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Systemair AB
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Welcome to the Systemair first quarter report call. [Operator Instructions] And just to remind you, this conference call is being recorded. Today, I'm pleased to present Roland Kasper, the CEO; and Anders Ulff, the CFO. Please begin your meeting.
Hello, and welcome, everyone. This is the quarter 1 report '19-'20 from Systemair AB. My name is Roland Kasper. With me here is Anders Ulff also CFO of Systemair Group, and we're happy to present to you the quarter 1 report.We are switching over to the presentation and what we call Slide #2. And as usual, you can find the presentation if you spend some time on our Investor Relations part on the -- our webpage at systemair.com.So Slide #2. Systemair, a company founded in 1974 here in Skinnskatteberg in Sweden. We have an annual turnover of our last reported year of EUR 830 million, and we are listed on Nasdaq Nordic Exchange stock market since October 2007. Systemair Group maintains 50 sales companies -- sorry, sales companies in 50 countries. And we have today around about 6,200 employees in the group. And we export to more than 100 countries annually. Switching to Slide #3. So coming directly into the figures for the quarter 1. Quarter 1, we recorded a turnover of SEK 2.254 billion, which corresponds to 12% growth. We're at 4.1% organic growth. Slide #4. So if you break down then the growth, we see this as a good start to the year. Organic, it's mainly organic growth coming from Eastern Europe, in North and South America. Then we have a contribution by the acquisition mainly affected by Greentek and Koolair, Greentek being the company acquired in Canada for residential ventilation and Koolair for air distribution products in Spain, contributed with 5.3%. And then we have the effect of the strength of euro and the currency effect of 2.6%, leading us to the total growth of 12%.Switching to Slide #5, the operating profit in quarter 1. I'm glad here to see the development of the gross margin that has increased to 34% coming from 32.3% last year same period. And the sales and admin expenses for the quarter have increased 7.9% with comparable units. The operating profit for the first quarter thereby amounted to SEK 173 million compared to SEK 144.9 million or corresponds to 7.7% in the first quarter.Next slide, Slide #6, profit after tax. For the first quarter, the net financial items amounted to SEK 4 million positive versus a negative of SEK 35.4 million same period last year. Currency effects on our long-term receivables, loans and bank amounted to a positive of SEK 14.8 million comparable to SEK 28.7 million net. This relates mainly to our long-term liabilities for the strengthening of the Turkish lira towards the euro. The interest expense for the quarter totaled for us negative SEK 10.1 million versus the negative SEK 6.9 million in the quarter the year before. And tax for this quarter finally amounted to SEK 48.5 million or 27.4% positive last year's quarter. So all in all, we're talking then for this quarter 1 in 2019-'20 SEK 128 million compared to SEK 72 million in the quarter the year before.Switching to Slide #7, our cash flow analysis for quarter 1. The cash flow from the operating activities amounted to SEK 224.6 million compared to SEK 120.2 million, and the change in the working capital, negative SEK 29.4 million. And here, the work -- the impact in the working capital is due to the increased inventory and some trade receivables compared to last year's SEK 45.1 million. Our net capital expenditures, and this is excluding the acquisitions and divestments, is SEK 55.4 million compared to SEK 103.8 million and this is investments in machinery and equipment here mainly in Sweden, Spain and Czech Republic. So thereby as a sum, the free cash flow amounted to SEK 139.8 million compared to negative SEK 28.7 million last year. And our net debt here has increased to SEK 2.2 billion versus SEK 1.8 billion last year.Switching to Slide #8, looking into the different markets in the company. For the Nordics, sales is 10% lower than the same period last year. And the Swedish, Norwegian and Danish markets have declined slightly during the quarter, while the sales in the Finish market showed good growth. And here adjusted for the foreign exchange effect, acquisition and disposals, sales actually decreased 11%. All in all, the Nordic region stands at SEK 368 million this quarter.Switching to Slide #9, Western Europe. Sales in Western Europe market is 14% higher than in the corresponding period last year. Adjusted foreign exchange effects and acquisition sales rose by 1%. And here, the acquisition of Koolair and its volume in Spain is having a major impact on the growth. But several markets in the region performed very well during the period. And here, including not only France, Italy, Portugal but also the U.K., while sales slightly declined in both Germany, Austria and in the Netherlands. All