Systemair AB (publ)

to everybody. Thank you very much for calling in to our Q1 presentation. Me and Roland are sitting here today in Skinskatteberg in the beautiful weather. We can almost promise that when we are hosting also our annual general meeting here today at 3 o'clock. Maybe next year you will be able to participate. You will find a presentation then on the investor relations web page under reports and presentation, of course. So by that, I hand over to Roland.

Thank you very much, Anders. And hello and welcome everyone to our quarter one report. Without further ado, let me just jump into the report by switching to the second page of the report that you will find on the web page with the agenda. I'll start with a short systematic in brief, followed by the first quarter summary. followed by Anders with the Q1 financials. And we have as the fourth point, we have the first quarter acquisitions and project highlights. And we will end with the Q&A. Switching to the next slide, system air and brief. As you know, we are operating based on our core values of simplicity, reliability. We manufacture and market energy efficient, high quality ventilation products. With our customer focus, our emphasis is on delivery reliability, availability, sustainability, and quality. Systemair as a company was established in Skinskatteberg here in Sweden 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. And Systemair has been listed on the Nasdaq Nordic Stock Exchange market since October 2007. And today, we proudly operate our own sales companies in 51 countries, together with 26 factories in 19 countries. With our about 6,600 employees in System Air, we are today present and sell to more than 135 countries around the world. Switching to next slide, slide number four, and looking at the highlights of the first quarter. So the organic growth of sales in quarter one was closely in line with the previous year. You see this as a sign of strength, given that we're still dealing with relatively tough like-for-like figures in an uncertain market. We did also finalize the acquisition of the HQ manufacturer FAM in Kuala Lumpur in Malaysia. And we also continued our capacity investments in Lithuania, in Italy, Canada, and Germany, where we are building new facilities and invest in modern machinery. Those will all be finalized during our second quarter. At the same time, we started an expansion also of our production facilities in Dahl in Norway. As in all systems, we like to highlight important product launches. And here we are following up our successful launch of our Genius AHU and this side-by-side version, but also on our updated integrated and full reversible heat pumps with our next generation excess control systems that we have on our air hand units. We're also glad to report, as you know, that we have finalized the move and the relocation of the Managa production from Germany to Slovenia in our first quarter, according to the plan. And finally, of course, we want to highlight that This year, 2024, actually in October, we celebrate our 50 years anniversary for the company. But that's switching to the next slide, slide number five, and looking at the different markets and their shares. So let's have a look at the markets in the quarter. As you know, we have a global and quite diversified customer base, which provides us with a solid foundation for profitable growth. Looking at the different regions, starting with the Nordic, which represents 14% of our total turnover in the quarter and stable. Western Europe has a 45% share and is thereby compared to the same quarter last year in a slight decrease from 46% to 45%. Eastern Europe, stable at 13% share, and North America has become a 13% share today. Other markets, which, as you know, incorporate North Africa, Turkey, Middle East, and Asia, is continuing its growth path, and increases from 14% to 15% of our total sales in the quarter. By that, we continue with a closer look at the financial outcome in the quarter, and I hand over to Anders to the next slide.

