Lindab International AB (publ)

Hello and welcome to this call. My name is Ola Ringdahl and I'm the president and CEO for Lindab Group. Next to me I have our CFO Lars Ynner and he joined Lindab on the 11th of April this year. I'm very pleased to have Lars in the Lindab team. Let's look at some quarter one highlights. Lindab started the year with strong sales growth in the first quarter. In fact, Lindab reported its highest first quarter ever in terms of sales. The increased sales was primarily driven by the acquisitions made during 2022. Structured growth was 20%, organic growth was negative by 5%, and currency had a positive effect of 3%. Business area ventilation systems, which represents 70% of Lindab's annual sales, had a solid development with the highest sales and operating profit ever for a single quarter. Profile systems was burdened by lower volumes and continued raw material price effects, which led to a lower operating margin than planned. The adjusted operating profit in the first quarter amounted to 264 million SEK compared to 340 million SEK one year ago, which was an unusually strong comparison period. Ventilation systems increased the result versus previous year. The result in profile systems decreased significantly compared to the very strong period previous year. INDAB had a strong cash flow during quarter one as cash flow from operating activities increased to 355 million SEK compared to a negative cash flow of minus 213 million SEK in the same period previous year. Now let's take a closer look on the revenue and margins on the next slides. Lindab's total revenue has shown strong growth for the past two years, mainly thanks to acquisitions, but also thanks to price increases to compensate for higher raw material costs. Business area ventilation systems has continued to grow strongly as the demand for Lindab's ventilation products has been stable in all markets. Ventilation systems reported its highest quarter ever in terms of sales. mainly driven by structural growth and the acquisitions made in 2022 of Felder, Arvent and Liftersud. All in all, sales growth for ventilation systems was 27%. Acquisitions contributed positively by 24% and currency had a positive effect of 4%. Organic growth was negative by 1%. The price level was on the same level as in the first quarter 2022. So there is a closing of that gap price-wise versus one year ago. Perfer Systems is a more cyclical business and more volatile between the quarters with a larger exposure to new construction. For the first quarter, total sales growth for profile systems was negative with 4%. Acquisitions contributed positively by 10% and the currency effect was slightly positive at 1%. Organic sales growth was negative by 15%. This is mainly explained by the combination of exceptionally high comparison numbers and lower demand in the market. The price level for the ProPlus Systems product range was on the same level as in the first quarter 2022. Now let's look at operating profit. Since the third quarter of last year, fluctuating raw material prices have put temporary pressure on our gross margin and consequently on our operating margin. We highlighted already during the autumn that we would have these adverse effects into the second quarter of 2023. And that statement is still valid. Ventilation systems managed to compensate relatively well for the raw material effects and delivered its best quarter ever in terms of operating profit. The operating margin was 10.2%. Business area profile systems was affected by low demand in addition to the mentioned raw material effects. It should be also mentioned that the comparison numbers are exceptionally high. But in any case, profile systems did not meet our planned profitability level in the quarter. We are implementing price adjustments, cost savings, and focus the different parts of the business for optimal profitability in line with our goals. I should also mention that both within ventilation systems and profile systems, we have at least defended and probably increased market shares during the period. I now hand over to our CFO Lars Yno to guide us through our financial position.

Thank you, Ola. Lindheim had a strong cash flow during the first quarter as cash flow from operating activities increased 355 million SEK compared with a negative cash flow of 213 million SEK in the same period last year. The strengthened cash flow during the period primarily related to changes in working capital which amounted to 123 million SEK compared to minus 528 million in the first quarter last year. The improvement was mainly related to less capital tied in stock. Our free cash adjusted for M&A increased to 261 million compared to minus 319 in the first quarter last year. Net debt has increased compared to previous years as a result of acquisitions and higher leasing liabilities. The net debt EBITDA ratio is at 1.8 versus 1.0 one year ago, and it increases mainly due to acquisitions we have finalized since then. This ratio gives Linnabar continued good financial flexibility. The solid financial position is also a key factor to support our continued growth as we continue to pursue more acquisition targets. Dividend. Thanks to Linda's strong profit development and considering Linda's financial position, the board of directors proposes that annual general meeting in 11th of May approves a dividend of 2.26 per share. 5.20 per share, which is an increase of 30% versus last year. This represents a dividend of net profit of 41%, which is in line with the dividend policy, which states that at least 40% of net profit should be distributed. The dividend is proposed to be split and paid out in two equal portions of 2.66 per share and location, one in May and one in November. Now let's shift focus from the numbers to how we continue to build a stronger Linda. I will give the word back to Ola.

