Systemair AB

STO:SYSR

Earnings Call Transcript 2022-Q1

[Operator]

Hello, and welcome to the Systemair Interim Report Q1 2021 to 2022. [Operator Instructions] And just to remind you, this conference call is being recorded.Today, I'm pleased to present Roland Kasper, CEO; and Anders Ulff, CFO. Please begin your meeting.

[Anders Ulff, CFO & Secretary to the Board]

Thank you very much. Welcome to everyone to this telephone conference.You can find today's presentation on our group.systemair.com page, under Investor Relations, you will find a quarterly report and there also our pdf of the presentation.By that, I hand over to Roland here to do the presentation.

[Roland Kasper, Group CEO & President]

Thank you, Anders, and welcome, everyone, to our quarter 1 report for the year '21, '22. I'll right away start the presentation with our Slide #2. So Systemair, as you all know, in this summary Systemair brief. Systemair is established in 1974. Today, we have a headquarter here in Skinnskatteberg in Sweden, where we were founded.Our last fiscal year, we had a total turnover of EUR 850 million, and we are since October 2007, listed on the Nasdaq Nordic stock exchange market. Today, we operate our own sales companies in 54 countries all over the world, and we have our own production facilities in 20 countries, with a total book value of SEK 1.2 billion. We employ around about 6,500 employees, and we constantly export to more than 135 countries all over the world.Shifting to Slide #3. By that, moving directly into our quarter report, net sales for quarter 1 amounted to SEK 2.29 billion. This corresponds to a growth of 9.1% totally were up 13.3% organic. On the right side of the slide, you can see the development in graphs. And you can, of course, also see the impact of the pandemic throughout last year and the development since then. Going over to Slide #4. The growth annualized for our first quarter. Organic, we had actually a good organic growth in all our regions that we report. The impact from acquisitions was rather small, driven by the acquisitions of the Divid in Sweden, Servicebolaget in Sweden and Burda in Germany, which contributed with 0.5%. And then we have a negative impact of 4.7%, mainly due to the strength in Swedish kronas, which brings us to a total growth of 9.1% in total for the first quarter.Slide #5. Our operating profit for the first quarter. Our gross margin in the first quarter increased to 34.8% compared to 33.6% in the quarter the year before. Our sales and admin expenses for the quarter have increased to 2.7% for comparable units. The operating profit for the first quarter thereby amounted to SEK 209.6 million compared to SEK 182.1 million the year before. This contributes to 9.2% operating profit for the quarter.Slide #6. Profit after tax. The net financial items ended the first quarter at negative SEK 3.4 million compared to negative SEK 66.6 million the year before. The effects of the foreign exchange and long-term receivables, loans and bank balances are calculated at SEK 5 million compared to negative SEK 58.1 million the year before.The interest expense for the quarter totaled a negative SEK 6.5 million compared to negative SEK 8.7 million and the estimated tax for the quarter amounted to SEK 49.4 million compared to SEK 33.5 million the year before. This brings us to profit after tax for the first quarter to SEK 157 million compared to SEK 82 million the year before.Moving to Slide #7. Our cash flow analysis for the first quarter. The cash flow from the operating activities amounted for the first quarter in year '21, '22, to SEK 249.8 million compared to SEK 197.5 million the year before. Looking at the change in working capital is negative SEK 91.2 million in the quarter compared to a positive SEK 37.9 million the year before. These changes in the working capital are mainly due to increased inventories of SEK 182 million that are due to the component situation we have in the world.Our net investment, excluding the acquisitions, amounted to SEK 87.0 million compared to SEK 93 million. And our preliminary the investments in buildings and machineries in Czech Republic and in Canada. Thereby, the free cash flow amounted to SEK 71.6 million compared to SEK 142.4 million the year before. Our net indebtedness compared to last year has decreased to SEK 1.5 billion compared to SEK 1.83 billion. Looking at our Slide #8. And moving into the picture to visualize our cash flow from the operating activities. Here, you can quite simply see the development. And the slightly lower amount of cash flow from the operating activities in our first quarter. Mainly due to, as I mentioned, the component situation.Next slide, Slide #9. And by that, we're going in to have a look into the different geographic markets. Starting with the Nordics. Sales in the Nordic countries increased by 10.3% in the first quarter compared to the previous year. Here, adjusted for the foreign exchange effects and acquisitions, sales increased by 7.6%. The Swedish and especially Norwegian market showed very good growth during the quarter, while sales in the Danish and in the Finnish markets decreased slightly. So again, growth 10.3%, were organic 7.6%. And moving to Slide #10. And Western Europe. Sales in Western Europe market increased during the year by 10.5% compared with the corresponding year at 