Systemair AB (publ)

Good morning everyone and very welcome to our presentation of our third quarter report for 2024-25. We intend to start up with a rather short summary of the third quarter in our 50th business year and then we will open up for questions at the end. Presentation you will find as usual then on our start page of our Investor Relations website. And by that I hand over to Roland to start off with the presentation. Thank you very much and good morning, ladies and gentlemen.

My name is Roland Kasper and I'm the CEO of Systemair. Let's directly go into slide number two, which is then the agenda. I'll start with a short brief summary of Systemair. Then we look, as Anders said, in the third quarter summary. We dive into some of the Q3 financials. And I'll conclude that with some sustainability highlights and some project highlights, followed by the Q&A. Let's go directly into system air in brief. As you know, ladies and gentlemen, we are operating based on our core values of simplicity and reliability. We manufacture and market energy-efficient, high-quality ventilation products. With our customers in focus, our emphasis is always on delivery reliability, availability, sustainability, and quality. As you know, the company was established in Skinskatteberg in 1974 by our chairman and founder, Mr. Gerhard Engström. In our last fiscal year, we achieved a total turnover of around 1.1 billion euros. And Systemera was listed on the Nasdaq Nordic Stock Exchange Market in October 2007. Today, we proudly operate our own sales companies in 51 countries, together with 26 factories in 18 countries, with more than 350,000 square meters of production area and a total book value of more than 1.3 billion Swedish kronors. With our about 6,600 employees in Systemera, we are present and sell to more than 135 countries around the world. Switching to next slide, slide number four. Let's look at some recent highlights in the quarter and starting with a strategic update for the third quarter. In the quarter, we had organic growth in all reported regions except Eastern Europe. In India, we have finalized the preparations in our new facilities in Hyderabad of total 19,000 square meters, where we will start production actually next week. In the quarter, we also finalized our machinery capacity investments in Canada and Italy, as well as some building projects in Norway and Germany. And we see ourselves now being really well prepared for further strengthened M&A activities. On the public affairs side, in March this year, we have prepared for the last six months, but now in March, we're participating on the ISH fair in Frankfurt in Germany. ISH is the leading international fair in the HVAC industry with more than 150,000 visitors coming. So we're looking forward to interact with our customers and partners here in two weeks. In December, we also concluded in System Air North America the full conversion to the new low-GVP refrigerants in our production, which is a little bit ahead of the local market, but according to our sustainability standards. And we are also participating on all the Eurovent Association meetings on the ISH, where Systemair is taking a leading part on trainings and educational parts on, for example, EDP, the European Declaration of the Product. And also in the quarter, we were awarded several strategic orders, retrofits in the UK, for example, that was a press release, infrastructure projects in Saudi, and package ventilation systems in Italy. I'll come back to that later on in the presentation. Next slide, slide number five. Let's have a look at our market 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 17% of our total turnover in the quarter, same share as last year, same quarter. Western Europe has 43% share and is thereby compared to the same quarter last year in a slight decrease from 45 to 43%. Eastern Europe stable, 12% share, and North America staying 12% share in the current 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 16% of our total sales in the quarter. By that, we continue with a closer look at the financial outcome in the third quarter, and I hand over to Anders. I'm shifting to slide number six now.