in all, turnover of SEK 989 million in Western Europe. Switching to Slide #10, Eastern Europe and CIS. Sales in Eastern Europe and CIS rose by 25% during the quarter. Adjusted for foreign exchange effects and acquisitions, sales rose by 22%. We want to highlight that the sales in Russia has increased by 17% during the quarter compared to -- with the same period in the preceding year. The Russian market now accounts for 6% of our total sales as against 5% in the previous year. But also other major markets showing growth during the period including Kazakhstan, Slovenia and Hungary. All in all, Eastern Europe and CIS amounted to SEK 405 million in this quarter.Switching to Slide #11, North and South America. Sales in North and South America region during this quarter were 33% higher than the same period last year. Adjusted for foreign exchange effect and acquisitions, the sales decreased by 16% in the region -- increased, sorry. The American market performed well in the quarter, while the Canadian has shown a slight decline compared to last year.Switching to Slide #12, Middle East, Asia and Africa. Sales in these markets increased by 9% during the quarter compared with same period in the preceding year. And here actually the foreign exchange effect and acquisition had marginal or no effect on the sales. So organic growth is 9%. Sales here especially in Malaysia, Turkey and India increased during the quarter but declined slightly in the Middle East. All in all, amounted to SEK 249 million in this quarter.Changing to Slide #13. As announced earlier, Systemair has acquired the ventilation part of the Australian company Pacific HVAC Engineering, and immediately we changed the name to Pacific Ventilation. The company which is now headquartered in Melbourne has an annual return of approximately AUD 20 million compared to SEK 130 million. And it's also established with its own subsidiaries, offices and outlets in Sydney, Adelaide, Brisbane, Perth and Auckland, New Zealand. The company is a main distributor of ventilation products and manufactures a small range of fans. The number of employees is around 60, and the company will be renamed Pacific Ventilation immediately as already told.Switching to next slide, Slide #14. Also announced yesterday, Systemair received a major order for cruise ships. It's our dependency in the Netherlands that has received an order of air handling units to a value of approximately EUR 3.3 million from MAC Hamburg for 3 new ships. These new cruise ships will be built in Meyer yards in Papenburg in Germany, and Systemair will happily deliver 150 air handling units per ship in phases between 2020 to 2022. These units will be placed both in public and technical areas of the ships.Switching to Slide #15. As announced today, Systemair has acquired a distributor in Morocco. The Systemair Maroc company sells Systemair products in Morocco and in Western Africa. The company had recorded sales of approximately SEK 70 million in 2018 and has currently 27 employees. The sales company with its offices and warehouse in Casablanca has so far had license agreements to act under our name, Systemair. This acquisition represents 60% of the total shares in the company with an option to acquire the remaining shares within 3 years.Switching to next slide, Slide #16. We are hereby also happy to announce that Systemair will hold a Systemair Capital Markets Day on the 26th of September 2019. We will on this occasion provide an update on our strategy, focusing on the profitability; sustainability and smart energy-efficient products; our current market conditions; and our perspective on the future growth opportunities. All these presentations will be held by myself, Roland Kasper; Anders Ulff, our CFO; Olle Glassel, our Vice President of Marketing and Sales; and Mats Sandor, our Senior Technical Director. And we will conclude with a question session. We'll be very, very happy to see a lot of our fellow investors and analysts on this occasion here at Skinnskatteberg. By that, I switch to Slide #17, by that, ending this presentation and open up the lines for questions.
[Operator Instructions] Our first question comes from the line of Carl Ragnerstam of Nordea.
It's Carl here from Nordea. I saw that you made a significant staff cut in Menerga during the quarter. Can we expect similar measures going forward? Or is it enough to compensate for the lower utilization rates?
The restructuring that we're currently under -- doing here in Menerga are different smaller projects that are coming together to a big one. Part of it is, of course, to take out people that are not permanently hired by us, which we have eliminated. This is mainly what you see here. I will say this is rental stuff. And what is going to be done for the next 1.5 to 2 years might of course run into several activities. But I will not conclude everything here in detail. But of course, when you're restructuring a company of that size, some effects on the resource will of course come.
