Systemair AB
STO:SYSR
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Systemair AB
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Hello, and welcome to the Systemair Interim Report Q1 2022/2023 Conference Call. My name is Lauren, and I will be coordinating your call today. [Operator Instructions] I will now hand you over to your host, Anders Ulff, CFO, to begin. Anders, please go ahead.
Thank you very much. Good morning, everyone, or good lunch to everyone. We are sitting here in lovely Skinnskatteberg, the day of our Annual General Meeting here today at 3 O'clock. We hope you can hear us well and clear. You find a presentation on our Investor Relations homepage and quarterly report.
And I will start with handing over to Roland then for the presentation. So let's go ahead.
Hello, ladies and gentlemen. My name is Roland Kasper, and I'm very happy to be able to present our quarter 1 report '22/'23 to you. And by that, going directly into the presentation on Slide #1. A short recap of Systemair. Systemair company established here in Skinnskatteberg at our headquarters in 1974. Our last fiscal year, we had an annual sales of EUR 960 million. We are listed on the Nasdaq Nordic Stock Exchange Market since October 2007. Currently, we have our own sales companies in 52 countries. We have our production facilities in 21 countries, and we employ 6,800 people in the Systemair group. Our last fiscal year, we exported to 135 countries all over the world.
By that switching over to the next page, Page #3, in counting. And here, we're running directly into our quarter 1 report. In the quarter 1 for our year '22/'23, our sales amounted to SEK 2.84 billion compared to SEK 2.29 million in the same period the year before. That amounts to a growth of 24.4%, whereof organic 14.3%. On the right side of that Slide #3, you can see the organic growth development rolling 12 for the past years. By that, I'm changing over to Slide #4 to break down the growth to make this growth analyzed for our first quarter. For the organic [ growth ], all regions showed good organic growth in the first quarter. Then by acquisitions, it is mainly an impact from the acquisition of SagiCofim in Italy. And then by strengthened currencies, the Euro versus U.S. dollar and the Canadian dollar is now at 5%. So in total, organic 14.3%, acquisitions, 5.1%, currency 5% and in total, 24.4% growth in the quarter.
Next slide, Slide #5. Our operating profit in quarter 1. The gross margin for the group decreased slightly to 34.6% against 34.8% a quarter before -- a year before. Sales and admin expenses for the quarter increased by 15.4% for comparable units. And the operating profit for the first quarter thereby increased to SEK 269.6 million compared to SEK 209.6 million. And by that, the operating margin increased to 9.5% compared to 9.2%. As a recap, our quarter 1 in '21/'22 was SEK 210 million at 9.2% and now in quarter 1 '22/'23, SEK 270 million and 9.5%.
Next slide, Slide #6. The profit after tax in the first quarter. Our net financial items for the first quarter amounted to negative SEK 3.8 million. The currency effect on long-term receivables, loans and bank balances amounted to a net of SEK 7.5 million. The interest expense for the quarter amounted to SEK 10.6 million. Altogether, the profit after tax by that amounts to SEK 217 million compared to SEK 157 million in the quarter the year before.
Switching to Slide #7. Cash flow analysis for the first quarter. Our cash flow from the operating activities in the first quarter this year amounted to SEK 309 million compared to SEK 249 million the year before. The change in working capital, though, amounted to negatively SEK 373.8 million, which is mainly due to increased inventories, an increase of SEK 216 million and trade receivables increase. The net investment, excluding acquisitions, amounted to SEK 87.7 million, which primarily is machine investments, the final steps in Czech Republic, in Sweden and in Denmark. So thereof, the amounting free cash flow amounts to negatively SEK 152.5 million, which brings our net debt in total to SEK 2.6 billion compared to SEK 1.5 billion in the same period the year before.