Thank you. Thank you very much, Lars. So, some words on acquisitions. Lindab's strategy is to acquire well-managed, successful companies who complement our offering in selected regions and product areas. The acquired companies continue to operate independently under their own brands, while at the same time benefiting from Lindab's sourcing agreements, expertise and sales network. In February, we announced the acquisition of RAB, I will not pronounce the full German name, but it's a German company. Raab is focusing on sales and production of rectangular ventilation ducts. The company has shown impressive growth and strong profitability over the several years. The acquisition has approximately 160 million second revenue on an annual basis. I would like to highlight that the acquisition of RAB was possible thanks to Lindab's acquisition of Feller exactly one year ago. And I'm very pleased with this development where the larger acquired companies in their turn are able to make acquisitions. In March, we acquired Irish Ventilation and Filtration. This is a leading distributor of ventilation products in Ireland. They mainly target maintenance departments of large international companies as well as mechanical contractors. And they have longer customer relationships with recurring revenues. Irish Ventilation and Filtration has sales of approximately 100 million SEK on an annual basis. After the end of the quarter, we have made two additional acquisitions. In April, we made our first acquisition in the Czech Republic. Ventilace sell and manufacture rectangular ventilation ducts in the Czech market. The business is known for its high level of service and fast deliveries. Lindab already has a collaboration where Ventilatse has assisted at production peaks in Lindab's central production facility in the Czech Republic. They have sales of approximately 42 million SEK on an annual basis. In May, we acquired a slightly different type of ventilation company than our previous acquisitions. Fermac is the European leader in machines for manufacturing of rectangular ventilation Already today, Lindab has a very strong brand called Spiro, the leading producer of machines to manufacture circular ventilation ducts, also nicknamed Spiro tubes or Spiro ducts. With Fermac, we get the corresponding business for rectangular duct equipment. Fermac is based in the UK and has sales of approximately 40 million SEC on an annual basis. As you notice, There's quite a lot of rectangular ventilation duct producers in the list here this time. And that is a trend in the market, given the higher air volumes transported through ventilation ducts. There is a greater need in the market trend that rectangular ductwork within ventilation systems is increasing in importance. And this is an area where Lindab is already today the leader in Europe, but we aim to make our position even stronger. In total, we have made 21 acquisitions since 2020, adding 2.7 billion SEK in revenue. And as you can see on the graph on the top right-hand side, 90% has been ventilation business. Ventilation now accounts for 70% of our total annual revenue in Linda. And that share will grow over the next quarters and years. We have also divested businesses with a turnover of 1.3 billion SEK since 2020. And the largest divestment was the business area of Strom Building Systems. We continue with an update on our investment program. Investment is another building block in Lindab's strategy. Lindab's investment program has been at the top of our agenda since 2019, and it's rewarding to see how the benefits become more and more visible. We see results in higher production efficiency, higher capacity and a safer work environment. These are very important areas for continuing to build a profitable and sustainable Lindab in the long term. In the first quarter, we invested 97 million SEK in our European operations, compared to 106 million in the first quarter one year ago. We will continue to invest on a high level until 2025, but this level will gradually come down and the amounts will be reduced every year since we have completed a large part of the program already. The peak was reached in 2020. Let's move on to the next slide. Lindab for a better climate. Sustainability continues to be at the top of our agenda. In early 2023, Lindab joined the science-based targets initiative. This means that we will set science-based targets for our work to reduce greenhouse gas emissions. We are also launching products manufactured with low carbon emissions steel. We are starting with roofs and facades and will add ventilation products during the year. For Lindab and for our customers, sustainability is business critical. Lindab is and will be the leader in climate efficient ventilation solutions. Let's go to our final slide and talk about the outlook and the priorities. So starting with market outlook, we are positive about the prospects for both the industry and Lindab, although there are challenges in the short term. Several indicators suggest that high inflation and rising interest rates lead to lower investments in new construction, especially in the residential segment. We have started to see that in the Swedish market, primarily affecting our business area profile systems. When the economy turns downward, the demand for ventilation systems is usually more stable due to a larger proportion of upgrading and renovation. In the medium and long term, we are optimistic about both the market and Lindab's prospects. The high energy prices put even more focus on well insulated buildings and energy efficient ventilation to the benefit of Lindab. We expect a longer period of renovation of public and private properties in Europe. As Lindab has more than half of its sales towards renovation and remodeling, we see good growth opportunities in this segment. as necessary energy efficiency projects are started in Europe. With the new construction, the demand for sustainable and energy-efficient buildings will increase further, also to the advantage of Lindab and our leading product range. So what are Lindab's near-term priorities? Well, naturally, in the current economic environment, we are working with proactive cost measures especially in the business area profile systems where the margins need to improve and where the market demand is showing more weakness. We are adjusting our pricing as well to strengthen gross margins and to mitigate high energy costs and transportation costs. Finally, with our strong balance sheet, we intend to continue to pursue attractive acquisition opportunities within ventilation. The European ventilation industry is still fragmented and there are plenty of opportunities to create long term value. We have a clear plan for how Lynda will continue to develop positively. After the transformation of our business in recent years, Lynda is in good shape. We now conclude the presentation and we open up for questions.