Systemair AB

STO:SYSR

Earnings Call Analysis

Systemair Q3 Shows Resilience and Progress

In a traditionally weaker third quarter, Systemair showed strength with organic growth at 0.1%, marking resilience in a challenging period. The company is encouraged by securing strategic orders worldwide, suggesting positive growth prospects. Financials indicate a 7.1% sales decline to SEK 2,827 million, attributed to divestitures, currency impacts, and supply chain normalization post-pandemic highs. Despite lower capacity utilization and a shift in product mix causing a dip in gross margin to 33.9%, the company managed an adjusted operating profit of SEK 198 million. Strategic integrations and investments in manufacturing progress well, with new capacities expected by October 2024. Systemair celebrated a major milestone, signaling commitment to growth and innovation, supported by a healthy free cash flow of SEK 381.2 million and reduced net debt to SEK 1,079 million.

Systemair Weathering Industry Challenges with Strategic Growth and Operational Resilience

Systemair, a veteran in the HVAC industry established in 1974, has shown a commendable attempt to navigate through the uneven terrain that the recent quarters presented. Despite the traditionally weak third quarter for the company, which spans November to January, the latest interim report for Q3 2023-2024 depicts a modest yet positive organic growth of 0.1%. This figure, marginal as it may seem, is underscored with importance given the previous year's unusually formidable performance, making the current growth a symbol of persistence. The adjusted operating profit reached SEK 198 million, symbolizing satisfaction for the company amid the sea of complex market conditions.

Global Operations and Market Adjustments Reflecting Systemair's Commitment to Expansion

Systemair proudly operates across the globe with a significant presence in more than 135 countries, signaling its expansive footprint as a leading HVAC company. While there has been a slight dip in the Nordic region's contribution to the total turnover, from 19% to 17%, the stability in Western Europe with a 45% share and the remarkable growth in North America and emerging markets indicate a well-diversified and resilient market strategy. The careful navigation through regional sales dynamics, including a decline in the Nordics and Western Europe but impressive growth in the Middle East, Asia, and especially North America, further illustrates Systemair's efforts in maintaining its top-line growth internationally.

Financial Health and Sustainable Practice: Signs of Prudent Management

In an industry that has witnessed recent turmoil, Systemair has managed to maintain a sturdy financial structure. Though net sales saw a decline of 7.1% to SEK 2,827 million, this was largely due to challenging comparables and the divestiture of the AC segment. A noteworthy positive free cash flow of SEK 381.2 million and a significant reduction in net debt to SEK 1,079 million from the previous year demonstrate strong financial health. Furthermore, the company's commitment to sustainable practices has not waned, signified by the commendable reduction in the LTIFR (Lost Time Injury Frequency Rate) - a testament to Systemair's values and focus on employee safety amid growth and restructuring.

Earnings Call Transcript 2024-Q3

[Operator]

Ladies and gentlemen, welcome to the Systemair Interim Report Third Quarter 2023-2024 Conference Call. I am [ Gilta ], the Chorus Call operator. [Operator Instructions] And the conference is being recorded. The presentation will be followed by a question-and-answer session. [Operator Instructions] The conference must not be recorded for publication or broadcast.

At this time, it's my pleasure to hand over to Roland Kasper, CEO. Please go ahead.

[Roland Kasper, executive]

Thank you, [ Gilta ]. Ladies and gentlemen, welcome to Systemair '23-'24 interim quarter 3 report. Together with me, I have here our CFO, Mr. Anders Ulff, and my name is Roland Kasper, CEO.

Let's go right into the report and start with our Slide #2. To structure our quarter 3 report, we have divided it up in some agenda points. We will start off with a brief Systemair in short, followed by a third quarter quick summary and then a small strategy update. Directly after, we look into the quarter 3 financials and the third quarter order highlights. We will then, of course, conclude with the coming Q&A.

So let's jump into it and change to Slide #3. Systemair, in brief, company was established in Skinnskatteberg in 1974 by our Chairman and Founder, Mr. Gerald Engström. In our last fiscal year, we achieved a total turnover of around EUR 1.1 billion. Systemair has been listed on the Nasdaq Nordic Stock Exchange market in October 2007.

And today, we proudly operate our own sales companies in 51 countries, together with 26 factories in 18 countries. We are today about 6,600 employees in Systemair, and we have presence in sales to more than 135 countries all around the world.

