Good morning and welcome to Nilfisk Earnings Conference Call for the first quarter of 2024. My name is Tracy Fowler, and I'm the new head of Investor Relations here at Nilfisk, taking over from Elisabeth Klintholm. To cover Nilfisk Q1 2024 results today, we have our CEO, René Svendsen-Tune, and our CFO, Reinhard Mayer, presenting. For the call today, we will cover the following topics. First, René will give an update on the Q1 2024 numbers and a Business Plan 2026 update, focusing on our new product launched in Q1 as well as the four new products presented at Interclean this week. Then Reinhard will give a more detailed run-through of our financial performance in the quarter. We appreciate that you take the time to listen in on the call this morning.
The presentation today will take approximately 30 minutes, after which we will look forward to taking your questions during the Q&A session at the end of the webcast. Moving on to slide two for the usual practicalities. Before we begin today's presentation, please note that this presentation, including remarks from management, may contain forward-looking statements that should not be relied upon as predictions of actual results. For more details, please read the content on this slide. With this, I will pass the word over to you, René.
Thank you, Tracy, and good morning to all of you. Thank you for joining us on our earnings webcast today. I will start out with some high-level comments on our key highlights for Q1 2024 and a short Business Plan 2026 update with a focus on our strategic priority, which is leading with sustainable products. So let's go to slide four. Nilfisk Q1 2024 results were in line with our plans, and we have started the year off with a robust financial performance. We saw satisfactory progress across most of our financial KPIs, but let's start from the top with the revenue development. Total revenue came to EUR 259 million compared with EUR 256.4 million in Q1 of last year. This represents a reported growth of 1%. Consumers saw very strong organic revenue growth, while professional and services saw moderate growth and specialty remained flattish.
This resulted in an organic growth of 3.7% compared to -2% in Q1 of 2023. Looking at the regions, EMEA saw stabilization in demand for our professional business supported by strong growth in consumer. Demand in Americas saw a momentum change versus the second half of 2023, which led to solid organic growth. APAC was impacted by lower demand. EBITDA before special items increased to EUR 34.2 million, and the EBITDA margin before special items rose to 13.2%. Overall, the Q results were in line with our plans and expectations. So let's move to slide five for some comments on product launches. As you know, a key strategic priority is to grow our business leading with sustainable products. In Q1, we launched an upgraded version of the best-selling vacuum VP300R. The upgrade is built in a case of 30% post-consumer recycled plastic.
Using post-consumer recycled plastic has a better environmental impact and contributes to a circular economy. Therefore, this product is a good choice for the customer who prioritizes sustainability. This week, Interclean takes place in Amsterdam, and we have presented four new products. Of the new products, SC550 and SC25 represent the next generation of products in their respective product category, which is floor care. We're very happy to see the interest there has been in these products following the presentation we made at Interclean. Let's move to slide six for an update on our sustainability efforts. As per our press release dated 17 April 2024, we are pleased to have retained our Gold EcoVadis rating for the second consecutive year. This reiterates our commitment to our ESG targets in Nilfisk.
We're already preparing the groundwork towards a 2024 submission, where the ambition remains high and the focus is to improve sustainability across the business. Alongside with this, we have continued our focus on increasing our gender diversity across Nilfisk, and this remains a priority in 2024. Let's move to slide seven, and I will hand over to Reinhard for financials.
Thank you, René. And let's turn on to Financials on slide eight. In Q1 2024, our revenue increased to EUR 259 million from EUR 256.4 million in Q1 2023, corresponding to reported growth of 1%. Revenue was driven by volume growth across all businesses, and continued diligent price management also benefited revenue. Professional and service delivered organic growth of 2.8% and 2.5%, respectively, while consumer delivered growth of 17.2%. Specialty business was flattish at around 0.3% growth. The organic growth in professional was driven by floor care and private label, while we saw high-pressure washer declining. Service revenue grew organically by 2.5%, as Q1 was impacted by timing of Easter and the subsequent reduced available working days. Adjusting for that effect, organic growth would have been around 5% in service. The specialty business was flattish with organic growth at 0.3%.
