Systemair AB (publ)

to everyone. We are in beautiful but crisp Stockholm here today, and we are here to report on the Q2 figures for today. As usual, you will find a presentation that we will run through here on our website under investor relations and presentations. I think it's pretty clear by now. And by that, I hand over to Roland to run through the presentation. Thank you very much, Anders.

And good morning to all you calling into our webcast here. So by that, let me directly move into our report and slide number one, just a little bit on the background of Systemair. As you know, we are founded in 1974 by our today chairman of the board, Jara Lengström. Our last fiscal year, we reported an annual turnover of 1.1 billion euros, and we're listed on the Nasdaq Nordic Stock Exchange market since October 2007. Today, we operate our own sales companies in 51 countries, We have 26 factories in 18 countries and around about 6,600 employees, and with their forces selling into 135 countries all over the world. Moving directly into the report and slide number three, net sales in this reported second quarter. The net sales in the second quarter amounted to 3.186 billion Swedish kronors compared to 3.03 the same quarter the year before. This is a growth of 4.9%, where of organic 5.1%. On the right side, you see the graph of the organic sales growth development. And having in mind that our historical development of the organic growth is somewhere between 4 and 8%. So we're back to the average continued organic growth. Moving to the next slide, slide number four. The growth analyzed for the second quarter. Organic growth we actually had in all regions except the Nordic region. There is a contribution by acquisitions, but the main impact here is, of course, the divestment of the air conditioning business, which contributes with negative 3.4%. And then we have the weakened Swedish kroners against both Euro, US dollar, and Canadian dollars, which contributes positively with 3.2%, which brings us in total up to 4.9% growth. Moving to slide number five, the adjusted operating profit for the second quarter. The gross margin improved to 33.9% compared to 33.3% the same quarter the year before, and the adjusted operating profit for the second quarter amounts to 322 million Swedish kroners compared to 288 the year before. The operating margin amounts to 10.1% versus 9.5%, having in mind that the previous year's operating profit included write-downs of our Russian operations in the amount of 168 million Swedish kronors. The sales and admin expenses in the quarter increased by 74.8 million on comparable units. So, as said, the second quarter operating profit amounted to 322 million Swedish kronors, which is 10.1%, compared to 288 million and 9.5%, the same quarter the year before. Moving to slide number six, the adjusted profit after tax for the second quarter. The net financial items for the second quarter amounted to 15.4 million Swedish kronors, whereof the currency effect on the long-term receivables, the loans and bank balances amounted to a net of 17.9 positive. The interest expenses for the quarter amounts to 32.2 million Swedish kronors. By that net, the financials The profit after tax for the second quarter amounts to 246 million Swedish kronors compared to 208 the same quarter the year before. Moving to slide number seven, looking into our cash flow analysis for the second quarter. The cash flow from our operating activities amount to 317 million Swedish kronors compared to 275 the year before. Change in working capital is positively 115.7 compared to negative 72 million Swedish kronor in the quarter the year before. This is mainly due to decreased inventories and increased operating payables. Our net investments, excluding acquisitions, are 84.8 million compared to 91 the year before. This is primarily machine investments in Canada and the ongoing building activities for the expansions in our factory in North America and Lithuania. So at the end then, by that, we have a free cash flow in the quarter of 347.9 million Swedish kronor compared to 111 the year before. And also to mention that our net debts today amount to 1.4 billion Swedish compared to 2.79, almost 2.8 billion Swedish kronor the same quarter the year before. Moving to the next slide, slide number eight, just giving you a high-level breakdown of our different markets and their developments. starting from the left, Eastern Europe and the CS countries. Here it looks stable, but I'll go a little bit more into depth later because it's very positive development. North America with a slight improvement from 11% to 12% of our total shares. Other markets have come back to that 14% positively. Western Europe with a slight increase to 46%, coming from 45%. And the Nordic region, as reported, with a slight decrease to 16%. Let's move into the details, and I'll start with the next slide, slide number nine, looking at the Nordic region. As stated in the report, sales in the Nordic region decreased during the second quarter by 3.2% compared to the previous year. And here I have to say that the Danish market showed a positive development during the quarter, while the