Lindab International AB (publ)

Hello and welcome to this call. My name is Ola Ringdahl and I'm the president and CEO of Lindab Group. And next to me, I have our CFO Lars Inno. So some Q2 highlights. Lindab sales and adjusted operating profits developed well during the second quarter of the year, despite challenging market conditions. Lindab reported its highest quarter ever in terms of sales. The increased sales was primarily driven by ventilation systems and the acquisitions made during 2022 and 2023. Business Area Ventilation Systems, which represents around 75% of Lindab's total business, had a solid development with the highest sales and operating profit ever for a single quarter. Profile Systems was impacted by a weaker market, but also has very high comparison numbers from the same period previous year. Profile Systems has high exposure to the Swedish market and to new construction. which are areas where construction activity has slowed down significantly. The operating margin improved compared to Q1 this year, but it is still lower than desired for profile systems. The group's operating profit in the second quarter amounted to 302 million SEK, giving an operating margin of 9%. Ventilation systems increased the operating profit versus previous year, while the profit in profile systems decreased significantly compared to the very strong period previous year. Lindab had a strong cash flow in the second quarter. Cash flow from operating activities was 323 million SEK, which is twice as high as in the previous year. I will take a closer look on the sales and the margins on the next slides. Lindab's total revenue has shown strong growth for the past two years, mainly thanks to acquisitions, but also as a consequence of price increases to compensate for higher raw material costs and inflation. Business area ventilation systems has continued to grow strongly and reported its highest quarter ever in terms of sales. Sales for ventilation systems increased by 21% compared to the second quarter, 22%. Acquisitions contributed positively by 19% and currency had a positive effect of 7%. Organic growth was negative by 5% and there were no positive price effects versus previous year. We saw slow sales volumes in April, improving in May and further improving in June when we had positive organic growth within business area ventilation systems. The European construction activity has slowed down as a result of cost inflation, increased interest rates and continued turbulent global conditions. Lindav's largest region in terms of ventilation sales is now Western Europe. And they reported, despite this, a positive organic growth in the quarter, while the organic growth was negative in Central Europe and in the Nordic region. Business area profile systems has high exposure to the Swedish market where construction activity is slowing down significantly. The Swedish market represents roughly half of profile systems total business and therefore has a major impact on the business area as a whole. The second quarter, the total sales growth for profile systems was negative by 21%. Acquisitions contributed positively by 6% and the currency effects were positive by 2%. We see an organic sales decline by 29%, which is in line with what we communicated in the outlook during the release of the first quarter report this year. Let's now look at operating profit. Since the third quarter of 22, fluctuating raw material prices have put pressure on Lindab's gross margin. and consequently on our operating margin, especially for profile systems. We have previously communicated that we would have these adverse effects during several quarters and also into the second quarter of this year. From the month of June, we can see that the negative raw material effects are near zero for ventilation systems. In profile systems, there will still be some adverse effects on gross margins from raw material inventory during the third quarter, but on a limit level. Ventilation systems managed to compensate relatively well for the raw material effects and delivered its best quarter ever in operating profit. The operating margin was 10.2%. Business area profile systems was affected by significantly lower demand in addition to the mentioned raw material effects. And it should here also be mentioned that the comparison numbers are very high, but in any case, Perfa systems did not meet our planned profitability level in the quarter. The operating margin of 6.9% has, however, developed in a positive direction compared to the first quarter. During the second quarter, Lindab has initiated cost savings in all parts of the group to strengthen earnings. The activities will reduce costs by approximately 150 million SEK on an annual basis and will have full effect from October this year. In total, approximately 200 positions are affected with a particular focus on profile systems where the volumes have declined more than in ventilation. The redundancy cost was 4 million SEK in the second quarter and is expected to be slightly lower than that in the third quarter. These costs are taken on an ongoing basis and are not recognized as one of items. In addition to the cost-saving activities, we are reviewing if there is a need for further structural changes to improve Lindab's profitability margin and to reduce the cyclicality of sales and earnings. I now hand over to our CFO Lars Irno to guide us through our financial position.

Thank you, Ola. Linab had a strong cash flow during the second quarter, as cash flow from operating activities increased to 323 million SEK compared to 161 in the second quarter last year. The strength in cash flow from operating activities during the period was primarily related to less negative impact from changes in working capital compared to the same period last year. In the quarter, cash flow from changes in working capital amounted to minus 20 million SEK compared to minus 264 million in the second quarter last year. Our free cash adjusted for M&A increased to 216 million compared to 63 million in the Q2 last year. Net step has increased compared to previous year, which is mainly a result of acquisitions and increased leasing liabilities. The increased net debt EBITDA ratio from 1.1 end of Q2 last year to 2.0 this year is primarily related to increased liabilities impacted by acquisition activities the last 12 months. We continue to focus on activities to strengthen our cash flow for operating activities with a special attention to our stock and days in stock. And I'm giving back the word to Ola, continue presentation.

