Purmo Q4 morning result: Slightly better guidance than expected

Translation: Original comment published in Finnish on 2/13/2024 at 8:51 am EET.

Purmo's Q4 adjusted EBITDA was slightly below our forecasts. However, as expected, it was better than the comparison period despite lower revenue, as efficiency measures supported the margin. As expected, the dividend was unchanged. Purmo's guidance is for 2024 adjusted EBITDA to be the same or higher than 2023, which is a positive surprise as we expected the guidance to be flat. This puts some upward pressure on forecasts.

Significant year-on-year decline in revenue, as expected

Purmo's revenue declined 15% in Q4, which was more than we had forecast and thus revenue remained flat quarter-on-quarter. In the larger Climate Products & Systems segment, revenue fell by 15%, more than expected, while the Climate Solutions segment saw a 9% decline, which was better than expected. In Climate Solutions, revenue was higher than in Q2-Q3 as demand showed signs of leveling off/recovery. Geographically, Purmo grew in Central and Eastern Europe, while other regions declined.

Efficiency program continues to perform better than expected, Q4 result slightly below our forecast

The drop in revenue and its negative leverage effect has a negative impact on earnings development. However, the company's efficiency program has made good progress and is supporting Purmo's results and margins. The impact of the efficiency program was already 30 MEUR by the end of the year, more than previously reported, and Purmo increased the savings estimate for the entire program to 50 MEUR by the end of 2024 (previously more than 40 MEUR).

In terms of adjusted EBITDA, Purmo was able to improve its results in both segments, which for Climate Solutions was a surprise for us after a weaker Q2-Q3. We think this shows that the higher-than-expected top line is also well reflected in the bottom line. Climate Products & Systems did not meet our expectations with lower-than-expected revenue, but the efforts of its efficiency program will continue to underpin further results. Reported results were impacted by significant one-time costs related to the efficiency program, which were even higher than expected in Q4.

Better-than-expected guidance as markets stabilize and efficiency gains help

Purmo expects adjusted EBITDA in 2024 to be at the same level or above that of 2023 (92 MEUR). At the same level means +/- 5% and above means more than 5% improvement. Our forecast is 93 MEUR and we expected the guidance to be only "at the same level", so it is better than our expectations and may cause a small upward revision. Purmo reports that retailer inventory levels have leveled off and the above-mentioned efficiency program is supporting the result this year, as expected.

Purmo proposes a dividend (or more technically a return of capital) of EUR 0.36, in line with the previous year and our expectations. Purmo's balance sheet is still relatively indebted, with a net debt/total EBITDA (excluding the hybrid loan) of 2.4x, compared to the company's target of 3.0x or less.