Systemair AB (publ)

Welcome to SystemAire Q2 2024-25 report presentation. For the first part of the presentation, participants will be in listen-only mode. During the questions and answers session, participants are able to ask questions by dialing pound key 5 on their telephone keypad. Now I will hand the conference over to the President and CEO, Roland Kasper, and CFO Anders Ulf. Please go ahead.

Good morning everyone and very welcome to the presentation of Systemware's second quarter report for the year 2024-2025. We will start off with a rather short presentation of our second quarter in our 50th business year and then we will open up for questions. The presentation you find available on our start page of our investor relations website. I will now hand over to Roland to start off the presentation.

Thank you very much, Anders. Good morning. My name is Roland Kasper. I'm the CEO. I'm really happy to present our quarter two report for our year 24. So switching directly to that. So what we want to present is short system area in brief where we are, the short summary of the second quarter, switching to our quarter two financials, and then a very short and brief second quarter acquisition and project highlights, followed up by the Q&A. So going directly into Systemair in brief. Today, Systemair, we're operating from core values of simplicity and reliability. Our business concept is to develop, manufacture and market energy efficient, high quality ventilation products. With our customers in focus, our aim is to be seen as a company to rely on, of course, with emphasis on availability, sustainability and quality. Systemarys, a company, was established in 1974 in Skinskatteberg by our founder, Mr. Gerald Engström, today our chairman of the board. In our last fiscal year, we had an annual turnover of 1.1 billion, and we are listed on the Nasdaq Nordic Stock Exchange since October 2007. We operate our own sales companies in 51 countries, and we operate 25 factories in 18 countries with a total book value of 1.3 billion Swedish kronors and employ around about 6,700 employees. last year we had sales to 135 countries around the world some recent highlights we had some machine capacity investments that we finalized in lithuania germany and italy in the quarter we earlier this year also acquired the company farm engineering and manufacturing of ahus in kuala lumpur in malaysia And late June this year, we relocated Menarga's production from Mülheim in Germany to Maribor in Slovenia. And finally, in September, we also finalized our investments in expansion of our existing facilities in Ukmaragi in Lithuania. Within our public affairs efforts, we now finally have joined EPA, the European Heat Pump Associations, and we are very proud to have been reelected to the chair of the presidency in Eurovent with our system air candidates. In September 20th, Systemair Germany celebrated its 30th anniversary. And in connection with that, we also officially opened our new warehouse and production hall in Windischbu, where we were visited by around about 4,500 visitors in this evening. And then in October, finally, we also celebrate our 50th anniversary with 600 of our Swedish colleagues in Westeros. Going into our markets. So let's have a look at the markets in the quarter. As you know, we have a global and diversified customer base, which provides us with a solid foundation for profitable growth. Looking at the different regions, starting with the Nordic region, which represents 16% of our total turnover in the quarter. Western Europe has 44% share and is thereby compared to the same quarter last year, a decrease from 46 to 44%. Eastern Europe increased to 13% share and North America remains stable to the 12% share of sales in the quarter. Other markets, which, as you know, incorporates North Africa, Turkey, Middle East and Asia, is continuing its growth path and increases from 14 to 15% of the total sales in the quarter. But that, ladies and gentlemen, we continue with a closer look at the financial outcome in the quarter and I hand over to Anders.

