QleanAir AB (publ)

Welcome to the Clean Air Investor presentation for Q3 2024. My name is Sebastian Lindström. I'm the CEO of Clean Air and joining me in today's call is Henrik Riasmajk, our CFO at Clean Air. Henrik and I will go through the presentation and then open up for Q&A towards the end. Starting off with the numbers for Q3. We closed a challenging quarter, clear indications of a weaker economy in EMEA, especially Germany, which is our biggest market in EMEA. And beyond our control, postponement of a big project in Americas with Curexo. Positive in the quarter was the stable performance of Japan in local currency and the launch of six new products targeting EMEA and APEC. In the quarter, We also had to deal with handling the final accounting adjustments of the clean room projects from 2021 in the Nordics. All these projects have now been fully delivered and approved by our clients. We also have had made a thorough review of inventory accounts and made a one-time write-off of inventories relating back to some COVID-related purchases in 2021 and 2022. Together, these two one-off items amount to $7 million in the quarter. We delivered $113 million in sales, which was 8.9% behind last year, and currency adjusted 5.9% behind last year. The main reason of the decline was the lower sales in EMEA and Americas and, of course, the weak Japanese yen, which affected top line with 2.5 million in the quarter. Our recurring revenues remain stable at 73 million, amounting to 301 million on a rolling 12-month basis by the end of September. The slight decline of 4% versus last year is fully attributed to the cancellation of school orders we have reported on previous in the year. Our gross margin and EBIT were hurt, of course, due to lower sales, the FX effect, but specifically due to the two one-off items totaling 7 million that I mentioned. On an adjusted basis, it is a clear sequential improvement over Q2 2024. Our adjusted EBIT landed on 11.3 million versus 16.8 last year. Cash flow was weak because of the weak operating profit and summoning up the quarter, we still have work to do and we'll keep our focus on the three objectives towards long-term profitable growth. Now looking at the quarter from a regional perspective, When it comes to APEC, they delivered satisfactory growth in the quarter in local currency. The momentum in both cabin solutions and air cleaners remains strong. Air cleaner sales in Japan are up 41% for the year. In EMEA, we're seeing signs of a slower economy, harder to book meetings, longer sales cycles, especially in Germany that represents half of our EMEA business. But we are launching six products to support the sales in EMEA, targeting more critical must-have needs of the customers. This will help us in combating the tougher market conditions. Our development market, France, is developing well, up 17% so far this year. When it comes to Americas, we're currently reviewing our distribution strategy and looking at ways to get in front of more clients other than through our own direct sales force. We have great product and very satisfied customers of the hundred plus clean rooms that we have built across the country. The regulation is there, but we've not managed to have a continuous inflow of orders, which hurts our efficiency. For 2024, The setback of the very promising agreement with Curexa Pharmacy affects us in a negative way for both Q3 and Q4. We have, in my view, a solid contract and are currently in discussions with the client's management on compensation. When it comes to our focus, we're moving on as planned. We stick to our three prioritized objectives. cost control, sales efficiency and customer focus. The cost improvement projects launched back in Q2 are delivering to plan. The consolidation of supply chain and carbon filter production in Europe has been completed. Our actions relating to improving service setup for Germany is on track. When it comes to sales efficiency, Our strengthening and replacement of sales resources in both Germany and Sweden are coming along fine. And we start seeing the result of the new sales reps getting up to speed. Our investment in France, like I mentioned before, is yielding results and show growth of 17% for the year. And we already have the first orders of the just launched Oilmyth solution. both in Germany, Sweden, and Austria. We've been able to further the measurement-led solution with a key food service brand within air cleaning to two more geographies, Belgium and the UK. The installed base with this client is now exceeding 80 units, including orders on the newly launched FS70 food grade with all its new accessories. Our systematic approach to product development, the Clean Air Wheel, delivers no less than six new products across all our product categories in 24. In the background, we continue our further explorations to continue to address more critical application areas within the industry. We stick to... We stick to our plan of developing our company operationally and strategically. And as we keep doing the right things, following a very structured approach, we're convinced financial results will follow. Now, a few words on the six new products, which are addressing both the primary and secondary filtration layers in indoor air cleaning for our clients. On the primary side, We have the new outdoor lounge for smokers, the Clean Air SL12, a new outdoor smoking lounge safeguarding people in the outdoor environment from secondary smoke exposure. More and more clients are asking smokers to go outside, and there is really a need to handle this in a better way. The new addition to our cabin solution range