Thank you, Roland. I will start off talking about net sales then. Net sales in the quarter amounted to 3,111,000,000 compared to 3,175,000,000 last year. This is a decrease in sales of minus 2%. However, it should be noted that in the comparison that last year's figures were very strong due to the recovery of the earlier supply chain problems that led to an organic growth last year of 10.7%. In Q1, we are reporting a smaller negative organic growth of 0.3%. can currently see that the previous negative trend in declining organic growth is starting to flatten out to give a bit more flavor on the net sales we saw organic growth in eastern europe north america middle east asia and africa the acquisition of femme in malaysia contributed to sales by 0.5 percent And then finally, currency effects negative by minus 2.2% coming from the strengthened Swedish krona during the quarter, where the biggest effect is from the Euro-SEC conversion. Then we come to the geographic breakdown, and I will focus on the organic growth rates for each region. Starting off with the Nordics, where all major markets in the region contracted during the quarter, leading to a negative organic growth of minus 4.1%. This is mainly due down to the reduced activity in the residential sector that we experienced for some while. In Western Europe, we saw an organic sales decline of the same number of minus 4.1%. Within the region, we can see both positive and negative signs. We had a positive development in Italy, Spain, and France, but continued negative development in our biggest market, Germany. In Eastern Europe, the organic growth was positive with plus 3.7%. Positive development in Azerbaijan, Serbia, and Czech Republic, while markets were slower in Slovakia, Slovenia, and Poland. In North America, the organic growth rate was 1.8% plus, which was split up in a very positive Canadian market while the U.S. market contracted in the period. In Middle East Asia, Australia, and Africa, we had good growth of 10.7% organically, driven mainly by the markets in Malaysia, India, and Singapore. So all in all, the organic growth in total amounted to minus 0.3%. We are proud of our gross margin for the quarter. It was strong and ended up on 36.0% compared to 34.6% in the previous year. The increase is affected by previous price increases, a change in product mix, but also positive effects from the divested AC business. Our operating profit margin amounted to 9.8% compared to 10.5% in the previous year. The operating margin is lower than last year, as you hear, but however, last year was exceptional. And in comparison with the previous years, 21, 22, 22, 23, we can confirm that we are gradually improving the margin with our profit improvement actions. It is, of course, possible to improve the margin even further in a better market situation. Selling and admin expenses in comparable units increased by 3% or 24.6 million. Profit of the tax amounted to 210 million compared to 242 last year. We had a negative effects from net financial of minus 16.8 million compared to minus 18 last year, where currency effects on loans and bank balances amounted to minus 0.4 million. and the interest expenses amounted to minus 15.6 million. By reducing our net debt significantly, the interest expenses is 5.3 million lower than the same period last year. The tax rate for the period amounted to 27.1% or 78.3 million. And then finally, the cash flow for the quarter. Our working capital increased leading to a decrease in the cash flow by minus 190.9 million, and this was mainly due to the increased trade receivables, decreased trade payables, but also smaller effect than from increasing inventories. This led to a free cash flow of 91.3 million compared to 177 last year. Our deaths then are significantly lower than last year, amounted to 1 billion 56 million compared to 1.4 billion the one year ago. Net debt to adjusted EBITDA amounts to the very low 0.71 compared to 0.9 last year. And by that, I hand it back to you, Roland.

Thank you, Anders. Let's now have a short look at the main event and all the highlights in the quarter. But now I'm on slide 12, and I'll switch to slide number 13. So in May, Sistema finalized the acquisition of the air handling unit manufacturer FAM in Malaysia. FAM is a manufacturer of air handling units and fans for commercial applications, with today's sales both in Southeast Asia and Australia, and located in Kuala Lumpur, Malaysia. During the last financial year that ended in March 2024, They had a turnover of roughly 47 million Swedish kronors. The acquisition gives access to expertise and locally manufactured air hand units for the fast-growing markets in Southeast Asia and Australia. As some engineering manufactures and develops products that are mostly customized to the local market and complement systemized offering well with no overlap in the existing product range, we see very good future synergies for systemized existing sales organization across Southeast Asia and Australia. But that's switching to the next slide, slide number 14. Systemair has discontinued Menerga's production in Germany, following the plan that we announced in November 2023. In July, all production has actually been transferred to Maribor in Slovenia, where production of all units on the new platform is now fully operational. We're very proud for the efficient execution of this transfer project and are now looking forward to the improvement this new platform will give us. This reorganization is expected to generate annual cost savings of at least 70 million Swedish kroners with full effect in our next financial year. But that's switching to the next slide, slide number 15. At the end of our call here, I would like to present to you two projects that are following our strategic focus as presented in our last Capital Market Day. One of them being service and retrofit projects, and here is one very nice that we just recently executed. This is a retrofit project for ASML in Netherlands, which is the leading manufacturer of chip machines that are supplied to the semiconductor industry. To achieve better energy performance and prolong the lifetime of our installed units, our local team upgraded these units to new specs and changed essential technical functions to new efficient standards. The total value of this energy upgrade for Systemair as an order value is about €450,000. Exciting. Switching to next slide, slide number 16. Also here, the second project that I would like to present is for pharmaceutical and hospital applications, another focus area for Systemat. And here we supplied for a medical research center in Sicily, in Italy. The RIMED center will be dedicated to research and development of drugs, cell therapy, and organ and tissue engineering. We delivered our ATP products to a total value of around about a million euro for this application. and showcase our ability to fulfill high standards for any clean room application. By that, ladies and gentlemen, I'd like to conclude, switch to the last slide, slide number 17, and open up the lines for Q&A. Thank you very much.

We do have a few questions through on the webcast, if we'd like to move to those for now.

Yeah, we will do so.

So we have a question through from, first question comes through from Lena Bloom. The question is, you reported negative sales growth in the U.S. It is possible to give us some details about the sentiment in the U.S. market and if you have any expectations going forward?

