Systemair AB (publ)

Good morning to everyone. Thank you very much for calling in to this presentation. As usual, you will find the presentation on our investor relations webpage. And we are here to guide you through the fourth quarter and the last quarter of our financial year. And by that, I hand over to Roland to start off with the presentation.

Thank you very much, Anders. And good morning, everyone calling in. So our quarter four report, just directly jumping into our slide number two, just to give you a short agenda. So I shortly just present system air in short, move over then to the fourth quarter quick summary, and we'll then hand over to Anders to go through the financials of the quarter. I will then come back and talk about the short strategy update and close with the fourth quarter order highlights before we start the Q&A. So let me start directly to go into Systemarin short. Systemarin brief. So we are operating based on our core values of simplicity and reliability. We manufacture market energy efficient, high quality ventilation products. With our customers in focus, our emphasis is always on delivery reliability, availability, sustainability, and of course, quality. Our company was established here in Finskatteberg in 1974 by our chairman and founder, Mr. Jelle Lengström. In our last fiscal year, we achieved a total annual turnover of around 1.1 billion euros. Systemare has been listed on the Nasdaq Nordic Stock Exchange Market since October 2007. And today we proudly operate our own sales companies in 32 countries together with 26 factories in 18 countries. With about 6,600 employees, Systemair, we are present and sell to more than 135 countries all around the world. And by that, I go to the next slide, slide number four, and looking into our markets. The markets of Systemair, just a short breakdown here of our presence all around the world. As you see, starting from the left, the Nordic region is today about 17% of our total turnover, which is a slight decrease from 18%, same period the year before. Western Europe is 44%, down from 46% of our volume, while Eastern Europe represents 12% of our total today. North America is continuing on a growth path and has grown to be 12% of our sales from previous level of 11. Then other markets, which covers Africa, Turkey, Middle East and Southeast Asia, has now expanded to be 15% from earlier 13%, same quarter previous year. Then, going to the next slide, slide number five. Just to give you some highlights of our fourth quarter. The sales in the fourth quarter was in line with our previous year. We see this as a sign of strength, given that we're still dealing with relatively tough comparisons, especially in the European, at present, uncertain market conditions. Some updates on future-oriented development in the quarter. We concluded, for example, the acquisition of the company PEM in Malaysia. TAM is the producer of air units that will contribute to our product offering in Southeast Asia. We also continued our investments in Lithuania and in Germany with building expansions for extended capacity at our existing facilities. At the same time, we made necessary cost reductions when needed, still with our focus being absolutely in our strategic priorities. Systemair is, of course, always proud to also make some new important product launches, In this quarter, we launched our new Genox unit platform with side-by-side configuration. Now also available with the updated integrated full reversible heat pump configuration and the next generation of our access control system. The Managa relocation continued and the move of the Managa production from Germany to Slovenia will now be finalized in our first quarter. We consider this a real milestone in our profit improvement program. Finally, I want to take the opportunity to also highlight the 2024 is our 50th celebration year as the company was founded in 1974. Now I hand over to Anders Ulf for financial update on quarter four. Go ahead, Anders.

