Nederman Holding AB
STO:NMAN
Earnings Call Analysis
Q4-2023 Analysis
Nederman Holding AB
Despite a backdrop of economic uncertainty and geopolitical tensions, Nederman Holding ended 2023 on a high note, marking a year of record achievements. The company saw increased demand for its solutions and strengthened its market position in key growth industries such as battery manufacturing and healthcare. The notable confidence in the company's offerings was reflected in the Board of Directors proposing a healthy dividend of SEK 3.95 per share.
Nederman reported a 4.8% currency-neutral increase in orders for Q4 and notable organic growth of 3.5%. Total orders for the quarter were SEK 1.467 billion, contributing to a yearly total of over SEK 6 billion, up 6.8% compared to the previous year. Though there was a Q3 and Q4 trend of reduced orders, the order backlog reached an all-time high, suggesting robust future performance. The company achieved an 11.4% EBITA margin in Q4, an improvement from 10.6% the previous year, and a remarkable 11.6% for the year. Profit after tax for the year was SEK 341 million, translating to an earnings per share increase to SEK 9.71 from SEK 9.37 in 2022. Despite a slight year-over-year decrease in quarter 4 earnings per share due to higher financing costs, the company maintained higher operating profitability throughout the year. Additionally, Nederman bolstered its cash flow, with a Q4 operational cash flow of SEK 212 million, highlighting their effective management of inventories and receivables.
The company has undertaken initiatives to improve efficiency, including the development of a new logistic and manufacturing setup. Investments in digital tools, such as ProQuote, are simplifying system configurations for their clients, indicating a step forward in digitalization. Despite facing some challenges, such as the one-time SEK 17 million cost associated with filter product upgrades, Nederman is pushing ahead with innovations and reforms meant to optimize operations and increase market competitiveness.
Extraction & Filtration Technology (E&FT) division saw strong order intake and sales growth, though filtered projects necessitated a SEK 17 million cost allocation, affecting EBITA margin, which remained solid at 13.1%. Process Technology also performed well, with notable growth in orders received and a stable EBITA margin of 9.7%. Duct & Filter Technology increased external orders by 10% for the quarter and improved production efficiency, leading to a higher EBITA margin of 17.5%. Monitoring & Control saw a slight decline in orders but reached a sales record in the quarter and strengthened profitability by investing in its digital offerings and increasing production capacity.
CEO Sven Kristensson depicted a cautiously optimistic outlook for the first half of 2024, backed by a solid order book and growing interest in their solutions. While the company remains wary of inflationary pressure and broader economic slowdown, the strong footing in expanding industries fosters a healthy prognosis for upcoming performance. Challenges remain, especially in managing working capital, which saw an increase and continues to be an area of focus for Nederman.
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Welcome to the Nederman Holding Q4 presentation for 2023. [Operator Instructions]Now I will hand the conference over to CEO, Sven Kristensson; and CFO, Matthew Cusick. Please go ahead.
[Technical Difficulty] report and year-end report. And sum it up with [Technical Difficulty] with a good result. We have a healthy growth with higher cash flow [Technical Difficulty] profitability [Technical Difficulty] expanding industry with such as battery, manufacturing [Technical Difficulty] in both in administration, but very much also in new factories and build out of our manufacturing capacity, improved our overall efficiency.If we talk [Technical Difficulty] we have a positive quarter with a solid [Technical Difficulty] to this year. That means that we are cautiously positive for the first half of [Technical Difficulty] and that, of course, by the good order book we have in our divisions. [Technical Difficulty] there's always with a weaker economy with that and that could impact our customers' investment decision. Geopolitical uncertainty, et cetera, [Technical Difficulty] that we...
Hi. Sorry, this is the operator here. Matthew and Sven, your mic is not very good. So I will move us to the subconference for a while, and we will check your mics and then we will be back. So for everyone listening, just stay tuned, and we will be right back.
