Systemair AB (publ)

Thank you very much, Anders Hulb, CFO here at Systemer. Me and Roland are sitting today in Skinskatteberg, where we have a lovely summer day. And it's also the day of our annual general meeting that will start here at three o'clock. And of course, extra fun also to present what we believe is a strong report. You will find the presentation that we will run through on our investor relation page. And if you have some problems there, please press on the press release of the report, and you will find the presentation there. I will hand over now to Roland to do the presentation.

Thank you very much, Anders. My name is Roland Caster, I'm the CEO, and I have the pleasure to present our report to you. But without further ado, I'll just switch to what we have on our slide, slide number two, which is an introduction to Systemair. Systemair established here in Skinskatteberg in Sweden in 1974, Our last year's net turnover amounted to roughly 1 billion euros. And we're listed on the NASDAQ Nordic Stock Exchange market since October 2007. Today, System Air is a group. We run our own SINF companies in 51 countries. We have 26 factories in 18 countries and have around about 6,600 employees. And with that set up, we export today and serve 135 countries all over the world. Directly switching over to our slide number three, which brings us directly to the report and our net sales in quarter one. The net sales in quarter one amounted to 3.175 billion Swedish kronor, compared to 2.8 billion Swedish kronor in the first quarter of the year 2022-2023. This amounts then to a growth of 11.4%, which is organic 10.7%. On the slide presentation, you see the organic growth development. The dip in the middle is the only explanation for that, the pandemic circumstances, and the recovery afterwards of that. But let's go into slide number four and look into the growth analysis on the growth that we had. Organic, all the regions actually showed good organic growth, just except our Nordic region. The main contributor after the organic growth of 10.7%, here is of course to be mentioned the acquisitions, which firstly contributed negatively, which is the impact of the divestment of our AC businesses, which is then an amount of 3.5%. Then we had a positive impact of 4.2% by currencies, just because of this weaker Swedish prone towards both Euro, US dollar and Canadian dollar. So in total, then, a growth of 11.4%. Switching to slide number five. Looking into the operating profit, as a result, the gross margin was unchanged at 34.6%, the same as the quarter last year. The sales and admin expenses for the quarter increased by 16.7%, and the operating profit finally for the first quarter amounted to 334.9 million Swedish kronors, compared to 269.6 the year before. That means that the operating margin increased to 10.5% compared to 9.5% the year before. Switching then directly to page number six, ladies and gentlemen. The profit after tax. The net financial items for the first quarter amounted to 18 million Swedish kronors. The current effects on the long-term receivables, loans and bank balances amounted to a net of 2.7 million. Sorry for that. The interest expense for the quarter amounts to negative 20.9 million Swedish kronors. On the right side in the staples, you can then see the result of being then the profit after tax, which amounts to 242 million Swedish kronors compared to 217, the same period the year before. Switching to slide number seven, the cash flow analysis for the first quarter. Cash flow from the operating activities in the reported quarter amounted to 388.5 million Swedish kronors, This compared to 309 million the year before. And then the change in the working capital here is 81.8 million Swedish kronors. Last year, we had a change in working capital of 373.8 million. Here, the working capital increase last year was quite sharp as a result of increased inventory and accounts receivable. That is a trend that we have been working with and reversed during this year. The net investments in this quarter this year, excluding exit decisions, is 129.3 million Swedish kronor. And here the net investments primarily are about the finalization of a production movement in Czech, and also investments in our setup in Canada. This all amounts to free cash flow in the period of 177.4 million Swedish kronor, compared to negative cash flow, 152.5 million Swedish kronor in the year before. And here to be mentioned also, of course, as an effect about the results we have lowered our net debts to 1.4 billion Swedish kronor compared to 2.6 billion Swedish kronor as a result of the divestment of the AC and of bringing