The [indiscernible] sort of compared also with the one last year. So it's compared to 12 months ago.
Yes.
So it has not all happened during this quarter.
It's really not [ enough ].
Okay. But I guess it's not enough to turn around Menerga.
No.
And in terms of the Nordic market. I saw that you -- I think you call it slight negative organic growth. I wouldn't say it's slight. It's quite significant negative organic growth of 11% in the quarter. I mean what's behind that? And if you could talk about that -- the different geographical markets and end markets perhaps as well and if it's the air handling units that's declining, what's behind that?
What is behind that is actually that we have seen in -- especially, last June, July, we have seen a drop in sales in Norway and Sweden. And this drop is not -- it's not drastic, but we see versus our own expectations, budgets and what we have -- would have seen in the market and would have expected, it is a lower sales volume. So of course, we have been looking into the markets. We have a rather good order book in both markets. And we see a weakening or a softening coming ahead. Of course, we are monitoring this quite closely, and we'll look how it will continue. But if you follow, I mean all the different indications from the industry around, it, it's all -- I would say, you get the same indication that there is softening on those markets. But for us, it was especially in Norway and Sweden.
Yes. But you can say a little bit positive, more positive in Norway because there, there is really good order intake as well. So I mean there, we are not as worried as -- but we might be a little bit more worried with -- for the Swedish market.
Okay. So it should...
[indiscernible] if it's a special product group, no. It's the general volume. It's not a special group that is sticking out to be very low compared to the year before.
Okay. And probably the same question in the Western Europe. I mean it looks quite soft especially if you compare it to your sector colleagues, which -- I mean they report quite decent organic growth actually. So what's behind your stagnating growth there?
Actually, we only have one market where we see some kind of stagnation, and that is -- mainly it is Germany. But we don't see it as a major effect because Germany is get -- is going a little bit later into summer vacation, which is mainly ending now, more or less. It's June and now July and August. And we had, of course -- we had a good growth mainly because of the effects of the acquisition by Koolair. But if I look back to last year, it was rather high comparables with some major projects also. So I would say it's only a little bit softer in Germany versus expectation and budgets. But the other markets actually performed and had a growth according to our plan. So it's only Germany a little bit.
Our next question comes from the line of Marcela Klang of Handelsbanken.
I do have a follow-up question regarding Germany because, for example, Rock Cool reporting last week, they also mentioned weakening in Germany seeing especially now or -- and definitely more uncertainty. And I guess that's why it's visible in your numbers is that you include July compared to the companies with regular financial years where the second quarter finishes in June. But I would like to ask more about Germany. Do you see projects being canceled? Or is this a late vacation effect? Or is this general weakening that we will see in Germany for the rest of the year? What is your best guess?
Look, Marcela, specifically at German market, I would say the whole entire effect mainly comes from a large product order that was delivered last year. That's around SEK 35 million, which is the difference -- the drop on the German market. So for us, it's more flattish as it is right now.
So it's the Linde order that makes a difference compared to this quarter.
Yes, yes. [indiscernible]
So as of now, it's more uncertainty in Germany going ahead rather than you seeing falling demand or falling volumes in Germany in your second and third quarter if I understand you correctly.
This is correct. We even actually have -- during the summer, we had rather good order intake on the Menerga side. And we also had a rather good summer compared to our plans with Systemair. But we didn't have the development versus last year. So it was softening at first.
Yes, yes. And then a follow-up regarding Sweden. There, it's not vacation effect or uncertainty. There, you actually expect a weakening market going ahead in Sweden if I understand you correctly.
At least currently unfortunately.
Yes. It's a little bit behind expectation.
Yes. And Sweden being your market #4, is it still true that Germany is your largest market currently? And how big -- could you provide us how big share is Germany for you?
How big share Germany?
Yes.
So we're losing you sometimes. But you asked for the share of Germany, did you?
How -- yes, share of sales.
Yes. It's 14% of total sales.
14%. And the final question, could you maybe elaborate a little bit more on what is happening with Menerga right now? Are your plans according -- are your activities according to plan? Because you were hoping for a significant uptick in profitability this year compared to last year. Has the first quarter been according to expectations?
