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Ladies and gentlemen, welcome to the Nederman Holding Q1 report for 2019.Today, I am pleased to present CEO Sven Kristensson and CFO Matthew Cusick.[Operator Instructions] I will now hand over to CEO Sven Kristensson and CFO Matthew Cusick.Please begin your meeting.
Good morning, ladies and gentlemen, and thank you for taking the time listening to us. We are going to present the Nederman interim report for first quarter 2019.
We have -- for those of you who listen regularly to these calls, you will notice that the format is slightly changed. This is due to the new organizational structure. So I will start by shooting through a few of the overall numbers for the consolidated group as a whole.For Q1 2019, incoming orders for the group amounted to SEK 1.019 billion, which currency adjusted is an increase of 22.9% compared with the same period last year. That's a 2.1% organic growth and -- of the 22.9%, 2.1% is organic, so approximately 20% coming from acquisitions, significant growth versus last year, clearly.Net sales, SEK 1.0364 billion versus SEK 785.8 million last year, currency adjusted an increase of 24.4% compared with Q1 2018. Adjusted operating profit is increased to SEK 73.1 million versus SEK 62.9 million. And that must be pointed out this is including these -- the application of the IFRS 16 for leasing. We've given more information on that in the quarterly reports, but all in all, SEK 73.1 million versus SEK 62.9 million last year. And [ now ] adjusted operating margin is down to 7.1% from 8% last year.Operating profit, SEK 72.1 million versus SEK 62.9 million last year. Net profit, SEK 46.2 million versus SEK 36.7 million in 2018, which gives us an earnings per share, an increased earnings per share, for the quarter up to SEK 1.32 per share in Q1 2019 versus SEK 1.05 last year. Obviously, the Luwa -- the acquired company Luwa gives us a positive impact on the earnings per share, although a rather modest positive increase. We are considering the favorable price we paid for Luwa satisfied right now with the financial performance there.If we move on to Slide 3, and Sven will explain a little more of the background on the new organization.
Yes. As introduced some quarters ago, we said that we will reorganize. And we have now implemented the new organization, where we have the aim to grow both profitability and also have a more simple structure and clear focus for the different businesses that we are now organizing the 4 operating segments. We have some shared key functions. We have shared services in Asia and certain region, we have in -- definitely in U.S. And that is still coordinated over the geographical regions, but the operational business and how we see that is indeed for new segment. It's based on technology. It's based on customers and the business logic. We will come back to that a little bit more. It's also so that we, by this, want to secure a faster technology transfer between the regions to be able to use the competence centers we have in different areas to bring that technology into our key account customers and also to new others. It's fully implemented, and you see that in the reporting as of 1st of January.Just to slightly explain a little bit what the[ differences ] between the 4 segments are. Nederman Extraction & Filtration Technology is product and solutions that focus on problems arising in different types of material processing. It's wood. It's metal. It's other fiber like in composite, windmills and whatever. We take care of the air pollution. And it's inside, for workers' health; as well as partly also for the extent we have environmental issues. The main brand and the brand this division goes to market is Nederman, so it's very much old, traditional Nederman.The other large division, Nederman Process Technology, it works with various types of solution for industrial air cleaning, more heavy processing industries. It's an integral part of the manufacturing process. And it's very crucial for safe working environment, stable production conditions and also managing emission control. And here Luwa textile fiber is fitted into this division for the future. Here we have larger projects. In Nederman, we have both projects. We have which is we call solution, but they are normally not exceeding a $0.5 million, EUR 0.5 million or SEK 4 million. That's a very large project in the Extraction & Filtration Technology. In Process Technology, you normally do not have projects under EUR 0.5 million. That's a smaller project. Just so you see the volatility and the decision process that -- in the 2 different businesses. The Process Technology had -- [indiscernible] largest had a SEK 1.1 billion turnover in 2018; and is, hopefully, doing more since we are including Luwa since October, mid-October, last year.Nederman Duct & Filter Technology work with different types of piping system, ductwork, speciality duct and valves for demanding industrial application where you have lots of dust loads or large dust loads. So you have to have -- you cannot have traditional ventilation piping or ductwork. You need to have clean for not building up material, cracking and crashing or starting fire. So that is the ductwork. The other part is filter elements, what's into the filter systems, the actual filter media, the filter facet, the filter bags, et cetera. So this division work with speciality, also support on the other division, with internal sales and building and competencies for filter technology and duct technology; had a turnover of roughly SEK 0.5 billion in 2018.The fourth one is monitoring and -- sorry. Going back. They are trading under Nordfab and Menardi mainly and then internally with the Nederman companies.Nederman Monitoring & Control Technology is digitalization. It's part of the IoT and the digitalization process, especially when it comes to measurement; and give insight to -- and knowledge and development. They are trading under -- internally under the Nederman or the Mikropul or the other when they are supporting internally. And externally, it's the acquired NEO monitor and the Auburn FilterSense brand.
