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Ladies and gentlemen, welcome to the Nederman Holding Q1 2020 report. Today, I'm pleased to present the CEO, Sven Kristensson; and the CFO, Matthew Cusick. [Operator Instructions] I'll now hand over to our speakers. Please begin.
Good morning, and welcome to this presentation of Nederman Group Q1 2020. It's interesting times we are living in. The -- some of the bullets. Of course, for the first quarter, we have had a negative impact from the corona pandemic or more correctly, all the political decisions emanating from the corona pandemic. And that has had a negative impact on the results and also on the orders received there, especially the early closedown in China. Basically, the country has been closed down for 2 months. Our 3 factories is being closed or running in slow speed for, yes, roughly 2 months. That has had -- obviously had a negative impact, both on order intake and sales. We have had some delivery problem, but it's been primarily in China and into China. We have had delays in project execution, and that has been EMEA and Americas, a lot of projects where we not got access to the site to finalize the installations. We have taken certain matters. That's temporary layoffs. It's shortened working hours, and we have been following the different laws, legislations and recommendations in each and every jurisdiction because it's different in U.S., it's different in Poland, Sweden, Denmark, et cetera. But we are following the local regulations, and we are using the shorter working hours as it's presented in these where appropriate. As communicated, the dividend proposal has been reversed by the Board. We have also a high level of readiness for future challenges. More far-reaching contingency plans has been put ahead for implementation if and when necessary.
If I move on to the next slide and summarize the financials for quarter 1 2020, incoming orders, SEK 995 million versus SEK 1.019 billion in Q1 last year. That's a currency-neutral decrease of 3.6%. Net sales, SEK 981 million for the quarter versus SEK 1.36 billion, which is a decrease of 6.6% versus Q1 last year. Our operating profit, SEK 64.2 million versus SEK 72.1 million in Q1 last year. That gave us an operating margin of 6.5%. Including that was some relatively smaller posting of final acquisition costs from the Gasmet acquisition. So our adjusted operating profit was actually SEK 65.1 million versus SEK 73.1 million last year and operating margin of 6.6% versus 7.1% last year. Bottom line net profit for Q1 was SEK 34.2 million versus SEK 46.2 million last year, and that gave us an earnings per share of SEK 0.98 versus SEK 1.32 in Q1 last year. And as Sven has previously mentioned, the dividend proposal has been withdrawn. So we now move on to the Nederman Extraction & Filtration Technology slide. Sven will tell us a little bit more about what's happened there.
Yes. As we've said, there has been quite a mixed development in some countries where closedown or complete lockdown has been performed early on. We've seen significant declined. Late in the quarter, we saw Germany where we landed behind a very strong Q1 last year. Nordic, especially Denmark, stands out with a very strong lockdown very early on, reducing our capabilities of working there. U.K. orders received and sales grew after a positive trend in the number of system sales and reseller sales as well. Later in the quarter, there were restrictions that has made it slightly more difficult. Poland, healthy, yes. North America, orders received declined a little bit in later part of Q1, but our sales were well in excess of last year, a positive development. Brazil has had a favorable trend for orders and sales, and we've had significant orders also to the automotive industry. APAC actually had orders received higher than Q1, with a good development in Thailand and Indonesia and Malaysia. However, China was down, but there was a recovery last 2 weeks in the quarter.So if you look at it, we had good profitability. There was some slowdown in orders, China and in Asia especially. We had a very solid performance in the division despite the tricky situation. What we have seen also is a growing activity in the partner web shop, our web shop that we have developed over a few years working towards our retailers and partners, and we have seen a significant pickup here. Some effect is that we have -- will have to postpone a launch of a new filter and control system because we deem it will not have the attraction, and we will not be able to get through the noise -- corona noise. So we will take that later in the year. That's some of the effects we've seen.