The first quarter was more or less according to expectation. We are moving forward with our plans of restructuring the Menerga business, yes. Implementation of our ERP tools and other activities when it comes to reorganization stuff and the processes are fully in line with our expectations time-wise, yes.
Our next question comes from the line of Henrik Alveskog of Redeye.
Okay. A couple of questions on the most recent acquisitions, if you could just give us an idea of the current profitability in these 2 companies. And also maybe comment on, you made a write-down in the report in Australia in your HVAC company there.
Correct. If you start with the acquisition in Maroc.
Yes. Maroc, it's a quite good profitable company. It's in 10% profitability level on that company. So it has been growing quite significant, quite fast also. It started to work some on expert in that -- export in that region also. So it's really interesting to see the future development of this company and that they are able to keep up the profitability even though they are going into a little bit big projects also.
And when it comes to the company in Australia, the origins and the write-down was related to our 20% shares of Pacific HVAC. When looking deeper into that company, we realized that they had a problem with a part of the business. And we had longer negotiations with the other shareholders. And at the end, we made a -- how to say?
An offer and...
An offer and a buyout. So what has been done is that they had a part of the business which was, what they call it, major HVAC products, which is more of the cooling side. And this was said by other suppliers mostly coming from Asia and other Europeans, and that was heavily loss-making on that part. So we made a write-down and took over only the ventilation part as a fully ownership in Systemair. And by that, according to our auditors, we had to make this write-down on our 20% to take over the rest of this company. So we have taken over the ventilation part, which is profitable. And where we see the bigger upside from -- coming already from profitable company, of course, is to replace existing products that they are distributing from other suppliers with our own product coming here mainly from our factories in India and in Malaysia. And this has started actually a little bit over our plans, so we are quite happy with this one.
Okay. All right. And just regarding Morocco. Today, it's one of your distributors. But how much of the SEK 70 million revenue -- annual revenues is your products approximately?
Yes, it's around 50% that is our product. But it's sold as a package, I mean on these products. So I mean it's hard to sell only our products without having the complete portfolio for that market, which is different than the plain European market and so this is the difference.
But it's not like a low-hanging fruit to replace other products in their portfolio.
Some of them. Some of them. We see the possibility, of course, to make more and especially when it comes to our distribution product and some of the residential products that they are actually sourcing today from other companies in France. This, we for sure will do, but it is step by step.
But they acted as a Systemair company also in the past under the name of Systemair also with a license to utilize the company name.
Okay. Right. And then regarding the Panasonic cooperation, you said it's proceeding according to plan, I think. And you will just now start up the first deliveries. Could you give us any quantified indications of what this will mean in the short term?
We are starting according to plan, and the plan was that Panasonic, they are starting sales of units produced by us by 1st of October in European markets. We're a little bit ahead to plan because they already got some orders for some project-related sales in some East European countries that will actually already be delivered in September months. And we're a little bit ahead of what we had planned from start. But so far, all the different 4 main activities that we're following with the Panasonic as projects, being these heat pumps, being some activities in air handling units and residentials, all these projects are just now proceeding 100% according to plan. But the first, now, that is materializing in deliveries. This is what is coming out of chiller and heat pumps and started now in September and not in October.
All right. But would you like to give us any numbers on what this initial business means? It has been noticeable in the numbers or...
What we have done, just to give you -- we are not in a position where we -- between the Systemair and Panasonic that we at this stage disclose figures. But telling you that, that the changes that we have done over the last 2 years in both our entities in France and in Italy in RAC operations, I would say that the adjustment of efficiency in our manufacturing and the factories have led to a point where our weak today -- weakness today is volume. So the volumes coming from the extra sales through the Panasonic channel will for surely help us, and we will of course also see that in the next steps of flows.
[Operator Instructions] And there are no further questions at this time. Please go ahead, speakers.
Yes. Okay. If there are no more questions, ladies and gentlemen, just a final reminder about this Capital Markets Day, you find -- you can always call us, but there is also a possibility to put in your application for the Capital Markets Day on our website also of course. So see you in Skinnskatteberg on the 26th of September, hopefully.
We would be very happy to see you here. Yes, absolutely. So by that, if no further questions, thank you very much, all of you, and hope to see you soon. Have a good day. Bye-bye.
This now concludes our conference call. Thank you all for attending. You may now disconnect your lines.