4%. Adjusted here for foreign exchange effects and acquisitions, sales increased by 13.3%. Most countries in the region, including Italy, France and England showed growth during the period, while Belgium, Austria and Switzerland reduced sales. So growth, 10.5% were up organic 13.3%.Moving to Slide #11. At Eastern Europe and CIS. Sales in Eastern Europe and CIS increased by 15% during the quarter. Here, adjusted for foreign exchange effects and acquisitions, the sales increased by 23.9%. The sales, especially in Russia increased by 14.4% compared to previous period, this though calculated in Swedish kronas. The Russian market accounts today for 1/3 of the sales in this region reported.Other major markets growing in the region were Czech Republic, Slovenia and Lithuania. So growth, 15% were up organic 23.9%.Slide #12. North and South America. Sales in North and South America region has increased by 1.8% during the quarter compared with same period last year. Here, adjusted for currency effects and acquisitions, sales increased by 6.6%. What we can see here is that we have a by far lower organic growth compared to last year, but it is mainly due to delays in supply of components. So growth, 1.8%, organic 6.6%. Slide #13. Middle East, Asia, Australia and Africa. Sales in Middle East, Asia, Australia and Africa has increased by 2.4%, adjusted for currency effects and acquisitions, sales increased by 15.3%. Here, especially India, Morocco and South Africa showed good growth during the period, while Turkey and Australia reduced sales. Slide #14. Slide #14, visualizes the -- how we break up the volumes in the different geographic areas of the world. So today, Eastern Europe and the CIS countries, contributed 15% of the total turnover of Systemair Group compared to 14% the year before. North and South America has slightly declined from 12% to today 11%. Middle East, Asia, Australia, Africa declined from 13% to 12%. Nordic region increased from 17% to 18%. And Western Europe is stable at 44% of our total sales. Going into Slide #15. A short notice about our acquisition of the remaining shares in the company Burda in Germany. We acquired the remaining 50.1% of the shares of the company. Burda, today develops, produces, and supplies infrared radiant heaters and heating panels and associated control equipment with several patents.Sales in 2020 amounted to approximately EUR 4 million. Burda is today's market leader infrared heaters for outdoor applications and therefore, a perfect complement to our existing Frico's product range.Next slide, Slide #16. Some of the projects we have executed in the period. For example, our entity system in Belgium has been selected supplier for the dehydrogenation of propane built by at Borealis. Borealis is building this new world-scale 750,000 tonne per year propane dehydrogenation plant in Antwerp in Belgium.Our air handling units are prescribed in this high-end explosion-proof execution, and the total value is EUR 430,000. First units are delivered in August, produced in our factory in Waalwijk in the Netherlands. Other products is fans and all the cooling equipment, will be delivered from our Systemair entities during fall in 2021.Next slide, #17. Also and as referenced in this -- in this time is that we -- from Systemair, delivers filtering solutions for this hospital in Bratislava in Slovakia. It's the Bory Hospital in Bratislava, it's the next-generation health care project. Currently under construction with the aim to open in 2022. Here Systemair are pleased to be able to deliver a wide range of our air distribution products yes, specifically, 20 of our CFC-A to this project. CFC-A is air distribution cassette behind the displacement diffuser, which compromises HEPA filtration unit. This unique hospital at Slovakia will treat patients with most complex needs, a world-class staff using state-of-the-art technology.Moving to the next slide, Slide #18. Another reference supplied by Systemair is Kanalbyen in Kristiansand in Norway. Kanalbyen is a new seaside district in the heart of Kristiansand. This project consists of 700 new apartments and has been under construction since 2018. So far Systemair has delivered 250 energy-efficient SAVE residential air-handling units for all the completed construction phase, and we are set to deliver for all the remaining phases. Moving to Slide #19. This is launched from all our Systemair entities in Europe, set to start at 1st of September, where Systemair exclusively going in a partnership with DELTRI+ for air handing units.We will be able from 1st of September to supply air handling units with its outstanding filter solution. DELTRI+ is a new efficient hygienic air filter, proven that neutralizes viruses and provides enhanced air solutions to improve the indoor air quality in building.This filter has been tested in Luxembourg at the Institute of Science and Technology and have shown proven efficiency and are Eurovent certified A+ class energy.So this is something that will be a very good contribution to indirect quality moving forward. But as I move to Slide #20. Okay, thank you and open up for questions.

[Operator]

[Operator Instructions] And there seems to be no questions, I'll hand it back to the speakers.You actually have some questions coming in now. Our first question is from the line of Henrik Alveskog from Redeye.