Okay. We are very sorry for the technical mishaps here. We don't know how much you could hear. We take a very short summary of the first part of the slide.So again, welcome to this presentation. And again, concluding that we had a new record year, we are very pleased with that, especially during the circumstances with all interesting things happening in the macroeconomic, geopolitical [ scene ], et cetera, et cetera. But if we summarize it, we had healthy order growth, high sales. We had a strong cash flow, and we also managed to improve profitability. We did also advance our position in the global market for industrial air filtration. We have seen that we have a growing interest for our solutions, and we have also received some awards for our work on a new intelligent product, et cetera.We have strengthened our presence in expanding industry that has shown good structural growth and that means battery, it means health care. It means recycling of material, et cetera, where we have a strong base equipment and owed is clear knowledge and capabilities. We have also improved the range of our digital products, also our solutions, our services. We have a very strong digital offering both as an offering to our customers, but also asset tools to make life easier in setting up, making offers and things like ProQuote, we are launching where it [ simplify things QFV ], et cetera, et cetera. All these abbreviation I will not explain for you.We have also invested in our new facilities. We have improved our efficiency, and that also shows in profitability. So again, a positive quarter with a solid order backlog moving into this year 2024. That means that we are cautiously optimistic for the first half of the year, back among other things, with the strong order book. Of course, we have remaining risk inflationary pressure, a weaker economy, et cetera, et cetera, but you can all read about that, geopolitical uncertainty, of course, again. But having said that, we see that the interest for our solutions is strong. We see that the launch of new products, new solutions helps us to improve our position in the market. So that's a healthy position.When it comes to dividend, the Board of Directors from the meeting yesterday have a proposal that equals through a dividend of SEK 3.95 per share.
If I move on to Slide 4 and start going through the financials now. Orders received currency neutrally by 4.8% in the quarter, which we see as a strong positive. That's a 3.5% organic growth and then 1.3% from acquisition growth. Orders totaled SEK 1.467 billion, which is clearly up from last year. It's -- as you can see, it's still below the run rate for the full year. The full year, we were over the SEK 6 billion mark. We did [ SEK 6.05 billion ], which was a currency-neutral growth of 6.8%.And what we can see on the chart in the center as well, that the orders on a rolling 4 basis are at an all-time high, given that we've seen a reduction in -- a slight reduction in orders in Q3 and Q4, you can perhaps expect that trend to [ later off ] somewhat. What we're quite pleased with on the order intake is, like I say, the currency-neutral organic growth that we saw in the fourth quarter, there is a trend to some more organic growth for the group versus the full year figures.When it comes to sales, solid order backlog, as Sven has mentioned already, that's led to sales of very slightly over SEK 1.5 billion. It was actually behind last year's levels when process technology were -- [ they are very high levels of that ] project execution. Nevertheless, sales for the year were clearly record for the Nederman Group, SEK 6.188 billion is currency-neutral growth of 15% and organic growth of 9% for the group.When it comes to profitability, as Sven mentioned, is a record year basically everywhere. In quarter 4, SEK 172 million in EBITA is a margin of 11.4%. That's up from 10.6% for Q4 last year. Profit after tax, SEK 77 million is slightly below last year, SEK 91 million last year. We will come back to the reasons behind that thing, not one impact, of course, is the increased financing cost that is apparent. Earnings per share for quarter 4, SEK 2.2 versus SEK 2.59 in Q4 last year in '22, I should say.Year-to-date, EBITA a clear record SEK 715 million in EBITA for the group versus SEK 567 million in 2022 is a clear increase in our margin to 11.6% versus 10.9% in 2022. Profit after tax, SEK 341 million equates to earnings per share of SEK 9.71, clearly up from the SEK 9.37 that we saw in 2022 as well. One interesting thing to note in the charts is despite the fact that the quarter 4 was a slight reduction in earnings per share. Operating profitability is still higher in all 4 quarters of 2023, than it ever has been in any isolated quarter before 2023.We had a very strong cash flow in the fourth quarter as well. Good -- we had good order intake. We've continued to work hard on our managing inventory and managing our -- particularly our receivables balances, and we've been rather successful there, extremely good in the fourth quarter cash flow from operations of SEK 212 million. That's a record -- a clear record for the Nederman group. For the year, SEK 576 million, we think, is very strong as well. That cash flow has then led to a reduction in net debt. Like I mentioned previously, of course, the cost of financing, the debt has increased significantly during 2023. And it's important -- we understand the importance of continuing to work with our cash flow going forward.If we move on to the divisions, then Sven, Slide 9 is Extraction & Filtration Technology.
