QleanAir AB (publ)

Thank you. Welcome to the Clean Air investor presentation for Q1 2025. My name is Sebastian Lindström. I'm the CEO of Clean Air and joining me in today's call is Fredrik Sandelin, new CFO at Clean Air from 1st of April. Please Fredrik, a few words to introduce yourself.

Thank you, Sebastian. My background, if I take the short version, is that I have for 20 plus years been either the CFO or the CEO of predominantly listed companies. For example, I've been finance director for Autos, I've been CFO for Scanica Hotels, IBS and the Nero. And now I'm glad to be here and look forward to meeting you all.

So I'm very excited to have Fredrik on board. I expect that given Fredrik's background, that we'll be able to accelerate our journey and faster improve our company. Fredrik and I will go through the presentation and then open up for Q&A towards the end. So let's jump straight into the numbers. So given the market conditions, especially in EMEA, we delivered a stable report. Revenue was slightly weaker than last year, but stable gross margins. We delivered 116 million in sales, which was 2.5% behind last year. Currency adjusted 3.2% behind last year. So there was a slight tailwind in currency for the first time in many quarters. The main reason for the decline was lower sales in EMEA, which affected the top line with negative 7 million in the quarter, but was partly compensated for by stronger performance in APEC in Americas. Our recurring revenues remain stable at 70 million amounting to 294 million on a rolling 12 months basis by the end of March. The decline in the rolling 12 months is mainly attributable to the cancellation of school orders that we reported on in Q2 last year. Our gross margin was stable, thanks to the base of renewals to finance companies in Japan coming back to pre-2024 levels, and the fact that we are now getting the benefit of improved COGS and installation costs in the US. EBIT marked a strong improvement over last year, but still off our long-term targets. We achieved an EBIT of 8.4 million versus 11.6 last year. The shortfall versus last year was due to lower revenues and higher costs related to legal expenses on the cleanroom side. Cash flow was better than last year. We've been able to reduce our inventory levels, our outstanding accounts receivable in a good manner. These two measures have been added as focus areas for the regions for 2025, but more on cash flow under Fredrik's section. Summoning up the quarter, we still have work to do. We'll keep our focus on our three objectives towards the long-term profitable growth. Given the uncertainty out there in the market, the board has proposed no dividend for 2024. Before moving on to the regional performance, I'd like to again highlight that our base for renewals have come back in Japan to more normal levels. These renewals to finance companies follow a typically three year cyclical pattern, as I've described in earlier calls. So to understand how this affects the present, You must go back three years and look at the sales to finance companies at that time. So if we look at the low point in Q1 2021 of 20 million, it moved up to 27 in Q1 of 2022. See the circle to the left. And this allows us to renew more contracts in Q1 2025 versus Q4 2024, as you see on the circle to the right. We do not get the full benefit as the Japanese yen has lost value towards the Swedish krona of about 13% in this three-year period. But if you look at this slide and in our report, you can easily understand how this works. So now back to looking at the performance from a regional perspective. Now let's start off with EMEA. EMEA represents about 45% of our revenues. We have an installed base of over 6400 units to over 1800 customers. Our business model is to sell our products on rental contracts, rental contracts sold to finance company and normal product sales. We cover the market both with the direct sales approach, complemented with market partners for certain markets. We operate a regional supply chain, so we do not have to consider the trade barriers between Europe, China and the US. For Europe, the year started very weak. For Q1, EMEA accounted for 42% of total sales. We see longer sales cycles in Germany. We have, however, seen a pickup in the order intake towards the end of the quarter versus last year. We as well, despite the tougher market condition, have been able to improve our gross margin in the EMEA region in the quarter. Given the market conditions, we're increasing our sales and marketing efforts in the region currently. And in Europe, I want to highlight our focus in France, a market that we aim to build up as the third pillar for us in EMEA, next to Germany and the Nordics. On the left side of the slide, I added a customer case from the French team with Snadec. Snadec is a leading subcontractor of the French naval defense. They dismantle and they depollute old ships. We help them in ensuring health and safety in this process. We do not only filtrate particles, but we also provide the solution for environmental surveillance of the site with sensors, et cetera, to ensure worker safety. Surveillance of the environment is an area where we intend to increase our presence in the coming years. We call it MAS, measurement as a service. Second up is APAC, and Japan in