If we move on to Slide 5, we can talk -- we will talk a little bit about how it's gone through the Extraction & Filtration Technology during Q1 2019.
Yes. As we said before, it's a different type manufacturing. So we take away dust, aerosols and certain extents, not so much gases. It's metal. It's wood, it composites and so on.So the quarter has had positive development with incoming orders. The core business sales on small systems, product saw a positive development in many countries. There has been 3 major orders. As when remember, when we talk major orders here, they are not huge in comparison what Process Technology has. And that has been in Nordic countries, in Germany and U.S. The backlog is clearly higher than corresponding time last year. And in Europe especially, we have seen that most countries have reported positive development during this first quarter. And we have had significantly growing order intake in especially Germany, U.K., parts of Southern Europe and in the Nordic country. North America, U.S. was doing quite well. Some of the other countries in the region were slightly weaker this first quarter.
Financials for the Extraction & Filtration Technology. Incoming orders, external order intake for the quarter was SEK 466.2 million. Total sales, SEK 452.6 million. So some backlog was built there. Adjusted EBITA was SEK 62.6 million, and that gives a margin of 13.8% for the quarter as a whole.If we move on now to Slide 6, Nederman Process Technology for quarter 1 2019.
Yes. As mentioned and they explained before, Process Technology, larger projects typically working with foundries, smelters, recycling of metals and now also with Luwa fiber production, textile production in this. We have also included in all new sales the supply from the other division, moderate monitoring system, that's limit any risk of unwanted and expensive production downtime; successfully launched in the number of foundry, smelter application, working also on a number of revamps on old installation.How was the development in the quarter? It was in line with expectation. We have also focused and boost the profitability. There has been more focus to grow profitability. In China, we have booked orders, but the market remains -- yes, the market condition can be characterized of caution. It's because of lack of funding and financing. We are also taking, fairly so, safe and very cautious when it comes to payment, prepayment and also getting paid in cash, not in other what they call [ deals of the chain ] from the shadow banks. Maybe we are -- some say that we might be too on the -- too much on the safe side, but we are investigating this. But with the financing, we take a cautious look at that with -- it's difficult in the Chinese. There is a definitely need in China and there is also more pressure. We will look into how we can use this. U.S. market, it's also characterized by uncertainty because these projects very much are very large projects. It could very well be seen so that the total investment for the investor is up to USD 100 million and also still that there are very long decision periods at the moment still, but we see some light and we see that they're moving. And we have a healthy pipeline. And we are cautiously optimistic that there will be changes and continue the good work here.Integration of Luwa is ongoing, and it's been contributing positively and especially on sales and order intake.So going to Europe. We had a very strong Germany and Poland for foundry, smelters and also asphalt, hot air applications. So it was in line with Q1. Australia have shown, after many, many years of weak market, some recovery in the mining industry especially. So for this division, they had a favorable Q1. For the division Extraction & Filtration Technology had -- it's slightly slower in Australia due to the slowdown in the construction industry, wood applications.Next page.