Yes. We started with Extraction & Filtration Technology for the Q4. And orders received were very strong in the quarter, where several major medium-sized orders have come back somewhat postponed earlier in the year. But finally, they grab the [ pended signed ] the orders. It was all types of sales that increased with double-digit growth in service and aftermarket business is something we are working quite hard on in all divisions.Again, 5 major orders. Danish, the company Aagaard that we acquired in July, it's been now successfully integrating, and it has significantly strengthened our position in the woodworking segment. We are definitely #1 in the North America side of it, and we are now strengthening our position in Europe, and we definitely have the ambition to reach a #1 position also here.EMEA recorded continued healthy activity and had actually double-digit growth in orders received. Americas displayed unchanged development compared with Q4 in 2022, which was a strong one. APAC, development was weaker, with the exception of China, we saw small growth in orders received and sales. Although our big areas is EMEA and North America.Some key activities. Nederman SAVE was named the best dust collecting product by the U.S. FDMC, that is a network of companies in the woodworking industry focusing on the U.S. market. And it's another sign of our -- that our digitization offer with digital solution with energy saving capabilities, et cetera, is getting more and more attention. We have also earlier mentioned that we have invested in our manufacturing to achieve better productivity and profitability.RoboVent is during this spring now moving manufacturing and offices through a completely new plant. And again, going from 3 separate location in an old setup, we will now have a complete new logistic and manufacturing setup at one site near just 20 minutes from the existing one. We see that, of course, as a challenge when the few weeks, it's done, but it's going to further increase our capabilities, efficiency and capacity.We have also started to launch a digital selling tool, as I mentioned, ProQuote, that simplifies how to build a system. And again, we are now moving into Asia. We have starting a small rollout in Europe and in U.S. before. We have also started the initiative to improve the technical performance of particular filter product for upgrading existing filters to a new standard. This was a drawback and the cost of the estimated cost of [ SEK 17 million ] has been taken during this quarter.
If I talk briefly on the financials then for [ E&FT as Sven ] mentioned strong order intake growth in the quarter, SEK 650 million, up from SEK 591 million is a currency-neutral growth of 8.6%. Sales also up 6.2% to SEK 689 million.Adjusted EBITA, SEK 83 million in quarter 4 versus SEK 92 million in quarter 4, 2022. Of course, the [ SEK 17 million ] charge for this filter upgrade project impacts things not insignificantly. For the full year, the division is clearly over SEK 2.5 billion now in both sales and order intake; adjusted EBITA SEK 340 million gives 13.1% in EBITA margin.Moving on to Slide 10, Sven on Process Technology.
Yes. Process Technology, as you have seen, had a fantastic year with very strong profitability and strong sales for the year. The quarter, we have increased orders received, and that was mainly large orders in EMEA. APAC also saw a good bump back in order growth. We have a robust sales with higher share of service. We continue to grow our aftermarket business significantly year-on-year in this, in this division, all the others as well, but especially here. Strategic business decision, high level of manufacturing and delivery efficiency have also contributed to the record earnings in 2023.The 3 different areas we're working is one, textile and fibre. And the textile segment increased sales, but orders received fell once again. The backlog is right now healthy and reasonably good. It's been mainly in China, where we have seen a decline. It's the worst largest textile market, and they have had a dampening effect there. But we also see that our organization in India is growing well, taking more market share, balancing out a little bit in this sense.In the foundry and smelter, we have the sustainability trend, meaning recycling of metals like aluminum, steel, et cetera, and that has given an increase in the demand for these solutions. We have also now taken the technology from our German European activities to you with very good result. It's a non-U.S. traditional way of handling the issues, but we are now gradually getting into that market and getting an acceptance for -- as we see a better solution. Very glad to see that coming.When it comes to customized solutions, the segment displayed good sales growth, driven by, among others, healthy activity in Asia. The key activities has been the implementation of restructuring program in China, and we expect that to increase the profitability for the coming years. There's a growing interest in the divisions offering in digitalization, and that includes participation in various trade fairs in the different regions. And we've seen that, again, our digital offer is accepted and also a thing that the market likes. And also here, we can see how we from remote control can lower the cost of handling its services, et cetera, we can also help with surveillance with them, which can save costs for our [ cash run ].We have investment in a new paint line and other surrounding equipment in our plant in Germany. So we are continuing to upgrade our facilities in all divisions to meet the demand and also be more efficient in our supply. So we have also continues, as mentioned before, a healthy growth in service and aftermarket and that demonstrating the division's ability to adapt its offering to the market needs.
