Lindab International AB (publ)

Hello and welcome to this call. My name is Ola Ringdahl and I'm the President and CEO for Linneb Group. Next to me I have our CFO Lars Ilner. Let me start with a summary of the quarter. Business area ventilation systems, which accounted for 80% of sales during the quarter, reported 4% growth thanks to acquisitions. We achieved an operating margin of 9.6% despite the challenging market. Business area profile systems have had a noticeable impact from reduced market activity. Sales declined by 21% in line with the weak market. The significant sales drop in operating margin of negative 0.5%. In total, in the group, sales declined by 2% in the first quarter and the operating margin was 7.1%. Cash flow developed according to our expectations and came in at the healthy level. Let's take a closer look at the revenue development. Ventilation systems increased sales by 4% during the quarter and reached the highest quarterly sales ever in Lindab's history. Organic sales growth was negative by 6%, partly due to fewer invoicing days and developing in line with the market. Acquisitions contributed positively by 9%. The construction activity in the European markets where Lindab operates has been generally weaker during the first quarter compared to the same period previous year. Lower demand is especially noticeable in the Nordic region. Several countries in Southern and Western Europe have shown relatively good market development, countries such as France, Italy, Switzerland, and Ireland. For profile systems, the reduced construction activity in the Nordic region has a direct impact on demand. Net sales during the quarter dropped 21% compared to previous year. We estimate that this was in line with the negative market development. The first quarter is the seasonally weakest period for profile systems, and this year it was also a quarter with fewer working days due to public holidays. I can add that the second quarter has started at a higher pace for profile systems, and we recorded organic growth in April. However, it should be mentioned that the comparison numbers are easier from April and onwards. Let's move on to the operating profit. Ventilation systems operating profit was 241 million SEK with an operating margin of 9.6%. If we adjust for acquisition costs of around 9 million SEK, the operating margin was 10%. Selective price increases are being implemented and the cost basis reviewed to strengthen profitability further. In profit systems, the low sales led to an operating loss of 3 million SEK and an operating margin of negative 0.5%. Cross-margin development was positive but could not compensate for low volumes and inflation. We have implemented price increases during March and April and more price increases as well as cost reductions are planned to immediately return to acceptable profitability. Structural measures are also being evaluated for low-performing units. For the group, the operating profit for the quarter amounted to 225 million SEK, and the operating margin was 7.1%. Now, Lars Unna, our CFO, I hand over to you to guide us through our financial position. Thank you, Ola.

Lindab had a continued strong cash flow during the first quarter as cash flow from operating activities amounted to 208 million SEK. The main reason for the change cash flow in relation to the first quarter previous year was related to working capital as our stock value continued to decrease, but at a slower pace than last year. Our free cash flow adjusted for M&A amounted to 147 million SEK. All in all, Lindab has a continued strong financial position which supports the group to do additional acquisitions. If we now look deeper into our net debt situation, net debt has increased compared to previous year and amounted to 4 billion, 447 million SEK, of which 1 billion, 501 million SEK is related to leasing liabilities. The change in net debt is mainly related to increased borrowings as a consequence of completed acquisitions. The net debt EBITDA ratio amounted at the end of the quarter to 2.0 versus 1.8 one year ago. The increase this year is mainly affected by our acquisitions activities the last 12 months. Financial net debt EBITDA is average financial net debt in relation to EBITDA excluding IFRS 16 leasing liabilities and pension related items. This ratio is at 1.4 at the end of March. I'm now giving the word back to Ola to take us through the next part of the presentation.