I will just go through the financials before we move on. Incoming external orders for Process Technology division in the quarter was SEK 366.1 million, total sales SEK 421.9 million. Adjusted EBITA was SEK 21.7 million, and the margin was 5.1%.Moving on to Slide 7, duct and filtration technology.
Nederman duct and filtration technology. As we described it before, it's ductwork for internal use and also sold externally for special application, high-vac application, special and for when you need clean surfaces in order to not build up material.Overall, the quarter was positive in order intake. The backlog is higher than last year. And North America developed in line with expectation. And we've got some new, interesting orders in Canada. We are expanding the network of retailers in North America, and that is continuing according to plan. Europe was in line with expectations. We are here still in a build-up phase. We are significantly larger in the U.S. market. Duct & Filter Technology participated also in some fairs, especially in the one, large one, March, in Germany to extend our activities in Germany which has not been a large market for this division before. In Asia it's still weak. We had some positive signs, but it's still a small and weak market for us.
If we talk financials for duct and filtration technology. External orders in the quarter were SEK 126 million. Total sales were SEK 133.7 million; [ EBITA ] SEK 16.8 million, which equates to a margin of 12.6%.Moving on to Slide 8 and Nederman Monitoring & Control Technology.As mentioned, that's where we have our monitoring and controls technology which is now integrated in a number of applications in Nederman but also sold under NEO monitor and under Auburn FilterSense. It's connected to our IoT development and digitalization to create new customer offering and service, value.The division saw a good growth in order intake during the first quarter. During the quarter, we also introduced Mikropul-Assist, which is the product coming from monitoring and control and an integrated part in the service concept for Mikropul brand in Process Technology. It's launched now in North America, Europe, Asia. And it's for number. It's smelters. It's for foundries, and it's also for some other filter units. We are presenting information graphically and clearly. And we give them ability to see and diagnose leaking filters, et cetera, et cetera, which will over time lower cost, unpredicted maintenance, unpredicted downtime.Q1, NEO Monitors celebrated first 15 years as a market leader in laser-based solution for measuring gases and dust and continued to post a positive order intake development. Auburn FilterSense carried out major installation of emission monitoring system for carbon black, which is a system crucial for the new -- or actually not so new but still U.S. environmental -- EPA regulation. Auburn FilterSense also had a strong order intake in China despite the weaker steel market. We were able to due to the fact that there are more focus on emission control, less -- they -- sort of patience with polluters in this. So we have been able to grow the business. We are contemplating to open a large office in Beijing for both NEO and Auburn together.Financials for Monitoring & Control Technology. External order intake in the quarter was SEK 60.7 million. Total sales was SEK 53.5 million, giving an adjusted EBITA of minus SEK 0.2 million which is 0.4% negative, which we suspect will arouse some questions. And I'll maybe take this quick opportunity to point out that we have been rather cautious in this division as well regarding China, where we have held back delivery of a couple of not insignificant orders where we were just waiting for payments to come in before delivery, which unfortunately means that some revenue and rather significant margin slipped into the second quarter of the year instead.Do you have anything more to say on that for now, Sven? Maybe we can open up for questions later.
No. Maybe we can, but we -- what we can say is the -- that NEO and Auburn FilterSense are possibly contributing. We have some still significant development costs in introducing this into the other divisions under the Nederman. And we have developed our platform. That has been going on for a couple of years, and also further services we are adding, yes.