down and taking control of inventories and such like. This, of course, brings us a strength in looking forward to organic investments for our future growth of the company. Switching over to slide number eight. And here you see a split in the supply chart of our development in different markets. Eastern Europe here stable with a share of 13% of our total set up. North America with an increase from 12% to 13% of our total share. Other markets grew from 12% to 14% in the period. And Western Europe is really stable at 46% of the total share. And the Nordic region, a slight decline to 14% of the total. By that, going into some words about the different markets and how they have performed, and switching to slide number nine. Starting with the Nordic regions, the sales in the Nordic region decreased during the first quarter by 8.9%, and here adjusted for currency effects, acquisitions such like, the sales decreased by 9.3%. But the Danish market showed a very positive development during the quarter, while the turnover in the Swedish, Finnish, and the Norwegian market slightly decreased. Next region on slide number 10, Western Europe. Here the sales development continued to be really strong during the quarter with an increase of 12.4% compared to the corresponding period last year. And here also adjusted for currency effects and acquisitions, the sales increased by 9.5%. As all West Europe had a really good development, I do want to mention in particular the Belgium, UK and France showed good growth in the quarter. So the development is such in Western Europe, stable and really positive. Next slide, slide number 11. As a result of the positive development we had had, for example, in Germany, we also two weeks ago could celebrate the groundbreaking for new production hall in Germany. So this new building where the expansion will be in total area of around about 4,000 square meters will represent a significant expansion of our production, but also our logistics capacity in our center in Germany. And for this celebration, of course, all employees and also certain guests participated in this event. Next slide, slide number 12. Going into Eastern Europe and the CS countries. Sales in Eastern Europe and the CS countries increased in the quarter by 7.1%. Also here, adjusted by currency effects and acquisitions, sales increased by 2.6%. Most markets actually within the region showed really good growths, here especially to be mentioned Czech, Poland and Slovenia. The growth excluding Russia would have amounted to 14.1%. On to the next slide, slide number 13, North America. In North America, sales increased by 26.6% during the quarter, and adjusted for currency effects, sales increased by 23.1%. And here, both American, Canadian, and the Mexican markets showed really good growth in the quarter. Slide number 14. to call the other markets or to be really precise middle east asia australia and africa sales in this region middle east asia australia australia and africa increased by 26.7 percent adjusted here for currency effects and acquisitions the sales increased to 40 percent and is today the second largest region within system app and here i have to mention especially the colleagues in turkey india morocco and malaysia which had a really good growth in the period Switching to next slide number 15 as a follow-up of the really good development in India, I need to mention a really nice prestigious order that has been delivered by our colleagues in India. And this is to bring really good ventilation solutions to India's new parliament building. This is a really iconic building where we had the possibility to deliver extensive and specialized product range for the best possible air distribution products to ensure a really optimum and reliable air quality in these really nice buildings. Next slide, slide number 16. Also to mention that throughout 2022-2023, and also into this that we're reporting, we have been supplying products to several e-mobility suppliers in Europe. In total, a little bit more than 250 large air-hang units with and without heat recovery have been delivered throughout Europe for American European car manufacturers. This to a total amount in excess of 140 million Swedish kronor in value. E-mobility production, of course, increases every year, and those leading manufacturers continue to invest in these factors. The great need for ventilation, which is highly adapted to the manufacturing processes. This is a really nice area of growth for System A. And by that, ladies and gentlemen, I switch over to the last slide. I say thank you for listening and open the lines for questions. Thank you very much.