If I go through the numbers for Extraction & Filtration Technology, orders received were -- for the quarter were SEK 425.9 million. That's an organic decrease of 9.3%. Sales, however, were up 1.2% in the quarter to SEK 462 million. And profitability increased as well with adjusted EBIT -- EBITA at SEK 64.8 million versus SEK 62.6 million last year. That's an EBITA margin of 14% for the division for Q1. If we then move on to Process Technology, and I hand back over to Sven.
Yes. The development in the quarter, there has been decrease in orders received, and that has mainly all -- I would say, it comes from the textile industry closedown in important markets like China, India, Bangladesh, where there has been literally no activity in that region for some period. However, we now see that China gradually is coming back. We have partly offset that by doing well in the Americas. We have also in EMEA in foundry smelters mainly in aluminum and asphalt segments, where we have had some positive development in the quarter.A problem when it comes to sales is the execution of the project has been delayed. We have had difficulties to get access to sites. We have large installations in a -- not to mention the name, a large truck manufacturing [ in Sovotega ], which closed down a few weeks where we were denied access to install a brand-new large filter system. What is interesting is that the service and installation strategy continues to generate results. We have got a service contract with remote control, with the inside Mikropul-Assist in, a special one for SEK 30 million, which is a breakthrough in that area. We can also see that the merits of remote monitoring and remote service has now been sort of introduced, and people start to understand that there are merits in it, and we see a growing interest for the products and systems we have developed. What we see in the future is, of course, the chemical industries and the textile industry, some of them are coming back now, but they are also evaluating their coming investments. So we will have to evaluate what will happen going forward. It's big uncertainties.
If I talk about the numbers for Process Technology for the quarter. Incoming orders, they were SEK 335 million, which is a drop of 10.3% currency-neutral versus Q1 last year. Sales were SEK 299.7 million, which is a bigger drop, is 30% drop in sales versus the prior -- the same period last year, currency neutral. We see that we have built a little bit of backlog in that -- in the division, although the drop in the textile market has made a significant impact on overall sales, and that falls down to profitability well where you see adjusted EBITA has come down to SEK 9.3 million from SEK 21.7 million in the same period last year. We have an EBITA margin of 3.1% for quarter 1. If I then move on to Duct & Filter Technology.
The Duct & Filter, we have the Nordfab where we had a 17% growth compared to last quarter, although slightly lower than Q1 last year. The problems we had earlier in the new ERP system implementation has been resolved, and we are back on track there. Order sales and profitability improved in Asia, and that is a clear result of the changes that were completed Q3 last year. Now see the result, the positive result, better sales, better profitability and more structured organization. We introduced a new pipe system during the quarter, and the first large installation has been very successful, and they are completed. What we see is that there is a difference also in demand. Wood business, construction business is still operating in the U.S., but we can see now that there will be some difficulties because of restriction on visiting sites, and that means that our installers are postponing their orders because they cannot do the installation. Menardi secured a strategic order and grew versus Q1 in Europe, although that the large business end users has been declining. What we see is that this will have an impact next or this quarter that depending on if the installers can go to site, they will start ordering again. If they cannot go to site, it will be delays.
The financials for the Duct & Filter Technology division. External order intake was SEK 117 million for the quarter, which is a 10% currency-neutral decrease versus Q1 last year. Sales were almost in line with Q1 last year at SEK 132.1 million, and adjusted EBITA is SEK 15.7 million versus SEK 16.8 million in Q1 last year. The EBITA margin for the division in quarter 1 was 11.9%. And move on to Monitoring & Control Technology.