Thank you, Roland. To start off then with net sales, that amounted to 3,069 million compared to 3,129 million last year. This is a decline in sales of minus 1.9%. In the quarter, we were again reporting a smaller organic growth of 1.0%. And we can currently see that the previous negative trend in the declining organic growth is starting to flatten out. Then we go for the next slide. To give a bit more flavor on the net sales and the growth analyze, we saw organic growth in North America, Middle East, Asia and Africa. Acquisitions and divestments contributed negatively on sales, mainly by the divested AC segment during Q4 last year. Total effect of M&A was negative by 1.1%. In Q4 last year, we had the AC business included for the month of February in the Q4. And then finally, currency effects also negative by 1.8% coming from the strengthened Swedish krona. during the quarter where the biggest contribution comes from the EURC conversion. Then we go for the next slide. Slide number eight. We go for the geographic breakdown then, and I will focus here on the organic growth rates for each region, starting off with the Nordic stand where we saw an organic sales decline of minus 1.4%. All markets in that region, except for Sweden, had a positive development in the quarter. Our largest market in the region is Norway, and that market is still showing quite robust growth, despite the exposure towards the residential sector. In Western Europe, we saw an organic sales decline of 9.4%. But then you have to remember that last year's organic growth was impressing with 15.4%. Within the region, we can see both positive and negative signs. We had a positive development in Spain, Netherlands, and Greece, but continued negative development, unfortunately, in Germany. In Eastern Europe, the organic growth was minus 0.9%. Positive development in Estonia, Croatia, Slovenia, for example, while markets were more dull in Czech Republic, Poland, and Slovenia. And then moving over to the two remaining regions that both show positive organic growth in the quarter. In North America, the organic growth rate was 2.9%, which is more or less in the same region as previous quarter. Both the US and Canadian market grew in the quarter. And in Middle East, Asia, Australia and Africa, we had a very good growth of 45.3% organically. You have to remember that in organic growth, we also include both volume and price increases. And due to the hyperinflation in Turkey, there's a high rate of price increases in Turkish lira. If you would exclude Turkey, the organic growth in that region would be 19.7%, driven by the markets in Morocco, South Africa, Middle East, and India. All in all, the organic growth for the group then in total amounted to plus 1.0%. We can go to the next slide. And then we look at the adjusted operating profit in Q4. Start off with the gross margin then in the quarter was 35.1% compared to 34.2% in previous year. And the increase is affected by change in product mix, but also from the excluded air conditioning business that was divested last year. Our adjusted operating profit margin amounted to 6.8% compared to 8.9% in the previous year. The adjusted operating profit is affected by higher overheads than last year. There are several reasons to that, but last year we were running very high volumes while being short on personnel. That was hired later on during the year. This year, we have also higher selling expenses due to trade fairs, etc. On top of this, there is also inflation in the overheads, especially prices on, for example, IT-related services have been increasing rapidly. Selling and admin expenses increased by 57.8 million in comparable units. And we are, of course, then constantly looking into how to adjust our expenses in the markets where it's needed. We go for the next slide and then we come into the adjusted profit of the tax amounted 267 million compared to 164 last year. We had negative effects from net financials of minus 2.9 million compared to 32.7 last year. Currency effects and loans on bank balances amounted to plus 15.3 million and interest expenses amounted to 22.9 million in the quarter. And next slide. Slide number 11. We'll have a look at the cash flow then. Our cash flow for the quarter was good. even though profits were lower. Our working capital decreased the cash flow by 26.6 million, mainly due to increased trade receivables. But last year, the working capital increased by 193.3 million. So in that context, this year's figure is really good. This leads to a free cash flow of 76 million. The net debt is significantly lower than last year and amounts to 1,070 million compared to 1,523 one year ago. Our adjusted leverage amounts to 0.69 compared to 1.0 last year. And by that, we have plenty of headroom for further investments and M&A activities. And by that, back to you, Roland.