If we move on to Slide 9, just so our analysts to look at history. Don't panic. We have also got the -- and to allow some comparability to last year. We still have our information, financial information, for the regions as well that was always previously disclosed.If I take you through them one by one. Americas had incoming orders of SEK 305.8 million in the quarter versus SEK 263.6 million last year; as currency neutral, 3.6% positive; 1.8% negative organic growth in Americas, where we are very heavy on Process Technology division. External sales, SEK 324.8 million versus SEK 280.2 million last year; currency-neutral growth 3.8%, which is negative 4.1% organically. Adjusted operating profit is up in Americas to SEK 32.2 million, which is 9.9% of sales. Last year, this was SEK 27.3 million or 9.7% of those sales.Into EMEA. Incoming orders in the quarter, SEK 517 million versus SEK 402.5 million, which currency neutral is 24% up, which is extremely positive for us. And it includes 10.7% organic growth as well. This is not just from acquisitions, but we see the growth here. External sales, SEK 524.5 million in quarter 1 in 2019 versus SEK 406.5 million last year, 24.9% currency-neutral increase. Adjusted operating profit, SEK 67.3 million, which as a percentage of sales is 12.8%; last year, SEK 55.9 million versus 13.8%, last year.APAC order intake significantly up. You -- we see a large impact from -- obviously from Luwa's -- with contribution from the Luwa organization, SEK 196.2 million in order intake in Q1 2019 versus SEK 115.6 million last year. Currency-neutral growth is 63.7% there. External sales, SEK 187.1 million in the quarter versus 99 million -- SEK 99.1 million, excuse me, last year. That's 81% growth in sales currency neutral. Adjusted operating profit for the quarter was SEK 2.2 million, which is 1.2%. Last year, the adjusted operating profit was minus SEK 0.2 million. If I move on to a couple of more key figures. For, on the Slide 11, cash flow from operations, I should point out here that these figures exclude impacts of applying IFRS 16. However, we decided to show this on this particular slide to allow full comparability with 2017 and 2018 as well, but we see a negative cash flow from operations in the quarter. That was minus SEK 62 million. The 2 main explanations for that are -- and as we pointed out before, we took -- when we took over Luwa, when we completed the acquisition of Luwa, we were in a rather strong cash position on a couple of major projects there and which we are now executing. And that has had a negative impact. We are -- have also -- I'll say "unfortunately," but it's perhaps fortunate as well. We've utilized the majority of our historical tax losses that we have had around the group. And we are having to pay tax in more countries than we previously were, and that has also had a negative impact in Q1 2019.If I move on to Slide 12, we see that net debt has increased in the quarter, largely related to the change in the cash flow from operations. And net debt is now slightly higher than it was at this point last year, but please do remember that we have acquired Luwa and Auburn FilterSense since then. Moving on to Sven -- back to Sven again and just a brief summary of the quarter.
A very brief summary. Extraction & Filtration Technology, positive order intake, strong order backlog heading into next quarter. Process Technology, improved profitability; mixed order intake in different regions, positive in EMEA flattens, we need to finalize more in the U.S. market and to do even more in the Asia region. Luwa is contributing in a positive way. Duct and filtration technology, strong order intake; and in -- strong, improved backlog. Monitoring & Control Technology, good growth both organic and structural.On to Slide 14, the final outlook. Here we also -- as you know, this is what we read straight up. Many of Nederman's market show continued uncertainty. The risk of trade conflicts, financial uncertainty prolongs decision on large investments; and large projects are postponed. Despite these geopolitical challenges, Nederman has cautiously optimistic basic outlook.Environmental issues will continue to be important for the group customers, and during 2018, Nederman strengthened its position in many crucial areas where future growth is expected to be.
Slide 15 shows the financial calendar for 2019. We have our Annual General Meeting on the 29th of April. The interim report for January to June will be released on the 12th of July, and the interim report for January to September will be released on October 17, 2019.We can now open up for any questions that listeners have.
[Operator Instructions] And our first question comes from the line of Daniel Lindkvist from Handelsbanken.
So just a few questions on the seasonal variations, starting with Luwa. What's the pattern for Luwa? How is Q1 compared to Q2? And what should we expect for -- when going forward in Q2 and Q3?
We are looking at each other. Who's going to say? This...
Because I understand it's a back-end loaded business, to some sense.
It's very -- historically, it's been a very back-end loaded business where especially Q4 is normal -- is significantly stronger than any others and where normally Q1 is one of the weaker ones.
Yes.