Monitoring & Control Technology had a development in the quarter. We start with Asia, where the demand grew from emission monitoring solutions. That is when you monitor emissions of gases and particles in the environment, stack emission, et cetera. We have a particularly strong sentiment in China. The demand for the process control, that is management control, manufacturing process was slightly weak. That is our Boston-based business, and it's related to that there were less new installations in the quarter due to the lockdown. We could see that some recovery at the end of the quarter in especially China, where there is a growing interest. We have NEO Monitor, Gasmet, AFS, where we are technology leaders in gas and particle monitoring. And we are using that in order to build a stronghold in Asia, especially in China, and we are using our Gasmet office in Hong Kong to build a complete MCT stronghold in China and Asia. In Europe, the demand for process controls solutions was relatively weak, again, the same, a few new installations. But the emission monitoring improved compared to last year. Overall, a solid performance. North America, process control solutions continued to dominate the operations. Orders received actually rose and the sales were in line with last year. And going forward, we are focusing on introducing the NEO Monitor and Gasmet product in a much broader context in that region, and we see that as a positive development when the market opens here. We have also launched the new monitoring product CMM AutoQAL, says everything as you -- I'm sure that you understand that. I will not develop it further. But it has new technologies that reduce the need for costly manual validation. And again, we have taken a -- not a giant leap but another leap to continue to be the technology leader in this area. Some of the effect has been that, as we see -- you've seen here, we have had a good demand in China, but there has been some difficulties getting shipments into China. That is opening at the moment.
The financials for the division. Incoming orders for the quarter, SEK 116.6 million. That's currency-neutral growth of 93.9%, obviously coming from Gasmet, who were not part of the Nederman Group in Q1 last year. Organic growth, actually 11.8% down in Q1. Sales, SEK 108.4 million versus SEK 53.5 million in Q1 last year. That's currency-neutral growth of SEK 105.8 million -- 105.8%, excuse me. And the organic growth in sales of 7.7% as well, which gave us a greatly improved EBITA. At plus SEK 10.6 million, we were more or less breakeven at quarter 1 last year. The EBITA margin for the division in quarter 1 was 9.8%.I'll move then on to the regions slide and just talk you through some of the numbers. Those that have looked at this will have noticed that there's a very apparent picture that APAC is the -- or has been the biggest challenge in quarter 1. There's a significant drop in both order intake and sales in the region. And I'm not -- I'm sure that most people are not surprised to see this. There's some backlog being built in Americas into -- and that comes from -- largely from the Process Technology division, where we had a couple of larger orders, as mentioned. And EMEA was relatively, relatively, I'd say, flat for quarter 1 versus quarter 1 last year.Cash flow for operations, we had a positive cash flow in quarter 1, which is actually relatively unusual for Nederman. We usually start the year with negative cash impact from the large projects that we tend to receive down payments on in Q4 and then start working on in Q1. All in all, SEK 13 million positive operating cash flow in quarter 1 this year versus SEK 45 million negative in Q1 last. There was overall a slight increase in net debt as there usually is in our first quarter, as I mentioned. We have a relatively small cash flow from operations. And then we have had some fixed asset investments and also made the final payment in relation to the acquisition of Auburn FilterSense that was from 2 years ago.
If we summarize the first quarter in the 4 divisions, we have Extraction & Filtration technology. As mentioned, it's been a mixed quarter for order intake, but overall, a solid performance with strong sales and good improved profitability. Process Technology has been suffering from the complete shutdown in China, India and some other important -- for them, important areas. That has meant that the textile market has had a downturn. There has been reduced sales. And as we mentioned before, a lot emanating from problems accessing the site, et cetera. And that has, of course, negatively impacted the result. Duct & Filter Technology has had a small order decline, especially at the end of the quarter when more countries were closing down. But there has been a strong -- still a strong but slightly reduced profitability. There has been extra cost to keep the operations going due to the restrictions we have around the globe. Monitoring & Control order intake varied by region, but the very strong China, reasonably strong rest of Asia. We have seen a significant improving profitability.So overall, we have had a quarter that has been very much impacted by restrictions -- imposed restrictions due to the corona pandemic, and that has had an impact. It also has had an impact on increased costs. For instance, if you are allowed to do an emergency service for -- just examples, in U.K., you can't send 2 service technicians that you normally do in 1 car. You have to send them in 2 cars. So there has been a lot of practicalities so a lot of focus around the different rules that has been set up. Despite that, I think we have come decently well out of this quarter, and we'll see what happens later on. If we go to outlook. As you understand, there is currently an extreme uncertainty regarding the development of the global economy. It's very dependent on political decisions. For the Q2 of 2020, Nederman expects a negative effect of the corona pandemic to be considerable in most of the group markets, not least in Europe and North America, where a large number of countries had closed down all nonessential operations. The Chinese market is expected to continue displaying signs of recovery during Q2, provided that the corona epidemic in the country continues to be kept under control, while the situation in several APAC countries remains more troubling. It's currently extremely difficult to estimate exactly how extensive the effects of the corona pandemic would be or how protracted in terms of time. Nederman has introduced several measures to prepare the group for a prolonged difficult situation and will, in the second quarter, implement further measures as and when the continued development necessitate it.