Thank you very much Roland. To start off with net sales that amounted to 3.042 billion compared to 2.827 billion last year. An increase of 7.6%. Organic growth was also positive with 5.4%. We conclude that we for the second quarter in a row are reporting organic growth with a positive ongoing trend in several of our markets. Slide number seven. To give a bit more details behind the net sales development, we saw organic growth in all regions except for Eastern Europe. We will provide more details about the regions on the next slide, but the growth was especially good in our faraway markets as North America, Middle East Asia, Australia, and Africa. The acquisition of FEM in Malaysia had a minor effect and contributed to sales by 0.6%. And then finally currency effects, smaller positive effect by 1.6% coming from several of our main currencies. Slide number eight. Then we come into the geographic breakdown, and I will focus on the organic growth rates for each region. Starting off with the Nordics, then where we saw a decline on the Norwegian market, but on the Danish, Finnish, and also to some extent the Swedish market increased during the quarter. All in all, positive organic growth in this region was in the current quarter of 7.1%. In Western Europe, we saw smaller growth in the quarter of 3.4%. Within the region, we experienced positive development in Italy, Switzerland, and the Netherlands. Unfortunately, the German market is still struggling, and the sales decreased in the quarter along with countries as France and Spain. are although happy to yet again see a positive organic growth in the region of the four quarters with a negative outcome in eastern europe the organic sales decline was minus 9.8 percent sales declined in poland slovenia and estonia while growing in czech slovakia and lithuania some of you might recall that we had an organic growth of 8.2 percent in our q2 report But that nice growth then was mainly due to some larger project deliveries in the region. In North America, the organic growth rate was 12.8%, which was related to a considerable growth in Canada. U.S. sales contracted slightly in the period. The Canadian growth relates mainly to our residential products. Certainly, the implementation of tariffs is creating a volatile market situation in this region. In Middle East, Asia, Australia, and Africa, we had a good growth of 15.2% organically. This growth was mainly driven by markets as India, Morocco, and Australia. All in all, the organic growth then was totaled to 5.4%. Slide number nine. Our gross margin in the quarter was again strong and amounted to 35.3% compared to 33.9% in the previous year. We're happy to see this development, especially when we noted that December 2024 was a month with less working days than the previous year. Overall, we can conclude that the positive trend in our gross margin continues. The positive effect is due to high utilization in several of our factories, but also the contribution from implemented cost reductions and efficiency measures in general. Our adjusted operating profit amounted to 213 million, or an operating profit margin of 7.0%, which is exactly in line with the previous year. Adjustments relates to the impairment of goodwill in our operations in South Africa of 11.8 million. In the previous year, you might recall that we had an adjustment of 125 million coming from the relocation of the Maneriga production to Slovenia. Selling and admin expenses in comparable units increased by 58.9 million, including a loss from bad debts of 4.8 million. Then we go to slide number 10. Profit after tax amounted to 135 million compared to minus 24 million last year. Big difference is mainly related to the adjustment just described. We had negative effects from net financials of minus 17.3 million compared to minus 62.3 last year, where currency effects on loans and bank balances amounted to minus 3.2 million, and the interest expenses amounted to minus 15.8 million. Interest expenses for previous year amounted to minus 20.8 million. Tax rate for the period. amounted to 26.8%, corresponding to 49.4 million SEK. And then we head into slide number 11. Cash flow for the quarter. Our working capital increased, leading to a decrease in the cash flow by 34.2 million, mainly due to decreased trade payables and increased inventory. Investments in the quarter was rather high at 151.7 million due to finalizing the machinery investments that has been ongoing in Canada, Italy, and Spain. This leads to a free cash flow of 54.6 million compared to 381.2 last year. The net debts are lower than last year and amounts to 981 million compared to 1,079,000,000 one year ago. And the net debt to EBITDA amounts to very low, 0.62. And we have plenty of headroom for strategic M&A and continued investments. And I hand over to you, Roland, again.

Thank you very much, Anders. And shifting to slide number 12, sustainability. Some sustainability highlights. On the sustainability side, we are extra proud to see that our emissions in the scope one and two, as you see on the right side of the slide, are continuing to decrease. We have over the past years continuously invested in energy efficiency measures, such as, for example, solar panels and more efficient HVAC systems of our own project. This has led to absolute emissions reductions of 10% compared to the last quarter last year, and all in all, minus 37% for the emission intensity compared to the base year of 2019-20. Also proud here to see that continuously the work-related injuries with thickness absence is continuing to decrease now with 12.9% and that we are closer in to our target on the amount of female leaders and now amounting to 24.3% in the system.

Switching over to slide number 13.