Switching to Slide #8. Looking at the markets and overall in this pie chart given on this Slide #8. As you can see, starting from the left side, Eastern Europe & the CIS countries are decreasing from 15% to 13%, mainly because of our stop of deliveries to Russia. Then North America is increasing from 11% to 12%, and Western Europe is increasing from 44% to 46%, and the Nordic region slightly decreased to 17% from '18. Other markets as called, are stable at 12% as the market share of the total. By that, I would like to go a little bit more into details on the different markets, starting with Nordics with the next slide, Slide #9. Sales in the Nordic region increased by 20.9% during the fourth quarter compared with the same period the year before. Adjusted for effects of foreign exchange and acquisitions, sales increased by 16.8%. And here, it is very gladly to see that all markets showed good growth during this quarter. So again, growth 20.9%, whereof, organic 16.8%.
Next slide, Slide #10. Western Europe. Sales in the Western European market increased during the quarter by 28.1% compared with the corresponding period last year. Here, adjusted for foreign exchange effects and acquisitions, sales increased by 13.3%. And also here, all markets in the region showed good growth in the quarter, mainly driven though by Spain, the Netherlands, Italy and Germany. Again, growth 28.1%, whereof, organic 13.3%.
Next slide, Slide #11, Eastern Europe and CIS. Sales in Eastern Europe and CIS increased by 9.7% during the quarter. Adjusted for foreign exchange effects and acquisitions, sales still increased by 2%. Of course, sales in Russia declined sharply during the quarter because of deliveries to Russia being stopped. Major markets that showed good growth in the region were Czech Republic, Poland and Slovakia. So growth, 9.7%; organic, 2%.
Next slide, Slide #12, North America. Sales in North America increased by 28% during the quarter. Adjusted here for foreign exchange effects and acquisitions, sales increased by 10.1%. And here, in particular, the Canadian, but of course, also the American market showed good growth in the quarter. Again, growth, 28%; organic, 10.1%.
Switching to Slide #13, Middle East, Asia, Australia and Africa. Sales in these regions increased by 31.3% compared with the same period last year. And here, adjusted for currency effects and acquisitions, actually, the sales increased by 34.1%. Especially India, Morocco and Australia showed good growth during the period, while sales in Turkey decreased due to the currency effect in Swedish kronor. Growth 31.3%, whereof, organic 34.1%.
Switching to Slide #14. Some information, Systemair partners with Mar del Sur in Chile. Systemair signed an agreement in the quarter with Mar del Sur to strengthen the partnership and the collaboration between the company. By this, Mar del Sur now has the exclusive right to distribute Systemair products in Chile, replacing the local Systemair sales company. Mar del Sur, which is established in 1974 imports and markets quality products with focus on HVAC and providing excellent after-sales service. This is also following the steps of Systemair as we also have withdrawn from the Brazilian market and now have an exclusive partner for the market in Chile.
Next slide, Slide #15. We're very happy also here that we had the opportunity in the quarter to attend one of the exhibitions that have been postponed several times due to the pandemic for the last 2 years. So Systemair presented our complete HVAC solutions and portfolio at the Mostra Convegno Italy in Milan. And after 4 years of absence, it felt extra special to meet with industry peers, partners and customers in person. We showcased all our efficient and green products, which is in line with the events pushed for HVAC technologies that are increasingly respectful of the environment.
Next slide, Slide #16. As an information, Italian Authorities have approved Systemair's acquisition of SagiCofim S.p.A. As announced on the 7th of April in 2022, the agreement to acquire all shares in Italian company SagiCofim was done. The purchase was now meanwhile approved by the Italian Authorities and the closing took place in June 2022. To remind you, SagiCofim is an international supplier with extensive experience in air filtration and in air distribution. The company produces highly efficient air filters of HEPA and ULPA class. Also in Sondrio in the Valtellina Valley, the company manufactures products for air distribution. The company's consolidated sales in 2021 amounted to approximately EUR 36 million with an EBITDA result of EUR 4 million. The company today employs around about 200 employees.
By that now switching to the last slide to say thank you for listening to our quarter 1 report and open up the lines for questions. Thank you very much.