Briefly on financials for Process Technology. Then in quarter 4, order intake increased to SEK 468 million from SEK 400 -- it must be said as a rather low SEK 437 million for -- in quarter 4 of 2022. This is currency-neutral and organic growth of 7.6%. Sales clearly behind, as we mentioned before, the peak levels as the backlog for the division has declined somewhat, and that is -- that leads to this lower sales level.What's pleasing is that the adjusted EBITA, the margin has increased in absolute numbers, the adjusted EBITA was nearly almost [ SEK 4 million higher at SEK 42 million ]. The EBITA margin for the quarter 9.7% is in line with the full year. And what must be said is that there's a significant -- an improved sales mix with a service business typically offering higher margin than the capital sales projects.Moving on to Slide 11, Duct & Filter Technology, Sven.
Yes. Duct & Filter Technology. We had in the quarter order received strengthened. It was due to a number of major orders, quite a few to battery manufacturing, et cetera. Sales were slightly lower, while profitability was positively impacted by our improved manufacturing and inventory process, both in U.S. and EMEA, but especially in the U.S. We have invested significantly in our U.S. operation, and that pays off now.Nordfab, the division's ducting business saw higher orders received compared to last year. We have significantly higher manufacturing efficiency, and that has strengthened our profitability and the new warehouse management system at the plant in Thomasville U.S. was commissioned and introduced, and that is another step on the [ North Hub ] now projects where we have same day or next day delivery as a target during the year. Again, something to add to our efficiency and attractiveness to our customers.In the Menardi, the division's filter solution that operates under Menardi brand. And again, this is mainly U.S. We have a continued good orders received and it was in line with the strong Q3, and remember, 50% higher than Q4 2022. We have found niche markets where we do certain applications, and we do that well. We have successful sales activities and the high level delivery reliability supported a strong increase in number of orders throughout last year.The key activities worth mentioning is that we are now launching the Nordfab Quick Fit in Australia with some success, and we see that as an important move to improve the quality of our offering in Australia. We have launched in U.S., the Spark Trap for suppression of sparks. It's a new version and again, [ focusing on easy ] to do with easy to deal with easy to place in various industrial environment.We have, as mentioned commissioning the new warehouse management system in Thomasville, it's another important step in internal efficiency. And we have also initiated the investment in BIM Object, and that will help us work with architects and other prescriptions work in the division. And we have a new CEO in our high operation.
Briefly on financials here then for Duct & Filter Technology. External orders received increased by 10% in the quarter to SEK 181 million versus Q4 2022. Sales somewhat lower, SEK 12 million, lower than 2022 level is SEK 201 million for the quarter.As Sven mentioned, this production efficiency improvements has led to the EBITA margin increasing to 17.5%, and that's very slightly high as SEK 1 million high natural numbers for the quarter in adjusted EBITA. For the full year, the division ended on 18.7%, EBITA margin, SEK 157 million in absolute numbers, which is a clear increase in profitability in both absolute numbers and percentages versus 2022.Monitoring & Control Technology in the fourth division, Sven.
