Release Date: August 15, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Nilfisk Holding A/S (OCSE:NLFSK, Financial) reported a total revenue of EUR278 million, representing a reported growth of 0.8% and an organic growth of 2.4%.
- EBITDA before special items increased to EUR39 million, with the EBITDA margin before special items rising to 14.1%.
- The EMEA region delivered strong organic growth of 6.5%, led by the consumer segment.
- Gross margin reached 42.2%, the highest since Q4 2020, benefiting from favorable price management and mix effects.
- Total net interest-bearing debt declined by EUR28.2 million compared to Q2 2023, with gearing reduced to 1.9 times from 2.2 times.
Negative Points
- The specialty business saw a decline in organic growth of minus 2.3%, primarily due to lower demand in APAC and Europe.
- The Americas region experienced a negative organic growth of 1.7%, impacted by muted demand in North America.
- APAC region delivered negative organic growth of 8.7%, affected by market headwinds in China and the Pacific.
- Overhead costs increased by EUR5.5 million compared to Q2 2023, with the overhead cost ratio rising to 33.8% from 32.1%.
- Free cash flow amounted to an inflow of EUR8.4 million, a decrease of EUR31.7 million compared to the prior year period, driven by an increase in working capital.
Q & A Highlights
Q: Starting with organic growth in the service business, which came in at 2.6% here in the quarter, and Reinhard, as I recall it, after Q1, you talked about a negative Easter impact in the service business. And I would have expected a little bit of a rebound there. Where did that rebound go?
A: You are absolutely right. We had, so to say, about 1% of flip over from this holiday topic from Q1 into Q2. If you deduct that, the underlying growth is obviously in Q2 to alone 1.6%. But it's 1% which -- this was affecting the Q2 result.
Q: And what's your view on 1.6% underlying organic growth in service?
A: Well, the effect is in the following. We have, at the moment, seen a clear growth in the segment. And this will actually continue with good demand. And if you look into the service attachment ratio, which really begins to now come forward strongly from 22% to 25% in the quarter, you will see basically more service growth in the next quarter. On the other side, you should remember, in prior year quarter, we had a rather strong service growth for the quarter. So it's a base compare, and it's also so to say compare in the month.
Q: Then my second question goes to pricing. In the slide where you show the overhead costs, you also show again that merit and in wage inflation, I suppose, is having a negative impact. And we can also see that the overhead cost ratio is increasing year over year. Would that not imply that maybe you have not been increasing prices enough to keep up with higher costs? And is there anything, of course, I would guess, a normal consideration about volumes, but anything else holding you back in terms of lifting prices a bit more?
A: Well, first of all, I mean, with the price increases, you can see we take a positive effect in our gross profit margin. So that lifts overall up. On the other side, what also drives overhead costs forward is an effect of investing into the business. As such, Q2 was certainly impacted by significant marketing and product launch activities. That comes on top of the merit increases. Beyond that, we are investing into building a stronger service force, stronger R&D force, and stronger marketing and stronger product management force. Those effects take also part in the overhead cost growth. So it's not only a merit increase topic, but the merit increase, as such is, as we have it today, covered through price increases. And that is my answer to your question.
Q: Then my last to the US market. There's been a lot of talk over the last couple of years about a backlog in the US and the ability to deliver especially on the larger machines, what the customers wanted. Can you give an update on that situation and whether or not you're expecting any change to that here in the second half of '24?
A: I'm not quite clear whether I understood your question. I mean, we have, in a way, in the United States, a situation that we have different dynamics in the market. We also call it a muted demand, specifically in the area of public and school sector. That is depending on budgets. On the other side, we are going to benefit in the Americas as well from product innovation coming into the market at the second half of this year. And that, we have always described that our product innovation will actually support growth for the second half of the year as the product shown at Interclean will predominantly come into the market for invoicing and shipping as of Q4.
Q: Apologies if the question wasn't clear. If I can then ask in another way, are there still product segments where you are seeing an elevated order book or backlog, whatever you want to call it, in the US?
A: Yes, we see still an elevated order backlog on the large industrial and that we continue to reduce, but we have not reduced it yet to the normalized level of pre-COVID situations.
Q: And do you still expect that, that will be normalized by the end of this year?
A: That's current expectation.
Q: So the first to go to you, Jon. I know it's still early days and you're still in the learning process, but have you made any new initial thoughts about improvement changes that could bring extra value to the shareholders?
A: As I said, I'm really excited to be here, and I think this is a great company, and I see lots of opportunities and also areas that we should address. But as you just said, I mean, it's still a bit early day to share very publicly those kinds of things, and I need to reflect a bit more on that.
Q: Do you think that Q3 will be the time where you will, let's say, open up for the toolbox? Or when should we hear more about your strategic thinking?
A: As you said and I said, I'm in the midst of learning customers, products, people and the company and so on and understand where we are and understand how to go forward. And in due time, which is not a super long time, but still in due time, we will get back to that.
Q: Then, a question regarding US. You were kind of flattish year over year, you're up against quite tough comparison. Can you give some more flavor to what is actually happening in the US market?
A: Maybe I take that question with some more background, let's say, history. I mean, yes, first of all, it is a market that was extremely strong compared to the 17.8% that we had last year quarter, but it's also a market where we see some currently muted demand, specifically in the public and school sector, which is typically in this very season, a driver of, let's say, demand. There, we saw muted demand during the second quarter. On the other side, we see a very good demand in the specialty business, specifically on IVS, that's lifting up. But we also see that there is a somewhat market headwind from the high-pressure washer side. And that is not only on our side as the industry. And that is what I can reflect to your question.
Q: So the specialty was good, but levels down on group level at least and gross margin was down. So you created growth by discounting your products? Or is it mix? Or how to think about that?
A: We had a very good growth in IVS in the Americas region, but we had decline in EMEA and APAC
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