Thank you, Lars. and we will talk a little bit about how we are continuing to build a stronger Lindab. Lindab has gone through a major transformation in recent years and is developing from a diverse company serving the construction market to a focused European ventilation company. 2019 was my first full year as CEO of Lindab and since then ventilation sales has increased by 56% from 6 billion SEK to 9.4 billion SEK. In the first half of 2023 ventilation represented approximately 75% of the group revenue and I would say that it should soon be above 80%. Another change that is worth noticing is the geographical expansion that Lindab has made within ventilation, mainly driven by acquisitions, but of course also through organic growth. We are expanding in the major economies of Europe, such as Germany, France, UK, and the Netherlands, to mention some examples. Sales region Western Europe has increased ventilation sales by 58% in the first half of 2023 compared to 2022. So this is quite a rapid transformation of our company. It has increased the share of group ventilation sales from 43% to 55% in the Western Europe region during this same period. We are fundamentally changing the structure of our company and this journey continues. We are continuing to develop our position as the leading European ventilation company with focus on profitable growth. And I'm convinced that this will take us to our group targets of a turnover of 20 billion SEK in 2027 with at least 10% operating margin. One important building block, as you know, on this growth journey is the acquisitions. And 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 Lindav's sourcing agreements, expertise and sales network. In April, we made our first acquisition in the Czech Republic. The company Ventilace sell and manufacture rectangular ventilation ducts in the Czech market. The business is known for its high level of service and fast deliveries. Lindav already has a collaboration where Ventilace has assisted at production peaks in Dindab's central production facility in the Czech Republic. The company has 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. Firmac is the European leader in the production of machine equipment to manufacture rectangular ventilation ducts. Dindab Group already has a very strong brand called Spiro, which is the leading producer of machines to manufacture circular ventilation ducts. So now we have also moved into the square duct business. So with Fermac, we get this corresponding market position and business for the rectangular duct equipment. Fermac is based in the UK and has sales of approximately 40 million sec on an annual basis. We have high growth ambitions for this very well-recognized brand when they now have Linda as the mother. In total, we have made 21 acquisitions since 2020, adding 2.7 billion SEK in revenue. And as you can see in the chart, around 90% of this acquisition turnover has been in the ventilation business. We have also divested businesses with a turnover of 1.3 billion SEK since 2020. The largest divestment was the business area, Astron Building Systems. Now we continue with an update on investments. Lindab's investment program has been at the top of our agenda since 2019, and it's very rewarding to see the benefits becoming more and more visible. We see results in higher production efficiency, higher capacity and a safer working environment. These are very important areas for continuing to build a profitable and sustainable Lindab in the long term. When the European market recovers and the volumes start to increase again, Linda will be very well prepared and positioned to accelerate the organic growth with strong efficiency and profitability. In the second quarter, we invested 108 million SEK in our European operations, and we are continuing to invest on a higher level until 2025, but will gradually reduce the amount every year since we have completed the largest part of the program. The peak in terms of monetary values was reached in 2020. And now to sustainability, which also is at the top of Lindab's agenda since quite many years. In early 2023, Lindab joined the science-based targets initiative. One of the most important activities to reach our goals in the science-based targets initiative is fossil-free steel. It is also important for our customers who wish to improve their sustainability work. With the long-term relationships we have with steel manufacturers, we have managed to secure a test delivery of fossil-free steel from SSAB in the autumn of 2023. This is a chance for selected customers to try out the first ventilation ducts in the world made from fossil-free steel. In the beginning of 2023, we launched products in decarbonized steel. This is steel produced with recycled steel and 70% percent lower emissions. Decarbonized steel is a good option for customers who would like to switch to a material with less emissions already today, since we will have to wait still some years before we have full production and more availability of the fossil-free steel. 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 priorities. So it's not easy to comment on the market outlook, but let's say like this. We are positive about the prospects for both the industry and Lindab. However, there are challenges in the short term, as we have already noted. Demand for ventilation systems has remained relatively stable in the quarter, and this is to a large extent thanks to our geographic footprint, where we have expanded in markets that have been less affected than the Swedish market. So in Western Europe, we've seen a strong development, while demand in the Nordic region has been weaker. Increased demand for energy efficient solutions has partly offset the negative effects of the high inflation and high interest rates and the lower new construction activity. We plan for a continued stable ventilation market overall in Europe at current levels for the rest of the year. New construction has fallen significantly, especially in the Nordic region and particularly in Sweden. And this has mainly a direct impact on the demand for profile systems products. We expect the new construction market in Sweden to remain low over the next 12 to 18 months. And we take measures to ensure that Lindab can perform at a satisfactory level despite the lower market demand. In the medium and long term, we are very optimistic about both the market and Lindab's prospects. The high energy prices and the sustainability agenda puts 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 throughout Europe. With the new construction, the demand for sustainable and energy efficient buildings will increase further, which is also to the advantage of Lindab and our leading product range. So that was some comments about the market outlook. Now, what are Lindab's near-term priorities? Naturally, in the current economic environment, we are working with proactive measures, especially in business area profile systems where the margins need to improve and where the market demand is weaker. But we, of course, also look at things to improve within ventilation systems. We focus on three areas in these types of activities. Number one, we are adjusting our pricing to strengthen gross margins and to mitigate the inflation effects. Number two, we are reducing our cost base. In comparable units, we were 6% fewer employees at the end of June compared to one year ago. We now have cost-saving activities implemented in May and June. They include the rationalization of 200 job positions. and cost savings equivalent to 150 million SEK annually with full effect from October. And number three, we evaluate possible structural changes to reduce the cyclicality of Lindev's business and to improve the average profitability. We intend to continue to pursue attractive acquisition opportunities within ventilation We believe that there is still a very interesting list of possible acquisition targets and the European ventilation industry is fragmented. So this gives a lot of opportunity for Lindab to create long-term value. And I will repeat that the acquired companies that have joined the Lindab group in the past two years have all really performed in an excellent way. We have a clear plan for how Lindab will continue to develop positively. After the transformation of our business in recent years, Lindab is a company in good shape. We now conclude the presentation and open up for questions.