Thank you, Roland. Let's start with net sales. For the period, the quarter, it amounted to 3.146 billion compared to 3.186 billion last year. This is a decrease of minus 1.3%. However, currency effect played an important role with minus 4.3%. The organic growth was positive and amounted to plus 2.6%. And we can conclude that we are again back on positive organic growth and that the trend is positive in several markets. We go to the next slide, slide number seven. To give a bit more details behind the net sales, we saw organic growth in Nordics, Eastern Europe, North America, Middle East, Asia and Africa. Acquisition of FAM in Malaysia had a minor effect and contributed to sales by 0.4% only. And then finally, currency effects in the quarter, negative minus 4.3% coming from the strengthened Swedish krona. During the quarter, where the biggest effects is the EURC conversion for us, but several other currencies also affected. Slide number eight. Then we come to the geographic breakdown. And here I will focus on the organic growth rates for each region then. So let's start off with the Nordics, where specifically Norway contributed to the growth of the region. The Danish and Finnish market contracted during the quarter, while the Swedish was rather flat. All in all, a positive organic growth of 4.1%. And I guess you need to go back around 18 months since we reported organic growth in this region. So we see it as a change in the recent trend. In Western Europe, we are still experiencing a bit slower demand. Organic sales declined by minus 4.5%. Within the region, we can see the positive signs in UK, Italy and Spain. But unfortunately, the German market is still struggling and is showing no clear signs of recovery yet. Going down to Eastern Europe, the organic growth was 8.2%. The main reason for the positive development is due to project deliveries in Azerbaijan, but also Czech and Polish market had a positive development. Markets were a bit slower in Slovakia, Slovenia and Lithuania. Then we come to North America and the organic growth rate of 17.3%, which was due to considerable growth in Canada, but also growth in the US. and it is especially within our residential products that we see that our customers have started to build stock again. We although believe that it is a bit early to say that this kind of growth is what we can expect moving forward. In Middle East, Asia, Australia and Africa we had a good growth of 7.7% organically driven mainly by the markets in India, Australia and Morocco. All in all then an organic growth of 2.6%. Then we go to slide number nine. Gross margin in the quarter was again strong and amounted to 37.3% compared to 33.9% in the previous year. We can conclude that the positive trend in our gross margin continues. The effect is due to high utilization in several of our factories, change in product mix, but also positive effects from implemented cost reductions and efficiency measures in general. The operating profit amounted to record high, 347 million, or an operating profit margin of 11% compared to 10.1 in previous year. The major reason behind the improvement is the increased gross margin. All in all, we are very proud to see that several years of consistent focus on our margin is giving return on our efforts. Selling admin expenses in comparable units increased by 1.7% or 13.4 million. Then we head to slide number 10. Profit after tax amounted to 236 million compared to 246 last year. We had a negative effect from net financials of minus 24.7 million compared to 15.4 last year, where currency effects on loans and bank balances amounted to minus 7 million and the interest expenses amounted to minus 19.2. By reducing our net debt significantly, the interest expense is 13 million lower than the same period last year. Tax rate for the period amounted to 26.8% or 86.5 million. And then slide number 11. Going to the cash flow for the quarter, our working capital increased, leading to a decrease in the cash flow by minus 15.6 million, mainly due to slightly increased trade receivables and inventory, leading to a free cash flow of 323.8 million compared to around 348 last year. Net debts then as mentioned a little bit before significantly lower than last year amounts to 1 billion and 20 million compared to 1 billion 457 million last year. Net debts to EBITDA amounts to very low 0.71 compared to 0.69 last year. And by that back to you Roland again.

thank you Anders so then looking in some acquisitions events and order highlights and here especially want to showcase two of them going to the first here which is here now on our this proper slide slide number 13. the first reference project like to share is the fourth phase of the daily Metro expansion we are proud to have gained the continued trust from the daily metro rail corporation to supply the ventilation of the fourth phase expansion of daily metro the daily metro which is renowned for its efficiency and extensive network serves as a lifeline for millions of commuters in new daily today in this fourth phase of expansion systemary supplying tunnel ventilation fans to 17 underground stations from our factory in germany and india majority of supplies planned for april 25 and the last lot will be installed by November 25. The total order value for all these supplies is approximately 3 million euros. On to the next, which is then a major Menager retrofit project in Norway, showcasing our abilities. The Skien Fritids Park, one of Norway's largest water parks, faced the challenge of rising energy and costs and declining efficiency in the units installed base in 2007. The customer required a comprehensive optimization of the existing units to bring them up to the latest technology standards. And after detailed consultation with our local Menerga brand, Menerga was awarded the contract in September 24. The energy upgrade of the units will replace all outdated components with state-of-the-art energy efficient parts. And the existing fresh air exhaust air modules will be checked and maintenance with highly efficient heat exchanges that ensures optimal heat recovery for future. And of course, we will also then change to high performance EC fans, uniform air distribution and very low noise level. So the retrofit project will improve energy efficiency and the energy consumption will be reduced by up to 30%, resulting in significant operation cost savings. system and the system errors we are available has increased significantly and maintenance efforts will of course also be substantially reduced and extending the life cycle of the units or the lifetime by additional 15 years and the work has been carried out already and we could do that without closing the part the approximate order value for this project was around 1 million euros By that, ladies and gentlemen, I switch over to the last slide, which actually stated Q&A. I thank you for presenting this and open up for the questions.

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

Good morning, Roland and Nandesh. My first question relates to the strong performance in North America. Could you maybe elaborate a bit about if there are any regional differences between Canada and the US? Because I do know that you've also mentioned previously that there is an expectation that the residential segment in the US will also start to pick up again in coming months. But here it was more driven by Canada. So is your offering different or is it more like a timing effect?

Yes, Adel, thank you for the question. What we see in the quarter specifically is more a strengthened residential market back in Canada, I have to say, and strengthened in terms of its normalized market coming back to where it has been and should be to our standards. Distributors have restocked and the business is picking up to normal paces. As you mentioned rightly, the residential market in the US has been of great interest and has developed quite well. It has been a little bit slower throughout the election, and what we still see is that there are, how to say, some expectations and awaiting what is coming. But just now, the Canadian market is the clear stronger part for the residential.