Sustainability. We are constantly working towards reducing the emissions through efficient measures And for example, it's just reported investing in solar panels where it makes sense. To show you some examples of how we continuously develop our efforts, I'm showing you an investment in our manufacturing facilities that actually have led to lower energy use and more renewable energy compared to last quarter three. Our absolute emissions in scopes one and two, as just shown on the slide before, have reduced by 10%. What you can see here on the right side are installations of solar panels, latest now in Bokmegele train on the new build, and also on the roof of our recently upgraded factory in Kuala Lumpur in Malaysia, resulting in lower total energy consumption and reduced emissions. Next slide, slide number 14. Let me finally also show you some very nice projects that we have been awarded in the quarter. This is one of the largest multi-purpose arenas in Italy, the Arena Santa Giulia. This most modern sports and life entertainment arena in Italy will also play host to the 2026 Winter Olympics. and will afterwards then be used for large concerts and festivals. The ultimate part is that the arena was built following a plan to minimize carbon emissions and resource consumption for a climate-resilient development. Systematical here gladly supply different products, such as fans, air distribution products, fire safety products, and smoke evacuation dampers. Delivery for this arena will be completed in June 2025, and the value for our package is about 800,000 euros. Switching to the next slide. Here, Systemair's commitment to eco-friendly innovation transition. Systemair has earlier already integrated HUL refrigerants in Europe into our GNUX-HU line to align with evolving environmental standards. In our third quarter, we also finalized this transition in North America. The HUL refrigerants are a class of mildly flammable refrigerants developed as part of the HVAC industry transition to more environmental-friendly alternatives. These refrigerants, if I may just explain, fall under the A2L classification according to ASHRAE standards, where A indicates low toxicity and 2L signifies low flammability with limited flame propagation. The adoption of these A2L refrigerants is driven by the significant lower global warming potential, GBP. For us, this initiative is, of course, a part of the broader commitment to sustainability. On the right side, I also want to give you some highlights. Of course, we continuously develop new products. In the quarter, we launched our new TOP-X FR, an updated version for high energy efficient solutions. The TOP-X FR is a compact and versatile unit with double dual rotary heat exchangers. It makes it ideal for offices, schools, shops, and small commercial buildings. With its double heat exchangers, the TOP-X delivers high energy efficiency, resulting in low operating costs. And the compact design, of course, solves space problems. And the insulated casing with magnesium sink coating provides heavy protection against corrosion in very harsh environments if needed. But then, ladies and gentlemen, I'll switch to slide 16. Open up for questions and answers.

And I say thank you for that.

If you wish to ask a question, please dial pound key 5 on your telephone keypad to enter the queue. If you wish to withdraw your question, please dial pound key 6 on your telephone keypad. The next question comes from Adela Dashian from Jefferies. Please go ahead. The next question comes from Adela Dashian from Jefferies. Please go ahead.

Good morning, gentlemen. A few questions from me. If we start off with the sales development in Western Europe, and maybe specifically the German market, you mentioned here that it's still struggling. Can you remind us of what your sales exposure to that country is today? And then also, This week earlier, there was a big infrastructure fund announced. I'm sure you've seen that, but the particular focus on projects such as hospitals, transportation, and so on. Could that be something that will fuel demand for your products in the coming quarters or maybe midterm?

Good morning, Adele. Thank you for the question.

Germany, to us, is of course a quite important market. It's today our second or third biggest. The development on the German market per se is, as said also in the report, a little bit soft. And we are glad that out of our facility in Windischbu, we do have a quite nice developing export market, but the German market for us is soft. And especially to the comfort ventilation part that is not that lively as we would like it to have. But the infrastructure part is going good. And that's to your second question. Yes, these kind of initiatives in infrastructural projects is something that is beneficial for us, but also keep on reminding that infrastructural projects have a tendency to be long pre-work. We'll say that it's a long consultancy phase, and the pre-work is also pretty long. Infrastructure projects have a tendency from order to delivery being somewhere between six to 12 months, so it's not a quick fix.

germany is about 11 of the total sales that we have okay that makes sense um and then if we switch to the us uh you mentioned here the transition to the energy efficient refrigerants um could you see any type of price increases that could come as a result of this in the more short term

Actually, what we have seen is that we had a good business development in North America in December because they tried to finalize a lot of projects where we still could use the old style of the switch rims. But the outlook in the backlog is good for the new switch rims that we're using. Overall, I would say that the Canadian market is for us strong developing just now, also mentioned in the report. US is a little bit soft. I will not touch on the political climate, but it's a little bit unsecured on the market in terms of short-term investments in buildings.

So it's a little bit soft and we need to wait a little bit how this will continue.

And then you also mentioned here that you are somewhat reliant on Canada. for the US market. Can you be more specific in what types of measures you've already initiated on to offset maybe some of the tariff implications?