This was due to a strong comparison period in Q1 2023 and lower demand in APAC. Revenue from the consumer business was very strong, with 17.2% organic growth. Growing customer demand, supported by our new product launched recently, are drivers of growth. Moving on to slide nine. Looking into the three regions, the EMEA region delivered strong organic growth of 5.1% in Q1 2024. The organic growth was led by the consumer, but the region was also seeing solid growth in both professional and service, with price management remaining strong. In total, EMEA delivered a revenue of EUR 152.8 million. The Americas region saw solid organic growth of 3.6% in Q1 2024, driven by very strong growth in LATAM, coupled with volume growth in the U.S. Price impact remained positive, but at a lower level compared to the same period last year.
In total, Americas delivered a revenue of EUR 89.3 million. The APAC region delivered negative organic growth of 6.5% in Q1 2024, as weaker demand and market headwinds in China and the Pacific led to negative volume growth, partially offset by continued price management. In total, APAC delivered a revenue of EUR 16.9 million. Moving to slide 10 and the gross profit and gross margin development. The gross margin reached 41.8% in Q1 2024 compared to 40.2% in Q1 2023. The gross margin benefited from volume growth and price management. Cost inflation, including on raw materials and labor, had a minor negative impact on the gross margin. Let's look at the three buckets of moving parts impacting the gross margin. Compared with Q1 2023, pricing and mixed effects benefited the gross margin with 1.8 percentage points.
In addition, freight and distribution costs negatively impacted the gross margin with 0.1 percentage points. Volume growth positively impacted the gross profit margin, but were offset by headwinds from labor and raw material inflation, leading to a slight negative impact to the gross margin of 0.1 percentage points. Summing up, the gross margin increased year-on-year by a strong 1.6 percentage points. Moving to slide 11 and some comments on the overhead costs. In Q1 2024, overhead costs decreased by EUR 0.5 million compared to Q1 2023, coming to EUR 89.4 million. The overhead cost ratio decreased in the quarter to 34.5% from 35.1% in the prior year. The structural cost improvements executed in 2023 are compensating for the inflationary effects. Let's have a deeper look into the evolution of our major spend categories.
Sales and distribution costs increased by EUR 0.5 million from Q1 2023, driven by merit increases. Administration costs remained flat to Q1 2023, impacted by merit increases offset by the structural efficiency measures executed in 2023. R&D spend increased by EUR 0.9 million in Q1 2024 in connection with intensified product innovation. R&D cost expense in the P&L came down by EUR 1 million in Q1 2024 due to higher capitalization. Moving to the EBITDA margin development on slide 12. EBITDA before special items increased by EUR 6.1 million in Q1 2024 compared to first quarter last year and came to EUR 34.2 million. This corresponds to an EBITDA margin before special items of 13.2% compared to 11% in Q1 2023.
The top-line growth and price management in combination with lower overhead costs benefited the EBITDA margin, offsetting the increased costs from labor inflation, raw materials, and from freight. Moving on to cash flow and working capital on slide 13. Free cash flow decreased by EUR 20.5 million in the quarter compared to Q1 2023 and amounted to an outflow of EUR 7.4 million. The key driver of this development is the increase in working capital from year-end 2023, as we grow inventory to support new product releases and revenue growth for the coming quarters. As a consequence of our commercial and communicated plan to further invest our product innovation and digitalization, the CAPEX ratio increased in the quarter to 4.9%.
As a result, cash flow from operating activities for Q1 decreased by EUR 15.2 million, with a net inflow of EUR 5.2 million compared to a net inflow of EUR 20.4 million in Q1 2023. Total net interest bearing debt declined by EUR 50.6 million compared to end Q1 2023 and came to EUR 267.3 million. The gearing was reduced to 1.9 times compared to 2.4 times in the same period last year. Next page, please. So this concludes the financial section. Let's move on to slide 15 and the outlook for 2024. We confirm the full-year outlook as communicated in the annual report 2023. As expected, we are now starting to see the pickup in demand and output in 2024, leading to volume growth across products and services. As a result, we continue to expect organic growth in the range of 3%-6%.