turnover in the Swedish-Norwegian market decreased mainly due to the impact on the residentials. In Finland, the market was largely unchanged. Adjusted for those currency effects and acquisitions, sales decreased by 4.3% compared to the decrease of 9.3% in the first quarter. So again, growth 3.2% negatively, whereas organic negatively 4.3%. Coming to Western Europe in slide number 10. In Western Europe, the sales development continued to be good during the quarter, with an increase of 5.9% compared to the corresponding period last year. In particular, we have to say that UK, Spain, France, showed really good growth during the quarter, while the turnover in Germany and Italy decreased slightly. Sorry. Adjusted for the currency effect and acquisitions, sales increased by 3.4%, organic. Going to next slide, slide number 11, Eastern Europe and CS. And here it has to be pointed out that the growth within the region, excluding Russia, amounted to 30.7%. So some of the major markets within the region showed Continued good growth, such as especially Hungary, Slovenia, Poland, and Lithuania. Sales in total in Eastern Europe and the CF increased during the quarter by 22.2%. And here then, adjusted for the currency effect and acquisitions, sales increased by 23.2% organic. Next slide, slide number 12, North America. Sales in North America increased by 2.2% during the quarter compared to last year. And here it is, the Canadian market that shows good growth in the quarter, while the American market was more or less unchanged. Here, especially the commercial ventilation products and school ventilation products in North America, and of course more in Canada, is still growing stronger. Adjustment for the currency effect, sales increased by 1.7% organically. Next slide, which is slide number 13, and here we have then the Middle East, Asia, Australia, and Africa. Sales in this region increased by 2.2% compared to the same period last year. And here is especially India and the Middle East region that shows a really good growth during the period. Adjusted here for currency effects and acquisitions, sales increased by 12.2% in this region. Then looking in some of the projects as closing, as you saw, the Nordic region is declining mainly due to the residential part, but the other parts of our applications, like for example in this one, which is a hospital building in Norway that we're supplying to Narvik. It's really growing. So this new hospital in Narvik will bring together both physical and mental health services and substance abuse treatment in Thingy building. We have the honor to deliver 33 huge hygienic Genox air handler units, also the smoke extract trans and additional products for specific demand ventilation for this hospital. So the air units for this application will supply to all the areas of the hospital, including all the surgery rooms, pharmacy, patient wards, kitchen, and so on. So just to show that there is a lot of other investments ongoing in the Nordic region. Also in the Nordic region in Finland, we choose to show you this project, which is in Kokkola in Finland. And here is the nursing in Kokkola, west coast of Finland, that will be ready in autumn 2025. The really nice part here is this building complex won the year 2023's green forerunner competition, thanks to its outstanding green solutions and energy efficiency. And here we have been selected due to that the selection is based on the area of energy efficiency and quality, which of course are the key factors for decision-making for such a project. We will deliver here our Toppex air handling units together with 15 Genox units to ventilate this building as efficient as possible. And last but not least, on the next slide, slide number 16, again, another project in the southern part of Europe, also here a hospital application in Albacete, Spain, where Systemab will supply 63 hygienic genus air handling units to this hospital. The units will be installed in surgery rooms and common ward areas, and we will deliver those between December and May next year. And once this expansion and renovation of the hospital is done, The hospital will have almost 700 new beds and 29 new operating rooms. Also here to mention that the building will get the new B energy certification, which is the mandatory in compliance with technical building codes regarding energy saving and thermal insulation, which is new in Spain. By that I end and I hand over to the system and we open up 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 one on the touch-tone telephone. You will hear a tone to confirm that you have entered a queue. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use only handsets while asking a question. Anyone with a question may press star and one at this time. Our first question comes from Adela Darshan from Jefferies. Please go ahead.

Good morning, Jonathan. My first question relates to if you're seeing any weakness outside of the Nordics, especially you mentioned that in Western Europe, some weaker turnover in Germany and Italy, what's driving this? And if you, current trading, is the situation improving or should we expect a worsening sentiment going forward?