Thanks, Jan. We're then now on slide number 12, and I will now move over to have a look on our growth drivers for the future. But that's going directly into our slide number 13. So let's have a look on the drivers that create a strong tailwind for our business in future. To start off, we have some incentive programs that actually fuel the ventilation business quite a lot in this world. Here to mention a few would be the Green Deal in European Union, as well as the Fit for 55 in the European Union. Looking on the other side of the pond, we have the Inflation Reduction Act in North America, but also the Build Back Better Act in the United States. These incentive programs are defining new standards of energy efficiency or indoor air quality, or both, which is beneficial for the existing and the to-come ventilation installations. Then, over the last three to five years, we do see an increased indoor air quality focus on This is, of course, due to the increased discussions of indoor health and productivity, but also following the COVID-19 with the recommendations of the World Health Organization to improve and ensure good indoor ventilation. We also have a clean air in building challenge in North America, and also recently, actually just two weeks ago, the newly launched updated European Performance of Building Directive, which now has a really firm focus on indoor air quality, which, of course, is very good for us. And finally, we also see a demand for more modern healthcare, not only the rising economic prosperity that leads to more people being able to afford, but also an expansion of modern healthcare treatments and a need for modernization of existing HVAC solutions in healthcare facilities. Switching to the next slide, slide number 14, ladies and gentlemen. So the strategic priorities. We have five main priorities that's the following. The first one being to develop people and strong relationships. And here, what it means to us is that we are to be an attractive workplace with an inclusive culture that promotes employee development and entrepreneurship. But also, of course, that we build strong relationships internally and externally based on expertise and trust. Next one being efficient operations set up with continuous improvement, where we really always want to improve our profitability by taking advantage of economies of scale, but also with strong local presence with decentralized decision-making close to our customers. We also see that we want to nurture a strong position benefiting from structural growth. So here, the global and diversified customer base that gives us a stable and resilient foundation for the profitable growth through both organic investments and an active acquisition agenda. Then maybe for us the most thought, the attractive offer based on standardized platforms, which of course is based on our wide range of quality products, based on standardized technical platforms and energy efficiency and improved indoor quality as guiding principles. And last but not least, sustainability and future-proof business. And here, of course, we always want to meet the demands of tomorrow by looking at the whole lifecycle of products to improve resource efficiency and our climate footprint. Our service business can optimize the products and operations and promote long-term sustainability. That of course is really full package for these strategic priorities that we're following. But I'd go into the next slide, which is the slide number 15. And here at the end, ladies and gentlemen, we also want to present to you some reference projects that we have finalized in the quarter. The first one here being the old war office in London. Systemers company, the Group SCS in the UK, successfully provided ventilation, copper ventilation, and smoke ventilation systems across this newly transformed building to become new residential homes, but also a five-star hotel building. The old war office, just to remind, the old war office in London was Winston Churchill's headquarters during World War II and is one of the highest value projects in the history of the Group SCS company with a value of more than 4 million euros. Next slide, slide number 16. This next reference, ladies and gentlemen, is a long-term partnership that we have been awarded with a company at North. This partnership started actually back in 2018 when at North opened its first data center in Iceland. This business concept is built on a sustainable data center that runs entirely on green renewable energy and only used to surround the cold air for cooling. Since the first deliveries in 2019, We have delivered multiple units to this project, and now in this quarter, in April 24, another 16 direct cooling units were delivered. This ICE-02 project will continue for further stages over the next two years. And by that, I have the pleasure, ladies and gentlemen, to switch to slide number 17, say thank you, and open up for Q&As.

Our first question comes from Carl Regnerstam from Nordea. Please go ahead.

Good morning. It's Carl here from Rodea. A couple of questions from me. You mentioned that the margin pressure stemmed from the SG&A shortfall here during the quarter. Could you help us a little bit more? I mean, explain the dynamic behind the SG&A overall. I mean, what measures you're taking? and also what time frame you expect SG&A to come down a bit. Will it take a quarter or two? And also where on geographical basis you're focusing efforts.

Maybe I should start off here a little bit. We are not doing any general cut-downs here. We are looking in individual markets to address where we see the volumes decrease. We also address the because first thing that happens really, I mean, day one is that direct labor is adjusted according to volumes. And then we are working a little bit more midterm with indirect labor, especially then, and on selected market, as I said.

Maybe as a highlight, just for the full picture here then, Carl, from my side, we have up until some weeks ago, I think all in all we had been cutting FTEs in related companies with around about 300 persons. But at the same time, we also had to hire around about 190 to have the capacity in those units and geographies where we actually had a really good increase. So we are really looking into market by market and the local needs.

So the 110 net FTE reductions, are you happy with that or is it more to come?

For the time being, as also represented in the report, we have been fleshing out, but of course we are always looking into optimizing the existing. So I cannot disclose any figures, but of course it's an ongoing activity for us.

And how long time will it take for it to be fully materialized? I guess if you're taking out FTEs, it tends to take some time right before you see the full effect.

Yeah, I guess it takes normally a bit longer than you want, but at least I would say half a year or so before the actions are implemented fully. We are doing it quite selective and not, as I said, in general. And we are also looking into different solutions to reduce indirect labor. It could be early retirement, it could be first of all, we are holding back, of course, on new employments as well.

Okay, that's fair. Also, on the gross margin side, quite healthy level, of course, in historical terms as well. Could you help us understand the drivers a bit and whether you see the 35 level here as a sustainable rate here over the coming few quarters as well, especially, I guess, in a in a little bit more price sensitive market.

Yeah, as I mentioned during the presentation also, of course, one contributing aspect is that the divestment of the AC segment that had lower gross margins then. What we are doing also currently at Menerega is, of course, also improving the gross margin and hopefully there's more to come here also. But, you know, we are taking that step by step also. And it's also a question about product mix overall.