Yeah, we don't have that much interdependable business between US and Canada. We have two factors in Canada and one in US. The biggest part for us would today be classroom units going from Canada to US. But those projects that we have in the pipeline, as you know, they are quite cyclical. So they are installing these classroom units when the schools are closed. So the projects that we have in the backlog, they are coming to summer. So we have patience and we can react. If we see that our products and our services will really be part of these tariffs, which is not clear today because it's not outspoken what is actually in it, Then we have a reaction time of three months to start a production of similar product in US. So we can offset by that. And those products within fans of minor volumes that are going to Canada, we have already pre-stocked in our Canadian warehouses so that we can offload that also for some months.

So we are pretty safe on that side from our view.

And you have enough capacity in your US factory to produce?

Yes, we have today.

Okay. Then just lastly, and I'm sorry if maybe you went into more depth about this in the presentation, but the selling and administrative expenses was quite elevated in the quarter. What drove that?

I would say it's on the same level as previous year if you put it in percentage to total net sales. I think growing 27.8% both years. And, you know, it could be a little bit up and down here on the selling between quarters, but there's nothing in particular except, I mean, I stated also here we had a bad debt of close to $5 million in the quarter. That's one thing, though.

But other than that, there's nothing in particular that points out here.

And you feel comfortable with this level even if, organic growth accelerates further?

Of course, we always try to look after our selling and admin expenses and try to be even more effective in our operations every day. Of course, we are a little bit afraid also about the inflation side and the salaries and so on, but we are working quite focused on seeing how we can make our operations more efficient. So I'm quite confident that we will manage that.

That is the continuous work that we're doing. I mean, we want to be optimized, but at the same time, we also want to be prepared for future growth. So we try to balance that all the time.

Okay, perfect. Thanks a lot. Thank you.

The next question comes from Anna Widstrom from Carnegie. The next question comes from Anna Widstrom from Carnegie. Please go ahead.

Thank you for taking my questions as well. So maybe if you can talk a bit about the Menarga situation, so both on how the ordering and delivery situation is from the new site today, and maybe some updates on your expectations on cost savings ahead.

Yes, thank you Anna for the question. Yes, on the Menarga side, we are quite happy that the ramp up in Slovenia has progressed a little bit better than planned. We are today able to produce more than we had planned for January, February, which is a really nice result of the efforts done locally in Maribor. What we see on the ordering tape, it's more or less stable given the circumstances. We would, of course, now intensify now that we have stabilized the organization and built up the infrastructure in Slovenia. Now we're focusing and switching over to have more focus on the sales side. In terms of the savings that we were given when we made this move, we said that we will, on an annual basis, have savings representing 70 million Swedish kronor on an annual basis. That is still the target, and we see that we can fulfill that.

And also we are doing several cost-saving projects on the products itself as well.

Okay, great. And just on these annual savings, should we expect it to be sort of a ramp-up during the year, or should we see a similar effect in Q1 as in Q4?

I think you will see it a little bit distributed over the year.

You call it a ramp up, but the total savings over the year would be representing the 70. It's a little bit, of course, as Anders is indicating, the cost savings that we do is that we did not only move the factory, we also moved the whole Managa range on a new technical platform. So that's why we are launching, as I said, now we're switching over to focus on the sales side. We are relaunching the models on new platforms constantly. For those of you that have the opportunity to visit us on the ISH, for example, in Frankfurt, we see some new units with outstanding new technology features based on the new platforms. So now we're switching over to the sales side to bring that up so that it can be even more attractive for us on the bottom line, of course.

Okay and my last question is on the demand situation in the Nordics because it's now two quarters in a row that you've reported solid organic growth. Is there any specific sectors that have showed relative strength or weakness and what sort of positive signs have you seen for the market going forward?

In particular I would say that If you look a little bit market by market, Denmark is going strong. Finland is going as expected, which is good. Sweden, we have, I would say, both in December and January, we see more activities coming back on the residential side. This is maybe not what you can read in newspapers, but we see more activity again, which is very nice to see. In Norway, The residential side is still a little bit low versus where it should be. But on the comfort ventilation and industrial side, we have a high level of activity.

So it is all in all that the markets in Nordics are quite okay.

Okay, great. That's a good question for me. Thank you. Thank you, Arnold.