I think you see, Dan, you'll also -- by the -- if you take the increased turnover and the overall reduced margin as a percentage of sales, you see that, that -- I would say that the single biggest factor there is Luwa as well. There is -- it's not a huge force in terms of profitability for them and never has been. We are looking at that. And there are some things that we think we can do to improve profitability in Luwa which would also impact and make it smoother over the quarters.
Yes. And then just looking at Luwa: Is the business divided differently between the quarters within the split between Europe and Asia? Is it more Europe in Q1 then?
No.
No. I wouldn't take that...
Evenly distributed over the year.
We -- you have to realize that what we call Europe is sales in EMEA. There is not a huge amount of business going on in, how should I say -- not just -- we were tradition -- the old Western European countries are not investing. What we talked about Europe is Eastern Europe. It's Turkey. It's Middle East. And so it's EMEA. So it's...
[indiscernible]
Not so, but it's -- there is not a huge amount. There are a few in speciality fibers for more technical use now and then. We've handled all these [indiscernible]in the former Russian is handled from Switzerland.
Yes, okay, okay. So -- and then just for the Monitoring & Control Technology. You had a fair result and you had -- given the explanation, but the orders were pushed into Q2 due to China. Otherwise, what should we expect? Are there a few quarters when you get scalability from a fixed-cost base and get significantly better results than in others? Or how should we view up on it on a yearly basis?
One thing is you can say that Q1 is in that division -- just in the traditional companies in Auburn FilterSense and NEO Monitors, Q1 is often a little lighter than the other quarters in terms with sales. You see that sales was less than order intake there. We also -- like I say, we did hold back on delivery of -- from one of -- into China there, just waiting for the cash to come in. So that -- those sort of things happen, but Q1 is a little bit lighter traditionally.
Okay. But the nature of the business, will it be positively affected by vacations in Q3 while having incomes just streamed over the year? Or is it Q4 business due to larger operations, or..
Yes, it should be more continuously growing, I think, as we are in a growth pattern here, but then of course even some of it are linked also to decision on larger projects. Especially, NEO is linked to large project mainly. It is in fertilizer business. It is in chemical business. It is in fuel gas. It's in all the applications we build on smelters, in aluminum and other recycling materials. So they are sort of -- their sales is -- also depends on new investments and so on. However, they are in growth, so we could see it continues growth, although it's -- if you look underneath the hood, you'll see that it's a bit volatile in what -- or very volatile in what businesses and what orders you are getting.
Okay. And then just customers are beginning to become increasingly or investors increasingly interested in the wood industry and the future for it due to environmental positive effects. So your end market exposure to the wood industry and the textile industry, could you give us a round figure for wood just to start with?
It's [indiscernible] to give it here because it has to be on top of my head. I don't have the facts, but it's good. I would say it's very big in the U.S. It's growing in Europe and...
Yes.
About -- if you take it all in all, SEK 400 million to SEK 500 million.
Okay. SEK 400 million to SEK 500 million in total.
Swedish.
Yes.
In Swedish.
Yes. Because it's -- but it's depending a little bit ups and downs here. But let's say SEK 400 million, yes. 10% of our annual.
Yes. And that's great. And then for the textile industry, do you have an equivalent number for that?
Well, the fiber industry...
Not fiber industry, [ yes ].
It's in -- yes. It will be about SEK 600 million...
Yes. It's plus.
But if you are okay with a 10%, plus or minus, go...
Yes, yes, that's -- okay. So that Should be around [ 15% ] of total.
Yes.
SEK 600 million.
Yes.
Yes, great. No -- so then no other questions. We'll just have to get used to the new reporting of the divisions, and we've allowed you keep them both for a while. And then just a question on when we -- will we get comparable numbers for the new divisions. And would you then give us a full year backwards so we can have something to work with?
You will have a full year for 2018. We will do that and given that the implementation was throughout 2018. And there were -- for example, we had a number of companies that operating across division, but the comparables are not accurate right now. And so we're not going to give those out, but I think, for the whole year, you will -- there will not be a -- it will not be material deviations that we have when it comes to divisions as a whole. So you will be able to compare apples and apples for the whole year '19 versus '18.
