Lindab International AB (publ)

Hello and welcome to this call. My name is Ola Ringdahl. I'm the president and CEO for Lindab Group and next to me I have our CFO Lars Inna. Let's start with some Q3 highlights. Lindab reported its highest third quarter sales ever. Business area ventilation systems, which represents around 75% of Lindab's total business, had a solid development with the highest sales for a third quarter, driven by structural growth and some currency effects. Business area profile systems was impacted by a weaker market but also has high comparison numbers from the same period previous year. Profile systems has high exposure to the Swedish market where construction activity has slowed down significantly in the last year. The operating profit has gradually improved during the year and for quarter three it exceeded 10% for the group and for both business areas. We see that as a strong achievement given the current market conditions. The group's operating margin in Q3 was 10.8%, generating an operating profit of 351 million SEK. Our cash flow was very strong in the third quarter. Cash flow from operating activities was 444 million, twice as high as the previous year. All in all, we are very pleased with the results in this quarter. We managed to defend our margins and market shares despite a lower market demand. Lindab is in good shape. Now let's take a closer look on the sales and margins on the next slides. Lindab's total revenue has been growing 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 other inflationary effects. Business area ventilation systems has continued to grow strongly and reported its highest third quarter ever in terms of sales. Sales for ventilation systems increased by 7% compared to the third quarter of 22. Acquisitions contributed positively by 7%. Currency by 8%. However, organic growth was negative by 8%, and there were no positive price effects versus previous year. European construction activity has slowed down as a result of cost inflation, increased interest rates and continued turbulent global conditions. The market in Western Europe, which is Lindab's largest ventilation market, was relatively stable with growth in important markets such as France and Italy, but somewhat of a decline in Germany. The Nordic region is relatively weaker than the continental Europe. Business area profile systems has high exposure to the Swedish market where construction activity has been slowing down significantly. And the Swedish market represents roughly half of profile systems total business and therefore has a major impact on the business area as a whole. For the third quarter, organic sales growth for profile systems was negative by 18%, but it would be fair to point out that the comparison numbers in 2022 were historically high. Our assessment is that the demand situation has somewhat stabilized on current levels of profile systems. Now let's look at operating profits. Since Q3 of 22, fluctuating raw material prices have put pressure on our 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. From the month of June this year, we can see that the negative raw material effects are near zero for ventilation systems. But in profile systems, most of the adverse raw material effects are behind us. However, in Eastern Europe, which represents around 20% of profile sales, the adverse effects will also exist in the fourth quarter. Despite weaker market conditions in Europe, ventilation systems delivered an operating margin of 11.2% in the quarter and the highest operating profit ever for a single quarter for ventilation. The demand for energy-efficient ventilation systems has partly offset the downturn in construction activity. Acquisitions have contributed positively. Business area profile systems was affected by significantly lower demand in addition to the mentioned raw material effect. However, we have seen gradually improving margins during 2023, and the business area reached 10.2% operating margin in the third quarter, which we were very pleased to see. During the second quarter, Lindab initiated a cost savings program in all parts of the group to strengthen earnings. We have already seen positive effects from this cost saving program during the third quarter. The actions have full effect from October, at an annual cost-saving rate of 150 million SEK. It can also be mentioned that efficiency improvements throughout the group have reduced the number of employees by 7% in comparable units over the last 12 months. 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 in the future. I now hand over to our CFO Lars Yvonne to guide us through our financial position.

Thank you, Ola. Linda had a strong cash flow during the third quarter. Our cash flow from operating activities increased to 444 million SEK compared to 260 million in the third quarter last year. The strengthened cash flow from operating activities was primarily related to changes in working capital due to less capital tied in stock. Our free cash flow adjusted for M&A increased to 377 million versus 156 in Q3 last year. Ruling 12 months cash flow from operating activities increased to 1.6 billion circa versus 379 million in the previous 12 months. Let's now look deeper into our net debt situation. has increased slightly compared to previous year and amounted to 3.3 billion, of which 1.3 billion is related to leasing liabilities. The increased net debt EBITDA ratio from 1.3 and of Q3 last year to 2.0 this year is mainly affected by our acquisition activities the last 12 months. We have introduced a new supplementary definition in KPI this quarter. financial net debt and financial net debt EBTA. To clarify our financial position and net debt. Financial net debt is net debt excluding leasing liabilities and pension related items. Financial net debt EBTA is average financial net debt in relation to EBTA excluding RFRS 16 and excluding leasing liabilities and pension related items. This ratio is at 1.4 end of September and give us the possibility to be active and focused on acquired growth going forward. We continue to focus on our activities to strengthen cash flow and a special attention to our stock and days in stock. And I'm giving back the word back to Ola. Thank you.

