Earnings Call: Q3 2021

Oct 22, 2021

Ladies and gentlemen, welcome to the Nederman Holding Audiocast with Teleconference Q3 2021. Today, I am pleased to present CEO, Sven Christensen and CFO, Matthew Cusick. At the first part of this call, all participants will be in listen only mode. And afterwards, there will be a question and answer session. I will now hand over to the speakers. Please begin. Good morning, Ladies and gentlemen, and welcome to this call regarding Nederman Group Q3 report. We start with a short summary of this latest quarter and we can just conclude that we have A continued solid development in the quarter. We have had good order intake growth versus both twenty '20, that was easy, but also compared to 2019, which is more interesting. We have continued with our profitability development, and we have shown a strong solid profitability also in Q3. We have had a very good cash flow from operations and continue that pattern. But as always, but we have continued concern on component availability, transport difficulties, material prices, Everything what everybody is talking about. So far, we have been capable of managing in a Good way, a reasonable way and we will continue to try to do so. If I move on to Slide 3 and go through some numbers, orders and sales first. So for the Q3 of this year order intake was SEK1.178 billion versus SEK827 million last year. Like Sven says, that was the easy part, beating 2020, but currency neutral growth was 45% year on year, 36% growth in order intake versus quarter 3 twenty nineteen. We did have growth in all four divisions, but The largest chunk of the growth comes from Process Technology division, which you see in the figures in the divisional figures from the report. Sales for the quarter were SEK1.046 billion versus SEK826 million last year. And what we see there is the sales of $1,046,000 is relatively close to what we had in order intake for our previous quarter So you see the sort of delayed effect in some of our execution there. Currency neutral sales drove 28% up versus Q3 2020, 6% versus Q3 2019. On the year to date, we're now at very nearly SEK3.3 billion versus SEK2.56 €1,000,000,000 at the same point last year, that's currency neutral growth of 36% in orders year to date And 18% year to date currency neutral growth versus 2019. Sales SEK2.89 billion versus SEK2.735 billion in the same 9 month period 2020. Currency neutral, that's 12% up versus the year to date 2020 and Actually, it's still 2% below what we did in sales or currency neutral for 2019. So there is a delay in execution of the order intake. And what you see on these charts at the bottom as well, the rolling 12 incoming orders is now Not higher than that yet. And then you see on the sales, there's a little more catching up to do on sales. We'll let you make And forecast on where the sales will go based on the orders that you've seen in this quarter. Profitability and cash flow on to Slide 4. Adjusted operating profit for the quarter was €120,000,000 versus €64,000,000 last year. That's a margin of 11.4% versus 7 point 7% last year. Profit after tax, SEK 81,000,000 versus SEK 32,000,000 last This year at least gives us earnings per share of DKK2.31 versus DKK0.9 in Q3 2020, cash flow from operations, Sven already mentioned that, that was strong again, SEK107 1,000,000 in the quarter, SEK66 1,000,000 last year It was actually relatively strong given what was going on in the world at that time. January to September Profitability and cash flow, then we're on DKK 304,000,000 now year to date adjusted operating profit versus DKK 202,000,000 Last year, adjusted operating profit after margin is now 10.5 Percent versus 7.4 percent after 9 months. Profit after tax, €221,000,000 gives earnings per share DKK6.29 versus DKK1.58 billion last year. Of course, we announced the restructuring program in 2020 DKK75 million, which impacted every yearns per share there. Cash flow from operations for the year to date so far now is DKK3 DKK61 1,000,000 which we're very happy with, and that was DKK 141 1,000,000 at this point last year. If we look at the charts, you can see that the cash flow from operations, particularly on a rolling 4 quarters is extremely strong. You see there the benefit of the large project business picking up again with A more consistent flow of down payments on projects that we then subsequently are executing, but we're rather happy with the cash flow as well as As you may well understand. Moving on to Slide 5, Extraction and Filtration Technologies, Sven. Yes. Moving on to the largest division, extraction and filtration technology. Just to recap, Selling mainly under the brand Nederman, selling 2 applications in secondary wood, Well-being, auto repair shops, different general dust applications in different industries. Small products and small to midsized projects mainly. During the quarter, we have had a strong Performance in this division, we have seen higher demand in all regions. And We have again successfully managed the high material prices And also have so far been able to handle the Shortage in supply in different areas. They made a good job of this and are continuing to do so. Of course, no one can tell exactly for the future. But again, we have handled Transportation, we have handled material prices and we have handled shortages in the market. Moving into the geographies of this division. EMEA is The largest division, and we have had growth, I would say, in All the European region. We have had larger orders in Netherlands, Poland And that has been for component for electric vehicles. We have seen medium And for this division, large systems that has been on a good level, which is a different situation compared to earlier in the year and definitely the year before. We have also had smaller we see It depends on that smaller