Purmo Group’s Interim report 1 January–30 September 2022: Adjusted EBITDA decreased due to weakening demand, additional measures taken to support reaching our financial targets

10 November 2022

Purmo Group Plc, stock exchange release, 10 November 2022 at 08.15 EET

July–September 2022

  • Net sales were stable and reached EUR 216.3 million (218.5). Organic1) decline of 5 per cent.
  • Net sales for ICS increased by 24 per cent to EUR 106.2 million (85.8) and net sales for Radiators declined by 17 per cent to EUR 110.1 million (132.6).
  • Adjusted EBITDA decreased by 23 per cent to EUR 19.6 million (25.4), corresponding to an adjusted EBITDA margin of 9.1 per cent (11.6).
  • EBIT was EUR 10.5 million (8.9), which included EUR 1.0 million (8.6) of comparability adjustments.
  • Cash flow from operating activities was EUR -2.2 million (-2.4).

January–September 2022

  • Net sales improved by 12 per cent to EUR 697.5 million (621.0). Organic growth1) was 8 per cent.
  • Adjusted EBITDA decreased by 6 per cent to EUR 76.6 million (81.3), corresponding to an adjusted EBITDA margin of 11.0 per cent (13.1).
  • EBIT was EUR 40.5 million (45.3), which included EUR 12.1 million (12.5) of comparability adjustments.
  • Cash flow from operating activities was EUR -9.1 million (3.2).
  • The acquisition of Thermotech was completed on 1 March 2022.

Events after the review period

  • On 8 November Purmo Group announced that due to the weak market environment, the company expands its strategy acceleration programme earlier announced on 5 October. The targeted adjusted EBITDA run-rate improvements are EUR 20 million (upgraded from 15 million) by the end of 2023, and cumulatively EUR 40 million (upgraded from 35 million) by the end of 2024.
  • On 5 October Purmo Group announced a new organisational structure and a new segment reporting, effective from 1 January 2023.

Financial guidance for 2022 for adjusted EBITDA updated on 8 November 2022

For 2022, Adjusted EBITDA is expected to decline from 2021 (EUR 103.9 million) and to be between EUR 88 million–EUR 96 million. Guidance for net sales remains as announced earlier: For 2022, Purmo Group expects net sales to increase from 2021 (EUR 843.6 million).

Previous guidance was given on 11 August 2022: For 2022, Purmo Group expects net sales to increase from 2021 (EUR 843.6 million). Adjusted EBITDA is expected to be comparable to 2021 (EUR 103.9 million). Comparable means a change within +/- 5 per cent from the previous year.

Key figures and financial performance

EUR million 7–9/2022 7–9/2021 Change, % 1–9/2022 1–9/2021 Change, % 2021
Net sales 216.3 218.5 -1% 697.5 621.0 12% 843.6
Adjusted EBITDA 19.6 25.4 -23% 76.6 81.3 -6% 103.9
Adjusted EBITDA margin 9.1% 11.6% 11.0% 13.1% 12.3%
Adjusted EBITA 12.5 18.2 -32% 55.4 60.0 -8% 76.6
Adjusted EBITA margin 5.8% 8.3% 7.9% 9.7% 9.1%
EBIT 10.5 8.9 17% 40.5 45.3 -11% 3.5
EBIT margin 4.8% 4.1% 5.8% 7.3% 0.4%
Profit for the period 5.3 3.6 47% 20.2 27.9 -28% -18.8
Adjusted profit for the period 6.3 12.2 -48% 32.3 40.4 -20% 51.4
Earnings per share, basic, EUR2) 0.13 0.13 2% 0.49 0.97 -49% -0.65
Adjusted earnings per share, basic, EUR2) 0.15 0.42 -64% 0.78 1.40 -44% 1.77
Cash flow from operating activities -2.2 -2.4 -7% -9.1 3.2 -387% 35.4
Adjusted operating cash flow, last 12 months3) 35.0 61.38) -43% 53.1
Cash conversion4) 35.3% 58.2%8) 51.1%
Operating capital employed5) 333.4 289.48) 15% 271.8
Return on operating capital employed6) -0.4% 18.8%8) 1.3%
Net debt 288.3 112.6 156% 239.5
Net debt / Adjusted EBITDA7) 2.9 1.1 172% 2.3

