QleanAir AB (publ)

Hi and welcome everyone to the Clean Air Investor presentation for Q1 24. My name is Sebastian Lindström. I'm the CEO at Clean Air and joining me in today's call is Henrik Ressmaik, our CFO at Clean Air. Henrik and I will go through the presentation and then open up for a Q&A towards the end. So starting off with the numbers for Q1, in short, In constant currency, we achieved a growth of 3%, but due to the weakening of the Japanese yen over the last 12 months of about 11% versus the Swedish crown, it ended up in a slight decline of 1.6%. We delivered sales of 119 million in the quarter versus 121 last year. The negative currency effect amounted to 6 million second a quarter related to the Japanese yen. Our recurring revenues were stable on par with last year at 75 million in the quarter and over 300 million by the end of March. Our gross margin achieved was 69% versus 71 last year. Main reason is the product mix between cabin solutions and clean rooms in the quarter. Our cabin sales in Japan was in Q1 still affected by the lower stock of renewals in Japan on the three years anniversary of the pandemic. And as we have referenced before, our cleanroom business has been weak in margin due to historical lack of cost inflation protection in our contracts. And in Q1, we still delivered on projects won back in 22. We do, however, see the numbers moving in the right direction over the course of the quarter. Our EBIT margin is an improvement over Q4, but around 4 percentage points behind last year. This is, of course, partially due to the lower gross margin and the negative currency effect in Japan of about 2 million. We have continued to invest in our sales activities, but this has been compensated by our lower costs centrally. Our operating cash flow was zero in Q1. This is, of course, due to the lower EBIT, but as well the balance between accounts payable and receivables in the quarter. Henrik will expand more on this on the financial section. Our EPS, or earnings per share, were 0.53 crowns. Summoning up the quarter, we still have work to do, but the momentum Good. And we have good track.

we are currently having some issues the conference will continue shortly Thank you. This call is being recorded. Your line is muted. The conference will continue now.