businesses are starting to work and there has been a good sales growth also for These partner distributed products, which is more of plug and play solutions For smaller workshops mainly. In Americas, we have had a solid growth. We had Major, good order. We had a few medium sized orders to other sectors. We are number 1 in secondary group in the U. S. Market And we are continuing to strengthen our positions. So it's been mainly solution sales where we have Being strong and we have also developed well in the aftermarket. And As you know, the aftermarket is stronger in abrasive material handling such as Wood metal ships and so on. So it's mainly there. We've also seen that inside subscription, our IoT and Digital solutions have grown and also been linked to aftermarket services Internet. In Asia, we have had a more subdued market. Still a lot of markets are In lockdowns back and forth, we have example like Thailand, Vietnam, India is now opening, so we see some recovery there. But it's been more back and forth. But it grew as a whole, which is positive. And we have had a very strong trend in Australia this quarter. It's been mainly product distribution side, not so many solutions. If we move on to key activities, As I mentioned, we see during these lockdowns, during these periods where you can't visit The customer and the customer cannot be visited by the service technicians. We've seen an increasing interest In our IoT solution, our remote control system, what we call Neriman Insight and Neriman MyAir And that has given us a better position in selling this, including service agreement. We have also improved the user interface to make it easy. We have, as we say, we've been saying for a long period of trying internally, In Edelman, it should be easy to do business with and it should be easy to use our products. So we have significantly Improve the user interface on the FlexVac. And we have also Launched a new version, which is FlexTek DX says nothing for you, but for hardcore technology, flameless launched Product, it's for indoor application organically combustible dust like flour, Wood dust, other, so it's in food and agriculture and also Where you have highly explosive dust. If I go through a little bit of the numbers For extraction and filtration technology, order intake was rather strong at €464,000,000 in Q3 versus 3 The same quarter last year, 31 percent organic growth. Sales also grew by 25% And we're SEK441 1,000,000 in the quarter, giving an adjusted EBITDA of SEK 81 £500,000 which is 18.5 percent, up from 13.6% last year. Year to date, The order intake growth is 26% and is now at DKK1.37 billion, 11% growth in sales, Still behind the order intake, so you can see that some backlog has been built in this division during this year. Adjusted EBITDA year to date, the 17.7 percent is rather strong and we see the impact, the leverage impact of selling They're SEK 227 1,000,000 a bit for extraction and filtration technology. If I move on to Process Technologies then, Slide number 7 6, sorry. Process technology is mainly large orders and following aftermarket, working with Different solutions like recycling of aluminum, magnesium, lead, etcetera, etcetera. It is foundry business and it's also textile and fiber We have under the brand Luva and then we have under a number of others under the brand Michael Mainly. In development during the quarter, normally we do not use a World like excellent, but in this case, the order intake was very good for the Process Technology division. There was a strong Q1 and Q2 also compared to last year, which was not so good. But that has also resulted in higher sales, while these orders now has gradually been converted into sales. We have also developed the service business And also with bringing in basically all solutions we have sold are Fully equipped with the micro pull assist, which is our IoT and support Same as Nederman Insight and DG7. So we have had Very strong cash flow. And on the negative side, there has been some Toilet execution difficulties due to lack of raw material and that's been high material cost and Fewer freight alternatives. It's been some difficulties in shipping on time, the goods, the Phoenix All things that we see in the daily news everywhere, but so far the organization has been Good in handling situation. If we look at Text Value Fiber, branded mainly Luva, We have had a strong performance in the order intake. We have doubled the order intake since last year. Again, 2020 was a very depressive year, especially since India now gradually have opened up And they're also supporting neighboring countries with products there. They have had a very A good positive trend. And also over the last years, very difficult close downs When we were not allowed to operate the factory for a long period, we now have 2 shifts operating. So It's a positive development. We also see a bit of an increased activity in China. And again, service continued its strong performance with the Deceval and Deceval is the Libar brand of the IoT solution and the new control system where you can remotely service and help our customers. It has got a big interest and basically all new supply are Fully equipped with that. And that gives an opportunity to build a stronger aftermarket, which was very Slow and low when we acquired Luba, but we gradually improved that. In Foundry and Smelters, Strong order intake. There's increasing demand for recycling. That's our sweet spot And especially aluminum. We have got some orders here for that and it's A core competence for us. We also received a 10 year service contract with deep tool monitoring of connected systems, again, A breakthrough from our discussion of Clean Air as a service where we guarantee the functionality of Our system for the coming 10 years as long as they have full