particular, Japan represents 45% of the group turnover. We have an installed base of over 3,500 units with over 1,500 customers. In Japan, we mainly offer our product as a service, and we also very often sell those contracts to finance companies. We operate the direct sales force with a limited amount of market partner as a complement. We get our products from within the region and are not dependent on deliveries from the other regions, US or Europe. In Japan, we've been very successful in the search engine optimization and search engine marketing, an expertise that we're now bringing into EMEA in a project led by the Japanese team. Q1 marked a comeback of base of renewals to finance companies. We've passed the low point in Q4 2024. Apart from the improved base of renewals, we're also currently experiencing a stronger than normal demand on the cabin side. Air cleaners continue according to plan in Japan, but due to very strong rollouts, in particular in the first quarter of 2024, the COMS leads to actually a drop in air cleaners in the quarter. On the right-hand side of the slide, you see a case representing our extension of strategy in Japan to target small and medium business owners with secondary smoke prevention solutions. In the case of Relax24, they're an internet cafe with limited floor space, and where we are able to support them with a solution of our one-person cabin, the SF1000X, measuring one meter in depth and a width of 85 centimeters. A unique solution we developed together with our Japanese team in 24 that is built to target this particular market. Over to the Americas. America's account for about 10% of our revenues. The focus in the US is fully on clean rooms, and it is different from the other region when it comes to business model. It is mainly a product sale. We do have some rental contracts, but given the nature of a clean room, the clients are less likely to buy it as a service other than for pure financing reasons. Our clean space product is a very solid product. We have frame agreements and multiple installations at a number of top IDNs. In total, we've delivered more than 100 clean rooms in the US. We have a recurring component as we sign service agreements on the room. This recurring annual revenue is over 4 million Swedish kronor per year. We showed greatly improved margins in the US in Q1, thanks to cost initiatives on COGS launched at the end of 2023 and improvements in our installation cost and efficiency. We're working on expanding our reach through partnerships with other companies calling in on the same customer segments. A great example of our business in the US is the business we have with UNC Health. We started working with the University of North Carolina back in 2015 and have since delivered eight clean rooms to their hospitals, totaling over 3,800 square feet. So we move on to our focus. 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. Starting off with cost control, we did during Q1 some additional reductions at the central organization. We have launched value engineering projects within both cabin solution and air cleaners, including product line simplifications, especially within cabin solutions. And we finally take advantage of the cost down projects launched in the US end of 2023. We would have seen this benefit already two quarters ago as less profitable older projects would have flushed out from our contract mix. But given the absence, of the large room to Curexa, we had too low revenues to prove it in Q3 and Q4, and instead see the effects now in Q1. Moving over to sales efficiency, we've simplified the setup for sales in Europe, removed the layer of management, and now have four regions in EMEA reporting directly to me. We have consolidated France, Belgium, and the Netherlands, into one region a region we're aiming to build as the third pillar in europe on the side of germany and nordics the german market has been challenging and we are strengthening the technical team to further support the sales team overall there is a strong focus of course on the six new products launched back in 2024 as well as the recently introduced fs60 And I'm happy to report that these new products, already in the first quarter of shipping, make up 6% of our air cleaner volume in Q1. When it comes to customer focus, we completed our third run of annual workshops with our teams across Europe and APAC. Given our strategic decision to leave out the cleanroom side for these two regions, we've been able to go deeper in our exploration for industrial solutions for these markets. We just announced the launch of the new FS60. This lightweight ceiling or wall mounted air cleaner is specifically designed to enhance indoor air quality in industrial logistic facilities where the floor space is limited. The FS60 closes an important gap in our air cleaner lineup. In the background, we continue further explorations to continue to address more critical application areas within the industry and hope to have new solutions to unveil in the fall of 2025. To sum it up, we stick to our plan of developing our company both operationally and strategically As we keep doing the right things, following a very structured approach, we're convinced the financial results will follow. With that, I hand over to Fredrik and the financial section.