Yes. Okay. So for the U.S. market, there is, we reported a slight contraction of the volumes. This is more related to the distribution business that we have in the US. We see that more on the short term, not on the mid or long term. We think that the market development is slightly positive. And this is just in the quarter, a little reaction on the summertime and on the distributors warehouse situations.

Nothing big. Thank you.

Our next question on the webcast is from Douglas Lindahl. The question is, gross margin was strong. What are the drivers behind this, and do you see this as a sustainable level?

Yeah, we tried during the presentation to give a little bit of the background for that, and we pointed out three factors, but of course there are many factors behind this. I mean, we have been communicated in the past about profit improvement programs on the recent capital markets day and we have step by step taking a lot of actions here in order to improve the margins but also in the last years we have done price increases that is coming through still and also the divestment of the AC segment of course has an effect also here

I just want to highlight that, of course, if you look back in the material from our capital market days, we highlighted five in each of these different events. We highlighted five paths to how we want to stabilize on a higher level on the gross margins. And we're following through those activities. So this is something that we really are working on in dedicated projects in the long term.

Do we have any more questions in the webcast?

Thank you. Yes, we have two follow-ups actually from Douglas Lindahl. I'll put them both through together for you. So the first one is, last quarter you mentioned that you were not planning price hikes but some price adjustments. Can you talk a bit about what you've done in the quarter on pricing and what you expect to do on pricing going forward? And the other question is, looks like the Minerga move from Germany to Slovenia is now finalized. When can we expect to see positive profit impact from this move?

Okay, so for the pricing, yes, it's right. We didn't do any price adjustments for the last quarter. That is not included. We did one in the beginning of the year, but this was only smaller adoptions where certain components or variants have been, let's say, right priced. For the outlook, we don't see for the time being a need to make price adjustments. This is what we see for the next three to five months ahead at least. So that is the status where we are today. In regards to the Menarga move, we are very happy to report that everything is done. Now we're in transition phase for the change of the local organizations where the production is now, of course, ramping up in Slovenia. You will see the full effect of these moves, as also reported when we announced that we were closed down in Managa and Wilhelm. You will see the full effect of the savings in our next fiscal year, and it's estimated to be around about an effect of 70 million Swedish kronor.

Thank you very much. We have another question from Henrik Alberskog. The question is, you write that work is in progress at several units to realign costs to meet any decline in sales. What units does this concern?

As you know, we are constantly reviewing both footprint and profitability in our units, of course. I assume that the question is mostly headed towards our operations. We have, of course, where we see that volumes are contracting or that other circumstances are leading us to it. We are looking for profit adjustments or adjustments in operations to improve our profit, of course. In looking back for the last quarter, only minor things have been done, mostly on the efficiency on the sales side, a little bit on the operations in Canada, smaller effect also in Turkey. But overall, it's been a normal average quarter this year.

Thank you very much. We have a question from Carl Ragnestam. The gross margin continued to strengthen year on year, which is great to see. So firstly, what is main driver behind that? Secondly, we see that SG&A level increasing by 140 basis points year on year, or 3%, while total sales are down 2%. Is that driven by wage inflation or temporary costs related to the production move? And should we expect this to come down when you are set in Slovenia?

Yeah, I think this is the question we already got and tried to explain one time, but I think the connection has been poor, and I suppose that's the reason why we get the question one more time. But as I said about the gross margin, I mean, this is a long-time commitment that we have had. We have been working with a plan in order to do profit improvements, and the first time we presented this was on the Capital Market Day in 2019, and then we did a follow-up in 2023 capital markets day and also an effect then from price increases not now but the previous price increases that are implemented and taking effect now and it's also a question about the divestment of the ac segment and a little bit more than a year ago So those three are the main drivers, but there are also multiple reasons in this, of course. So it's a blended message here. On the SDNA, then, of course, we saw here during all the, when we did all these price increases one year ago, and if you put the selling and admin expenses in relation to sales, that decreased quite significantly, and now, We're seeing that the costs and the inflation, salary increases, the cost of services within IT, for example, all that is coming back now. So we saw, especially here in our fourth quarter, that the SG&A was increasing. And we are, as Roland pointed out here previously, attacking that and trying to work with our cost structure and see, I mean, where we have lower volumes, we are also adopting the cost. So this is a constant work that we're doing.