has dramatically improved capacity for the outdoor environment. Staying on the primary side, we have the Clean Air QS5, which is part of our clean space product category. Developed as part of the projects we've done successfully with the space industry over the past two years, we can, through this launch, make this technology available to a much broader industrial base. On the secondary filtration side, we have four new additions to the range. Starting with the smallest, our FS30 Industrial, which fills the gap in the industry where our workhorse, the FS70, is a bit too large. So smaller areas within the production site or production hall, where there is a need of powerful air filtration. We also launched a new and improved FS70 food grade with improved hygienic design, acid-proof stainless steel for the toughest environments within the food and beverage sector, and with a range of unique accessories specifically developed for the needs in this sector. We also launched for indoor smoking room environment the new FS70 SRE, Smoking Room Edition, which serves as both a powerful engine of the previous mentioned Clean Air SL12, but as well is offered on a standalone basis, able to improve all indoor smoking room environments that are out there in the world. And finally, we launched the FS70 Oil Mist, addressing a whole new area at both existing and new customers, where there is a very evident demand to protect people and processes from oil mist. But more on that product later. All of these products are the result of our Clean Air Wheel and those annual detailed workshops that we do with our sales teams Our focus is to address more critical must-have application areas of our existing and future customers. And to exemplify what I mean by addressing more critical must-have application areas, I want to talk a little bit about Oilmist and the recently launched FS70 Oilmist. In our first workshops with our country's sales and service teams back in 2023, Oil mist was highlighted as a key problem area of our customers across all countries in Europe, as well as Japan. Our product teams took on the challenge and started explorations. We conducted multiple tests over an eight to 10 month period in the toughest environments we could find, evaluating both known and new technologies. And now, Less than a year and a half later, we have a solution to bring to the market. The addressable market for oil mist is huge. All metalworking industries, plastic and rubber manufacturers, chemical and petrochemical, pulp and paper, and of course, further down the line, as we expand to the handling of animal and vegetable oils, the very large food processing industry. Sorry. All these industries have issues relating to those tiny droplets of oil in the air. The pain points of the customers are very apparent. Employee health, workplace health and safety, maintenance costs, operational efficiency, and more importantly, the solutions that are out there today, primary solutions, clearly cannot cope with the problem. And I can tell you, when we had completed the tests, I can tell you that there was no way to remove the solution from the test site. Neither the workers nor management would allow it. So long story short, we now launched the FS70 oil mist, the first real viable secondary filtration complement to existing primary point suction solutions. The FS70 oil mist features a patent-pending metal mesh filter that effectively separates oil mist and particles from the air in these environments. The first versions are targeting the metalworking industry, but we are, of course, as part of our three further exploration projects, looking deep into how to best arrive at the version that targets the large food processing industry. And I can tell you, we already have orders on this product, both from Austria, Germany, and Sweden, and we've just started talking about it. So to sum it up, to sum up the points, we start with EMEA. We'll continue our focus on sales efficiency, focuses on Germany, Sweden, and France, and of course, the successful introduction of our six new products just launched. We already today actually have orders on all of the six new products in the region. And as I've said before, we've just started talking about them. For APAC, we'll just keep up that momentum and of course, push five of the six new product launch that are certified for their market. With the US, we work to expand the distribution strategy to increase our reach and cast a larger net to capture the regulatory demand. And overall, we keep turning those stones to operationally improve and keep costs under control. And in the background of all this, we'll keep our explorations for the next must-have solutions. And to sum it up before I hand over to Henrik and the financials, we deliver great value to our clients. We operate across three regions and our three top geographies, Japan, Germany, and the US, all rank in the top global economies of the world. We have three product categories. We have very low customer dependency, serving over 3,500 customers around the world. Our regional supply chains have provided us protection against logistics disturbances in the world and allow us to respond quickly to market needs. We have a strong base of recurring revenues, over 300 million, on a rolling 12-month basis as we close the third quarter. And to add maybe the most important, we're a team on a journey. We have a structured and systematic approach. And as we keep our focus on the right things, we're convinced it will yield financial results in the long term. So with that, I hand it over to Henrik to take you through the financial update.