We will now begin the question-and-answer session. Anyone who wishes to ask a question may press star and 1 on the touch-tone telephone. You will hear a tone to confirm that you have entered the queue. If you wish to remove yourself from the question queue, you may press star and 2. Participants are requested to use only handsets while asking a question. Anyone who has a question may press star and 1 at this time. Our first question comes from the line of Carl Ragnastam, Nordea. Please go ahead.

Hello, it's Carl here from Rodea. A couple of questions. Firstly, I wonder if you could give any flavor on the order intake development during the quarter. I guess it's relevant maybe to give some flavor on both the pace in volume as well as pricing terms. And also finally on orders, if you could could give favor on the development a little bit per region, obviously state that what happened during the quarter, but would be interesting to hear about the sort of order dynamic.

Yeah. Thank you, Carl. If we start to do the development of the region, as you can see in the presentation, we of course have throughout all regions, except Scandinavia, really, really good development. And I think that is a little bit what we have and see in front of us. When you talk about the order intake, which is something that we normally do not report, of course, there is a mention in the report that the order intake.

Book to build, Anna. Order intake is above the invoicing for the month. Thank you. Sorry.

No, no. Thank you. I hope this answers your question here, Karl.

Yes, and what would you say is the organic sort of growth in the order intake during the quarter if you exclude sort of pricing as well?

If you compare this quarter with the last year. Yes, exactly. I mean, last year we had over the whole year, as you know, we made five different price adjustments. This year so far, two and one is coming. So it's not that It's not as much as it was last year, but I would here at least estimate that of the organic growth, around about 50% at least would be the pricing part.

Okay, very clear. Quarterly development is, I think, 4% down. So it's a small... Sorry, what is 4% down? Sorry. You compared order intake in the quarter compared to order intake the year before. It's 4% down.

Including prices, right?

Including everything, yeah.

Okay, very good. And also, a little bit on the Nordics. You said that that it's partly due to weakening market. Would you say that we, in the quarter, see the full effect of sort of, I mean, the soft new construction rest in market, especially in Norway, I guess, or will it accelerate due to lagging completions in any way, or how should we see that development, you think?

You're totally right. Where we see a little bit of lag on the new-built residential is only in Norway and Sweden these days. which is only a really small part of our total turnover. To say it is over, very hard to say. If you look at those countries where we really rely on predictability, it would normally be Norway, which say that the turn is there. But it's hard for me to estimate. I mean, we have very short visibility here because it's a pure distribution business. But the predictions coming from the Norwegian markets are that it will turn out. but it's not knowledge.

Okay, that is good. And some of the companies or several of the companies in sort of the HVAC industry is complaining a little bit about the inventory levels at the distributors, that they are lowering the inventory levels. I know that you're not working to a massive extent with distributors, but I guess to some extent in part in North America, Could you say what is happening there from a distribution point of view and where are the inventory levels currently?

Yeah, we have also heard that several of our competitors are claiming that the distributors are bleeding through their inventories. We don't see that as a big impact for us. We see that in some areas, maybe North America, but as we, of course, not only in the distribution business in North America, where this is applicable for us, We also did direct sales for direct project for schools and light commercial, which is a little bit different situation, of course. So yes, we see it and we have heard it, but we're not that impacted about that.

Okay, so a fairly limited extent, you would say? Yeah, correct. Okay, that is very good. And also, one finally, I think you took a little bit of a write-down in Menorca in the quarter. Is it due to the production move or is it anything else we should...

note about the development there no nothing nothing related to germany this is for the for the polish uh sales company sales entities so it doesn't relate to the journal production okay very good thank you thank you the next question comes from the line of adair with jeffries please go ahead yes hello thanks for taking my questions um a couple from me

Going back to the Nordics, the development in the Nordics, if you could just give us some more flavor into what is the dynamics there? What kind of different market exposure do you have in Denmark versus other countries that's driving good performance in Denmark, but weaker sales in Norway and Sweden specifically?

Yes, thank you for the question. It's quite easy. It is a different product mix that we have on the different markets. Just as a background, I mean, we have among the widest portfolio of products that we offer to the different markets, but only I think in three markets today we offer everything. So we have a different setup of products depending on the market needs. So Norway, we are as like as in Sweden, but even more in Norway, we are deeply into the residential ventilation. of course new build but also in the renovation part and in Denmark we are I would say to the majority at all we are in air hanging units for commercial light commercial industrial buildings and that part is as in the rest of Europe strong and is developing especially in Denmark very well so that's the biggest difference that makes total sense thank you for that and then

A similar question about Western Europe. What is the driving factor behind the good performance there? Is it more regulatory driven or other reasons for you being able to deliver strong organic growth there?

I think it's a mix of a little bit of everything. Underlying, of course, is still, even if you can read a lot in the newspapers, that it's still a rather stable market demand, first of all. And I think this switchover, such as they do in Denmark on the commercials, they do in other countries on live commercials, but also on residentials. So we see, just following statistics, for example, the residential market in Germany is still developing positive. So there are a lot of different drivers that, as a total, gives us a rather stable and good and positive underlying market.

All right. And then finally, could you give us some more color on what's been driving the EBIT margin expansion in this quarter and also if this is a sustainable level going forward?