Good morning, Adela. Thank you for the question. Yes, looking into Europe, as also reported in the quarter two report here, especially Germany and Italy, we saw a slight weakening. But in Germany, it's to be honest, the local German market is stable, but the export for certain projects out in Middle East have been redirected to other factories. So that is the main impact for us in Germany today. The German market overall is on the industrial side still what we can see stable. What we would like to see more is, for example, there was an incentive program for schools in Germany that has slowed down but expected to come back in January by governmental decree. I hope this really will come to pace as they say. In Italy, the impact for us has been, of course, the divestment of the air conditioning companies and the air distribution turnover that we have there. The projects are more or less on a normal level. But the total volume for us is a little bit weaker. The outlook in Europe still, we see that the industrial and also the investments on industrial and manufacturing side is still rather stable.

That makes total sense. Thanks a lot. And then as we're looking into 2024, is there anything you can tell us about pricing and how discussions are evolving with your customers?

Yeah, looking back, I would start with in 22, 23, of course, there has been much more discussions about pricing and price adjustments upwards. The last one that we did was of a rather modest character, just some smaller adjustments where we saw that components, as I reported, also have come back to more normal levels. So I wouldn't expect that the more price hikes, at least the prices going up, I would not expect them for the next three to six months, as it looks today, at least.

And the last one you completed, was it during this quarter or earlier in the year?

The last one we did was in September. We have another one scheduled for January, but as Roland was here, it's really on the modest side at the moment.

It's more corrections. In the past ones, we had to compensate, for example, on the electronic side, where we were buying some components on the spot market, which you, of course, had to compensate. out to the customers, but as it has normalized, those are being readjusted now.

All right. And then just finally, I saw that you mentioned in the report that the focus in the near term is mainly on organic growth. But with your financial position improving to these levels, would you say that your appetite for M&A has increased? And if you could tell us anything also about the pipeline today versus at the beginning of the year. Thanks a lot.

I would say that the pipeline is rather stable. I mean, if you compare here over the last year, and the appetite is still there. And as we say in the report also, we have a strong balance sheet still. We are happy to do acquisitions that fit ourselves well and that are bolt-on and that we know really how to integrate in a good manner. But we will not do any acquisitions just without any reason for it. I mean, sometimes a lot of them happen simultaneously, and from time to time it could be a little bit more empty.

But just to stabilize this, I mean, we have a really good pipeline that our ex-vice president M&A, Janne Weber, was building, and we are just now executing this and looking through this and working with specific projects, both Anders and me, in the meantime until the new vice president M&A is on board. And these are projects in all geographies, from North America to Europe to Asia. So we're quite active, but we have just not finalized any of those in this quarter.

Is your expectation that the purchase multiples will rationalize, given that market conditions have gone a bit more challenging?

What we see today, no. The expectations are still high.

Okay, thanks. The next question comes from Carl Ragerstam from Nordea. Please go ahead.

Good morning. It's Carl here from Nordea. A few questions from my side as well. Here looking into Eastern Europe to start off with. I think it surprised me a bit on the organic side. You mentioned a high level of project, maybe completions or ongoing projects. Should we see a high number of completions entering Q3 as well, or was it sort of a isolated thing in the quarter, and also another question in Eastern Europe, does the production move of Manurega to Maribor inflate the organic growth number to an extent in Eastern Europe? I mean, the historical ones, obviously not the recently announced one, but the one you already completed.

If I start with the first part of your question here, Carl, good morning, by the way. We are finalizing some of the bigger, already mentioned in our first quarter report, e-mobility projects in Eastern Europe. But there are other projects in the pipeline, and the factories supplying to Eastern Europe are rather well booked. So we're not concerned about the drop there in the near future. When it comes to the impact on our Slovenian factory in Maribor, it's hard to predict just now.

Yeah, but it doesn't really. I mean, this planned factory move has no effect on the sales figures. I mean, so it's more, you know, where the customer is located is where we report the sales figures also. So it has really nothing to do with this factory move at the end.

It is really the production entity is moving, but the customer is still on the same place. And that's where we're invoicing.