Got it. All right. And then maybe just on the topic of the election, since you just mentioned it, how do you perceive that? And is there a potential tariff risk that could impact your operations in that market?

yeah it's of course a little bit uh how to say speculative uh to to answer that one uh we saw throughout or even before the election specifically in u.s a kind of a uh yeah a slow down um people were more waiting what will happen um canada has though been quite normal in the development uh regarding the tariffs uh as i say i see it a little bit as speculations um i think the last that i read was that mr trudeau has been and meeting the president candidate, I think this will be more like a normalization. I don't see a bigger threat, my personal perspective just now for the NAFTA agreements and the tariffs from Canada to US.

Just to restate there also, we have production also in US, so there is possibilities to transfer also production volumes from Canada into US.

Okay, that's good to hear. And then maybe lastly on the profitability improvement, I thought it was quite impressive to deliver even margin of 11% despite the, you know, strategic decisions that you've taken throughout the quarter. Can you maybe provide us some more details on the new factory in Lithuania and how that is expected to impact your production capacity and maybe also market reach going forward?

In the Lithuania factory today we are producing all residential units for Europe but also air handling units for the North European markets. As said before and stated that the North European market for us when it comes to the normal ventilation business is still going rather stable and residential has been a switchover from new builds to more renovation projects. So we have had the necessity already before you saw the development in the North European markets on residential sites to expand our facility and capacity. We're really happy that it comes now quite handy as we see that especially on the industrial sides and bigger sizes of our air units, we already need that space. So we're quite positive to the further development and utilization of that factory.

Okay. And maybe just lastly on the net debt levels coming down, how did we expect your growth strategy to progress going into next year? Are you still seeing good opportunities on the M&A front? And do you have a more robust pipeline now with the newly established head of M&A to be driving that going forward?

Yes, of course. I mean, we have a quite stable and very interesting M&A pipeline. We're quite busy with that one. We see for the last three to six months, we see also the amount of interesting objects picking up. So it's good activity levels on that side. So we will for sure have more things to be done there.

Okay, interesting. Thank you, and congrats on the quarter.

Thank you, Adele.

The next question comes from Carl Ragnarstam from Nordea. Please go ahead.

Good morning. It's Carl here from Nordea. Looking at SG&E, I mean, when I look at it, it's up 1.5% year-to-year. which is clearly less than organic volume growth in the quarter. When you look at your order intake and your current organization, how scalable would you say that your operating cost base is currently?

I would say that it's very scalable. I mean, we have good availability, especially if we talk in Europe. uh so to scale volumes and to see synergies of scale uh it's uh really what we see going forward i have to remember also maybe when looking at the sdna that is more or less coming back to more normalized level right now we are on 26.8 percent and that's from an historic perspective i would say that's more of a normal level

Okay, that is very clear. I can also see that you cut 60 employees in South Africa in the report. In annual report you had 124 employees, quite a big cut here. Are you exiting that country or how should we look at that?

What we're doing, we are repositioning our company in South Africa. We have for the last three years or you can say past pandemic we served several bigger projects but now we're going back to the normal ventilation market and for that we are just optimizing our base and we need to have the right competence and the right staffing and the right skills on board and that's what we have adjusted to yeah and we have a new management in place and so we are quite optimistic of the change that is happening right now

Okay, but you have cut your FTEs by 50%. Do you think that is enough to take that into profitability in that geography?

As I said, this is more a strategic approach. We think that we need to reposition where we want to serve the market and what kind of pockets of the markets. And that's what we have done. We know historically that we can be a really good player where we are heading now. So we think that we have resized the company to where it should be at least.

but it's a very minor market in the group as well.

Yeah, sure. And also looking at your order intake, I mean, pointing in the right direction as you're stating in the outlook. I mean, you previously said that you have a healthy degree of quotations and good activities among the installers. But now when I read what you've written is that it sounds like it's been converted into actual or firm orders now. So if you could give any comments on client or customer behaviors from installers as well as technically consultants. And also you mentioned larger projects. Is it projects that's been on pause for a period of time when rates were sort of higher? Or is it new projects coming in in certain regions and markets?

In general, Carl, I know we stated and it's what we have seen that especially I would say after the typical summer break that you saw in Europe, for example, the level of activities amongst installers and especially consultants have been rather high. that we saw quite a lot. The projects that we're mentioning are mainly coming on the industrial side, the bigger ones, but also I would say geographically really spread. It's not to say it's more mid-Europe or similar. It's really spread all over the different geographies, which we think is really healthy and good. We still see, as also mentioned in the report, that in the geographies, especially in Middle East and Asia, that the bigger projects are more frequent today. To your comments, if this is the result of the higher activity level, I think there is more to come. We think that especially in mid and north Europe, there is still potential to pick up.