Yes, Monitoring & Control, where we have our surveillance systems, our measurement technology, et cetera. The development during the quarter, orders received declined a little bit compared to Q4 in 2022, while NEO Monitors performed strongly among the brands. Sales were highest ever recorded for a single quarter, and we had a strengthened profitability.In EMEA, orders received decreased compared with a very, very strong Q4. We had some one-offs in Q4 2022. Sales increased, and that's driven by rising activity for NEO Monitors, but above all, a strong trend for Gasmet, particularly in the U.K. and in Germany and especially for a new launched product. That again shows that our activity in R&D, product development and launching new efficient product is paying off.In Asia, orders received also declined compared with a very, very strong Q4 in 2022. Sales increased with significant contribution from Gasmet and NEO Monitors. In China, orders received have gradually improved during the year and continue to do so. Americas noted slightly lower orders received, but another strong quarter in terms of sales.The key activities for the division is continued investment in Insight Cloud and Insight Control digital solutions. Continued investment to increase production capacity for NEO Monitors, which led to a new production record in December. Working capital increased mainly due to sustained higher inventory levels to ensure deliveries to customers following earlier problems in the supply chain, but it's also due to the high order backlog, especially in NEO Monitors.
Talking financials, Monitoring & Control Technology. Then order intake declined to SEK 167.3 million. We mentioned the one particular order we took in Q4 of 2022 was SEK 30 million, probably shouldn't read too much into a decline -- an organic decline in orders for this division there. There is a little bit of always some issues with timing of when the orders come in. Sales for the division for the first time exceeded SEK 200 million, SEK 202 million versus SEK 176.8 million last in 2022 Q4, and we see what happens to profitability in that division when the sales volumes increased.The adjusted EBITA is SEK 48 million versus SEK 34 million in Q4 2022. And the EBITA margin is very healthy, 23.8% for Q4 of 2023. For the full year 2023, we ended on SEK 153 million in EBITA versus SEK 97 million in 2022. So a clear improvement there with a good run down to EBITA from the increased sales. Margin for the full year, 20.8%, clearly up from 2022.Just talk outlooks venture, a few comments.
Yes. Again, demand and orders received remained favorable, while our base business and strong digital offering enable us to assert ourselves well in the current market. At the same time, of course, there's a risk that problems, including inflationary pressure, weaker economic prospects will impact customers' investment decision. Moreover, growing geopolitical uncertainty could eventually lead to increased protectionism, et cetera.But in terms of our solid order backlog and our ability to increase our share of sales in industry with good structural growth, we take a cautiously positive view for the first half of the year. And we see that our office has been well received, and we see that we have a very strong position in the market, both technically and from coverage in sales structure. So again, cautiously optimistic for the future.
Okay. The financial calendar, as we've announced the interim report for quarter 1 will come out on the 25th of April at the day before the Annual General Meeting on the 26th of April; the Q2 report will be on the 12th of July; and Q3 will come out on the 22nd of October this year.And with that, I think we can now open up for any questions that our listeners have.
[Operator Instructions] The next question comes from [ Lina Bloom ] from Handelsbanken.
My first question is related to demand. So overall for the group, which geographical markets you see going strongest demand wise at the moment? And could you maybe talk a bit on if you have any expectations of that going forward?
Yes. Again, it's always very, very difficult to say. But we have had, over the years, a strong development in the North America, and especially the U.S. market. We have both invested and continue to invest in new companies and new resources, and we are continuing to evaluating that. And we see that there is a demand. We also can see the EPA, the authorities are actually pushing contrary to what we think in Sweden or anywhere else here in Europe. There is a push for more active work when it comes to health effects [ are bad air ].So we see a long-term positive development. They're also investing a lot in, put it like this in-sourcing to U.S. And when they do, they build new facilities and they invest in new, the latest technology, et cetera. So personally, I see a very strong positive momentum in U.S., despite any discussion of the slowdown in economy and so on. Having said that, we also have a strong position in other areas. There is a market in Asia, that is growing especially for us, if we need to be better in that geographic area. Any comments?
No, that's -- I think that's a good trend. This electric vehicle battery [ partly ] just simply look at the U.S. map of the U.S. with how many plants are being built. That's a great example of why we're perhaps more positive about the U.S. than the other parts of the world. But I can say, internally, we've perhaps got more we can do in Asia.
Super. And talking about the U.S., is it possible to say that the demand is supported by initiatives such as the Inflation Reduction Act and that the orders are increasing from sort of increased production of green technologies? Or are there mainly other sectors that drive the demand at moment?