Thank you very much. We have a question from Adela Dashian at Jefferies. Can you provide some more color on the stabilizing performance in the Nordics? What's the visibility and expectations for the remainder of the year?

Yeah, that is, of course, this glass bowl question. It's very hard to actually to answer that one. We see in the quarter, as also reported, that all the Nordic markets were a little bit, not in decline, but a little bit weaker than the previous year. So as it is, all of the markets, and we still see that the industrials are performing quite well. We see a good activity level, as reported, with consultants and installers. Not utterly concerned, but of course, it's not where it should be. It's very hard for us to make an outlook, and I would say that it's not possible to estimate, but we think it's flattening out in a stable way as we are today.

Thank you. We have three questions through from Anna Winstrom at Carnegie. First question is, Minerga situation, how is it going operationally, and how is the cost situation developing, and your expectations for the near term? Secondly, cost development, freight, salaries, materials, etc. Third question, profitability in markets outside of Europe has been very good compared to a few years ago. Are there any specific events or strategies that explains this?

Okay, let me start with the Managua situation after the move, the situation in Maribor. We're actually really happy. Let's say that you can see a challenge from different views. When we closed down and moved over all the manufacturing from Mulheim to Maribor, as normal when you close something, the order intake is on a really high level, like it's following you. So we had to start with challenges in Maribor because we had a very nice backlog and of course customers needed to have goods in short delivery time. So there has been a tremendous good job done by our colleagues in Maribor and we're working hard. to get down to normal delivery times in the rate for October, November at the latest. And we have a good backlog and a good profitability development actually. And there is, as always, when you're starting a production from, how to say, from scratch and ramp it up, there will always be some challenges, but we are really, really seeing very nice improvements coming up to nice levels. So a good move and very good results from that part. On the question on salaries and freight, I assume that you're asking for how the costs have developed. For us, of course, salaries have, with inflation and everything, there has been quite an increase throughout Europe. Also freight rates have gone up, but now lately they have stabilized. So overall, of course, the surrounding costs are increasing. That is absolutely like that. But I think for the time being, it seems to have stabilized.

Yeah, and for outbound freight, we are trying to transfer that towards the customer side also. And we don't have that much freight also from Asia, so that's a very low amount. There was a question also regarding, I think, the profitability in the other markets down there.

Yeah, that is something that we have. I think there is a misunderstanding from any of the earlier quarter reports of the other markets. And here we're talking about North Africa, Turkey, Middle East, Asia, and India. And of course, that the profitability level should deviate from the group's target, which it's not. It's up to group level. So for us, it's a good market. And of course, it's very positive for us that that

region for us is on a nice growth path yeah and also step by step as we are getting bigger in that region we are growing quite a lot and we are taking a stronger market position by that we can also push the prices in a better way so happy with that area of the world next question please

Thank you very much. We actually have a follow-up from Anna Winstrom. The question is, in more challenging markets, how do you view the competitive landscape? Are you stable in market shares in Nordics and Western Europe?

In the Nordics, what we say in those markets where we are present, or those applications that were present, from what we can see from statistics, we have a stable market share. in in mid-europe we even see that in some of the applications where we're more activists today that we are taking some market shares this is especially related to mid-europe germany benelux uk and farms okay thank you very much we have a another question from carl ragnestam um i was a bit surprised over the somewhat lower organic growth pace on the rest of the world

still good versus other geographies, but we have perhaps been used to a slightly higher growth rate over the recent years. Is it a bit slower markets or just quarterly volatility?

Good question. In the quarter, when it came to the organic increase that we see in other markets, it was specifically here to Turkey and Middle East. You had, of course, the hatch to Mecca and other things, especially for Saudi. But that time of year is a little bit slower. So that is the explanation. But the rest of the other markets, like North Africa, India, and Asia, was going strong still in the market.

And, of course, it's not really sustainable to keep on growing in our industry with 20% to 40% organic growth. I know last year we did some record big deliveries also in the northern parts of Africa also last year. So I think we can be happy with the growth rates that we are presenting then, about 10% here.

It appears we have no further questions. So I'll hand back to the management team for closing remarks.

Okay, ladies and gentlemen, as said already, really sorry for technical difficulties in this call. I hope you got the answers that you were looking for. As also mentioned before, anything else that you would like to ask or get the answer to, please let us know. We are very happy to serve. By that, I would say that we are closing today. Thank you very much for attending and hope to see you soon again. And that would be on this.

Next time, in the beginning of December. Exactly. Yeah, for the Q2 report. Perfect. Thank you very much all. Take care.