connectivity, full service package and we do the Controlling the service and the activities. A mutual trust from customer and us. They are ongoing discussion with similar contract and it's all based on our capability of measuring and also Visualizes and controls the big data in order to do a good job. In customized, Usen, it's been very cyclical with complex projects. We have Many projects booked in Q3. You see that on the order intake. The quotation pipeline It's also slightly older than for a long time. Key activities is again to make life easier and Easier for the customers to choose Nederman. We have started the MicroPro Solutions Lab and yet gives a possibility for customers To address complex gas cleaning and material recycling problems with our specialists and technicians in that. We have had good success with that with the test lab we have built in Charlotte for LCI, a special process and Well, we have a very good conversion rate. If they come into the test lab, we have a very good conversion rate And it turns into orders as long as material and project will come through. We have also in order to simplify life for ourselves and be more cost efficient, we have Launched the new pre engineered MicroProPE solution. It's a modular, more cost competitive solution for Call it more standard application. It's the same idea as we do in especially in the foundry and smelter side of it. Moving on to the financials for Process Technology incoming orders, 91% Growth versus 2020 is always a case of what you're comparing to, but nevertheless, €436,000,000 It's a very good quarter for order intake. You can see on the chart in the top right, that's comparable with the best Quarter we've had in the last 3 years or so in Q4 2019. So very good order intake. Sales 39% up versus quarter 2 last year is DKK361 1,000,000, Still significantly below the order intake figure. So as you can understand, the backlog of Orders booked but not yet because it's not yet executed is increasing again. Adjusted EBITDA DKK 19.5 DKK1 1,000,000 is 5.4%. Year to date, order intake now at DKK1.1 DKK39 billion, which is 64 percent up versus 2020. Total sales, DKK894 million, as you see, Again, below the order intake figure, so we have built up a backlog in basically all parts of the business. The adjusted EBITDA year to date, DKK28 1,000,000 is 3.1%. Moving on to Slide number 7, Sverne Monitoring and Control Technology. Monitoring Control Technology is, as you know, our IT solution is our measuring capabilities, urban filtersense in Boston, Jasmine in Helsinki and Neuromont is in Oslo mainly. We sell to our own System divisions as well as on the market with 2 different solutions. For the quarter, we have had a stable development. We had a slight decline in orders received. There was not a repeat of SEK20 1,000,000 order from Q3 last year and but still a good development. We had good sales growth and solid profitability in most areas. And We've had a normal production, some delays in collection of finished goods that We couldn't ship it because the customer couldn't find the acceptable shipping routes for the goods. So again, it will be shipped this quarter. But this is the everyday Practice operation today that you have to juggle these things. In EMEA, we increased Sales versus last year and the year before. Orders received It was a bit lower and that was due to exactly what we mentioned before on delayed order. And again, in Process Control side of it, there are increasing activity. Emissions related business has continued to grow due to regulation, due to awareness, etcetera. In APAC, we have a very good continued development. It's been mainly Mainland China That's been driving growth in this region. We have high end products not available from Well, basically, and we do very well with these in the China market. There has been A slight decline you say is following some delayed deliveries for major orders. So again, It's not been manufacturing. It's been shipping possibilities to locations in Asia. In Americas, we have seen Increasing customer activity and the order intake has been good. From the MCT perspective, we've seen There has been a faster recovery in the Americas, but it also has to do with our initiative that we've Started after the acquisition, somewhat delayed due to the lockdown and restrictions, etcetera. So it's not only the market, it's also our own performers where we now have more sales rep, we have New sales management and set up a new structure for the MCT division in use, which has been a weak spot with the exception of AFS that has had Americas as a main market, but we're now piggybacking on That and we're developing sales capabilities for both GASMET And Neil hope that, that will continue to grow our business. We have already by setting up our own service organization, a small one, but still in the key areas in Americas signed global or American contract with American Petrochemical, 1 of the large chemical corporations and we hope that there are more to follow. Key activities, market has normalized, but it's also increasingly adapting to digital So that has been the focus on digital sales process. We had Not only give us digital solutions, we have also created digital tools for ourselves. So that means we have a showroom that we launched in Q2, where we now do training For service technicians, for salespeople, for customers, etcetera, adapting to the situation where travel has been highly restricted. We have also continued our digital sales training to adapt to the new world. Orville FilterSense in U. S. Let's take it outside Boston has secured a contract 250 particle emission monitors for a world leading food producer. We think this is interesting. We have moved into food and food dust by this. It will make True and Monteparticomission to atmosphere from powder