All right, so sorry for that, some technical disturbance. I don't know exactly where I lost you guys, but summing up the quarter in this slide, we still have work to do. But we really have a good momentum and we have very good traction on the initiatives that we've already taken. Looking at it from a regional perspective, APAC continues in a solid way, considering the lower renewal stock of contracts on the three years anniversary of the pandemic and the lower value of the Japanese yen against the Swedish crown. Just as a note, air cleaners in Japan grew triple digit in the quarter. EMEA continues its growth path and grew 4% with very continued strong performance on the air cleaner side. And this despite known cancellation of contracts related to schools in Germany. US had a strong quarter in line with growth momentum of last year, close to 50%. It is evident that our increase in sales presence is starting to pay off as our pipeline is stronger than ever before. Our focus in the US is on margin improvements. We continue our focus on the short and mid-term objectives of cost control, sales efficiency, and customer focus. As introduced in earlier calls, we call this the Clean Air Wheel. It's a combination of operational improvement and strategic acceleration. The inside of the wheel on the left side of the slide is our operational improvement, ensuring that we grow organically and improve our profitability. This portion must spin. It is through our operational performance we earn the right to strategic investment. In this respect, our focus in Q1 has been on securing the improvements in the US that we laid the platform for during the last half of 2023. We can already in Q1 see a gradual improvement. We have also, during Q1, continued our investment in improving our build-up of sales in Europe with focused training investments in Germany, France and Sweden. The outside of the wheel is our strategic acceleration. We've just completed our workshops across all geographies together with our sales and service teams to identify the next products and technologies to develop. Already in the next quarter, we expect to launch the first new solutions that we picked up from the last year's spin of the wheel. In this quarter, I have replaced the customer cases that we usually have with a little bit of a broader perspective on what we do at Clean Air. In essence, we provide the freedom of clean air, meaning we take care of maintaining people, product and processes in the best possible indoor environment. We provide in this way, peace of mind for our customers. We do so with our positioning to be specialized provider of premium solutions. We really go to the bottom of the challenges of our customers to come up with the appropriate solution. And we do so with the purpose of making a real difference through clean air and the promise of freedom of clean air. We really understand the complexity of the indoor environment whether it's an office, a school, within the healthcare or industry. We understand that there is a combination of solutions that are required. One solution cannot fix it all. In principle, you need three things to complete the solution. In the background, you need HVAC, which is the general ventilation system of any building. Its main purpose is to bring fresh air into the building and maintain the health of the building itself. This HVAC as well provides a first line of defense against particles from the outside. However, any indoor environment is connected to the outside through windows and doors, and more importantly, people, product, and processes themselves are sources for particles and generate particles from inside the building. To support the HVAC in dealing with the people, product, and processes inside, you need primary and secondary filtration solutions. Primary filtration capture particles directly at the source, but they can't capture it all. And that is where secondary filtration comes in. to capture those particles that were not captured in the primary solutions. At Clean Air, our focus is on primary and secondary filtration. Our cabins are primary solutions, capturing the smoke straight from the source and thereby preventing any secondary smoke harm. Our clean zone solutions are primary as well. They secure a low particle environment by blowing HEPA-filtrated air over a certain product or process or creating a low particle environment in protection of a person working with a product or process that otherwise could be harmful. Our clean room solutions are secondary filtration. providing a safe background environment for critical processes, for us, primarily in the pharmaceutical compounding area. And our air cleaners are often deployed as secondary filtration, lowering the particle in a certain area or, for instance, improving a recovery time in a surgery room. Through our long experience, In providing specialized solutions for our clients, we have developed a strong know-how and versatile products that can play a variety of roles in securing a great indoor environment. Our FS70 has been purposely designed to handle a variety of tasks. It can be used to create a positive pressure in a room, safeguarding the integrity of this room against activities in the outside of the room, pretty much like a clean room. It can also be used to create negative pressure in a room and thereby protecting the outside from activities within that room. FS70 can also provide a clean zone by blowing particle-free air over a certain process or over an operator in the process to safeguard work safety. And of course, we can do a combination of these with one and the same product. This versatility of our product and the knowledge of our teams put in use is what truly makes Clean Air unique. To sum it up before handing over to Henrik and the financials, We deliver great value to our clients. The base of our business is well balanced. We operate across three regions and our three top geographies, Japan, Germany, and the US, all rank in the global top economies of the world. We have three product categories where air cleaners and clean rooms are growing steadily double digit. We have a very low customer dependency and serve over 3,500 customers around the world. Our regional supply chain have provided us protection against logistic disturbances in the world and allow us to respond quickly to market needs. We continue to grow our recurring revenue over 300 million as we close the first quarter. 2024 Q1 report is not extraordinary, but it is stable in both revenue and profitability. And a number of measures have already been initiated that expect to yield results in 2024 and beyond. And we can see during the first quarter that figures are starting to move in the right direction. With that, I'd like to hand it over to Henrik to take you through the financial update.