I would say it's more the other -- because IRR is very much focused on CO2 and so on. But again, if you are focusing and again, the factory manufacturing that these electrical vehicle manufacturers are putting up, it's, of course, partly an effect of that. It's hard to say that what, I would say for that could support growth of in the individual industry. But when it comes to traditional industry, it's more the legislation and the discussion about the health effect of bad air that supports and the general knowledge. And again, it's not only Europe that has an issue when it comes to finding good workforce, et cetera, and engineers working in manufacturing. It's all over the place. And the demand and the knowledge and awareness that you need to have good working conditions is supporting us.And then we have an offer when it comes to -- we have some examples where someone has got to low-cost, cheap solution and coming back to us again because again, we are technologically leading. We have a future-proof solutions with call it, digitalization in a wider perspective where we can have a lower total cost of ownership by reducing the energy to use by smarter filters, if you can say, a filter, it's not very smart, but we can utilize it in a more efficient way. So yes, I think that's where we are. I don't know if that's a good enough answer.
No, that's perfect. And then regarding the -- that the RoboVent will move production and offices during the spring. I understand that this is positive regarding increased efficiency and capacity, but will the move in any way affect the production capacity during that time?
No. It will not, because we will have -- it will probably be so that you can see a little hike in the working capital, but we should be able to do it. It's not a very advanced manufacturing in the sense that there is a lot of heavy manufacturing equipment since most of that is outsourced, meaning stamping, cutting, plasma cutting, that is outsourced. It's more assembly. That means that it should be fairly straightforward. But if you had, it's always a challenge to move a new factory. But the personnel is very upbeat and [ U.S. ] is very positive since we have started an investment journey and improving quality of working standards and also efficiency there. So it shouldn't be, but you can always -- they will -- they once doing it will have lots of challenges. Hopefully, you will not see any result of those challenges.
Perfect. And then regarding the Process Technology division, you mentioned in the report a potential slowdown in demand. Should we expect lower growth of order received for this division in the coming quarters? Or how should we interpret this?
I wish I could say, and because we have a very strong pipeline. And again, we have a very strong product, and we have some very, very big orders in the pipeline -- of course, if -- and I say if people are getting utterly nervous, they might postpone that et cetera. But we are, again, cautiously optimistic that we can continue to grow our market share, especially we have seen that -- especially we have seen that there is a slowdown in textile spinning, weaving, which is important for part of the division. There has been an overcapacity in some areas and some other disturbances. But we see that in some regions, we are moving forward. We are taking market share. Some of our competitors are under restructuring.So again, even though we are on the high end when it comes to pricing, total cost of ownership and the future-proof solution. Our new technology like the new plan set up that saves energy has given us as a position. So it's very difficult to say yes and no. The market is more uncertain. Our partner is still strong. The decisions for some of these big orders that we have in the pipeline is uncertain, is out our control when they do the investment. They will do it. But if it comes now or if it comes later, that's up to some others to decide.
[ Lina ], what I could add on that is if you -- what you can probably -- what this probably means is you can expect a little bit more volatility if you look at isolated quarters on order intake for this division. You could suddenly have a very good quarter or you could have what appears on the face of it to be a very weak one.
Perfect. That's clear. And then just one last question from me. The Monitoring & Control Technology division reported negative growth in order received, which, of course, should be compared to the strong corresponding quarter in 2022. But how should we look at the development of this division going forward?
I don't think you should read too much into -- in the decline in -- in the quarter. 2022, yes, Q4 was very strong. This division does have a bit of a timing issue, sometimes big orders come in one -- in a quarter and sometimes they don't. And if you have a [ SEK 30 million ] order that isn't repeated in that exact quarter, 12 months later, they can't distort things a little bit. But I don't think you should read into -- there's a large decline on the way for Monitoring & Control. We --
I would summarize, we are confidently positive in the coming development.
Okay. Perfect. That was all for me.
There are no more questions at this time. So I hand the conference back to the speakers for any closing comments.
Thank you very much for taking the time listening to us. And once again, we apologize for the technical disturbances in the beginning of the meeting, but we have appreciated you listening. So thank you very much all of you and have a continuously good day.