Thank you, Sebastian. We have operations spread over the world in three major areas, EMEA, APEC and DOS. We have a large number of customers and customer base is well spread geographically. EMEA accounts for 42% of total sales and there we have all our three product categories. Focus today is on cabin solutions and air cleaners. APEC stands for 44% of total sales and their focus is also on cabin solutions and air cleaners. The US accounts for the remaining 14% of total sales, and there we are focused on clean rooms. And as you can see, APEC has this quarter become our largest region. APEC and EMEA together are our largest regions, and together they stand for 86% of total sales. All in all, we have a good balance between the three regions. EMEA is facing a weaker economic environment with longer sales cycles. Revenues are down with 12% compared to first quarter in 2024. Despite that, we are satisfied that gross margin is improving. Regarding the financial model, we have a combination of all our three possible options. Rental contracts, sales to finance companies and product sales. APEC, on the other hand, is facing a stable demand and a continued high margin. Sales are up slightly. And in this quarter, we've had a positive currency effect from the Japanese yen compared to a negative effect during last year. The yen is also balancing the effects of the US dollar and the euro for us. The financial model is sales of rental contracts to finance companies and renewals to finance companies are now back to normal levels. We also see a continued strong demand for Cadillac solutions. The US is showing a strong quarter with sales up 24%, improved gross margin and a good order backlog. The financial model is project delivery with service and maintenance contracts. We have continued to work on partnerships and several good dialogues are underway. If we start with having a look at sales to the left, we see that this quarter is slightly down compared to the same quarter last year, but better than our last two quarters. Recurring revenue decreased in the first quarter of 25 compared to the same quarter in 24. The decrease is mainly attributable to the withdrawal of units at German schools that started in the second quarter last year. Profitability wise, we see that gross profit and gross margin are stable. We are back at the same level for gross margin as in the first quarter of 24 and higher than our last three quarters. Adjusted EBIT is almost back to previous levels after two bad quarters during 2024. The black bars are the recurring revenues, relatively stable over time, with the reduction mainly due to the German scopes that we mentioned before. The blue bars show the book value of the units that generate these revenues. This shows that we have an asset-like business model with low capex. 45 millions in book value generates around 300 millions in yearly revenues. this slide we see the split between on the left hand side recurring revenue sales to finance companies and product sales and to the right the corresponding split for units that we hold on our balance sheet contracts sold to finance companies and silver units the installed base is stable over time and the revenue split is primarily affected by the decline for recurring revenue that we already talked about The financial position is stable. Equity ratio and net debt in relation to equity is in line with first quarter last year. Cash flow is among other things impacted, but we've had reduced inventory and accounts receivable, both compared to last quarter and the first quarter in 2024. We have changed bank during this quarter. We continue to amortize on our loans. quarter by quarter, also with our new bank. We have received a waiver for the first quarter from the bank. And in light of the economic uncertainty in the prevailing market, the board has decided to propose no dividend to the AGM. And with that, I hand it back over to you, Sebastian.

So thank you, Fredrik. And to close off the session in front of the Q&A, what we do at Clean Air is 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 the 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 cleaned 8 billion cubic meters of indoor air by end of Q1. And it does matter, as 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 in indoor environments. And indoor air can often be more polluted than outdoor air. And let me 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 top priorities, customer focus, sales efficiency, and cost control. We continue our focused product development that just brought seven new products to the market. With that, I'd like to open up for questions.

If you wish to ask a question, please dial pound key five on your telephone keypad to enter the queue. If you wish to withdraw your question, please dial pound key six on your telephone keypad. The next question comes from Anders Roslin from Pareto Securities. Please go ahead.

Yes, good morning, and I just want to say I missed part of your first presentation, so I may ask some questions you've already commented about. But nevertheless, I would like to start off with the cabin solutions recovery here. How should we look upon this Japanese recovery? Is it a new level that you reach now that you expect to maintain or do you continue to see a sequential improvement here?

So we don't make forward-looking statements right Anders, but I think I've given hints by looking back at the numbers right from how they went from 20 million to 27 million in Q in Q4 2021 to 27 in Q1 2022. And by looking there, you can sort of see what kind of renewal base that we will be facing in the coming, right? It was really a low point and we were open with that in 2024. And the low point of the low year was really in Q4.