Next slide, the markets of Systemair, a short breakdown of our presence all around the world. As you see, starting from the left, the Nordic region is today about 17% of our total turnover. This is a slight decrease from 19% same period the year before. Western Europe is stable at 45% share of our volume, while Eastern Europe represents 12% of our total today.

North America is continuing on a growth path and has grown to be 12% of our sales from previous level of the 11, and other markets, which covers Africa, Turkey, Middle East and Asia has expanded to 14%.

Next slide. And normalized quarter 3, Systemair's third quarter which covers November, December and January is normally our weakest quarter, with the exception for the previous year, which was unusually strong. We therefore see achieving an organic growth of 0.1% as a statement of strength.

The adjusted operating profit for the period amounted to SEK 198 million and we're very satisfied that during the period we have signed a number of strategic and large orders in different parts of the world. This shows the growth potential that lies ahead.

Following the strategic update, we also want to share that the ongoing integration of SCS Group in U.K. and SagiCofim in Italy is proceeding very positively, as also the investment in the new manufacturing capacity in both Lithuania and Germany, which is going according to plan. And we'll be able to deliver capacity upgrades in September and October 2024.

This will secure our continued growth and developments towards and beyond our 10% profit level. Menerga factory relocation is announced in November 2023, where we relocate the production from Menerga to Maribor in Slovenia, is going according to plan.

We are proud also to announce that we are strengthening our management team. We're happy to welcome Mr. Martin Dahlgren as the Vice President of Products and Technology. And in the beginning of this new year, finally, also Ulrika Hellman as our Vice President of M&A activities.

Before handing over to Anders, I want to take the opportunity to announce also our 50-year celebration. This year 2024 Systemair is celebrating its 50 years anniversary. And this is, of course, something that we really want to share with our customers and colleagues with several occasions throughout the year. Now I hand over to Anders Ulff, our CFO, for the Q3 financials. Please, next slide.

[Anders Ulff, executive]

Thank you, Roland, and good morning, everyone. So my job here is to run you through the financials. Starting off with net sales, that amounted to SEK 2,827 million compared to SEK 3,043 million last year. This is a decline in sales of 7.1%. And as you see, there is currently a trend in our organic growth figures coming down from a rather high level last year. That was due to the effects of the supply chain constraints we have back down. Nevertheless, we achieved a positive 0.1% organic growth in the quarter.

Slide #7, giving a bit more analyze on the net sales. We had an organic growth in all regions except for the Nordics and Western Europe. Acquisitions and divestments contributed negatively on sales, mainly by the divestiture last year of the AC segment, 28th of February. Total effect of M&A down negative minus 3.4%. And then finally, currency effects, also negative by 3.8% coming from several currencies converted to Swedish kroner.

Going to Slide #8, and then we come to the geographic breakdown. And here, I will focus on the organic growth rates. Starting off with the Nordics then where we saw an organic sales decline of minus 6.3%. Most countries in that region had declining sales in the quarter, but we were happy to see that the Norwegian market being robust despite its higher exposure on the residential segment. In our largest region which is Western Europe, we also saw an organic sales decline of 7.9%, but it is a bit of a mixed message. The countries in the regions are showing both positive and negative signs.

Firstly, we need to remember that we have very tough comparables with a growth of 32% last year in this quarter. We saw positive developments during this quarter in France, U.K., Spain, but negative development in, for example, Germany.

Now moving to the remaining regions that all show positive organic growth. Firstly, in Eastern Europe, the organic growth amounted to 1.0%. If we exclude Russia, then the same figure was plus 2.4%. We saw positive development in countries like Estonia, Croatia and Slovenia during the quarter.

In North America, the organic growth rate was 2.8% coming from U.S. being positive, while sales in Canada was declining mainly due to its high exposure on the residential market. In Middle East, Asia, Australia and Africa, we had very good growth of impressing 33.7%. The reason behind that was due to good sales in, for example, Maroc, Middle East and Southeast Asia.

Then we go to Slide #9. First, on overall level, Q3 is seasonally a bit weaker quarter compared to the strongest quarter of Q2. We had quite low volumes in December, and that, of course, is not good in a month with less activity due to holidays. Our adjusted operating profit margin amounted to 7.0% compared to 9.1% in the previous year.