Thank you, Lars. So let's look at the longer term plans for Lindab. For a couple of quarters, we have included A slide describing our ambition to reach 20 billion SEC in sales in 2027 with the goal to have an operating margin well exceeding 10%. And over time, I think that 12 to 15% operating margin should be possible. These are ambitious goals, but we have a clear plan how to achieve them. Demand for energy efficient solutions and a healthy indoor climate will be high for a long time to come. Our ventilation business is developing in a very exciting way, adding smart products and new technologies. The rate of building renovation needs to increase in Europe, and we will be there with flexible solutions that make it easy to upgrade existing ventilation systems. We also have a strong position in new construction of energy efficient buildings, which we will leverage and develop further. Europe is our home market, but in the longer term, we aim to be more active in North America as well. The acquisition of US-based Vicon in early 2024 is one small step on that journey. Acquisitions will continue to play an important role in Lindab's future developments. In 2023, we added another five companies to the group. And since 2020, we have added 25 companies and around 3.5 billion SEK in annual sales. The development of the acquired companies has been strong thanks to careful integration in line with Lindab's decentralized model. Lindab's strong brand gives us opportunities to also grow organically. As the renovation market takes off, there are good opportunities to grow faster than the general market. We expect that about two thirds of Lindab's growth will come from acquisitions and about one third from organic growth, seen as an average over a business cycle. Now, what do we do right now to achieve these ambitious targets? Well, in the short term, we have a number of focus areas to accelerate our profitable growth. And on the next slides, I will touch on the five areas that you see here on this slide. Let me start with something that is an immediate focus area, profitability. To improve profitability, we are implementing price increases across the group to compensate for inflationary effects and the lower volumes that we see in the market. We are also accelerating the synergies with the acquired companies, as well as rationalizing our footprint. Finally, due to the tough time for profile systems, extra focus is required to bring that business back to acceptable profitability levels. And if there are parts of the business that cannot perform at the right profitability, we will consider structural measures. To continue to develop competitive products is another of our important focus areas. linda has a strong market market position in our five main ventilation product areas our heritage is within air distribution where we are the european market leader in circular as well as rectangular ventilation ducts we also have a strong market position within air diffusion and fire and smoke protection where there is a high technical content And with our recent acquisition of Airmaster, we are aiming to take a leading position also in decentralized ventilation, which is a very interesting growth area. We invest in R&D to develop these product technologies further. But as you know, we have also talked a lot about our investment program in factories and logistic centers, et cetera. And that has been at the top of our agenda since 2019. You need to be extremely competitive and cost efficient in our type of business. We see results from the program in terms of higher production efficiency, higher capacity and the safer work environment. And as planned, the accelerated investment program is coming to an end in 2024. Moving forward, we expect an annual investment level of approximately 250 million SEK And that should be seen in relation to the peak of around 400 million SEK per year. When the market picks up again, Lindab is in an excellent position to quickly take advantage of higher demand. The operating margin will increase with growing volumes thanks to our investments. Lindab is now shifting the investment focus to digital tools and services. in order to increase our service level to customers as well as to increase efficiency even further. Then we have the focus area of sustainability. We are experiencing increased demand for sustainable and energy efficient products, which benefits Lindab's ventilation business in both the short and long term. Products in recycled steel have been part of Lindab's standard range since 2023. last autumn we also received the pilot delivery of fossil free steel during the quarter we announced the collaboration with property owner castellum that will use fossil free ventilation ducts and fittings in a swedish renovation project making it the first renovation project in the world with fossil free ventilation in our internal work to reduce emissions we have during the first quarter signed the contract for renewable energy for linden group test the potential to reduce Lindab's emissions from operations by more than 50% when all subsidiaries are on board. And then on to the area of acquisitions. We are continuing to add high quality ventilation companies to Lindab Group. In the beginning of 2024, we acquired Vicon in the US as part of our product area for duct automation. Vicon has approximately 280 million second revenue, and with that, we are doubling the global sales from duct automation solutions. In the U.S., where we can explore and learn about the market and enable future growth. Another important acquisition is AirMaster, part of Lindahl Group since 1st of March. Airmaster had a revenue of approximately 540 million SEK in 2022 and has a strong growth track record with a profitability that is higher than Lindab's average. With Airmaster, we lay the foundation for the new product area decentralized ventilation and additional acquisitions are likely to follow. Our aim is to reach 2 billion SEK in sales within decentralized ventilation by the year 2027. In March, we also signed the contract to acquire TGA Klima Partner, a German ventilation distributor. They are based in the northern part of Germany, where we wanted to improve our geographical coverage. TGA Klima Partner had a revenue of approximately 50 million SEK. In total, we have added approximately 3.5 billion SEK in revenue through this acquisition since 2020. But we have also divested businesses with a turnover of 1.3 billion since 2020. And the largest divestment was the business area of strong building system. So we're building a new Lindab, very much focused on ventilation, and we have an interesting pipeline and more acquisitions will follow. So let's conclude this presentation with some comments about the market situation and the outlook. Year to date, we estimate that the European ventilation market has declined by approximately 5%. The Nordic region has had more challenging market conditions than Western and Southern Europe. The ventilation market has shown relative stability thanks to increased renovation and demand for energy efficient ventilation systems. The market for profile systems in the Nordic is estimated to have declined by 20% to 25% versus Q1 2023. I should mention that we saw a steep decline from approximately the middle of March in 2023. So the comparison numbers are less challenging going forward. And we anticipate sequentially improved sales in Q2 and Q3 versus the first quarter of 2024. We believe in gradually increasing volumes in general during the second half of 24, but from a low level. Interest rate cuts will be an important trigger, especially in Sweden. From 2025, we believe that the ventilation market will enter a multi-year growth phase. Despite the challenging market situation, I am determined that Linda will reach its financial targets in 2024. We now conclude the presentation. And we open up for questions.