And how is the cabin solution development in Europe proceeding?

Yeah, so I think in Europe we are, you know, when you look at cabins, and I touched a little bit that on the strategy in the Q4 report, in cabins we have a pretty broad market approach and i think what with the focus in europe is to to really take advantage of the where we see market opportunities in one market we try to develop that in further markets in europe and and it's a stable business in europe But of course, Germany is affected by the economic situation, so to say.

So you also see a little bit of a tougher demand in Germany due to the overall softer situation.

Yes.

Okay.

uh you have been a little bit more aggressive on the french market is something that is you see any effects of that yeah so i i think it we really started that push in last year where we added on two more sales people and we have now in the beginning of this year added another sales person and we finished the year in growth in both cabins and air cleaners in the french market the q1 was not really in growth but that's more due to that we had a very strong rollout in q1 2024 and i mean we are sort of backing the french expansion with also with our central resources so we're putting a lot of focus in that market and we really see a lot of similarities from this industry point of view with germany which already is our largest market in europe so We're very positive on that.

And then going over to air cleaners. You have launched a new product program last year and you say that 6% of sales comprises these new products. Are there any sort of COVID related sales left now in the air cleaner or could we have this 21 billion as a starting point for a more better growth scenario sequentially now?

So there are a few school orders still out there on the recurring revenue side. I think it's limited to 100 units. Those units will expire their contracts towards the end of this year. But when you look at our development in air cleaners, we're really going for more and more critical applications and specifically towards the industry. And we believe that that will really help us in this tougher economic environment. And I think that's why we see, even in a tough economic environment in EMEA, that we're really reaching out with these new products. They were all targeted at very, you know, oil mist, the industrial FS30, you know, really addressing critical areas of the industry.

And you've had a very strong development in Japan for air cleanings from low level, of course. But how do you... But there you had a little bit of weakness in the first quarter.

I think there... Relative... Sorry.

Yeah. No, just how is the... So we are... The Japanese development proceeding.

Yeah, so it's absolutely according to plan. Now, last year in Q1, we had a very strong rollout of six-year contracts on the air cleaner side within the food sector. And that's what's sort of masking the according to plan development in Japan. we are moving gradually more and more people from the cabin solution sales side over to the air cleaner side. So I'm very happy with the performance of the Japanese team when it comes to air cleaners.

So this was more of a tough year-on-year development than sort of any change in the marketplace?

Absolutely.

When you say you're moving salespeople from cabin solutions to air cleaners, that is definitely positive, but does it also mean that you have a relatively stable business in the cabin solutions area?

Absolutely stable. You weren't on the call in the beginning when I alluded to it. We actually see a pickup in the new sales on cabins in the beginning of this year. So those are actually quite positive. But of course, in the long term, we want to grow even more on the air cleaner side.

Excellent. And the product you announced, another new product in the air cleaner segment here, is that the new programs you launched last year and now this new product this year. Are there other products in the pipeline or are you sort of ready now?

No, I think we're following a very structured approach. We have these annual workshops with our teams in the beginning of every year where our product managers run workshops and understand where we see gaps in our lineup. So you can expect us to continue this journey of developing products. And the FS60 really closes a gap for us on the on the wall or wall mounted or ceiling mounted side. We used to have only the FS90 towards that segment. Now we have sort of two levels of products into that. And we think that's going to be a really good add on when we look at also the current situation in the market. It fits quite well into the current market situation.

Okay, and now to the final clean rooms. You had, at least according to my estimate, a very strong sales outcome of $16 million here, and given that you had an order book of 35 at the end of last year, how will the year proceed? Have you given any indication of I mean, you got one large order, 14 million, now in the first quarter, but that was related to sales at the end of this year and the beginning of, how is it, what is your

projection could you maintain the 16 million or is it the one-time effect here or or how should we look upon the no we with cleanroom business we did about one and a half million dollars in the first quarter and we have uh already signed the contracted backlog to be delivered in the current year of 2.7 million dollars so so for the 2.7 million dollars okay So for the first three quarters, we have a very good level of activity and we have within our field of vision a number of projects that we strongly believe that we'll be able to close both close within the year and start to deliver to have a quarter four in the same range. excellent important thing for us in the us is that we see gross margins coming back right we would have wanted to see that the second half of last year but because of the absence of the cures project of you know close to 30 million we really didn't have the revenue to prove it then so i think that's a big step change for us

When you talk about the growth margins now, is it overall or is it specifically the cleanroom business?