The range for EBITDA margin before special items is expected to be 13%-15%. The CAPEX ratio is expected to be around 4%, and special items are expected in line and in range from low- to mid-single-digit million EUR. With this, we conclude our presentation, and we are now ready to take any question you may have. Operator, please.
Thank you. We will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on the touch-tone telephone. You will hear a tone to confirm that you have entered the queue. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use only handsets while asking a question. Anyone who has a question may press star and one at this time. The first question is from the line of Claus Almer with Nordea. Please go ahead.
Thank you. Yeah, I have a few questions. The first one is about the revenue growth. So on reported numbers, then revenue growth is 1%. Is that actually an issue given inflation? And also, what should we expect? And I know you don't guide on FX impact for the full year, but maybe you could give a round number of the headwind that might be hitting for the full year. That would be the first one.
Thank you, Claus. Yeah, reported growth 1%, organic 3.7%. Where is it stemming from? I mean, a large effect is actually stemming from the Turkish lira effects, where we have seen strong volume growth but also effects from the currency. And the other effect, which is around 20% of the foreign currency effect, is from the Argentine peso. That is more a one-time effect, and the business over there is, let's say, not really affected other than the revaluation, which has taken place most recently by the Argentine government.
So if you only grow your revenue on reported numbers with 1% and we are living in an inflationary world, would that mean you need to do further cost initiatives or the likes? How should we think about 1% versus your business model?
No, I think that the reported growth will go in line with organic growth up throughout the year. It was just in this very specific quarter we had seen strong volume growth in Turkey, and then with the effects of the currency effects has led to this difference. The same was the one-timer in Argentina. Other than that, you do see the normal fluctuations for our, let's say, relevant currencies, which are U.S. dollar, let's say, the British pound, and some currencies. Whatever happens there, I have no influence on and cannot predict, but it's part of our, so to say, overall ambition that we grow in Europe and in Americas forward. Whatever those currencies then tend to do to our business numbers and reported numbers, we'll need to see. We have given an organic growth guidance, and that is, for me, the relevant one.
Fair enough. So if the Turkish lira can have such a negative impact on the currency impact, did you really see a significant volume sourced from Turkey in the Q1? Did that have a meaningful impact on your volume trend in the quarter?
Turkey has a positive volume impact, as many other countries do have volume impact and we grow across. It is, so to say, not the major thing. But I was giving you an explanation of the currency effects, and those ones are Turkish lira and Argentinian peso, which account for approximately two-thirds of that currency effect. The rest is dollar, pound, and other currencies we have in our portfolio.
Fair enough. I just asked because I don't think we really have been discussing the Turkish market before, so I just wondering whether there was a new potential popping up. My second question is about headquarters costs. So if you look at your breakup in the segments, then your headquarters cost has doubled over the last couple of years. Is there any specific reason for that, or is it just about how you are allocating costs to the different segments and what is headquarters cost?
Well, the headquarters cost, let's say, increased of around EUR 2.5 million versus Q1 last year. What are drivers behind that? Well, first of all, we have also merit increases in the headquarters, predominantly, so to say, those personnel capacity costs. The second topic is we are intentionally expanding our marketing activities, our digitalization activities, and they are, so to say, hosted within the headquarters activities to support growth, to support our product launches. And you most recently have seen it very visibly, as we have now going first time since a couple of years to Interclean and the booth there. And that's part of the cost expansion.
Okay. That makes sense. Thank you so much. That was all from my side.
Thank you, Claus.
Thank you. The next question comes from the line of Kristian Tornøe Johansen from SEB. Please go ahead.
Yes. Thank you. A couple of questions from me as well. So first one goes to your contract attachment rate. So you're making a new definition of the attachment rate. Can you elaborate? I mean, how exactly did you do the old definition and what is the new definition? So obviously, what have you changed here? It's not completely clear to me.