1)Adjusted for currency effects and impacts from acquisitions and divestments.
2)The number of shares in the comparison period are those of Purmo Group Ltd. 30 September 2021 Purmo Group Ltd shares amounted to 11,073,834 which have been converted using 31 December 2021 merger conversion ratio 2.600334506.
3)Adjusted EBITDA on a rolling 12-month basis less by the change in net working capital and capex on a rolling 12-month basis.
4)Adjusted operating cash flow divided by Adjusted EBITDA, both on a rolling 12-month basis.
5)Net working capital, other intangible assets, property, plant and equipment, and right-of-use-assets.
6)EBIT based on a rolling 12-month calculation divided by operating capital employed. Return on operating capital employed without non-recurring items was 1.0% (22.0%).
7)Adjusted EBITDA based on a rolling 12-month basis.
8)Figures for 1-9/2021 restated for comparability reasons.

Unless otherwise stated, the comparison figures refer to the corresponding period in 2021. The full year 2021 non-adjusted key figures are affected by a one-time, non-cash IFRS 2 merger impact of EUR 52.3 million as a result of the merger of Virala Acquisition Company Plc and Purmo Group Ltd on 31 December 2021, as well as EUR 17.9 million other items affecting comparability.

CEO’s review

Purmo Group’s mission is to be the global leader in sustainable indoor climate comfort solutions. During the third quarter of 2022, net sales development was stable and reached EUR 216.3 million. Adjusted EBITDA decreased by 23 per cent to EUR 19.6 million and the adjusted EBITDA margin was 9.1 per cent. Cash flow from operating activities was EUR -2.2 million.

During the quarter we saw a decline in the European construction market, both in renovation and new build, in particular affecting our radiator business. In contrast, sales growth continued strong in Italy driven by government incentives for improving energy efficiency in buildings and homes. On balance, we are not satisfied with the performance in the third quarter. Taken into account the continued market weakness, we have decided to take additional measures by expanding the earlier announced strategy acceleration programme.

We continued to support our customers in the transition to energy-efficient, complete indoor climate comfort solutions. The demand continued very strong in solar panels and heat pumps during the third quarter. Increasing energy prices and the demand for energy efficient solutions support our vision that perfect indoor climates should not cost the planet’s climate.

ICS division’s double-digit growth continued

The ICS division’s growth in net sales continued, increasing by 24 per cent during the quarter. Demand continued on a good level in several core markets, especially in Italy, while the demand slowed down in certain other markets. ICS growth in the Nordic markets was supported by Thermotech which was acquired in the beginning of the year, with a contribution of 7 per cent of the total growth of 24 per cent year. The adjusted EBITDA of the ICS division increased by 4 per cent to EUR 12.4 million (11.9) while the adjusted EBITDA margin was 11.7 per cent. Higher raw material prices led to a slight decline in the margin for the quarter. Necessary price increases were introduced in the division to compensate for the high raw material prices, with effect in the fourth quarter of 2022.

The Radiators division’s net sales decreased by 17 per cent caused by a decline in demand and sharp supply chain correction in Europe. However, the sales volumes picked up in China, a growth market for Purmo Group, compared to the corresponding period last year, despite of continued COVID lockdowns. The adjusted EBITDA of the Radiators division declined by 39 per cent to EUR 9.2 million (15.2) and the adjusted EBITDA margin was 8.4 per cent. The decline in adjusted EBITDA was mainly caused by 33 per cent decline in sales volumes. As a response, the Radiators division continued to adjust its fixed and variable costs related to production, including work force.