No, as I alluded also to EMEA, we've increased our margins in EMEA, and I think that's a very strong sign of clean air through a market which a lot of companies find difficult, especially in Europe, that we protect our margins through this.

You mentioned in the report a couple of, call it extraordinary events, legal costs for the Corexa dealer, I assume, and then also some additional costs for inventories. How should we see upon those? continuing or are they more of a one-time character?

No, I think when you look at the inventory sort of ongoing depreciation, that's a new policy that we have taken on, which I think is a very balanced policy that we should maintain going forward. The legal aspects of specifically the Curexa case, well, that will be during this litigation, so to say.

But that will continue until you have got some final, I guess lawyers in the U.S. cost some money. So that part will remain. But have you any idea how long these legal proceedings will continue?

uh so so we think that we will know more really by end of q2 of course in when you file a complaint like we've done you have first a couple of months where you know you look at the the venue and and and things like that so but my expectation is that we'll have a be able to report back that on that rather towards uh the end of q2

And the inventory issue, I guess, is it related to the school-related air cleaners?

No, it's a general policy that we've taken on. We did a bit of a deep dive on the balance sheet in Q3, and we made some write-downs in the Q3 report. And from that, we've sort of derived a new policy on having a more conservative or balanced, I would say, approach to inventory.

If we look overall for last year, you had some cost issues, and those were related to change of service supplier in Germany, mainly in the cabin solutions, and you also had some cost issues in the U.S. cleanroom business. How are you proceeding in those two areas?

So I think if I start on the second one, on the clean room side in the US, we made an adjustment to the team at, I think, end of Q2 last year. And the cost issues that we had were really dating back and addressed in end of 2023. But as these contracts, you win these contracts, sometimes you don't deliver the contracts until a year later. Therefore, it took us some time to flush out the old contracts that were less profitable and with material that was more costly to flush that out of our mix of contracts. And now we're through that. So we have none of those. So therefore, the cost adjustment was done in 23. It just took quite a while to see it. We saw it on the installation side much quicker, but on the cog side, it took a while to flush out all projects. On the service side, that was specifically to Germany, and we had about 3 million of additional cost in 24 relating to our issues on service in Germany. In the end of 2024, we made that switch to a new partner. And really, the transition phase has been during Q1. It's not been without trouble, but I think we have a very focused team in Germany working on it. I don't expect the same situation as last year.

Okay, so it looks like most of the margin-related issues could be improved here going forward. So finally, I just had a question on the cash flow, the $2 million here. Is that part of that you are building up working capital ahead of deliveries here in the cleanroom business, or is it something we should, what could we expect in the cash flow?

So overall, the cash flow varies quite a lot between quarters and for the reasons that you mentioned. But I think the most important for us is that we are, during 2025, with our new board, we have really put the focus on the working capital. So in my follow up with each region, we go through the accounts receivables, we're adding on the inventories that we have across the service depots in Europe. So I expect us to be able to continue to deliver improved cash flow.

Excellent. No, I think those were the questions from my side. And very positive to see that you are having a sequential improvement here in place.

Thanks Anders.

As a reminder, if you wish to ask a question, please dial pound key 5 on your telephone keypad.

Okay, there seems to be no further questions on the system. So if there are no further questions, I'd like to reiterate Our communicated financial targets remain, delivering 7 to 13% organic growth annually and building up our EBIT margin into the range of 15 to 20 in the medium term. Taking our company to new levels is a journey. we have very structured and systematic approach in this that we stick to and we're convinced that this is the right way and that it will yield financial results and allow us to meet our communicated financial objectives in the mid to long term thank you for your participation and interest in clean air and i wish you a great continuation of the day thank you thank you