You mentioned Managa here as one driver. Could you give some financials on where you are margin-wise in the quarter, maybe in comparison to last year or Q3 or whatever you think is a good comparison period?

It's a little bit early for us here, Carl, as we are also reported here in the report. We're in the midst of finalizing all the activities that are ongoing with Menarga. So we're on the peak of the term, also to say, for the local entity. So if you could come back next quarter, I think the picture is more clear for everyone.

Okay, sounds fair. And also, I think you also mentioned that the market has dropped out the health activity level. Could you help us understand also if you're referring to quotations or also in terms of actually signed orders or is it too early for the improved sentiment in the market to actually be visible in the orders?

So what we see in the markets as such is, of course, the underlying, I mean, everyone is talking about the building industry, especially in Nordics, but we see a really healthy investment level on industrial coming in this, I would say, bigger picture of energy transition. So it's a good activities in almost all markets. But of course, there are some changes locally. But when we look at consultant level, we look on prep level for different projects, but also for installers, we see quite confident levels of activity, which really gives us hope for a near-to-come improvement of the volumes.

That sounds fair. And also the final one from my side, if I may. I mean, we saw one of the Heating players entering the air handling market quite recently here. I mean, the market is, even though we see better activity, the market is still seemingly a bit soft in, I guess, Western Europe and also parts of the Nordics. How worried are you about the pricing situation over the coming few quarters here?

Recently, what we see in the market, and we have done thorough investigation, especially on the market pricings, We're not utterly concerned. Just now, it's more about technical content, and it's also about being present with the right decision-takers on consultant and investor base. So for the time being, not utterly concerned. More maybe pleased about the other high-level and quality-level players entering the market, which is good.

Okay. Sounds fair. Thank you so much. Thank you, Carl.

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

Good morning and thank you for the presentation. Good morning. You reported a higher activity among many of your customers. Is your view that volumes will start to come back or is it more markets that have stabilized?

Yeah, as reported, we see that the market has stabilized where we are just now. We think it's flattened out. The higher activity will for sure lead to growth moving along. The big question mark is what time span are we talking about? So it's a little bit, many other different drivers that have to come to more clarity, which of course would be inflation, which would be mortgage rates, interest rates. So it's a little bit, a package of things that need to happen or be clarified. We, though, see that there are more projects ongoing in preparation stages than we have seen if it just moved back maybe six months. So we look positive, but that was also why we had these drivers in the presentation. We see, of course, mid- and long-term, a lot of very, very healthy drivers for our business and our industry especially. So we are not utterly concerned if there should be a positive growth, because we are absolutely convinced that there is a positive growth. It's just a timeline that is a little bit unclear still.

Super. And then on the topic of drivers, you mentioned the recently adopted EU energy performance of building directive, and that you see this as a positive opportunity. Is it possible to say if you have noticed any increased demand as a result of this yet, or is it too early to tell?

Lina, that's too early. I mean, the Energy Performance of Building Directive has been in place for some years and has been a driver for the industry, especially for the energy transition. But what is new since it was relaunched with the, how to say, the new focus of the Energy Performance of Building Directive is that they have now included a demand for indirect quality aspects. And it was launched, I think now it's almost three weeks ago. So it's fairly new, but we really like this amendment because it puts a lot of pressure on local authorities to include indirect quality in the next stage of planning, which of course is very, very good for our industry.

Super, thank you. And then just one last question from me. You report that Germany continued to record negative growth Are you seeing any signs of stabilization in that market, or are you expecting continued negative growth in the near term?

The outlook in Germany is a little bit unstable, but I would say it would continue at least one or two quarters to be more soft.

Perfect. That's clear. Thank you very much for answering my questions.

Thank you, Lina.

The next question comes from Adila Darshan from Jefferies. Please go ahead.

Thank you and good morning. I'm going to continue on this topic of the healthy activity levels that you're experiencing or healthier, I should say. We know that you divide your business into two segments. Maybe it's the right way to phrase it. The project business and then the standard ventilation products. Would you say that these comments that you're making now reference to both of these segments or is the clear visibility that you have within the standard ventilation products segment, portraying most of the commentary here.

