don't have any impact on the GP.
Okay. Very clear. That was all for me. Thank you.
You are welcome.
Thank you. As a final reminder to ask a question today, please press star one. We have no further questions at this time.
But then, thank you for listening in and asking good questions. We can now finalize what hopefully will turn out to be the second last meeting in this structure. Looking forward to August 17, where we will be back with hopefully being the last meeting in this structure. Until then, have a nice summer break. Thank you.
Thank you. That will conclude today's conference call. Thank you for your participation.