[Operator Instructions] Our first question comes from Carl Ragnerstam from Nordea.
It's Carl here from Nordea. A few questions on my side. Firstly, you delivered quite nice organic growth in the Nordics, surprisingly strong 17%. Are there any larger projects you have delivered in the quarter, which could have driven the higher growth, especially -- I think it's especially strong given the component shortages you have had in that region. So could you elaborate a bit on what's behind the growth? And also have you seen an easing component shortage situation in the Nordics?
Yes, Carl. In general, there are no major, I would say, big projects that we have seen in the quarter. It is, I would say, more that some of the product groups that have been on a shortage for the last 6 to 9 months, we could deliver throughout this period, especially when it comes to residential projects. In general, the component issue or the component shortage that we see all over the world, and everyone is talking about, I would not say -- yes, it's a little bit easier, a little bit better, but not good. We still have a lot of restraints. It just varies if it's motors, if it's processors, if it's cable, it varies a little bit. It's becoming a little bit easier but not good.
And that's global? Or is it just for Nordics?
Nordics rather global.
Very good. And also raw material headwinds, you've had headwind. Could you perhaps quantify the impact on the EBIT margin? Or is it fair to assume that the slight gross margin drop is an indication of the magnitude of the raw materials headwind you had in the quarter?
The drop in gross margin was 0.2%, Carl. It's not because of that. I would rather say that as you see the ease or if you can call it, some of the easier possibilities to get the raw material components that nevertheless mean that you have to be rather dynamic in the planning of the production and the supplies to our customers. So that is rather a mix just now. It is not because of a special ingredients or components or raw material that is affecting this.
Because our price increases are catching up also. So they are beginning to have a full effect.
And are you -- will you be fully compensated as of Q2 or...
No, no. No, we will continue with price increases also. So we have announced that from 1st of September, the next month. Yes.
We still have [indiscernible]
[indiscernible], sorry.
Sorry, Carl. We still, of course, see that some components are still going up, of course. Some raw materials are actually flattening out or even decreasing, but still, for example, energy costs are going up quite heavily in several places where we have manufacturing, which, of course, has an impact that needs to be compensated for.
Okay. So the price increases as of 1st of September or September at least, will they compensate for energy cost as well?
As it looks today, but we need to look at how the development will be for the next couple of months. As you are reading in every newspaper or any media you get today, it's a little bit unstable outlook how this will establish itself in mid-Europe, Germany and other countries. How will it really look like? It's not really fair to say that we understand that today.
And also looking at the number of employees or changes in the number of employees, which as stated in the report, we can see that it's quite big changes in Menerga and also in the South African business. Are you sort of cutting back the South African business a bit given that it's been less profitable for a while? Or how should we interpret those numbers?
I think regarding specifically South Africa, I see the reason is that we have been working on a major delivery there on a data center project. So it's due to that more than something else.
That's been temporary workforce.
But on the Menerga side, it has been cutting down on staff rearranging a bit also due to problems to meet up and deliver due to component shortages.
As you remember, Carl, we have been talking about that we have been sending some of the production from Germany to our plant in Slovenia, which has now finally been closed and is done. And by that, of course, we have rearranging staff also.
Okay. Very good. And the final one from my side. You've had -- or you have residential exposure in your U.S. business given the weakening consumer confidence, have you seen a more muted demand from the Russia side in the U.S.?
Clear answer, no, not at all. Just to give you a [indiscernible] -- just to say this, what we still see is that in U.S., especially, they are changing the building code starting in California, in Texas and Arizona. And that will most probably also now play over to other states in the U.S., and this new building code is actually demanding balanced ventilation in residential premises, which has not been before. So the market has an underlying growth driven by legislation.
Our next question comes from Hjalmar Jernström from Erik Penser.
You mentioned in the report that the price versus -- price increase versus volume contribution. I was wondering if you could provide some details on the specific situations in the Nordics and Western Europe in terms of that, please?
You mean the share of the organic growth that comes from price increases and what comes from organic growth or volume growth?