Thanks, Sebastian. Moving into a financial summary. We are present in three geographies with three different product categories. In Clean Air Group, both EMEA and APEC are strong contributors to sales, representing approximately 90% of total sales. EMEA accounts for approximately 45% of Clean Air Group revenues. There is a solid performance in the third quarter, even though Germany is not reaching our targets. Other European markets are contributing to a higher extent. APEC accounted for approximately 46% of the total revenues. There is a clear demand for our solutions, and we are gaining more and more traction with air cleaners through focused work on chosen customer segments. Americas represent 9% of total revenues. We are hurt by the postponed delayed Corexa contract in the quarter, and we continue to experience longer sales cycles. Slow net sales. We had a negative growth of 6% currency adjusted in the third quarter, reached a sales of 113 million SEK versus 124 million SEK a year ago. The recurring revenue accounts for 64% of total revenues and amounts to 73 million SEK. It's a relatively stable quarter. The gross margin was 62%, down from 67%. The operating profit was 11 million SEK adjusted in the third quarter versus 17 million SEK one year ago. In the third quarter, we reached an operating margin of 10% adjusted. That's a sequential improvement versus second quarter 2024 of 1%. Stable rental revenues. This slide illustrates the relation between the book values of units in Clean Air Balance Sheet and the revenue stemming from such units, including service, the recurring revenues. The recurring revenues of 301 million SEK on a rolling 12-month 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, 50 million SEK, compared to the recurring revenues, and this is a contributor to our long-term margins. To break these recurring revenues down per unit on an average, the revenue is approximately 64,000 SEK with a book value of 11,000 SEK. We experience a high profitability on renting out the units over time. Revenue split and installed base. In the third quarter, we saw a decline in the installed base. School orders of air cleaners in Germany were not prolonged, resulting in fewer installed units. However, going forward, we see a growth in air cleaners in both EMEA and APAC. We have three different revenue streams. The mix of recurring revenues, sale to finance companies, and product sale to end customers. The main drop is product sale in America, down by approximately 8 million SEC in the quarter. The nature of our business is that we have recurring revenues as a foundation of the total revenues. On top, we have product sales, and that is customers that do not want to have a rental setup. We offer them to buy the units, and that is to a large part in the U.S. And we are also having revenue stemming from sale to finance companies. That is long-term rental contracts that are sold to finance companies. And that is primarily in Japan. Balance sheet and cash flow. The cash flow was weak due to the decline in operating profit and changing in working capital couldn't compensate in this quarter. We continue to amortize according to plan every quarter, and the net debt equity ratio is 0.8. In the quarter, we have a waiver on one covenant from Swedbank. The reason for the need for the waiver is the one-off costs for clean room in the Nordics and the inventory write-downs, in total 7 million SEK. Excluding the one-off costs, we have managed the original covenant. handing over to Sebastian for a summary.

Thanks, Henrik. 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. Looking at the amount of clean air that is delivered through our solutions, we estimate that we clean 7.2 billion cubic meters of indoor air by end of Q3. And that matters because air pollution is a key challenge for human health. People die prematurely from exposure to polluted air. We spend an important part of our lives in indoor air environments. And indoor air can often be more polluted than outdoor air. And before opening up for the Q&A, I want to reiterate, a number of measures have been initiated that we expect to yield results. We stick to our plan with a very systematic approach to both operational and strategic development. We have our three clear priorities, customer focus, sales efficiency, and cost control. And we continue our focused product development that just brought a record amount of new products, six new products to the market, and there are more to follow. With that, I would like to open for questions. Please.