Progress in strategy execution during the quarter

We made good progress in our strategy execution during the quarter. Solution selling was strong in Italy under the Emmeti brand as well as in the Nordics by the Thermotech brand. In smart products, the demand for heat pumps remained strong in Italy, and we continued developing new versions of radiator products including fan-assisted and low-cost units which are compatible with heat pumps. The demand for electric radiators also increased. Acquisition opportunities are a key enabler in reaching our strategic objectives, and we continue to assess them actively despite of volatile market, especially within solution sales, heat pumps and ventilation across all our key markets. Our process for exiting business in Russia is also progressing.

Expansion of strategy acceleration programme and new organisational structure launched

After the review period we announced a strategy acceleration programme, “Accelerate PG”, which aims at executing our strategy faster, ensures we reach our long-term financial targets and strengthens the customer centricity of Purmo Group. The programme will also mitigate the effects of the current weakened economic outlook in some of our markets.

We also announced a new organisational structure to support the execution of the programme, aligning resources with the strategic direction and to strengthen customer focus. The new organisation will come into effect from 1 January 2023 and consist of two business divisions: Climate Products & Systems and Climate Solutions.

Due to the weak market environment, we expanded our earlier announced strategy acceleration programme. The targeted adjusted EBITDA run-rate improvements are now EUR 20 million (upgraded from 15 million) by the end of 2023, and cumulatively EUR 40 million (upgraded from 35 million) by the end of 2024. The upgraded profitability improvements will include both variable and fixed cost savings, excluding areas where the market growth is expected to continue including Italy, Brazil and China. Additionally, we evaluate accelerating footprint optimisation, covering both manufacturing and supply chain.

Financial guidance for 2022 updated for adjusted EBITDA

Purmo Group’s market environment has weakened during the third quarter and the beginning of the fourth quarter of the year, in particular for the Radiators division. The market outlook remains challenging for the rest of the year due to the ongoing decline in the European construction markets. The war in Ukraine has also impacted the demand in Eastern Europe, in particular Russia. Furthermore, the necessary price increases to offset the increased raw material prices have been announced but realisation has been delayed.

Therefore, we updated our full year guidance for 2022 for adjusted EBITDA. For 2022, we expect adjusted EBITDA to decline from 2021 (EUR 103.9 million) and to be between EUR 88 million–EUR 96 million. Guidance for net sales remains as announced earlier: For 2022, Purmo Group expects net sales to increase from 2021 (EUR 843.6 million).

I want to thank our investors, Purmo Group’s people, partners and customers for the trust and commitment during these times of fluctuation.

News conference and webcast for analysts, investors and media

Purmo Group’s interim report January–September 2022 has been published today and is available in English and Finnish on Purmo Group’s website at https://investors.purmogroup.com/ir-material/.

CEO John Peter Leesi and CFO Erik Hedin will present the result to analysts, investors and media representatives in a live webcast and teleconference on Thursday 10 November 2022 at 10.00 Finnish time (EET). The event, including the Q&A session, will be held in English.

Webcast: https://purmogroup.videosync.fi/q3-2022

Teleconference lines: https://palvelu.flik.fi/teleconference/?id=1009748

Participants must register through the above link to ask questions through the conference call lines. After registering the participant will receive a teleconference number and a code to join the call. The participants are asked to press number 5 to join the que for questions.

A recording of the event will be available on https://investors.purmogroup.com/ir-material/ shortly after the event has ended.

Purmo Group Plc

Further information:
Erik Hedin, Chief Financial Officer, Purmo Group Plc, Tel. +44 (0)7979 363 473
Katariina Kataja, Head of Investor Relations, Purmo Group Plc, Tel. +358 40 527 1427

Distribution:
Nasdaq Helsinki Ltd
Principal media
investors.purmogroup.com

About Purmo Group:
Purmo Group is a leader in sustainable indoor climate comfort solutions in Europe. We provide complete heating and cooling solutions to residential and non-residential buildings, including radiators, underfloor heating, heat pumps, towel warmers, valves and controls. Our mission is to be the global leader in sustainable indoor climate comfort solutions. Our 3,500 employees operate in 24 countries, manufacturing and distributing top quality products and solutions to our customers in more than 100 countries globally. Purmo Group’s shares are listed on Nasdaq Helsinki with a ticker symbol PURMO. More information: www.purmogroup.com.