Thanks. Clean air by region in the first quarter. We are present in three geographies with three different product categories. In Clean Air Group, both EMEA and APEC are strong contributors to sales, profitability and cash flow. EMEA account for 47% of Clean Air Group revenues. Revenue growth of 4% in the first quarter. EMEA is a strong and stable cabin solutions market. And air cleaners in Europe is growing by 14% in the first quarter. More and more countries are contributing with revenues to a higher extent. APEC accounted for 42% of the Clean Air Group revenues. Cabin Solutions is a success in the Tokyo area. and there is a clear demand for our solutions in Tokyo. And we are gaining more and more traction with air cleaners through focused work on chosen customer segments. In the first quarter, air cleaners grew by 161% in Japan. America has increased to 11% of the Clean Air Group's total revenues, We see a clear growth potential in Clean Air US and the first quarter the revenues were up by 47%. Stable net sales and profitability in the first quarter. We have a growth of 3% currency adjusted in the first quarter amounted to 119 million SEK. The recurring revenues accounts for 63% of the total revenues and amounts to 75 million SEK. That are rental contracts, including service that Clean Air is renting out on a quarterly basis. The gross margin is 69%, sequentially a slight improvement from 67 in the fourth quarter 2023. Clean Air US is gradually improving the gross margins in the first quarter. Also, the EBIT margin is sequentially improving versus the fourth quarter 2023, up to 10% versus eight. This slide illustrates the relation between the book values of units in Clean Air Balance Sheet and the revenues stemming from such units, including service. We call that the recurring revenues. The recurring revenues increased to 307 million SEK on a 12-month rolling basis. The recurring revenues are a solid base of revenues that to a larger extent are predictable in the future. The book value is relatively low, approximately 49 million SEK, compared to the recurring revenues, and this is a contributor to our gross margins. To break these recurring revenues down per unit on an average, The revenue is approximately 59,000 SEK with a book value of approximately 9,000 SEK. We experience a high profitability on renting out the units over time. Revenue split and installed base. Quarter by quarter, we continue to increase our installed base. We see a growth in air cleaners in both EMEA and APEC. and in cabin solutions in APEC. And the cabin solutions in EMEA is a mature market for us. We have three different revenue streams, the mix of recurring revenues, sale to finance companies, and product sale to end customer. It is a strength to increase the recurring revenues on a 12-month rolling basis. And in combination, we continue to sell long-term rental contracts to finance companies in Japan, and we are also offering product sales. Balance sheet and cash flow. The cash flow declined in the first quarter, partly because of a lower operating profit and partly because of unfavorable change in working capital. On a quarterly basis, this can happen. We still believe that the long term, we will generate strong cash flows. We continue to amortize according to plan every quarter and the net debt equity ratio improved down to 0.8. And today, Cleaner has the annual shareholders meeting and the proposal is to pay out 0.6 SEK per share. That is equal to approximately 9 million Swedish krona. Having said that, I hand over to Sebastian for a summary.

Thanks, Henrik. And to close off the session in front of the Q&A, what we do at Clean Air is really important. We dedicate our work to improve the health of people, the quality of products and the performance of processes. And we do so throughout our three product categories, cabin solutions, air cleaners, and clean rooms. And looking at the amount of clean air that is delivered through our solutions, we estimate that we clean 7.21 billion cubic meters of indoor air by end of March 2024. It's an increase of 9% over last year, and it matters. Air pollution is a key challenge for human health people die prematurely from exposure to polluted air and we spend an important part of our lives indoor in indoor environments and indoor air can often be more polluted than outdoor air so with that i'd like to open up for questions, please.

If you wish to ask a question, please dial pound key 5 on your telephone keypad to enter the queue. If you wish to withdraw your question, please dial pound key 6 on your telephone keypad. The next question comes from Anders Roslund from Pareto Securites. Please go ahead.

Yes, good morning. Good morning.

I would like to start off with your long-term outlook. You expect 10% organic growth and to be in the margin range of 15 to 20%. If we look at the sales range, you don't give any forecast for this year, but how do you see about the growth

Target for this year Yeah, so so we are sticking to to the targets that we have communicated before So so we see in our business a good opportunity for growth also in 2024 Okay If you go listen to what we went through, the air cleaners, the clean rooms are growing at a double-digit rate in certain markets. The air cleaners are growing triple-digit. On the cabin side, it is very evident, and I've spoken about it through Q3, Q4, and we knew it was going to affect Q1.

is is this lag of pandemic effect that we have on the renewal stock in japan so yeah and that's what i was going to come back to just specific area of cabin solutions do you expect that the renewal rate will improve gradually or is it a step change or will it still be on the more of the existing level for food.

So we've for sure passed the point of the low point sort of on the renewal stock for Japan. So now it will gradually improve. And coupled with that, we're also reaching more into a broader segment with the small and medium-sized businesses in Japan. So there are a couple of things speaking for us in that respect.

Yeah, I was just wondering about that because for a very long time you've said that you should try to penetrate the market outside Tokyo but so far in the cabin solutions area but so far you have been very successful in Tokyo but you haven't really succeeded outside Tokyo and what's the news here? Is it the cheaper product or a broadened product?