Hi, Kristian. Tracy here. Thank you for your question. So to be very clear, the old contract attachment rate was based on all the service contracts we have across all our products. And actually, what we've now focused on is the products that are relevant that we can attach a contract to. So we now focus in on the floor care products that we can sell a contract with. So that's the change in the calculation.
Okay. But still only defined on direct sales, right?
Yes. Correct.
Okay. Then back at your CMD, you put forward a target of 40% contract attachment rate for 2026. Given this definition change, what is the change to your target then?
The target remains the same. It is an ambitious target to have the full capturing around the globe, so to say. And the 40% is an ambitious target. But we wanted to narrow down with this redefinition to a relevant substance that we can better speak to, to all the stakeholders involved internally and externally.
All right. Understood. Then secondly, just a clarification, Reinhard, in your comments about Americas, you said the price impact was positive but down year-over-year. I'm left a little confused exactly what you mean by that. To me, it's a bit opposite. So can you just repeat exactly the price development in Americas here and there?
Yeah. I mean, we don't give special guidance on our price, let's say, increases. But we mentioned to you earlier when we gave out the 2024 guidance that we expect lower single-digit price increases taking place in 2024. And that is the effect, whilst we had significantly higher price increases incurred in 2023. And that's the real meaning of that.
Was prices up or down in Americas in Q1?
Prices were up in Q1, but not to the same extent the price increase lifted revenues in Q1 2023.
Okay. I see. Thank you for that clarification. Then on R&D, you are capitalizing roughly EUR 2 million more but expensing EUR 1 million less. Can you just elaborate on this difference in R&D spend?
This is René here. So thanks for that question. I guess this mainly is attributed to where in the phases of development you are. I mean, you can say the capitalization rules are strict in the sense, and you will have some fluctuations dependent on new products started and where we are in the process, what is maintenance, R&D, and so forth. So there's no change as such other than there's an impact you're facing.
That's quite clear. Thank you. But maybe just to help me understand what the interpretation then is. So it means that you have more in an early stage. Is that how I can interpret then, or?
Yeah. The other way around. We have more, so to say, going into the finalization stage. Some effects we have seen, more products coming out, and more products will come out in the next quarters, towards the end of the year, next year. So we have actually filled the funnel for new products to come. And hence, a higher level of capitalization is taking place.
Okay. That's quite clear. Thank you for that. And then just lastly, following up on the currency discussion. So just in order to help us forward on the exposure to Turkey and Argentine pesos, can you give us the proportion of revenue for these two markets in 2023?
The proportion of revenue in what?
I mean, Turkey and Argentina, how big a portion of your group revenue was these two markets in 2023?
I mean, I don't have the percentages here, but you can look the revenues up in the annual report. In that context, Argentina has not moved a big way, though Turkey has seen good volume growth in the first quarter, over and above what was, so to say, the portion of Turkish revenue in 2023. Please look up the annual report, and then you get a flavor of what the revenue is in there.
Understood. Thank you. That was all from me.
Thank you. The next question comes from the line of Casper Blom with Danske Bank. Please go ahead.
Thanks a lot. A couple of questions as well from me, and I'll also take them one by one. First up, if you could provide an update to your U.S. order book and the progress on importing more products from China and Mexico, please?
Yeah. Update on U.S. order book. We still have an elevated order book in Americas, especially on the large industrial equipment, though we depleted slightly that order book. However, we have been collecting nice orders in different categories of floor care over the course of Q1. So our overall order book, not only for Americas but also in Europe, is end of Q1 higher than it was end of Q4 last year.
Okay. Is it still your expectation that you will be able to have a normalized order book by the end of the year?
Yes. That is still our expectation. But let's say we are not holding back orders if they come towards us. And as we have said, we have seen now good momentum in the various regions, and that is a positive sign overall. So hence, we are pretty confident on our growth numbers for the year. Year. And as you know, we don't guide on orders. Yeah.