If I move on to the final slide, the financial calendar for 2020. Our Annual General Meeting is next Monday on April 27. It will be a much briefer affair than is ordinarily the case. Today is actually the last day for registration for attendance and also for postal voting for any shareholders who wish to vote via post and will not be attending in person. We also have a new date for the interim report for January to June 2020, which was previously the 14th of July. We will release on the 17th of July instead. 14th of July is actually a very tight deadline. And given the Q2 that we see ahead of us, we think in order to be able to provide more information and better information around the second quarter, we need a couple more days there. So note that's July 17. And then the Q3 report will be released on the 23rd of October. That is all from Sven and I. So now we are happy to open for any questions that people listening may have.
[Operator Instructions] And our first question comes from the line of Daniel Lindkvist of Handelsbanken.
So just a few short questions. You had quite strong order intake in Process Technology in Q4 but low conversion on it in Q1. Could you just elaborate on the degree of delays and the degree of order intake just simply being with a longer time frame?
Yes, there have been some delays, like you say, Daniel. You're right, we had a good quarter 4 in terms of order intake in that division. The fact that we built backlog was more down to the delays in execution on certain projects. What it does mean is assuming that we can -- are able to get on to sites and continue to work on these projects, which it seems that countries are starting to open up as well now, Q2 for that division may -- how do I say, Q2 for that division may not be quite as severely impacted in terms of sales as for perhaps Extraction & Filtration Technology. But there has definitely been some delays in the quarter due to the pandemic. We also do have a backlog that is spread. Those orders that were taken Q4 last year were spread out over more than Q1 for this year, even when they were placed somewhere as late as the very end of 2020. And there might be some questions on whether those will even be fully delivered by the end of the year. We apply a percentage of completion accounting, so if the work is done on the projects, they are -- the revenue is also recognized. So that impact may not be quite so severe.
Okay. Great. And just further on Process Technology, the textile business, under normal circumstances, how big part of that operation would you say textile is?
35%.
35-something -- 35%.
It fluctuates due to order size. The orders are so huge in that division, they -- it really can be several percentage. Ordinarily and then what is normally -- is normal -- or what is ordinary but it's somewhere around 30%, 35% is perhaps where they are textile wise.
And what we've seen is that about 80% of that is in countries where you've had the large -- the things are -- India, which is now completely shut down; China that is reopening. It is also then the rest of it, the Singapore and the -- where they handle sales in the region of Bangladesh, Pakistan and so on, where you have a tricky position at the moment when it comes to both getting access to and discuss new sales projects as well as supplying at the moment.
And then just moving on to the Duct & Filter Technology. You have the very high order conversion in -- from Q4 in this quarter. Should we now see that the Nordfab problems in the wake of ERP systems is compensated fully from Q4 to Q1?
Yes.
Yes. They are running as normal. Of course, now they have a different...
Now they have a different situation, and that is, again, the question of will -- our installs, which is our base customers, will they get access to sites and thereby all the equipment that is. And you can see a big difference here. It seems like still the wood industry is doing all right, and they are in operation. Whereas the large industries related to automotive and more engineering sectors has been more hit and being closed down. Probably -- but then it's my speculation, probably because they have had more problems in their supply chain, whereas the wood industry has been more domestic and therefore, been able to continue their business less interrupt -- with less interruptions.