[Operator Instructions] And our next question comes from the line of [ Gustav von Silvers ] from [ Kalgar Fund ].
I just want to -- 2 short questions. Follow-up on the Nederman Process Technology, where you just acquired Luwa in, considering that your -- the objective for the group is to have a 10% margin in average over a business cycle. I mean the objective seems quite ambitious today, so will you sort of address and make any special programs to improve the profitability in Process Technology? I'm just -- not saying it's bad. I just wonder how you think about that fact. That's a big difference between your objective and what you're achieving at the moment. And the second question is just the tax rate going forward, with 25% on running 12 months. It's [ 28% ] last quarter. What shall we calculate it going forward?
Okay. Shall I start with the first one?
You take the first one, and I'll take the second one.
Yes. I -- [ tax]. I still have some anxiety. I have to do something during the weekend to put together my papers for the Swedish tax report. So that's another story, but of course, the ambition is and has always been to grow the aftermarket. That is one part. We are in -- if we go for a brand, like we have LCI and Mikropul, we have managed to push that to 30% to 40% of the sales. What it's lacking at the moment is large projects in certain markets, where we have China and U.S. especially, but this is the same program. And we are trying to redo the same thing with Luwa. That it's currently on 8 -- yes, maybe 8% to 9% on a yearly basis on recurring revenues from the spare parts and other aftermarket activities. We believe that's a significant potential in this. Having said that, it's not something that is done to next quarter, but it's also so that we are introducing in this -- and we see potential here. And when we know the wind with the management and control group's offering, we build value and create value for the customers in their performance. We have already, by installing -- I don't think we are allowed to say which one, but it's a factory that are -- they have several factories. And it's a factory that has been having to close down 3 times because the local management has not been fully in control because we are talking about hazardous substances that are recycled here. And we managed to go in, tell them that they are not using it in the right way. They could increase output. And we also installed here leakage test equipment. We believe that, in midterm and long term, this is -- has significant potential, but having said that, it's not like a salvation that comes flying in 1 quarter, 2 quarter. It will take some time, but we are rapidly developing these new tools and these things to build an aftermarket that is significant both in Luwa and in the rest of the Process Technology. So yes, there is a plan. We have a plan. We have a very clear plan, and we are already starting to execute on that one. It's also a matter of when it comes to what you think is most important, if it's the top line or the bottom line that you -- we also -- if we are a leader, it's about pricing discipline as well. And here I think we have shown historically that we can be better and focusing on the profitable projects where we have a cutting edge where we get paid. And if you look at the situation, we are #1 in fiber -- or not fiber technology, but filtration systems for fibers at high-end fiber technology. So we believe that there is potential but not for next quarter only.
And if I -- [ Gustav ], if I ask -- answer your question on tax rate. We have, we posted 28% in the quarter, which is a little high than we've historically had for the last couple of years. And on the face of it, U.S. tax cuts obviously have -- from, what is it, nearly -- in almost 18 months back now, are having a -- have a positive effect on -- for us. Unfortunately -- we do, unfortunately, again, but we do make some money in a number of countries which do have higher tax rates: Germany, India, France and a few others that I can't comment off the top of my head. They have a more negative impact on the tax rate for us. And we do have this that I mentioned earlier when I was talking about the cash flow, that we have had some historic losses largely coming from acquired companies, I must point out, not from our own loss-making activities, but are -- have largely been fully utilized now. So we won't see any benefits from those in the future. So our latest estimate for the year is around 28% for the full year this year. It could be a -- slightly lower, but I'm not sure that -- I don't think it will be very significantly.
Thank you. There are currently no more questions registered at this time, so I'll hand the call back to you, speakers, for your closing comments.
If there's no more questions, we wish you a good continuation of the day and happy Easter. And thank you for taking the time listening to us.
This now concludes our conference call. Thank you all for attending. You may now disconnect your lines.