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Ladies and gentlemen, welcome to the Nederman Holding Q2 report for 2019. Today, I am pleased to present CEO, Sven Kristensson; and CFO, Matthew Cusick. [Operator Instructions] I'll now hand the call over to the speakers. Please begin.
Yes. Good morning, and thank you for listening to Nederman Group's second quarter. Let us start with a small summary of what's happened in Q2. The second quarter was overall a good quarter for Nederman. We developed in line with our expectation, and especially Europe had a strong quarter. In North America, we had a slightly more mixed picture, but we have to remember 3 out of 4 divisions were doing very good or good in the North American area. We will come back to that, about the order intake for Process Technology. Asia development, significantly weaker. A couple of explanation. One explanation is, of course, the ongoing trade war, and that has a significant effect on the willingness to take decisions on larger project and larger investment that also in some of the textile side discussion should they invest in China or should they [ even ] -- and we're now talking also Chinese companies that are contemplating the idea of have further investment even outside their home country. Also, we then say they challenge in -- looking into the challenging markets in Asia. We believe that it will have continuous possibilities going forward, and we are not completely certified. We will look into that. We have a new organization that -- from 1st of January in the core global division. It's absolutely truly operational, and we are beginning to see positive result in the sense that they are more focused and high energy in what we're doing. The latest acquisitions, especially larger Luwa, has contributed significantly to Nederman development. And at the exhibition in Barcelona, it's like the Olympics every fourth year, the world's largest textile and textile manufacturers exhibition. We could get solid strong evidence that we have now placed ourselves as the leader in fiber manufacturing and so on, so we are very pleased with that so far.
If we move on to the third slide, which I noticed is actually number -- interestingly #2, but anyway, if we move on to the financials of the Nederman Group for Q2 2019, consolidated incoming orders amounted to SEK 1.044 billion versus SEK 912 million last year. That's a currency adjusted increase of 10.3% compared to Q2 2019. Sales for the quarter were SEK 1.096 billion versus SEK 864 million last year. Currency adjusted up to 22.2% increase compared with the same period last year. Adjusted operating profit was SEK 84.9 million versus SEK 73.1 million in Q2 last year. That gives us an operating margin of 7.7% versus 8.5% last year.Net profit, SEK 54.4 million in Q2 2019 versus SEK 43.6 million last year, which resulted earnings per share for Q2 2019 of SEK 1.55 versus SEK 1.24 last year.And for the fourth slide, which is the consolidated numbers for January to June, orders for the first half of the year, SEK 2.063 million -- SEK 2.063 billion versus SEK 1.694 billion in the last year. That's an increase of 16.1%. Sales, SEK 2.133 billion versus SEK 1.65 billion last year. Currency adjusted increase 23.2% compared to the same period last year. Operating profit now up to SEK 158 million versus SEK 136 million last year, giving a margin of 7.4% versus 8.2% last year. Net profit, SEK 100.6 million for the first half of this year versus SEK 80.3 million. First half 2019 earnings per share, therefore, SEK 2.87 for the first half of the year versus SEK 2.29 in Q2 2018, so an increase there as well.Moving on to Slide 5, which is our Extraction & Filtration Technology Division, and back over to you, Sven.
Yes. Nederman Extraction & Filtration Technology working, just a recap, for -- to get acquainted with the different divisions. Nederman Extraction & Filtration Technology trades mainly under the brand name Nederman and its product in smaller system, mainly in metal, wood, composite, welding, vehicle repair shop as well as distribution of self-installed product. Europe showed a good core growth during the quarter. Germany continues to develop very well. We had several orders in the sort of mid-sized, so we have now huge orders also growing the aftermarket, specially focused on what we had for some time. Nordic region saw also strong growth in order intake, and that has been lots of small base business, all I'll say, day-to-day business doing very well, and then we added an entirely substantial -- for the division, an entirely substantial orders to the wind energy.U.K. was doing very well in the quarter, a continuation since first quarter, especially the welding segment that has been going very well this period, partly because of the U.K. legislation or authority is now officially classifying welding fumes as -- Matthew can...
Carcinogenic.
Yes. You got it, and thank you for having an Englishman in here. So that has boosted the sales in the first half year. Also, U.S., for this division, saw a good growth. Note when it comes to order intake and sales, so we have a significantly larger backlog. Here, we're still a lot wood industry, but we are gradually also broadening our activities in the region. Asia, significantly weaker development with one exception, and that is India, which saw some growth. And we also see from there after the election and this sort of -- the fog is lifting. What is going to happen? [ Mood ] is coming back and -- or is staying in office, and they are growth industry. It seems like some confidence is coming back to India.We launched a few new product, continue with the IoT solution for high vacuum, and we have already sold a few of these installation there.