Okay, that's fine. And on the U.S., I mean, we saw a clear sequential slowdown there. I mean, is it mainly owing to the sort of a weaker resi market in the U.S., or do you also see sort of inventory corrections in the channel, I guess, to some extent, at least, in North America uses the distributors, right? Yeah.

For us, it's more a stabilization of the, I mean, over the last three years, we have seen a really, I will not use the word crazy in that concept, but it has been a really steep increase in volumes on residential for us for the last two, three years in North America. It's stabilizing on high levels, and we see that the next steps are actually following the building codes in North America, especially in the U.S., and for us also the further expansion geographically in Canada. So we don't see that anything will drop. We do acknowledge what you say also, that some of the distributors have higher stocks. They are, as they say, bleeding through their stocks, but we're not really impacted by that because we are delivering in many areas of North America still on projects directly from factory also. So it's not a huge impact for us.

Okay, that's good. And also when I read the report here, you mentioned in the outlooks of that that you see the activity among ventilation contractors on the rise again. Could you give some flavor? Is it on orders? Is it actual orders that you see coming in? Or is it more of a sort of quotation and discussion basis with them?

No, it's more on existing orders in-house. If you look at even in the Nordics, not all of them, but those in the bigger areas where we are interested, where we see like in Mälardalen here in Sweden, We see many of the bigger contractors, they are rather full. They are really well booked. And we see that the consultancies, that they also have an increased level of activities, which is always really nice for us. It's a good indication.

Okay, so you believe that the market has maybe troughed out a bit and should start to pick up pace again. Is that how we should interpret it? Or is it too early to say?

I would say it's too early to say. Consultants being really active is really good, but then the project has to start, and that's where we want to see. But already activities being on a high level is a really good starting number because someone has ordered them.

I totally agree. Okay, that's all for me. Thank you. Thank you, Carl.

The next question comes from Lina Blume from Handelsbanken. Please go ahead.

Hi Roland and Anders, and thank you for taking my questions, and also congrats on another good report. So I would like to ask you if you could give some color on the regions in which you have experienced the most growth. Is there any specific types of projects or markets where you see an increased demand, and what is your outlook for these?

Yes. The specific highest growth would be for us Eastern Europe and, of course, also Asia. In Eastern Europe, we are delivering rather big projects on e-mobility, hospitals, and power plants. So that will, as we can see today, be rather stable going further. Also some data center projects that are in our Turkish factory for European market. Coming to Asia, we still see... There is no drop in any of the demands on any of the markets in Asia today. It's rather that we need to look into how to build capacity for certain other product areas that we don't have in-house today. The Asian markets are really a good driver for us, for the Tokyo company.

Super, thank you. And then also on the discontinuation of the production in Germany, The press release mentioned that the restructuring is expected to generate annual cost savings of at least 70 million, with full effect on the financial year 2025-2026. Is it possible to give some more details on how these cost savings will be achieved?

Yeah, it is dual-folded, I would say. It is, of course, that we are changing the location of the manufacturing, going from Germany to Maribor and Slovenia is one part of it. But I think the biggest gain is also that we're bringing the whole units and all the services on a new technical platform. Out of different several reasons, it wasn't possible to do that in a very efficient way in Germany. But with the move over to Slovenia, they will finally be on a new platform, new controls, and everything will, on a technical level, be much more efficient and easier to handle from there. operation point of view for us.

One important part then is also that we are cleaning up a little bit in the product assortment as well and of course then we already have an air handling unit production in Slovenia today so there are of course nice synergies to relocate when it comes to overheads and so on and yielding wise and

Perfect. Thank you. That was all for me. So thank you a lot for taking my questions.

Thank you, Lina.

The next question comes from Hilmar Jernström from Carnegie. Please go ahead.

Good morning, Roland and Andersen. Thanks for taking my questions. I guess the first one is on the adjusted operating margin and the year-over-year development here. Is this mainly relating then to the AC divestment or What contribution do you see from, I guess, general manufacturing efficiency pricing and other items in this quarter, please?

