Purmo Q3 morning result: Earnings growth through efficiency measures

Translation: Original comment published in Finnish on 10/25/2023 at 8:56 am EEST

Purmo’s Q3 result exceeded our expectations despite slightly weaker net sales, as efficiency measures raised the profitability of the Climate Products & Systems division more than expected. On the other hand, smaller Climate Solutions performed weaker than we expected in terms of net sales and earnings. The company reiterated its guidance of maintaining the full-year result at last year’s level. Our forecasts are in line with this, and we see no major pressure to revise our forecasts based on the report, although it was on the positive side in terms of earnings.

Net sales decreased slightly more than expected driven by the Climate Solutions division

Purmo’s net sales decreased as expected from the comparison period due to lower volumes, but was also slightly lower than our expectations and the Q2’23 level. The comparison period Q2’22 was still relatively strong in terms of demand. Net sales decreased in the Climate Products & Systems division by 17%, roughly according to our expectations, but the decline in the Climate Solutions division was over 25% higher than we expected. This was still caused by the normalization of the division’s main market, Italy, after strong demand, which was known but the impact was greater than we anticipated.

The efficiency program strongly supported earnings, especially in the Products & Systems division

Despite clearly declining net sales and volumes, Purmo managed to improve its adjusted EBITDA to EUR 23.5 million (our estimate 21.5 MEUR, Q3’22: 19.6 MEUR and Q2’23: 21.2 MEUR). The result improved strongly (45%) in the Climate Products & Systems division and was also above our expectation (22 MEUR vs. 18 MEUR). The margin was at a strong level for the division, over 15% at adjusted EBITDA level. This was supported by the efficiency program and lower raw material costs. In the smaller Climate Solutions division, the result fell almost to half and was only EUR 3.6 million when we expected EUR 6 million. The drop was due to a clear decline in net sales. The company’s balance sheet situation remained relatively tight as net debt/adj. EBITDA was 2.7x (excl. hybrid loan), while the company’s goal is to stay below 3x.

Guidance on a steady full year result unchanged, efficiency program progresses faster than expected

The company has provided no net sales guidance for 2023 but reiterated its guidance that 2023 adjusted EBITDA will be at the same level as in 2022, i.e., around EUR 93 million. Purmo says this means a +/- 5% change, or about EUR 88-97.5 million. After 9 months, Purmo has accumulated EUR 71 million vs. EUR 77 million last year (7% decrease). However, Q4’22 was weak, so we expect the company to perform better than last year in the last quarter. Our forecast is EUR 93 million, i.e. at the mid-point of the guidance, and it is not subject to significant change pressure. The company raised its estimate on the impact of the Accelerate PG efficiency program this year and now expects a run-rate of EUR 25 million by the end of 2023 (was 20 MEUR), but the full impact of the program by the end of 2024 is still EUR 40 million.