If we move on to the numbers for this division, orders for the quarter, SEK 490 million. Sales SEK 483 million, EBITDA SEK 62 million, which is 12.9% in Q2. For the year-to-date, we are now at SEK 956 million in order intake and SEK 935 million in sales, giving SEK 125 million adjusted EBITDA, which is 13.3% of sales.Moving on to the second division here, Nederman Process Technology.
Yes. Nederman Process Technology, here, we are dealing with solutions that are into the process. We are talking about metal recycling. We are talking about the fiber manufacturing. We are talking about other parts in chemical processing industry. It's an integral part, and we are at the process. And we have here significantly more volatile business with much larger projects working under Mikropul, Luwa, Pneumafil, as the main -- and LCI as the main brand names. Americas reported positive trend in profitability following the good sales figures. Orders received also a bit weakened because of deferred orders for large systems. There are still questions where they're going, and we see that also especially in the neighboring countries to U.S., Canada and Mexico where there are great uncertainties, what are the future in trade here. We see that mainly that it takes an awful long time to finalize the -- getting the final signatures on the project.When it comes to the Luwa brand, where we have the Nederman Process Technology's textile segment, it is Asia. Sales have been strong during the first 6 months of the year. Order intake is a bit weaker due to overcapacity in China and caution caused by the ongoing trade conflict. I think we mentioned that earlier that there are -- some of it was expected and has been known for a year that there would be some changes, but then there are further discussions where and how and when to invest. Foundries and smelters have developed very well in Germany and Poland, and we also see a potential in North America where we are now introducing the European way, which is slightly different from the tradition in North America. A more efficient way of having foundries and smelters, and we see interest in the market for this. Asian demand is, as we eloquently say here, more subdued. We have delivered 2 new product lines for the textile industry, Loomlite and Texguard, and that's under the brand, Luwa.
If we move on to financials for this division, in quarter 2 of 2019, we've got orders received of SEK 369 million and sales of SEK 433 million and adjusted EBITDA of SEK 33.1 million, which gives us a margin of 7.6% of sales. If we take the figures for the year-to-date, order intake is now at SEK 735 million; sales SEK 855 million; adjusted EBITDA, SEK 54.8 million, which is 6.4% of sales.I'll move on to Slide 7, and Duct & Filter Technology, Sven.
Yes. Nederman Duct & Filter Technology provides solution or mainly products. It's different from ductwork, which is very important, especially when you have heavy gas flow, like for composites, dust and wood dust, and to certain things also textile dust, where the risk of combustions are high. So it's special ductwork that we have. The other parts, and this is sold externally under the brand name, Nordfab. The other part is Filter, and its filter element that are used both internally but also an aftermarket activity sold on the market. And then we use the Menardi brand. Okay. And for the quarter, Nordfab was doing good in U.S. What we have seen that has been a growth and the growth where the order size has increased. It has resulted in a slight deterioration in gross profit, but the gross profit remains at a very good level. Nordfab has recently invested in its sales organization, and we can see that we get some payback both in Americas and EMEA. But surprise, surprise, Asia remains weak, and the demand is significantly weaker there. Menardi, selling filter solutions has had a strong growth in order intake in U.S., both sales and profitability have been improved thanks to a strengthened sales organization and a focus on product mix. We have streamlined the organization. We have secured that we choose our product that we go into, so we have by that increase in margin.Nederman Duct & Filter participated, for instance, in Ligna, which is a big trade fair in the woodworking in Germany. It's international, especially European. We saw great and good interest both for Nederman branded product as well as the Nordfab. We also developed here for use mainly in the Nederman Extraction & Filtration Technology division, a new filter cartridge, and that was also completed this quarter and will be a part of a big launch filter -- new filter range in [indiscernible] [ November ] in U.S. where we also have a ISC solutions, intelligent filters and so on.
Financials for Duct & Filter Technology. External order intake, SEK 123.2 million in the quarter. Total sales, including sales to other divisions is SEK 151.6 million in quarter 2. The adjusted EBITDA for this division is SEK 23.5 million, which is a margin of 15.5%. Year-to-date, for first half year, external order intake, SEK 249 million; sales SEK 295 million SEK; and adjusted EBITDA there of SEK 40.3 million, which is 14.1%.Moving on to Slide 8 for Monitoring & Control Technology.
Here, we come to the fourth division, and then it's -- and here we have our digitalization or IoT and intelligence filters and knowledge provider. Here, we trade through Mikropul-Assist, Nederman Insight, in the different divisions, but we also have the 2 acquired companies, Auburn FilterSense and NEO Monitors. Auburn FilterSense being technology leader in particle monitoring and NEO monitor for gas monitoring.For the quarter, we have updated and further developed the Insight platform. We had launched new opportunities for online reporting, documentation, et cetera. Here, you have, in addition to the alarm functions and so on, now the ability to build compliance reports and an easy way to save time and actually be able to ask any frequent questions on real time what is happening in all your compliance and so on. We believe that will have further interest in the market.We have optimized it for the new -- for a high vacuum filtration, as mentioned before. We have also come with new application within the wood industry, continuing developing the foundries and smelter industry. Yes. We have continued to present the platform, and we find interest, and we are seeing some progress in sales in this area.