So our first approach, and I don't know if we've spoken much about it, is an addition to our cabin range that is fitting more into the medium and small size company into the Horeca segment. But of course, that's not targeted specifically for the areas outside of Tokyo, but rather to reach another customer segment, if you will. We do focus also outside of Tokyo. We have our own team in place in Osaka, for instance, but we see air cleaners more strong in the outside areas and we still see growth potential even within Tokyo on the cabin side, just reaching into a broader segment of customers.

If we continue with the cabin solutions, but now focus on Europe, you mentioned France, an area you have sort of started to grow again. That is on low levels, I would assume.

Yeah, so we've been present in France on the cabin solution area for quite some time. But what we're really focusing on is driving the air cleaning business in France. And just as I mentioned, I think we grew over 60% in France in the first quarter. So this is sort of a a change of our approach, right? As we mentioned last year is that we really want to focus on a few markets and really make a difference. And France is one of those markets where we have gone from basically one, two resources in the region to four or five resources. And that is paying off. And remembering that it always takes some time when you put new feet on the ground, but I think they've been really impressive in the speed of which they have started to move.

Yeah, good to hear. Then coming back to air cleaners again, and this impressive 161% up in Japan, you don't disclose any absolute sales figures there.

No, we don't. But the team has been doubling their business now for some time. So it is very positive. And I was just over in Japan on a new training session and also through workshops and it was very positive.

Which are the clients in Japan?

So it's actually a mix. Sometimes we think that the HEPA-filtrated solutions for offices, everyone forgot about the pandemic and there's no need anymore. But actually in Japan, we're still having customers that are looking for protection against pollen or allergic content or whatever it could be called. So that is growing, but the primary focus is actually on the industrial side.

Okay. And then coming back to Europe, where you mentioned that it was up 14%, despite that you had a high assurance there, that there are quite some orders that you got during the COVID time in Germany that are not repeated. So how come that your growth is so strong despite this setback from Germany?

It is for sure the air cleaner deployed in industrial environments. And it is evident, like I said in my introduction, that we really have a truly unique approach in really understanding the problems, the real problem at the customer side. And we are really good at providing solutions for industrial use, both to protect product process and people.

And that is really paying off. If I can add, I mean, we made a strategic move and as Sebastian said, we have invested in people in France and France particularly has really paid off. And there we see a huge growth in air cleaners in the first quarter. In France? Sorry? In France, yes.

Air cleaners in France. I missed that. Okay.

Yes, we have a growth in air cleaners in France.

Because for me, France has been a new market for air cleaners.

We are launching air cleaners in more or less all our 11 countries in Europe. And as I said, more and more countries are contributing with more sales in air cleaners. And France is one example of that.

I mean, that's very important that you are sort of the... The order boom you got in the air cleaner during the COVID area sort of boosted the sales of this HEPA filter equipment. But now it's like that is coming down, but you're outgrowing that with industrial sales.

Is this the right way to... Yes, for sure.

That's very much more. It's much better for the long-term development that you have an industrial focus here. Yes.

very interesting and it goes also very well across europe well together with our you know already existing customer relationships on the cabin side where we if you take for germany for instance a lot of our cabins are deployed in industrial environments so it's very easy for us on existing customer relations to build also upon our air cleaning business and i and i think also this this growth that we've turned into europe has some something to do with the fact that these are workshops that we're doing more training activities you know strengthening the sales teams in their knowledge and their ability to provide solutions yeah very very interesting

Finally, we come to the cleanroom business and the US. You have taken away the order intake, so we can't see that anymore. How is it going there?

As I at least tried to allude to, we have a stronger pipeline than ever. uh we've spoken about it before on the regulation and so forth that's still providing tremendous demand which is why we have you know met up with that demand by adding more sales people we now have people all the way from from california to the east coast and and prior to that we only had two people now we have four people so uh very very positive from a growth perspective and and i through

full last year we grew about 50 right in in the us and we maintain that growth momentum throughout the q1 yeah but that's from from a little bit lower level so it's so dependent on on the big orders you have got so it's a little bit question what's in the pipeline so but you say that this pipeline is stronger than ever so Let's just hope to see that.