It's a little bit early to tell, to be really honest and open here, because what we see is, of course, an activity level at the consultants and installers. But when they break it down into orders, we can't see today if that's going to be, for us, as per definition, standard products or commodity products or made-to-order products. So I cannot really answer how much it's going to introduce to different, what we call basic product range or product area. But an assumption would be that it's what we see today on an investor level, on the big picture, It is following that most of it is project and 40-45% would be commodity ventilation products.

Okay. Would you then say that it would be fair to say that, you know, given your late cyclical nature, that the vast majority of the discussions that you're having currently with customers is going to materialize into orders starting next year, that the second half of the year is not really when you would see the spike in volumes take place. It seems like it's still too early when I listen to your vague comments about the current conditions, would you say?

I would maybe rephrase that a little bit, what you're stating, and saying that certain areas of our business areas, and now we're not talking about the basic product range and projects, rather talking about that we see More activities maybe for residential. We see more activities for certain, let's say, smaller light commercial applications coming after summer. I think in certain application areas, you will see more activities after summer. How that affects the total picture is a little bit early to tell, but I think more activity is coming there.

All right. Got it. And then if you look at the different geographical areas and exclude Turkey, what type of price increases are you able to implement currently in the other markets, if any?

If you look in general, I would say that, as you know, for the last one to two years, we have done several price increases, up to five a year. For the time being, There are no price increases planned, only price adjustments here and there on smaller items. Overall, the pricing situation is really stable for, I would say, the last six months. And the outlook for the time being is also that around the corner, there is no further increases, but also no decreases planned.

All right. And then lastly, your appetite for M&A, you kind of hinted here that given your financial position and lowering of the leverage ratio, it is increasing both your willingness and ability to do further acquisitions. Are we looking at mostly bolt-ons? And if so, or if not, what geographic segments, what product areas are you mostly looking into currently with the pipeline that you have?

With the pipeline that we have just now, we are, of course, looking on geographical expansion and some strategic acquisition areas. They are into, I would say, into our standard ventilation products. It's more geographical oriented for the time being. And here it's already concluded and also disclosed earlier. We're looking to North America and Southeast Asia mostly.

Great. Thanks a lot.

Thank you.

As a reminder, if you wish to register for a question, please press star followed by one. The next question comes from Douglas Lindahl from D&B. Please go ahead.

Yes, hello, gentlemen. Thanks for taking my questions. I wanted to start off by talking a bit more about Western Europe. You already said that you expect Germany to continue in negative territory for at least one or a few quarters, I think I heard you say there.

you give you a bit more flavor on on the the other regions in western europe given how it seems to be so impactful with regards to possibility interesting too yeah i think we disclosed also in the report here that that looking at the other regions if you take europe as a whole um the nordic countries uh it was uh the western europe region okay fair enough yes fair enough um i think Most of them are actually rather stable. It is just Germany that we had a little bit softer outlook, looking into the French, Spanish, Portuguese market, but also Italy, almost stable, all of them.

Dutch was also doing really good.

So I think the main impact that we see for the time being is actually Germany. And is Germany...

Is Germany specifically a profitable region for you, would you say?

It's average profitable, yeah, I would say, in that region.

But I guess the region as such is quite profitable. Yes. Okay. And on the Middle East, Asia and Africa strength that we've seen here, I appreciate the comments on the price impact from Turkey. But we've seen quite strong growth here for some time, and I guess you've revised prices upwards as well. But are you expecting this underlying strength to continue for this region?

Yes, it's quite clear, especially for Middle East and India, we see that clearly continue, yes.

Okay. And any comments in terms to what that might do on the mix effect for profitability?

We have today, especially in those mentioned regions, we have today the same profitability as we would have in the European on these products. So it's not a negative contribution at all. So we see that quite positive with this growth.

Okay, good. I think those are my questions. Thank you. Thank you, Douglas.

Gentlemen, so far, no more questions. Back over to you for any closing remarks.

Okay, ladies and gentlemen, then thank you very much for this time. Should you have any other completing questions, please reach out to us. And then looking forward to maybe also see you in person for our annual general meeting, maybe in August. 29th of August, as a reminder, yeah? Yes. Thank you very much for calling in. Thank you. Take care and hope you get a nice summer in between. Bye-bye.