If we talk financials for this division, external order intake for quarter 2 was SEK 62.6 million. Sales SEK 56 million, giving an adjusted EBITDA of SEK 7.8 million, which is a [ third ] margin, 13.9%. External orders for the year-to-date now SEK 123 million. SEK 109.5 million is where we are on sales. That gives us an adjusted EBITDA for the first half of the year of SEK 10.5 million, which is 9.6%.If we move on now to Slide #9, we see some financials for the regions, the regions that we have historically reported, and I won't go through reading out these numbers for people here, but there's a clear picture that we obviously are growing in Europe organically and currency-neutral. In Americas, we see a reduction in organic growth or negative organic growth in the quarter and the year-to-date, but like Sven has previously pointed out, 3 of the 4 divisions have actually grown in the U.S., and it is ultimately Process Technology's order intake. That is the one -- the cause of the overall reduction for Americas. In APAC, we have negative organic growth again, and Process Technology being the main driver of that negative figure for organic growth there, but of course, we have a significantly larger presence in the APAC region through the Luwa acquisition. We have currency-neutral growth in the quarter of 41% in order intake and 93.7% in sales versus Q2 last year.If I move on to some key figures, Slide 11 shows the cash flow from operations. The figures here now for Q1 and Q2 2019 include IFRS 16. If we -- and you -- we can see that we have negative SEK 9 million cash flow from operations for 2019 to date. If we -- the main driver there for the cash flow is Luwa, and I will come back if anyone has further questions on that.Moving on to Slide #12, net debt. We see a slight increase in net debt during the second quarter of this year, the pattern obviously following last year Q1 to Q2. Also, of course, from 2019, the figures here include IFRS 16, which means we have a significantly -- a significant increase in financial liabilities related to fixed -- lease fixed assets. We've also, in the quarter, refinanced our external loans with SCB and Handelsbanken, and we have a bilateral -- also have now a bilateral loan agreement with Svensk Export Kredit for SEK 500 million. We have a 3 -- these agreements have a 3-year maturity and extension options for 2 additional years. At the end of June of this year, we have SEK 1,059.7 in available funds from the revolving agreement with SCB and Handelsbanken, so some room there.
Yes. Summarizing the quarter. Extraction & Filtration Technology, the Nederman brand caused the development during the second quarter, growth in Europe, Americas and the division as a whole. We had a strengthened order backlog. Process Technology, stable development in the quarter; positive trend in order intake in Europe; some uncertainty in the U.S. market; development in Asia weak, with U.S.-China trade conflict having a clear impact. Duct & Filtration Technology, development and improved profitability in the quarter; growth in Americas and EMEA; demands remains weak in Asia. Monitoring & Control Technology, stable growth in order intake and sales up; the Nederman Insight digital platform launched; Nederman Insight has also been optimized and used for further industries.Going to the outlook. Well, not much has changed. But here, we say many of Nederman's market show continued uncertainty. The ongoing trade conflicts and financial uncertainty prolong decisions in large investment and large projects are postponed in certain regions. Despite these political challenges, Nederman has a cautiously optimistic basic outlook. Environmental issues will continue to be important for the group's customers, and Nederman has strengthened its position in many crucial areas, where future growth is expected to be.
The final slide, financial calendar. The next report will be released on October 17, 2019. That will be January to September's figures.So okay, I think we can open up for any questions now.
[Operator Instructions] And we have our first question that comes from the line of Daniel Lindkvist from Handelsbanken.It looks like Daniel has just actually come out of the queue.He's back now. Daniel, please go ahead with your question.
Can you hear me?
Yes. We hear you, Daniel.
We can hear you.
So just a few quick questions. I'm just looking at the new business structure and the monitoring and control system. There's quite some improvements since Q1, and the margins are more decent now. So my question is basically how scalable is this business? And are you looking at this business separately or are you looking at it as a business enabler for the other units?
Can I answer the first portion of it? It's highly scalable if you can get that going, and it's built upon as both a separate business as the same with the Duct & Filter element technology. We see that as both support and knowledge support and built in to our existing and new systems, sold under a different brand, as I said, the Mikropul-Assist. Then we added into the Mikropul. We are now working on how to come up with a new approach system and support with this intelligence and knowledge that we can provide into Luwa. It will not happen until the end of this year or beginning next year. We will be ready. It's a resource issue as well. And as well as we are selling under the brand name, Auburn FilterSense as well as NEO Monitors to external customers more product, to say.That is the first answer, I think. I hope that was clarifying enough.
