QLEANAIR INTERIM REPORT Q2 2024 - STRONG CASH FLOW DESPITE NEGATIVE GROWTH AND REDUCED OPERATING MARGIN
"The second quarter was weaker compared to the same quarter last year. Japan, our largest market, has a lower base of renewable contracts in 2024 compared to 2023. In combination with the weakness of the Japanese yen, the revenues are negatively impacted by approximately MSEK 16. This, in combination with higher service costs in Germany have negatively affected the operating profit by approximately MSEK 14 in the quarter. Our other markets have not been able to mitigate or compensate for this deviation. The quarter has been eventful. We announced our largest deal to date in Cleanrooms, as well as additional contracts to the space industry in Cleanzones", CEO Sebastian Lindström notes.
STRONG CASH FLOW DESPITE NEGATIVE GROWTH AND REDUCED OPERATING MARGIN
MSEK 115 Net revenue, -15%
MSEK 74 Recurring revenue, -4%
1.4%EBIT margin (15.6%)
April–June 2024 in summary
- Net revenue MSEK 114.7 (134.9), currency-adjusted net revenue amounted to MSEK 120.9
- Recurring revenue MSEK 74.1 (77.5)
- EBITDA MSEK 9.8 (29.7)
- EBITDA margin 8.5% (22.0%)
- Operating profit (EBIT) MSEK 1.6 (21.1)
- Operating margin 1.4% (15.6%)
- Earnings per share SEK -0.04 (1.18)
- Cash flow from current operations MSEK 19.1 (18.9)
January–June 2024 in summary
- Net revenue MSEK 233.9 (255.9), currency-adjusted net revenue amounted to MSEK 245.3
- Recurring revenue MSEK 149.3 (152.0)
- EBITDA MSEK 29.7 (54.5)
- EBITDA margin 12.7% (21.3%)
- Operating profit (EBIT) MSEK 13.2 (37.7)
- Operating margin 5.7% (14.7%)
- Operating profit (EBIT), adjusted MSEK 13.2 (40.3)
- Operating margin, adjusted 5.7% (15.7%)
- Earnings per share SEK 0.49 (1.86)
- Cash flow from current operations MSEK 19.2 (29.9)
Significant developments during the second quarter
- Curexa Pharmacy, a leading service provider of specialty compounding services in Egg Harbor Township, NJ, USA, signed an agreement with QleanAir Scandinavia Inc.
- QleanAir delivered 7.24 billion cubic meters of cleaned air at the end of the first quarter
- The Annual General Meeting was held for QleanAir AB, where, among other things, the dividend was decided in accordance with the proposal and in part, new board was elected
Significant events after the end of the period
- QleanAir signs a new contract with the German space industry for a customized air cleaning solution, a Cleanzone
- QleanAir delivered 7.12 billion cubic meters of cleaned air at the end of the second quarter.
A WORD FROM THE CEO
The second quarter was weaker compared to the same quarter last year. Japan, our largest market, has a lower base of renewable contracts in 2024 compared to 2023. In combination with the weakness of the Japanese yen, the revenues are negatively impacted by approximately MSEK 16. This, in combination with higher service costs in Germany have negatively affected the operating profit by approximately MSEK 14 in the quarter. Our other markets have not been able to mitigate or compensate for this deviation.
The quarter has been eventful. We announced our largest deal to date in Cleanrooms, as well as additional contracts to the space industry in Cleanzones.
CONTINUED INVESTMENTS IN EMEA
In the second quarter, Europe almost matched the strong performance seen during the same period in 2023. This is despite the fact that the single largest market, Germany, did not achieve the growth we had aimed for.
Our investment in Air Cleaners in France has paid off and we expect continued strong growth. In the second quarter, revenue increased sharply and the success has opened up new interesting customer segments.
We also launched our first customized solutions for secondary filtration of oil mist. This is an area where we see strong demand and which we have therefore invested in on the development side over the past year. The primary customer group for this solution is industrial customers, i.e., upselling to our existing global customer base.
Our churn increased during the quarter. As we have previously reported, this development is entirely linked to a number of contracts in the German school system that are not being renewed as the German government's Covid-19 subsidies have ended. Beyond these contracts, our churn is at more normal levels. In Germany, we have also carried out a change of supplier on the service side, resulting in higher costs.
After the end of the period, a new contract was signed with German space company OHB for the delivery of another customized air cleaning solution, a so-called clean zone. The unique and customized solution will be based on one of QleanAir's new modular cleanroom components, which will be launched shortly.
FOCUS ON GROWTH IN APAC
The number of contracts coming up for renewal in the second quarter was relatively low, so fewer contracts could be renewed and sold to finance companies during the quarter. As a result, QleanAir loses both revenue and margin as renewed contracts are more profitable. In addition, the Japanese yen lost around 11% against the Swedish krona, which means a currency loss of roughly MSEK 6. New sales of Cabin Solutions are in line with our plan and the previous year. We have successfully developed our business with small and medium-sized companies. Japan continues to grow strongly in Air Cleaners.
2024 will be a challenge from a growth point of view due to the fact that the base of renewable contracts, usually three-year contracts, is lower than the previous year.
FOCUS ON GROWTH AND PROFITABILITY IN THE AMERICAS
In the US, we are seeing a gradual improvement in the profitability of our Cleanrooms. We have initiated a number of measures that we expect to yield results. Revenue in the Americas, our smallest region, varies between quarters depending on the phase of projects and revenue recognition. In the second quarter, we broke new ground with our agreement in the field of pharmaceutical compounding with Curexa. Underlying demand remains strong, but is difficult to assess in the shorter term as customers' willingness to invest may be affected by the political situation.
BUSINESS MODEL
The QleanAir business model consists of a combination of rental and sales, including service. Revenue amounted to MSEK 114.7 (134.9) in the quarter, a decrease of 14.9%, or 10.3% currency-adjusted. Our recurring revenue amounted to MSEK 74.1 (77.5) and amounts to approximately 65% (57%) of our total revenue. In APAC, leases are largely sold to finance companies. The Group's sales to finance companies amounted to MSEK 24.6 (38.6), corresponding to approximately 21% (29%) of total revenue. Revenue from the sale of goods including cleanrooms was MSEK 16.0 (18.8), corresponding to roughly 14% (14).
Our business model is circular, our products have a long life with our customers through our strong service model and, at the end of the contract, we recondition the products to give them new life at the next customer.
QleanAir cleans indoor air by reducing harmful particles. The working environment for people is improved. Furthermore, the quality of customers' products and the efficiency of their processes is improved. We work systematically on growth combined with profitability.
OUTLOOK
We need to continue improving our growth and profitability. Our focus on our three priorities; Customer Focus, Sales Effectiveness and Cost Control remains firm. In parallel, we have initiated the more strategic work on our product range. The level of activity in the second quarter was high with our largest deal to date in Cleanrooms and additional contracts to the space industry with Cleanzones. We see continued strong growth in Air Cleaners.
In light of the weak financial performance in the second quarter, we have initiated further cost savings in all three regions. 2024 is our low point for renewable contracts and sales to finance companies in Japan. Our ambition is to gradually return to profitable growth and deliver on our financial targets.
In conclusion, I would like to thank all our dedicated employees, as well as our customers and partners for their good cooperation.
Solna on August 9, 2024
Sebastian Lindström,
CEO QleanAir AB