Okay, that is very clear. Thank you so much. Thank you, Carl.

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

Good morning, and thank you for taking my question. And first of all, regarding the positive sales development in Norway, is it possible to say what has contributed to this development? And if it's, in your view, temporary and short term or more to, so to say, signs of a recovery in the Norwegian market?

Yeah, in Norway specifically, we see that as reported also what you can read in newspapers, the new building residential is continuously not where it has been, but we see more renovation projects. So the quantity wise, the drop is not as severe as we would have expected. But what is driving mostly the comeback to normalized levels is for us bigger projects on the air handling unit side, on the commercial ventilation side, but also some interesting export projects from Norway to Faroe and similar. So the market is such, I see a quite good activity level in Norway.

Super, thank you for that. And then on profitability, while you reported an impressive operating margin in Europe, the operating margin in the rest of the segments came in at 4.1%, I believe. Is it possible to give some color on what has led to this margin development in the regions outside of Europe?

I would say that the main reason behind that lower profitability in other markets there is due to a little bit less profitable business currently in Turkey for us.

Super. Thank you for that. That was all my questions.

Thank you, Dina. Thank you.

The next question comes from Douglas Lindahl from DMB Markets. Please go ahead.

Thanks for taking my questions. Just circling back to the Norway comment there briefly. Obviously, it seems to be very strong, given that all other markets, or at least you commented that Finland and Denmark is down. I would expect Sweden also being down, so Norway must be very strong. And you said that there's some projects in there. Is that the majority of the growth from projects or can you just give some additional colors to Norway starting there?

A good part of the growth is projects on the unit side that are, I would say, a rather constant. They have been rather strong throughout the last 12 months. The part that has been a little bit volatile was the residential part where we have a very strong position in Norway. But the shift over from new build to renovation took a bit of time and we see a strengthened part in the renovation business for residential so i would say it's more a more stabilized development that we see and we're happy to come back to that but i think there's also some contributors as mentioned in in some export projects to adjacent countries like out of norway but in general the market is is quite nicely and stable for us

yeah can you just comment that the Swedish market then was flat in the quarter yeah so it's not a drop also flat okay thanks for that color and then on the topic of growth North America obviously a significant step up here organically and I guess Sort of similar question, is there a project mix that's driving this? And Anders, you already said in your presentation that we shouldn't probably expect this growth rate going forward. What sort of growth rate do you think we should expect then going forward?

It has been a little bit volatile, I would say, in the North American market. We have seen the first half year here quite good demand. quite good volumes but also as mentioned and a bit of a recovery in the building stocks with the distributors especially on the residential side and that we see is a bit up and down right now so We are a bit cautious when we talk about the North American market, but we are sure in the mid-term perspective that we can see a very decent growth in that market also. We hope to see that now, especially in the U.S. market after elections, that things will start to pick up as well in the U.S. inventory readjustments or stock exactly basically effect here in the quarter you think yeah post post pandemic everybody was building stock they buy everything they could get get a hand on and then they had to take it down quite rapidly and now it's coming back up again so i'm just saying that there's there's a stock effect here and the normalization of the behavior and the markets i would say yeah

Okay. And then on the gross margin side, which is quite impressive, I think, again. Do you see, you know, even further upside here, I guess, with Western Europe potentially bouncing back? How sustainable do you see the gross margin? So what sort of upside potential do you see further on the gross margin side?

I mean, there are different aspects into the gross margin, but of course, there are things where there is an upside still. And to mention one is that, as have been communicated already, that we are not fully finalized with building up the volumes that we have moved regarding Minerga from Germany into Slovenia. So when everything is up and running 100%, starting from next financial year, there is an upside. Absolutely on that. What we are also indicating here is a little bit that when we are delivering to bigger projects and what we had in this period was several projects that with quite good margins, then the bigger projects also that also has a healthy effect on the gross margin. But it's also long and consistent work that has been put into the efficiency of our factories and so on. So that is also there. And there's always more to do. I mean, we can continue. Yeah. Yeah.

But the gross margin is slightly boosted by certain projects you mentioned in the short term.

Yeah.

Partly. But there are also structural positives underlying.

Absolutely. And I think now we have seen a couple of quarters say that we have a positive trend there.

Yeah. Okay, thanks. Those are my questions. Thank you.

Thank you very much, Douglas.

As a reminder, if you wish to ask a question, please dial pound key five on your telephone keypad. There are no more questions from the phone lines at this time, so I hand the conference back to the speakers for any written questions and closing comments. Please go ahead.

Thank you very much. If there are no further questions, I will then hereby conclude this webcast. Thank you for listening in.

And see you again in March for Q3, if not earlier. And in between that, a very Merry Christmas. Thank you.

Thank you. Bye bye.