Yes. Because it seems like this is a business that we should be able to have margins on the right side of 20 as well. It's just becoming bigger or am I -- [ viable ] in the future?
I wouldn't say that. It depends, but put it like this. If you could have significant volume growth, there would be also significant potential to continue to improve margins.
Okay. Great. And then just a...
Diplomatic answer, wasn't it?
Yes, absolutely. So -- and then just a few more financial questions. So if we just look at the other part of the adjusted EBIT, you have quite the step-up from SEK 23 million to SEK 37 million in this quarter. Is that due -- related to any dynamic change with Luwa? Or how should we view this?
Well, I can answer on that one. The gap is not quite as big. You will notice, Daniel, that we actually -- if you go through the numbers in detail and plug them into your system that the cost of one allocation, we allocated only SEK 17.1 million like you rightly said, but it, actually, it should have been SEK 20 million. You can see that actual difference between 1 and 2, so it is SEK 20 million to SEK 30 million. There has been some more central cost in this second quarter. There is -- the central cost cannot always necessarily flat. There are some costs that, and how do I say this in a diplomatic way, that can be related to potential acquisitions that are not necessarily recognized in the period in which they are incurred as an [indiscernible] acquisition may go on or potential acquisition may go on, so you will see some peaks and troughs in this non-allocated EBITDA going forward.
Okay. But this is an unusually higher number than adjusting for some [indiscernible] of them?
Yes. It's on the high side for...
So nothing has [ been submitted ]? Nothing has changed from earlier.
No. We are not drawn up to the organization in...
No. I'm just surprised with the number this time. And then for my last question. Just on the cash flow, you mentioned Luwa earlier on and also looking at the working capital, the quarter ended on a Sunday. Did you see any effect on the receivables from that just to elaborate on the [ EBIT ] and working capital?
So the working capital and the cash flow, that one is a -- it's an important question that one, actually, Daniel, and I've got some -- I've actually done some homework for this. We have a -- what we do have, and if I take a bigger picture first before I answer your specific questions, what we do -- have seen for 2 years in a row now is a tendency for large orders to be placed in the fourth quarter of the year. And we -- and this is particularly true, obviously, then for Process Technology division. And then given the model where we are requiring, on large orders, usually at least 30% down payment in advance, and in some cases, we have had up to 100% down payment in advanced. We are in a very good specialized situation at the start of the year, and then as you start working on these projects, the cash flow position becomes less favorable. Not negative, but less favorable. And you saw that last year. And then you see the pick up as the projects, largely in Process Technology -- again, these kind of projects can go on for 6, 7, 8 months, and more sometimes. As they near completion, we'd be coming to a more favorable position again, so we strongly expect the charts to follow the pattern from 2018.And if we take Luwa, in particular. Luwa, as we pointed out, were in a very strong cash position when we acquired them. There was some -- there was one particular very large down payment that we have received that was, I would say, not normal, but they have -- so there has been some normalization there. Also -- and there's no getting away from the fact that you've seen that already when you look at Monitoring & Control Technology. When you compare orders received year-to-date to the sales year-to-date, there has been some backlog eaten. And that obviously means that there is less down payments -- advanced down payments there. If I take out Luwa and I adjust for IFRS 16, I am looking at a quarter 2 cash flow, so directly comparable with last year's SEK 19 million plus SEK 17 million this year, so we are almost exactly in line if we ignore Luwa and looked at -- compared like-to-like with last year.
Okay. Well, that's great. So just -- I'm going to step off of the line and let others give questions as well, but just one last question. The order intake -- the weak order intake in the U.S., I understand it's related to Process Technology and the postponement of larger orders, but could you just elaborate on dynamics and the order backlog you have in that region and how we should view it for the next few quarters?
Yes. There's a -- if we can say in the U.S., the dynamics are that there's a very good quotation pipeline right now. The backlog, if you view it -- if you're looking at the results for this year, we are not concerned about the result for this year given the backlog that we have in the U.S. or elsewhere in the world. The -- and this is the nature of this business, Process Technology business everywhere, it's not for the faint-hearted. The second half of the year and the order intake for the second half of the year is obviously important for looking forward into 2020. But we're not sitting here and panicking right now, but there are these signs that the investment decisions take longer. The quotation pipeline, having discussed Process Technology at some length actually, looks rather good right now in Americas, but is not -- it is a case of turning these into solid orders, of course.
Yes. So great. I've taken up far too much of your time, so thank you, and congratulations on the strong report.
[Operator Instructions] There doesn't seem to be any more questions registered at this time, so I'll hand the call back to you speakers for your closing comments.
Okay. Thank you very much for your attention, and we thank you for this and hope you will have a good rest of the summer. Thank you very much. Talk to you in mid-October again.
And this now concludes our conference call. Thank you all for attending. You may now disconnect your lines.