Yes, yes, that's correct.
Yes, the organic growth, as you could see in the report has been today at 14.3%. And we would see today that of this organic growth, it's around about 5% is pure organic, and the rest would be driven by price increases.
All right. And I was wondering, exiting the quarter, do you see any trends? Could you provide some flavor on the commercial versus residential trends? Anything you see live in the quarter, please?
It's very hard to see a specific residential versus commercial. We see more renovation versus new builds, where renovation is increasing stronger. The residential part has been increasing for the last 2, 3 years. And I would say, driven by the energy shortage and discussion that you have actually in the news all over Europe today, I would see that continuing.
All right. And finally, one long-term question. You mentioned that 42% of your revenue to your estimate then is taxonomy-eligible. Could you just remind us again on your expectations on the taxonomy and the pace that you expect this to materialize looking forward, please?
I would say to that, we would like to wait to comment on that until little bit further on here because it's still quite fluent material for many companies. But -- so we are still discussing about classification of certain products, really due to, I mean, what kind of energy classes they belong to and so on. So I would like us to come back to that a little bit further on the coming reports really, because this is a work we need to spend more time during the fall.
[Operator Instructions] Our next question comes from Henrik Alveskog from Redeye.
Yes. You covered almost everything now. But could you maybe describe what were the sales numbers in Russia? I guess you still had some business there during the quarter. And if you could tell us, is it now down on a very extremely modest level, just to give us an idea on how -- yes?
Yes. I understand. I understand. Yes, Henrik, it is decreasing steadily, yes, of course, quite heavily also, as also mentioned shortly in the report. We have -- after the quarter report, we have also been closing down sales offices, and we have withdrawn from the big office in Moscow and relocated people. And a lot of people have already been leaving us. So it's on the down in terms of sales.
So currently, it's extremely modest?
Yes, correct.
Okay. And just also if you -- regarding, well, potentially underperforming units, if you have identified any new ones that you will target particularly?
I would say on the contrary, I mean, we have talked about our air conditioning segment for quite a long time, and it's really -- we're doing really good business in that segment for the moment. Still, we have a lot of things we would like to accomplish with the American business. But I guess the list is more or less the same as before. And as you have seen then in the last quarters also, I mean, we are bit by bit closing down the operations in South America due to downtraders. Now we have also transferred the business in Chile, as Ron mentioned there in this presentation.
And also as mentioned from one of the colleagues before, I mean, we have transferred now according to plan the operations that we wanted to do up until this point from Menerga to Slovenia. So we're following those plans. And as Anders mentioned here, what we see in the business development, for example, for the French and Italian entity, is really nice this quarter actually. It's really profitable.
Okay. And regarding the latest acquisitions, is there potentially any, well, integration restructuring costs that could arise?
The latest acquisition, as we talked about, we'll start with Tecnair. Tecnair, as already explained when we acquired them, day 1, we started to move them in into our premises in Barlassina in Italy, that has been -- it was actually concluded within 2.5 weeks. We're really happy about the integration works really well and is outperforming its year before figures and results. So this is very positive for us. And when it comes to the SagiCofim operation, it's rather that -- the opposite in that part, they're on a very good positive development, and we are looking at how we can expand the capacity actually because as you can understand, the filtration business, of course, within ventilation is really interesting these days, especially, of course, also following the pandemic. So it's rather the opposite. We need to find more capacity.
We currently have no further questions. I'll now hand you back over to the Systemair management team for closing remarks.
Okay. Ladies and gentlemen, it was a pleasure to hosting you during our quarter 1 report. Thank you very much.
Yes. Thank you very much, and you're all, of course, very welcome to contact either me or Roland, if you have any further questions. Otherwise, we see you for our Q2 presentation then on 7th of December, I guess it is.
Yes.
Thank you for calling in.
Thank you very much. You all take care. Bye-bye.
This concludes today's call. Thank you for joining. You may now disconnect your lines.