treatment filters and dust collection systems. If we move on to the numbers for this division, incoming orders, SEK 136,000,000 was slightly below where we were last year, SEK 130 £3,000,000 last year, £136,000,000 it must be pointed out still well above the average quarterly rate for 2020 and for the Last 12 months. Sales CHF 123,000,000, that was 6% ahead of last year. So as mentioned already that some delays in deliveries have hampered that somewhat that we've seen we've also going backlog to go out or we go out in quarter 4. Adjusted EBITDA is DKK26 1,000,000 which is 21.3 percent which is rather strong. Year to date, we have paid received orders for CHF395 1,000,000 which is 10% higher than 20 20. This division, it must be pointed out, was hit least hard by COVID and actually gave us a good balance last year in that they Continued to deliver well. Sales, CHF381,000,000, CHF382, excuse me, is 12.5% higher than it was In the 9 months to September 2020, we're almost at DKK80 1,000,000 in EBITDA year to date For the division, which is 20.9%, up from 17.1% in the 1st 9 months of 2020 and also higher than the full year of last year, which was 18.7%. Duct and Filter Technology, the final division that we'll talk about today. Yes, Duct and Filter Technology, we have Special Health Deduct and also filter bags, filter media sold internally as well as externally. The development in the quarter, again, it was excellent. It was a high ever quarterly order intake. And It's also led. Here we have a fast turnover from order to sales and delivery. So we resulted in excellent profitability. We continue to manage the high steel prices And that has been and it's continuing to be a key activity. So far, we haven't had any disturbances in Supply, but the prices have been skyrocketing. But so far, we've been able to manage this activity in a good way. Still U. S. Represents a large portion of sales, but we are growing In especially in May, the activities in Asia and our factory in Thailand has been hampered by Continuous lockdowns, as I mentioned before, both in Thailand, Vietnam and neighboring countries here. If we look at Nourfang, where we do DAC and related products, we have had growth and it's mainly been, of course, a continued recovery in many markets, especially Secondly, good. Again, Thailand strongly impacted negatively by the lockdowns. Again, price increases have had a distinct impact on growth, Of course, we have had significant price increases to balance the rapidly growing steel prices. We have had very strong sales in the U. S. Some reduction in growth rate because The Q1 and Q3 was a bounce back from a very slow Q4 in 2020. But again, we have record order intake in Europe and we have new and existing customers coming to us. Minority filter bags order received in U. S, good. Successful management of challenging supply of raw materials and pricing, but we are also here as we've got several Significant orders in productionally strong segment in metal, energy, oil and gas, etcetera. And we have also Secured orders for 2 industry and that's a result of some work with dedicated Sales effort to broaden our customer base. Key activities, what is I would claim AWF is U. S. Probably the world's largest woodworking trade fab, the European one is named Ligna. We have We launched a new tool for ourselves and our installers and customers, an interactive 3 d tool, Q3, very prosaic name. And we got the prize as the most visionary new software product in the industry. It enhances efficiency when you design. You save a lot of time and risk of faulty supply. So you have a reduction in lead times. We will By year end or early January, also launched this tool in Europe and in Asia. It's made in Imperial, as you know. We were signed the treaty in 1952 that they should go metric, but it goes fairly slowly since they've chosen to do it inch by inch. When it comes to availability of raw materials and high logistic cost, it's a major source of concern and it's been assigned Highest priority. But as you see, so far so good. But again, it's on top of the agenda to manage this. What is interesting in this coming quarter, we will also introduce a new investment with the Fully automated duct production in Europe. So We continue to develop our European market further to challenge our Large Unit Operations. Briefly, on the financials for the division, order external order intake was SEK 142,000,000, Krona, which is almost very nearly 60% up from quarter 3 last year. Sales now DKK143 1,000,000 Giving us an EBIT of €29,000,000 which is actually over the 20% mark for the first time I believe in this division at €20,200,000 Year to date, we've got DKK366,000,000 in order intake here, which is 34% up versus the 1st 9 months of last Yes. Sales on to €403,000,000 Remember this division also produces some this for The assisted divisions within the Netherland Group. And I think the €79,600,000 is 19.8% year to date, which is 1 up versus 12.6% past year. Quick summary spend on Slide 9. Not much Want to say, it's a continued solid development in all divisions. We have high order intake growth both versus Last year, but what is more important also compared to 2019, we have developed a stronger We had a good cash flow, I would say, excellent cash flow due to the order intake, especially in the Process Technology. But again, for the future and now on, it is a major concern about component availability, Transport difficulties, material prices, but we have so far enabled to handle that in a reasonable way. We'll do our utmost to do so also for the future. But it's again difficult to foresee how the situation will develop in the coming quarters. If we look at the outlook, We are cautiously optimistic ahead of the upcoming quarters. Base meetings has strengthened and there is higher demand for major