Yes, okay. And then just on the Monitoring & Control systems. This was the first Q1 with experience for the Gasmet. Could you just elaborate shortly on the seasonality in the Gasmet business and why it is? And just try to give that in regard -- in lieu to the delivery process.
Normally, Gasmet is highly seasonal for some reason, probably because they have a lot of public tenders and public customers like defense, rescues, meaning fire brigade, all of that and with the portable units. So their strong quarter is normally Q4. Q1 is normally their weakest quarter during the year. And historically, they have not been generating profit in Q1.
Okay. So of course, the rest of the business was rather good then in Q1 in Monitoring & Control systems.
Yes. But also Gasmet -- I said this was historic. Gasmet made a very good result compared to historic figures this year. They are positive, and we see that they are now doing inroads and growing in Asia, in China. And we will use their office in Hong Kong to further consolidate our position because NEO has one in Beijing, and we will further do. There's a growing interest for this high-tech measurement in China at the moment. Our second activity will be, when time allows us to do that, we will also consolidate and grow our business where we have a significantly weaker attendance, both for NEO as well as for Gasmet, but the products are well suited also for the American market. So -- but we will be delayed in these measures due to -- yes, I don't have to say. But we can't travel. We can't sign. We can't employ people at the moment. We can't even do an interview.
No. And then as just my final...
[ There's a ] positive development for the division.
Yes. Cool. And just my...
[indiscernible] Sorry for -- but yes, also with this, we have, over the last 2 years, now been introducing and advocating that remote control of your system will be very efficient for the factory owners and also give them possibility of adjusting and do remote analytics on that. We see a significantly growth -- a significant growth in the interest of that type of systems and what I understand that if you can't get the service technician there because you're not allowed to fly from Oslo to Houston, there is a benefit in doing that. So we hope that later in the year and especially next year, we will have small breakthroughs with these new systems.
Yes. So something -- something good might come out of this then.
Yes, we hope for that.
Yes. And then just my final question. I mean the order intake, I think it was surprisingly strong at only down 10% organically. But how should we view it? Is the likelihood of the orders received now converting into sales rather good? Or is it -- how should the order intake be viewed under these circumstances?
It's very different between the divisions is what I would say. It's a process technology they will be able to -- they will -- hopefully, as long as they have access, like I mentioned before to sites, they will continue to be able to deliver on the backlog they have. What they will see is that it will probably be a late -- the later question will be, will companies continue to make large investments, but that will be dependent later in the year. The orders that they have now will be delivered and will unlikely to be canceled. If you take the other divisions, particularly Duct & Filter Technology and Extraction & Filtration Technology, they will dip in terms of order intake and sales faster. They're smaller solutions and product sales. So they will dip faster, but the recovery will be quicker as well we expect. And Monitoring & Control Technology is somewhere between the 2 of those 2 extremes. Do you want to add anything to that, Sven?
The large systems, will -- of course, we probably be -- but there is definitely now, with the clear evidence that we have now, you can read it in the Guardian today or last -- yesterday or something that they now are really trying to see and understand that bad air quality has an impact if you also -- if you get corona or whatever. That is what -- if you are a smoker, if you're living in areas with bad air quality, you have much more severe effects of getting the virus. And it's also so we need to also keep in mind that more than 8 million people, which is significantly more than the corona that's called so far has been 8 million people every year die because of bad air quality in their work environment or in their living environment. So I think and hope that we will be able to forward this message that there are possibilities. And you've also seen the different articles in different areas where you can see how the Italian -- Northern Italy, also getting blue sky. China and Japan is getting blue skies. But as we advocate, you can have blue skies if you invest in filtration equipment and take care of your pollutions instead. So hopefully, there will be some good knowledge spread around about this topic as well.
[Operator Instructions] And there are no further questions at this time. Please go ahead, speakers.
Okay. We thank you for taking time listening to us and wish you all a continued good day. Thank you very much.
This now concludes our call. Thank you for attending. Participants, you may now disconnect your lines.