As I have alluded to before, the challenge on gross margin and so forth, we did quite some actions and measures last year, but through Q1, we're still delivering on some of the real old contracts. And the reason why we took away the orders is that it really is doesn't have a good connection between revenue and orders. I mean, if you present orders, there's expectation of revenues falling or at least being able to forecast revenue in a way. And in the clean room business, it can pass more than a year between the order intake and the actual revenue. And that's the reason that we took away the order information.

Coming now to the margin development, at least according to my estimate, your gross margins were quite good given the situation you just described, but there were significantly higher costs, other costs. Could you elaborate on that? You have several cost items here.

Yeah. About a year ago, we made some reductions on the central team. And that was really in order to open up for more investments regionally. So I think what you see in the increase on the external costs is what I guess that you're referring to. That is quite well compensated by lower personnel costs, right? So those are planned investments into the regions. That should, of course, generate revenue as we go forward. We've had some higher service costs.

Yeah, but also to comment on that. I mean, also on profit level, we're hit by the weaker Japanese yen. That is, of course, one thing. But also, we are not happy with the current margins and the current contribution from a cleaner in the US. And that is extremely focused from our side to improve that. So that is the main reason why we have a decline in the gross profit first quarter versus last year. And coming back to the costs, yes, they are a bit too high because of certain service costs we have had in certain countries in Europe that were not planned for. They are also higher because we have done some efforts in certain countries to increase sales. And one example is France. So in France, we have increased certain costs to increase the sales. And we believe that that will pay off both long term, but it also paid off already in the first quarter. So it's really a mix of combinations and as Sebastian stated, we're very clear our goal is to be at 15 or above for sure. And we think that we will be able to be there long term.

You mentioned higher sales staff etc. obvious when you go for higher growth in all your areas. Those certain services costs, is that something that you catch up for areas where the quality is not perfect or whatever? What is that services cost related to?

The service cost is mostly related to Germany, our largest market in Europe. where we have changed the service partner way back. And we have some issues there that we are on top of. But that is the main reason why we have temporarily higher costs in Germany.

But we've also, as you know, we removed the marketing spend centrally and moved that more regionally. And we also, so it's quite natural to see a transition from saved personnel own staff centrally to having more external cost in the in the profit and loss sheet okay and uh finder than the cash flow you already described that that will improve is it some specific items you're thinking about then

Yeah, I mean, looking at the first quarter, we made some payments towards some suppliers, both in Sweden, both in Japan and primarily in the US that really affected the cash flow in the first quarter in a negative way. And again, looking at the financial data that we have delivered during the last years, it's easy to to see that most quarters and 12 months rolling, we are still delivering strong cash flow in relation to our EBIT and EBITDA. And we think that that will continue. And we have had some quarters before that were more or less zero from a cash flow perspective. But we continue to amortize the debt side. We will pay out the dividend and the financial target on the dividend And the business model based on the cash flow will continue.

Excellent. Yeah, I think I've got answers to all my questions. So, yeah, thank you very much. And looking forward to improvement in the year.

Okay. Thank you, Anders.

Yeah. Okay.

Thanks.

Thanks.

As a reminder, if you wish to ask a question, please dial pound key 5 on your telephone keypad. There are no more questions at this time, so I hand the conference back to the speakers for any closing comments.

Sorry, I think I got a question on the webcast. How come that the Salary costs are going down and the average number of employees are unchanged. That is just a matter of timing. When people started at Clean Air, we had some joining really late in 2023 and we had some costs in the beginning of the year. So that is the reason for that. It's purely a timing thing.

And also to comment on that, even though the number of people are coming up, it's a totally different setup than a year ago. So we've moved from central resources more to regional resources and any additions on the central side is purely related to support sales. So either in the product area or in the technical sales support area, all to drive sales. All right. So Henrik, no more questions on the web? I can't see anymore. No, that's the one. So if no more questions, I would like to thank you for your participation and interest in our company Clean Air and wish you a great continuation of the day. Thank you.