projects. We have developed and continued to develop a strong digital offering, and we have uncertainty in Supply chain, high material prices, expensive unpredictable logistics. All of the above factors do impact customers' Investment decision and potentially our own production and ability to deliver. Long term potential in our industry has strengthened. The new report released during Q3 by WHO highlighted the negative health effect from poor air A world over. It is the utmost importance that Nedman continues to innovate and grow in order that industry can contribute positively. Political will and use of regulation and incentives can reduce the risk that millions of people die prematurely each year from creating dirty air. So we believe that that's the future. We are in the good position that every time we sell something, we make the world slightly better. The final slide, the financial calendar we've now released the dates for our upcoming quarterly reports. The year end reports For 2020, it will be released on 15th February 2022. I won't call out the other dates. They're available in the actual quarterly report. So I think we can open up now for questions. And the first question is from Anna Lindholm, Handelsbanken. Your line is now open. Please go ahead. Hi. It's Anna here from Handelsbanken. Thank you for your presentations and Matthew. I have two questions. And one, if you could just describe how the competitive landscape is looking in the different markets and if there are any sort of trends or shifts that you are seeing? Thank you, Anna. Nice to Speak to you, Sven, I'll let you try and explain what we're seeing there. Do you mean short term or long term Perspective in different. What we can I'll start. What we can see is that there is a growing interest in our Digital tools. What we started 5 years ago in developing both digital offering, Meaning what we sell to our customers, the Digi7, Nedman insect, the Mya prescriptions and all of that I've seen a significant increase in awareness with our customers where they have seen the Positive effect. We've had aluminum manufacturer. We called him and said that you have a problem in the Norwegian factory. No, we do not have a problem. Yes, you have a Probably Norwegian factory and then they couldn't get the service technician and then they realized that it wasn't too bad to follow-up It was a test inflation, so that's why we controlled it for them. We got the email once like we wanted to work. So That is of course the positive side of it. And in a very conservative industry, we now see that we gradually Get the traction what we believe we should have for this. And we are now trying to fully Incorporate also like Gasmed because this high-tech is very much about Software, it's very it's only a third of it is about the hardware when it comes Service and we estimate that 2 thirds of the service can actually be made remotely when we have New solutions. So the digitalization is a trend that is here to stay. And I think we We're lucky to take the decision 5 years ago to go with these rules fully. I don't think we were lucky, Sven. I think we made the right This is absolutely the biggest shift that we see. The acceptance of digitalization And it's also when we come to tools, which is more internal and helping people, it's like the award winning Q3 where it simplifies, you can save hours of work, but it's When it comes to designing your ductwork. So we're very pleased To get the be the winner of this award in AWF. So I think that is the key things that we see. Was that the answer to the question or Yes, that's perfect. And just if you could tell us a bit, have you been able to sort of and in different markets during the aftermath of the pandemic? Or how is the sort of geographical expansion going? I don't think we have been doing too much on geographical expansion. We have Being more focused in capturing the markets. We are talking about the hidden potential Because if in our different sales organization, we have different strengths, It takes a long time to describe, but our competitors are mainly local regional players and they have different strengths and so on. So What we are working with is to use the full potential. If we take an example, we can take Belgium. We are definitely number 1 Vehicle repair shops in welding, but we are not so successful in wood frame. So we're Trying to take the full potential in there as where we are. Then, of course, we are looking for other areas as well. But again, it's not been so much geographical expansion, more growth where we geographically already are, But using our knowledge to the best in that geography. One thing I could add on that, The division which you may have seen or we have seen as sort of a little bit of a shift or at least If you take monitoring and control technology and the instruments that we have sold, we have definitely seen the most demand increase in Asia and particularly China there, whereas Europe and China there, whereas Europe and America, they got well, but they're slightly more. So the appetite for these high-tech measurement Equipment in Asia is definitely there, whereas the other divisions, it is like Sven says, it's more market We will try to do more in high developed countries like South Korea and Japan. That We have been tampered by the heavy restrictions we have had for more than 1.5 years now. We have Not been able to fulfill all our plans in this sort of geographic expansion for some of our high-tech products. Great. Thank you. That's all for me. Thank you. And there are currently no further questions. And we haven't received any further questions at this point. I hand back to the speakers. Ben, we thank you for taking the 45, 46 minutes actually listening to us and Hope that you will come back on the 15th February. Thank you very much.