We see this as a normalization of [indiscernible] if you compare it to the years of 2021 and 2022. In 2023, we had great volumes driven by recovery from disruptions in the component supply. In our Q3, we have also accounted for the restructuring cost of SEK 125 million for moving the Menerga production from Germany to Slovenia.

Our gross margin in the quarter amounted to 33.9% compared to 34.2% in the previous year. The decline is mainly due to lower capacity utilization but also a change in product mix. Selling and admin expenses increased by SEK 32.6 million in comparable units, and we are constantly reviewing that to adjust our expenses where needed.

Going to Slide #10. Coming to the adjusted profit after tax, pretty much reflects the same patterns as our operating profit. We had negative effects from net financials of minus SEK 62 million, where the bigger parts derived from the currency effects of loans and bank balances amounting to SEK 44.7 million and then interest expenses amounted to SEK 20.8 million.

Then we come to the cash flow, Slide #11. Our cash flow for the quarter was good, even though profits were on a lower level as communicated. Our working capital contributed positively with SEK 343.7 million, mainly due to decreased inventories and increased trade payables.

This led to a free cash flow of SEK 381.2 million compared to SEK 244.9 million last year. Our net debt is significantly lower than last year and amounts to SEK 1,079 million, which is roughly SEK 1.5 billion lower than last year due to the proceeds that we were received from selling the AC segment 1 year ago. Our adjusted leverage amounts to the very low of 0.7%.

And then my final slide here, #12, we will touch a little bit on the sustainability side, where we are extra proud to see that our work related to injuries have continuing to decrease. And we have, over the last year, reinforced our structure, processes and follow-up, and this has led to LTIFR rate of 8.8% compared to 14.8% for the last year. So we are happy to see that developing in the right way.

And by that, I hand over to Roland also to talk a little bit about orders received during the period.

[Roland Kasper, executive]

Thank you, Anders. And by that, we are on Slide #13. Ladies and gentlemen, I want to present to you some orders that have been awarded in the period. The first one here show is within the application of data centers. As you know, Systemair is targeting the more standardized installations for data centers.

These 2 orders are located in France for a total value of EUR 3.45 million. One is to be delivered to Paris after summer and consists of 44 dedicated data center air handling units. And the second one will be delivered to the area in Bretagne and includes 36 data center air handling units to be delivered between June '24 and January '25.

In the next slide, #14. In the quarter, Systemair [indiscernible] also received 2 very impressive cruise ship orders as to the so-called world-class models. Systemair will here be able to supply marine air handling units for these 2 cruise ships and the deliveries are expected to occur between September '24 and September '26 for 2 concurrent ships with a total contract value of more than EUR 9 million for Systemair.

Next slide, Slide #15. Huge investments in solar panel space by big business houses in India, one of them here shown is Waaree, 1 of the 3 big players in solar panel manufacturers and integrated energy companies. For one of the new plants, we have the pleasure to deliver 67 air handling units and 604 cooling modules for a total order value of EUR 2.2 million. As India is aiming to become the second biggest solar panel manufacturing country by 2026, we see further huge investments coming in this application area.

By that, ladies and gentlemen, I'll switch over to Slide #16 and open up for Q&A, and thank you very much for listening to our presentation.

[Operator]

[Operator Instructions] The first question comes from the line of Ragnerstam, Carl with Nordea.

[Carl Ragnerstam, analyst]

It's Carl from Nordea. A few questions from my side here. First, looking at the EBIT margin year-over-year delta down to 100 basis points. Could you help us understand a bit to what extent this is driven by the seemingly negative geographical mix during the quarter with, I guess, strong organic growth in typically less profitable markets?

And also on that note, if you could help us just bridge the AC companies? I guess they were loss-making in the comparison quarter which, I guess, helped the margin a bit during the quarter.

[Anders Ulff, executive]

Carl. Yes, regarding the -- first of all, the drop in operating profit margin. And as explained a bit during the presentation then, of course, November was good for us. December was not that good. And it is a weaker quarter us. And especially then when we see a negative organic growth in important regions like the Nordics and Western Europe, that affects our product mix and also the profitability for us. So that is the main reason behind the drop in margin for the period.

The second question was regarding AC, I suppose, 1 year ago. Roland, do you want to touch on that?