Thank you Lars. And we will talk a bit further about the journey we are on and how we are building a stronger Linda. So let's take a little look at where we come from and where we're heading. Looking back, we can see that Lindab has developed through a number of phases. After the financial crisis in 2008, Lindab had to focus on reducing debt. Few investments were made in the business and the generated profits were used to get Lindab's balance sheet back on track. On average, our revenue during that period was around 7 billion, with a 6% EBIT margin on average. Slightly more than half of our revenue came from the ventilation business. I joined the CEO in 2018, and the company was in better shape by then, thankfully, but it was still underinvested with several loss-making units. We managed to raise the profitability quite fast by focusing on fewer markets and fewer product areas. 32 countries were reduced to 20 countries. One business area was divested and we grew the share of the ventilation business to around 70% during the period, or as it is today, 75%. The increased profitability allowed us to launch the largest investment program in Lindab's history with the objective to strengthen Lindab's efficiency, capacity and possibilities for profitable growth. In 2020, we started to acquire high quality companies to strengthen our offering and market shares in the core markets in Europe. Now we are at the end of our investment program. The company has grown to 13 billion in sales. And with a continued focus on profitability, we can redirect our generated profits and substantial cash flow to increase the growth speed. The target for 2027 is to reach 20 billion in revenue with at least 10% operating margin. And this will be achieved in a combination of organic and acquired growth. But it is fair to say that M&A will be the main driver. We are building the leading ventilation company in Europe. In the short term, we have a number of areas that we are focusing on to drive Lindab's profitable growth. We continue to implement actions to reduce the sensitivity to market fluctuations. Product areas and geographies that do not meet our high standards of organic growth possibilities and stable profitability will be evaluated. We will also continue with cost control and continuous improvements of the profitability. We see that in markets where we have a strong market position, the profitability is higher. That is why it's important for us to continue to develop our product offering, as many markets have local preferences and building standards. We also see a potential in improving our current product offering, sharpening the functionality and production efficiency. The investment program has been ongoing for several years, and it's essential to follow up on the initial plan and ensure that the necessary actions are taken to harvest the full effects and the full potential from each investment. Sustainability, that has been high up on Lindab's agenda for several years. And this is an area where both legislation and customer demands are moving quickly. Lindab is and will be at the forefront within sustainability. Finally, some of the first acquisitions we made have now been part of Lindab for two or soon three years. And we are fine tuning our support to these acquisitions to make sure that we benefit from the synergies from having these companies in our group. Now let's look at the three last areas on this slide starting with the investments. Investment program. This has been as you know at the top of our agenda since 2019. It's very rewarding to see how the benefits are very visible and I think that can also be An important explanation why we are performing well despite tougher market conditions. We see results in higher production efficiency, higher capacity and a safer working environment. We have now come to a point where no major investment decisions are planned and we have made very few investments decisions during this year. So the investment level is gradually declining. We are expecting it to be on around 250 million in the year 2025, and it will be around 250 to 300 million in 2024. In the third quarter, the investments amounted to 68 million, which is slightly lower than Q3 last year. We move on to acquisitions. Lindab's strategy is to acquire well-managed, successful companies that 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 October, just after the end of the third quarter, we acquired the British ventilation company Husvent. HealthVent is one of UK's leading manufacturers and distributors of ventilation products. The company has its own production of circular, oval and rectangular ventilation ducts, as well as distribution of a wide range of ventilation products. HealthVent has 10 branches in the UK, some in locations where Lindab does not currently operate. With around 105 employees and an annual turnover of 280 million, and an operating margin that is higher than Lindab's, we think that Husvent is a perfect addition to our business in the UK. In total, we have made 22 acquisitions since 2020, adding 3 billion in revenue. And as you can see in the chart, around 90% of the acquired revenue is within the ventilation business. We have also divested businesses with a turnover of in total 1.3 billion since 2020. And the largest divestment was the business area of strong building systems. And sometimes we talk about steel. We talk about steel prices. This time we will talk about other types of steel. Linda has recently taken another step towards reducing the climate impact of our products. by extending the standard product range with ventilation ducts in recycled steel. Recycled steel and fossil-free steel are the two materials that Lindab has chosen to reduce both its own and its customers' CO2 emissions. Fossil-free steel, unlike recycled steel, is not yet available in large-scale production. the first volume deliveries are expected to start in 2026. The recycled steel is already available in sufficient volumes for ventilation ducts to be included in Lindab's standard product range. It contains 75% recycled material resulting in a 62% reduction in the climate impact. Lindab receives its recycled steel from ArcelorMittal's steel mill in Europe and has ongoing dialogues with other steel suppliers. Lindab has previously communicated that the company is the first supplier in the world to offer ventilation ducts in fossil-free steel. Thanks to a test delivery from SSAB, Lindab will have access to it before the large-scale production is expected to start. The fossil-free steel from the test delivery will be used for selected customer projects as it is only available in a small quantity, unlike the products in recycled steel that can be offered on an ongoing basis. 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 our priorities. The European ventilation market is estimated to have declined by around 5%. The Nordic region has had more challenging market conditions than the Western and Southern Europe. The ventilation market has shown relative stability due to increased renovation and demand for energy efficient ventilation systems. Our assessment is that the European installation market will remain weak over the next 12 months. We are prepared for this market to continue to be relatively slow, and we have adapted our resources to the current demand. Profile Systems has high exposure to the Swedish market when new construction has slowed down. Here to date, the market is estimated to have declined by 20%. After some tough quarters, the situation is beginning to stabilize. Our capacity has been adjusted to the current market situation and the implemented cost program is reaching its full potential during October. So what are Lindab's near-term priorities? Well, 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. We are adjusting our pricing to strengthen gross margins and to mitigate the inflation effects. We are continuing to reduce our working capital to free up cash flow. and we intend to continue to pursue attractive acquisition opportunities within ventilation. The European ventilation industry is fragmented and there are plenty of opportunities to create long-term value. We have a clear plan for how Linda will continue to develop positively and after the transformation of the business in recent years Linda is in good shape and we are now ready to enter the next phase towards 2027. We now conclude the presentation and we open up for questions.