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

Good morning, and thank you for taking my questions as well. Maybe a bit of a follow-up on the last question. Maybe you confirmed it a bit there, but would you say that you are now generally more positive regarding Outlook for the Nordics than you have been in the previous quarters?

Yeah, that is, of course, a very good question, Dina. In the Nordics overall, if we would only focus on one of the different applications that we serve, we might have a more crisp answer to that. But overall, we think that the activities are on a healthy level. Of course, they are lower than what they were two years ago. But we see some, how to say, restarted interest. We see a lot more interactions with customers. We see the renovation market taking a little bit more pace. In Norway, as I also mentioned here, we see more on the comfort ventilation side, a lot of huge projects. Overall, we're quite happy with the situation given the circumstances around and also given the inflation and where we're coming from with the interest rates. So it's more positive today, but it's not a full ramp up with a direct direction just straight up.

It's slow.

Okay, perfect. Thank you for that. And then just one other question for me. You mentioned expectations of higher M&A activity. What should we expect when it comes to M&A, let's say in the coming year?

That is of course a little bit, given the discussions and the different meetings that are being held, it's very, very hard to, how to say, guesstimate the outcome. We are in several projects. We are very active. We have a very high load on that. If everything falls on the right side, then we will see certainly several projects materializing this year. But it also depends, of course, on expectations from the seller side and so on. So I would just say that we're very active and it's a more interesting market today than it was 12 months ago.

Perfect. Sounds good. That's all for me. Thank you. Thank you, Lena.

There are no more questions at this time, so I hand the conference back to the speakers for any written questions and closing comments.

And we have some written questions, starting with Anders Knudsen from SEB. How much impact is Christmas closure have on your cost in the quarter? And can you talk about the demand, how it has trended in January?

I mean, a little bit without giving clear figures, but I think we answered partly on that before, but we saw a lot of mid-European and not European markets more or less december was only 50 percent there were two of the four weeks most people were in vacation and also this we saw similar activities in january where at least one and a half weeks were taking vacation as we also in the nordics we had the 6th of january in week two which is the bank holiday so it was slower than normal both in december and january for us The trend in January overall, but parts also in December, as already described earlier, we saw an increase of activity with both consultants and installers. Not saying that a huge increase in orders, but the activities have absolutely increased, which is very happy and very good for us. So I would say that at least it's the first sign of more activities, which is very nice to see.

Okay, and one more question from Anders Knudsson from SEB. If, when we get peace in Ukraine, would you expect to see orders on the needed rebuilding?

So we are taking part in some of these local meetings and exhibitions for this rebuilt Ukraine, mainly from our Polish entity. So we are quite well situated there already. We also have still our sales office in Ukraine is active. We think we are in a good position to at least at the start, what we have been focusing on is to look at on infrastructure, but mostly on hospitals. That there would be a demand and that we could serve that absolutely. When and what volumes as you understand I cannot predict, but absolutely an interesting and we all really are in contact and we're delivering to those projects that are live today.

Okay, moving on with a question from Henrik from Red Eye. Do you think the mild winter in Europe has had a negative impact on Frico?

The clear answer is so far not.

We see rather normal activity on the Frico airborne heating side. So not much yet, not at all.

And the last one then from Henrik. Do you think the threat of tariffs may have boosted sales in North America ahead of potential tariffs?

We do not see anything like that. The only thing that we saw that they were, how to say, taking in some business ahead was due to the change of refrigerants, the AFL change. And that was something that we saw a little bit of in US in December. The tariff side, as also mentioned shortly in the call here, I think the main thing is that there is a kind of volatility in terms of knowledge what is in these tariffs and what is not in this scope. Is everything or is part exempted? No one knows. And even if you look on the tax home pages, both in U.S. and Canada, by yesterday, there were no clear descriptions of what is covered, actually. So people are sitting and waiting to have clarity. And that's what the customers, of course, are doing.

Okay. That was the last question from the chat. Over to you to close.

All right.

Thanks a lot for calling in, and you're of course very welcome to contact us if you have any further questions or need any clarifications. And by that, I think we can close this, and hope to see you again then in the beginning of June for our Q4 and the report.

Yes, also from my side, thank you very much for listening in. I hope we could clarify those questions you had, and if not, we're happy to answer if you reach out to us. Thanks a lot and hope to listening and have contact with you in June. Take care and goodbye.