[Roland Kasper, executive]

Yes, the AC companies contributed in our last quarter 3 in '22, '23. They contributed with around about SEK 150 million in turnover. And of course, they had a rather good margins in that period of time. So that's, of course, also something that is a little bit increased.

[Carl Ragnerstam, analyst]

Did you say that they had good margins during the quarter last year or bad margin? I couldn't hear, sorry.

[Roland Kasper, executive]

No, in that quarter, they had on a -- not a normal EBIT margin target, but they were on a positive margin, yes, absolutely. .

[Carl Ragnerstam, analyst]

Okay. They were, okay, despite the low season for Asia sales. Okay. Good to know. And also, I mean, obviously, took the charge of Menerga reallocation to Maribor here. I guess, that tend to be a bit costly and less efficient for production. So could you give us any sense of what the production will be, the impact EBIT during the quarter, EBIT margin? I mean, if you adjust for the charge as well, I guess, it didn't help to move during the quarter.

[Roland Kasper, executive]

All the one-off costs coming from Menerga is included in the SEK 125 million. And underneath that, they are facing quite good volumes now. So it's a little bit both positive and negative as well, and because trying to move the production during period where they have a busy production is not that easy. So of course -- but it's hard really to quantify that single effect, if that's what you're after, what is underneath. No, we have problems really to point that out specifically, but the volumes are good.

[Anders Ulff, executive]

Yes. It's rather a challenge. As you know, it's always -- the devil is in the details, when you want to move something and then actually have good volumes. So we're trying to keep first thing first, which is to help the customers. And that's the first thing, but we are here with the allocation -- relocation. We are on time. It's going according to plan when it comes to the time line. But it is, of course, a positive impact when you want to see it like that, but we also have a rather good order intake there.

[Carl Ragnerstam, analyst]

Okay. Very clear. Sorry?

[Anders Ulff, executive]

Yes. Maybe we should say that. I mean we see this as a normalization. We are not that disappointed we are more -- I mean, what we had 1 year ago, that quarter was extreme really. So this is more back to the normal. Of course, we always hope for more, but this is back to the normal levels, really where we have been. .

[Carl Ragnerstam, analyst]

Okay. Very good. And on the order intake, you mentioned in the report that you had good activity levels from, I guess, the technical consultants orders. Is it -- I mean, is it just quotations coming? Or are they actually placing orders nowadays I mean -- meaning that quotations are converted into orders? And could you give any indication on the organic order intake development during the quarter?

[Roland Kasper, executive]

So in general, of course, we monitor several indicators, one being the activity level with the consultants of course, Carl, which is very good, and they are very occupied with future projects. But of course, we're also looking at the installers and what is going on in the market as such. So what we have been seeing is that January was a good level of -- compared to the year before when it comes to the market activities and orders. And what we see on the market is more -- is moving and more installing companies are actually very active.

If you look at the different geographies where Systemair is acting, we have positive inputs on the North American markets and overly positive on the Middle East and Asian markets. In Europe, it is -- as also described in the report, it's a little bit of a mixed picture. You have several markets where you have a lot of local activities, some of them fueled by subsidies and others by huge projects. So it's a little bit plus and minus on the European mix. So it's a little bit scattered picture in Europe. But overall, in the other regions, it's positive.

[Carl Ragnerstam, analyst]

Okay. Very clear. And the final question from my side is -- I mean, if we -- as you said, you had a negative geographical mix in the quarter where you had high sales in Middle Eastern in, I guess, Morocco and Eastern Europe as well. I mean, could you help us understand the margin trajectory within these markets? I mean, given that you're growing quite nicely there, are you seeing higher margins? Or are they structurally lower given, I guess, higher competition or perhaps higher transportation costs or whatever it could be?

[Anders Ulff, executive]

I guess the margins are, in general, you can say, better on the markets where we have a better market position. So markets like Germany, Norway, Sweden and so on are more profitable than the smaller markets, for example, in our other regions like Maroc or so. There, you have to fight a little bit harder really with the prices. Yes, the mix is different as well then so that also affects.

[Carl Ragnerstam, analyst]

But can you see that -- if you're growing by 34% now in other markets, could you see that the margin is following the organic growth? Or is it a stable margin despite the higher volumes?