No. I suppose as long as it's demand-driven, then it's fine. Could you also give a little bit of flavor to the ramp-up of exporting large floor care machines from China and Mexico into the U.S.?
Well, we are very much in plan with our, let's say, capacity expansions towards those machines. The first machines have been produced in Q2. All the machines and ramp-up for what we see in Q1 came out of Brooklyn Park.
Okay. Thank you. Then another question regarding organic growth. I noted that the professional segment was up 2.8%, while service was up 2.5%. And intuitively, I would have expected service to grow more than the professional segment due to the sort of catch-up potential. And I understand that there is an Easter effect in this. Could you maybe comment somewhat on the general traction that you're seeing in growing the service business?
Yeah. General traction in the service business is still very good. So all the plans we have launched are yielding results. Though, I mean, as you have stipulated, we have seen a working-day effect between 2-3 days for the quarter. And when you calculate that in terms of people and capacity, you talk between 3.5% and up to 5%, let's say, less working capacity. If we take a conservative approach to it and take the lower number of that range, we get, so to say, into an organic growth range of service of 5% or slightly more. So difficult to calculate precisely. But the days we could not invoice because people were not working are obviously between 2-3 days out of an equation of 65 days, which was prior year.
Then finally, just a follow-up on Claus's question regarding headquarters costs. Can you provide any kind of guidance as to what levels to expect going forward? Given that you are also launching products here in the coming quarter, should we expect this roughly EUR 11 million level to remain for the rest of the year?
Well, we have, so to say, not been giving guidance specifically for the business segments or headquarter costs. Overall, we guide on cost and more or less not on cost but on our margins and on our growth. Yes, we should expect, let's say, headquarter costs being higher than prior year for the product-related launch costs. That will continue because we have more products to come, more trade shows to support, and certainly more e-commerce activities to arrive on the market. Those are the key drivers of the cost increases.
Okay. Then actually, just one more on the product launches. I can see from your slide 5 in the presentation today that several of these new launches from Interclean will not be available for sale until September and October. Will that allow for any meaningful revenue contribution from these products in the current financial year?
This is René here. I think you shall see it exactly as presented, that this has effect in the second half of the year mainly. I think that is how this normally works. We have quite significant launch amount coming, I mean, in Q1 and now in Q2. And we have said also that is more to be expected. So this is a second-half revenue phenomenon.
All righty. Thanks a lot, René.
Thank you. The next question comes from the line of Claus Almer with Nordea. Please go ahead.
Yeah. I just had a few follow-up questions. Reinhard, you mentioned that we could look at your full report about the Argentina and Turkey exposure. I just tried briefly to find these details, and I couldn't find anything. So I might be wrong, so maybe you can tell me where it is. Otherwise, it would be helpful if you could quantify the exposures to these two markets. That will be the first one.
Hi, Claus. This is Tracy here. I mean, obviously, we don't give details on our individual countries apart from the top 10 revenue that's in our annual reports. I think that's what Reinhard was referring to. I guess you can assess from the fact they're not in our top 10 countries the level of exposure that we have to these two countries.
But that was last. But given as you are mentioning these markets this year, so are they a top 10 market in Q1?
Yeah. We wouldn't guide on that, Claus.
Oh, okay. All right. So my second question goes to the R&D cost. Given these five product introductions you have made, does that mean amortization will increase in the coming quarters, or will the first be in September, October when you expect them to be available for sale? That will be the second one.
I mean, the amortization will increase as we launch and recognize revenue. That is towards Q3 and Q4.
Right. Okay. And the September, October dates, that's unchanged from what you expected when the year started out, right?
Correct.
Good. Thank you so much.
Thank you. Ladies and gentlemen, that was the last question. I would now like to turn the conference back over to René Svendsen-Tune for closing remarks.
Thank you. Thank you all for participating in today's call. We are now looking forward to meeting some of you over the coming weeks out there. If you have any follow-up questions after today's, please do not hesitate a second to reach out to Tracy. She will be waiting for your call. We will be back on 15 August with the second quarter report of 2024. Have a nice day, everyone. Thank you.