[Henrik Alveskog, Equity Analyst]

Okay. Hello, do you hear me?

[Roland Kasper, Group CEO & President]

Henrik, we hear you.

[Henrik Alveskog, Equity Analyst]

Yes. Yes. Great. Well, I was just wondering if you could maybe give us a little bit more color on the situation with while shortage of certain components, how you experience that now?

[Anders Ulff, CFO & Secretary to the Board]

Absolutely, Henrik. We -- actually, we have a very good, how to say, prepreparation for this issue. So we were quite well prepared with a little bit higher stocks for the urgent goods. We were hit by this during our last month in the quarter, 1 week into the last month.Actually, now it is almost everything of what we see is in the problem area is motors. And here, specifically, it's the control equipment, the control part of the motors and the cabling. This is specifically going to bigger projects and some specific motor models, and has been hitting us in both Canada and in some of the European countries.

[Henrik Alveskog, Equity Analyst]

Okay. And is there any way you can well, assess when this will be resolved and go back to normal? Is there any visibility on this?

[Roland Kasper, Group CEO & President]

I think if you look out to the normal news that we have out here, you hear similar background and information from other industrial electors. We all have the same problem, just now when it comes to electronics. And if you look at the most efficient motor combinations that are available on the market today, they are all equipped with these electronics that are just now in the shortage.We have so far and also going further, we have a good balance between the factories that we can prioritize the available components, but it has been a further shortage over the last couple of weeks, and we're working hard with our main suppliers to solve or mitigate the situation.It is actually a little bit up and down on a weekly basis for the time being. I'm not able to make a 100% prediction how it will continue and how far, how long it will continue. It is just a matter of supply of certain electronic components, the main problem.

[Operator]

And we have just 1 more question from the line of Douglas Lindahl from Kepler Cheuvreux.

[Douglas Lindahl, Analyst]

2 questions from my side, starting with inventory and raw materials. So if you've been building inventories here in the quarter. So I wanted to see if you could just give a comment on the raw material situation and pricing discussions with clients? That's my first question.

[Anders Ulff, CFO & Secretary to the Board]

Yes. I can start with the pricing discussions, pricing discussions. Of course, that's where everything started when the raw material prices increased quite dramatically. But so far, we are in the third wave of price adjustments. There hasn't been any problems with that. All customers are understanding because everyone has the same problem in all the different leads of our industry.We have the bigger, I would say, challenge when it comes to the availability of components. And as you speak it before, I had the question. It is specifically on controls on electronics, where we have an issue.When it comes to our warehouse, our stocks, what increased during the quarter is actually safety stock, but also that we have work in progress, almost finished goods, waiting for certain components did not arrive in time, which led to that we couldn't invoice and we couldn't ship. So this is a little bit what happened in our first quarter.

[Douglas Lindahl, Analyst]

Okay. And assuming this shortage issues in sort on sales throughout, I guess you will see even further sort of organic growth in the upcoming quarter, how would you see that sequentially?

[Anders Ulff, CFO & Secretary to the Board]

I would say it's hard to estimate. I can say like this, Douglas, the order intake and the market development is positive. The challenge that we have is the availability of the components. And we are -- as our subsuppliers, which are major actors on the market. We're all looking for alternatives.So it's really hard to predict or to make a good guesstimate just now. Just the order situation is really good. We have an increased order intake versus last year, very nice. And it's a good development. It's just the shortage of components with this issue.

[Douglas Lindahl, Analyst]

Okay. And component shortage, just to understand, they've obviously -- I guess, they've increased during the quarter or the issues with shortage. It has not been easier, so to say, throughout the quarter or rather the contrary to that...

[Roland Kasper, Group CEO & President]

For us for -- specifically, I think it started in the second week of July, and it has not been better since time.

[Douglas Lindahl, Analyst]

Okay. And is it possible to give some sort of similar comments on the demand situation, the development over time?

[Roland Kasper, Group CEO & President]

From what we see just now, the demand situation, when it comes to our end customers, that is stable and good.

[Operator]

And as there are no further questions, I'll hand it back to the speakers.

[Anders Ulff, CFO & Secretary to the Board]

All right. Thank you very much for calling in. And hope to see you soon again, and please don't hesitate to contact any whilst if you have any further questions. We would look forward to that.By that, thanks a lot. I hope to hear and see you soon again then at the quarter 2 report, exactly in beginning of December. Thank you.

[Roland Kasper, Group CEO & President]

Thank you.

[Operator]

This concludes our conference call. Thank you all for attending. You may now disconnect your lines.