Yeah, that's, of course, one quite big part of the improvement, I'd say. So, yeah, but there are other things also, and it's really hard to single out, you know, how much effect each of them have, really. But, of course... to the investment of the AC business quite the biggest impact.

Okay, thank you. And then second, Dan, on the CapEx, could you just remind us of your full year expectations on the CapEx and whether you feel that you're on track on achieving this? Thank you.

The expectations over the forecast is around 380 million, I would say, so somewhere around that. And what we are doing right now is that we are giving it a little bit of second thought also, checking really the investment needs.

I would say on the achievement, on the full amount, I think we will be below that. It's because we are having delays in deliveries of, for example, machinery. And we have also delayed the start of certain building expansions. to delay them a little bit, to adjust them to local needs and the market demands.

All right. Thank you so much. That's all on my end. Thank you. Thank you, Jarlan.

As a reminder, if you wish to register for a question, please press star followed by one. The next question comes from Henrik Altskrog from Red Eye. Please go ahead.

Okay. Hello. Thanks. Well, first of all, I have a few odd questions, but... if you could maybe give us an idea of the price component in the organic growth number year over year.

That would be an estimation then because we don't have a clear answer of the magnitude there but I would say Currently, it is not much, really, of the growth. I would say around a percent or so.

Yeah, we tried to calculate it yesterday and today a little bit in the morning. So we're below 1%, but let's say up to 1%. It's not more than that because the last is also reported. There is not too much impact of all these components, oddity, and all that one.

Right. Okay, thanks. And then on the restructuring cost, 125 million SEC, how much of that do you think will be cash cost and how much is related to write-offs?

Yeah, I think... It's around 9 million euros that are cash-related directly, that is from the redundancy payment that is expected. But it's a bit premature also to say that on a very detailed level because it's negotiations that will start now. So the exact amount will come here up until summer.

Right, yeah, but we get an idea. And then, well, regarding the divestment of the AC units, you mentioned before that you will probably or you will be sourcing some of these products from Panasonic after the divestment. Could you give us an idea of to what extent you have been doing so?

Yeah, I mean, from our customers' perspective, it's business as usual for them. They have switched over to, I think, actually since the 1st of December, they will get the unit branded Panasonic instead of Systemair. It's coming from the same factories, the same contact persons. For them, it's business as usual. It's just still on those companies where Systemair is selling the air conditioning products themselves, which are not too many. It's business as usual. And the business relationship with Panasonic is stable and good. And we're contributing and developing for future together.

Okay. So, and the volumes in this area, I mean, year over year, is it basically that now you have been sourcing the same volumes as you did last year, but you're, yeah.

Yeah, it's lower because with the divestment to Panasonic, we also divested some of the sales units to them. So that volume is per se, of course, then gone. But the sales volume in the remaining system air companies that are carrying air conditioning products is almost stable, yes.

Okay, great. And then just another question. I... I heard Linda talking about recycled steel and also future fossil-free steel and the clients being interested in this. Just interested to hear your view and what you hear from your customers when it comes to these things.

Yeah, that is, of course, something that is coming all over the market as a request, if it's possible. Just to say that the availability is not great yet. We're also doing that. We, for example, have our units coming off our Spanish factory because the proximity to a good supplier, they're also today in the same amount as Linda. They are fossil free. So they're also coming from a touch like a supplier. We can do that. But in other regions, the request has not been that strong yet. So we have not done a change that is, how to say, more hassle through. We are looking more long term. And we will come there, but in a more organized way for the rest of its operations.

Great. Okay, thanks. That was all for me.

Thank you, Henrik.

Ladies and gentlemen, that was the last question. I would now like to turn the conference back over to the management for any closing comments. Please go ahead, gentlemen.

Thank you very much, everybody, for calling in this morning. And we are happy to take any call if you have any further questions about Other than that, we are happy to see you again the 5th of March when we release our Q3 report.

Yes, until then, I really hope that you will have a, it might be a little bit early, but I really wish you a Merry Christmas, Happy New Year. Hope to see you all well next time and take care. Thank you very much.