Yeah, I think it's multiple factors really that are driving it. I mean, this is a very long strategic work that we have been done over several years really to work with the improving the margin and, you know, getting over our financial target of 10%. So I think this is just the result of all these actions all together. And of course, good volumes as it is right now. Also, that's a contributing factor as well. But I think if you go back, yeah, if you have a look at our, for example, the last presentation from the capital market say, I mean, we, We did a follow-up on several actions that we have been working with, for example, on the factory footprint and several areas that we are working with in parallel.

Of course, also as mentioned before, the AC divestment has given us the opportunity to focus more on our core businesses on the ventilation side, which in this good product mix that we have been able to develop now also has a better margin at them.

So in that case, we really shouldn't expect a margin reset or margin compression. If it's more efficiency initiatives that's now bearing fruit, then you should be able to maintain this level. Is that your expectation?

That's correct. Absolutely. We are working on this target since long, really, and we have been confident all the way, really, that we were able to reach 10% and beyond that as well.

Great. Thanks for that. That's all from me.

Thank you. Thank you.

The next question comes from the line of Douglas Lindahl with DMV Markets. Please go ahead.

Hello, gentlemen. Congrats. It's a strong report, and thanks for taking my questions. Actually, I have both of my questions on pricing. So first off, I wanted to personally understand the portion of organic or volume volume growth and price growth in the organic side for sales. I appreciate the comment on the order intake, but can you give it for sales in this quarter? And also, you mentioned that you are raising prices or are planning to raise prices. Can you give some comments on the logic behind that and roughly by how much you're planning to raise prices? Thanks.

When I start with the logic behind the price adjustments, we call it price adjustment because it's true price adjustments. We had true price increases earlier this year. The adjustment that we're having now is to adjust to some of the commodity raw materials being downwards corrected. Some of the electronics are in better availability and more competitive prices. But of course, some other commodities are also still increasing due to other influencing factors such as energy and logistics and transport. So it's more adjustment. It's not a 1 over 3 or 5% set, not at all. It's really to right set the pricing in the market.

When it comes to the portion of... Sorry? Fairly neutral on the group level, then, it seems.

If you average it out... As an average, I would say that there is, of course, depending on what product groups we are, but in some product groups, it's a little bit more, and in others, it's an adjustment downwards. I wouldn't say that it's... Okay.

It's just a small price increase at the end.

Okay. All in all. Net-net is positive, yeah. Okay. Absolutely.

Then on the portion of pricing on the organic growth, It's very hard to come to an exact figure, but we calculate around about 50%.

Okay, so same as your rating, basically. And just a clarification, the future price adjustments, are those being incorporated as we speak, or is there a certain date to when this would be through the system?

The next actually is by tomorrow, 1st of September. And then we have an internal process to review three times a year at the minimum. It doesn't mean that we adjust three times, but that we review as a normal process if there shouldn't be anything that stands out even more urgent than that. So it's an ongoing process all the time in the background.

Okay.

Thank you so much. Thank you. Thank you.

The next question comes from the line of Anna Winström with Handelsbanken. Please go ahead.

Hello, gentlemen. Thank you for taking my questions. So firstly, I would maybe like a clarification on the trends that you've seen during the quarter. So if you've seen any shifts between the first month and the last month in the quarter.

You mean from our May to July?

Precisely. On the monthly basis.

Jone Peter Reistadler, Not not really on a sorry, no. Jone Peter Reistadler, I mean overall, as you know, being in Scandinavia, you know what's happening here, but I would say, overall, we still see that the industrial logistics and and hospitals and such like buildings are still in high demand and developing well. Jone Peter Reistadler, So it's a rather stable development.

Okay, great. And going back a bit to Menorca, what are your expectations for the upcoming quarters? What's happening on the construction there?

Yeah, as we have been informing earlier, this is, of course, an ongoing project, which this year will have the biggest turn. So today, the company and the construction project is absolutely following our plans. And we will have the biggest change visible by next year. So we have a plan for the whole year because it's a lot of different projects involved in that, which is also moving up productions and components from and to other production sites within the group. So it's an ongoing project. And I don't know if that's the part of the information that you wanted, but that is what is ongoing in background.

Okay, great. Going back a bit to the cost dynamics, you mentioned a bit on like component side and material side, but how are you experiencing the personnel costs in different parts of your regions?

Yeah, they're quite interesting these days. Of course, the personnel costs are increasing and the expectations are most probably higher than the true increase in many, many countries. That is, of course, something that is affecting also our S&A costs. But so far we have been able to compensate for that with the internal efficiencies.

Yeah, we're still struggling on some sites also to find the right competence also. So a little bit we have to pay in certain places also.

Yeah, okay, great. That makes sense. And my last question is on how you are thinking about CapEx currently, because obviously you have a very solid investment headroom after you've done the divestment. So is that something that's under review and how are you thinking about CapEx currently?

It's really nice to have a lot of, for me as CFO, very nice to have lots of money in the bank in that way and to take the debt down and to have lower interest expenses. But of course, lots of ongoing projects for future growth also ongoing, as Roland informed a little bit about earlier also.

We see that we currently are, of course, in a very positive and strong position. So to really invest in our own future organic growth through investments in efficiencies, in production sites, but also in markets. Of course, we also, as you know, we are, of course, looking into the M&A pipeline. So we think interesting times ahead. And of course, it's a comfortable situation where we are just now looking at the finance side.

Okay, great. That's all my questions. Thank you.

Thank you, Anna. Thank you.

The next question comes from Lennart Henrik Holskog with Red Eye. Please go ahead.

Okay. Yes. Hello. You've covered just about everything now, at least my questions. But I'm interested to hear if there were any or more like large project deliveries, boosting sales, particularly within the group that you call Middle East, Asia, etc.

Yeah, as also given a little bit of information, of course, in the report, we have had several very nice projects in India, first of all. We have some on the industrial side coming from Malaysia for the big industrial fans. But we also had some nice projects in the Middle East area. That's correct. I would say that the biggest portion, relative to the size of our operation, is in India. But also very interested in South Africa as well.

All right, thanks. A follow-up on that, maybe. I remember you said probably two years ago, maybe... Maybe I'm wrong, but a while ago you said that you will focus less on these large projects because the profitability is usually lower. Have you changed this attitude, so to speak, or could you just talk a little bit about that?

That's a really good question because it's still the same answer. No, absolutely not. So if you look into, especially these days where some local markets would feel some kind of pressure looking into the newspapers, but we have really in the pipeline, we're looking on the mid to small size of projects. But of course we have some really good partners on the customer side that want to have our technology on board for their dedicated projects and those we're following. But, of course, then, for example, it's also reported in here, the quarter four, I had one slide about the e-mobility investments. They're all together coming in different steps. They're coming to smaller projects. But first of all, these units and the solution for these kind of applications, they're all standardized for us. And that is one, of course, one of the things that we really like to have standard solutions. And then, of course, can also make them replicable in higher demand.

Okay, great. Thank you. That's all for me. Thank you, Henrik.

As a reminder, if you wish to register for a question, please press star and one on your telephone. Star followed by one. We have a follow-up question from Ms. Dachen with Jefferies. Please go ahead.

Yes, just a quick follow-up. Going back to the question about the different sentiments On the distributor level versus what you're being able to deliver with your direct sales platform, could you please specify what the shares are in the different sales channels and also in which regions you rely more on distributors versus your own direct sales platform things?

Actually, we don't rely on distributors in that many regions at all. As you can see, all in all, We have in all our countries where we have our own sales organization, 51, we also have our own warehouses and thereby our own distribution channels. For us, we normally say that our business setup is more like that, that we have 40-50% of our volumes is on the standard product range, BPR, which we produce and distribute. And the other part of the volume is then the project business, where we're working directly with the consultants, with investors, architects, and so on. So that's more the setup that we have.

Yeah, that makes total sense. Thank you very much.

Thank you.

Gentlemen, there are no more questions at this time. Back to you for any closing remarks.

All right. Thank you very much, everyone, for calling in. And of course, both me and Roland are available if you have any further questions down the line here. So wish you all a great day.

Thank you very much and thanks for listening in.