[Anders Ulff, executive]

We see improving margins in that market, yes, or in several out of those countries in that region. So we have a positive development there when it comes to the margin.

[Operator]

The next question comes from the line of Dashian, Adela with Jefferies.

[Adela Dashian, analyst]

This is Adela Dashian from Jefferies. Just a couple of questions from me. A follow-up on the gross margins, where you mentioned that the change was driven by product mix. By this, do you mean that the regional mix was weaker due to the declining growth in the higher-margin areas? Or was it like actual product mix that drove it?

[Anders Ulff, executive]

Yes, we are corresponding. And this is what we touched on the question with Carl then also. We are growing more in the other markets rather than in the Nordics, really, and that is also then connected to the product mix so it goes hand in hand.

[Adela Dashian, analyst]

Yes. Okay. And then you also mentioned that activity in January was pretty good on good levels. Is this -- and do you see this in the Nordics as well that is getting progressively better? Or is it a continued slowdown similar pace as in the beginning of the quarter in current trading?

[Roland Kasper, executive]

I think it's a little bit, as also stated in the report, that also throughout January of countries like, for example, Norway was really stable for us, which is a country, for us, a good mix. And this was a good January also. So we see a little bit some signs of recovery in some countries, maybe far too early to say that everything is going well, but some good signs there. And we're very happy about that because these are the countries with a good product mix for us.

[Adela Dashian, analyst]

Yes. Got it. And then maybe also, how do you perceive your ability to continue to pay down or reduce inventory levels going forward? Like what's your expectations for the remaining quarter of the year?

[Anders Ulff, executive]

Yes. We have seen a positive development up until now. And I think right now, we have come to a more normalized level. So I don't expect a huge positive effect from reducing inventories. A little bit more, maybe, but in some cases, we also see a need now to increase inventory levels to meet some of the demand also in some countries.

[Roland Kasper, executive]

To be very specific, of course, coming into what we call our summer season, I would say, like pre-summer season, which is meaning that we need to prepare it before a high season coming, which also is for us that we need to keep a good support to our customers in terms of delivery terms. So we will be prepared for that. And this is like every year, we're coming into that seasonal.

[Adela Dashian, analyst]

That makes sense. And then just finally on the momentum that you're currently experiencing in the Middle East and Asia. What's the majority of end market exposure in these regions that's driving that good development there?

[Roland Kasper, executive]

I'm really happy to be able to answer that. It's, I mean, really, among all the different applications: it's pharmaceutical, it's new energy, it's solar plants. It's everything in that especially in Middle East. It's everything from car parts to normal residentials. It's everything in that. And that is why we're also overly enthusiastic about the development, of course, because it's not a single application. It's really the market developing as such.

[Adela Dashian, analyst]

Okay. And if you were to generalize in very broad terms, would you say that the subsidy levels there are greater in the Europe or lower?

[Roland Kasper, executive]

I would say that here you have to look a little bit differently from, for example, Middle East to -- and then to India. In India, it's -- I would say, it's something driven by government incentives. They really want to turn the country as such to be more on the front end when it comes to, for example, solar to energy, when it comes to electrical vehicles. A lot of things to be done, a little bit maybe also in the year of looking into energy efficiency and sustainability, which is, of course, a big change for a country or a region like India.

In the Middle East, it's really -- as you know, I mean, everything that is ongoing in the Middle East region to return those countries to be not only in sustainable terms, but also to be self-sufficient without looking into, for example, oils and other things. It's really to build society. And these are the main drivers in that.

[Operator]

The next question comes from the line of Douglas Lindahl with DNB Markets.

[Douglas Lindahl, analyst]

Yes. A few questions from my side as well. I wanted to start off with the organic growth. Previously, you've been really helpful in breaking out the volume and price components. So I just wanted to see if you could give some indication on that with regards to what we saw here in the reporting quarter.

[Anders Ulff, executive]

I would say that there is a very small amount of price increases currently in most markets. We have made a small adjustment, but it's a little bit up and a little bit down also on others. So that is the minor part, yes absolutely.

[Douglas Lindahl, analyst]

Okay. And going forward on price, have you -- or are you planning to do any adjustments there?

[Roland Kasper, executive]

We have a normal standard procedure that we are reviewing, the normal cost versus price and market price developments rather closely. And we do adjustments as a standardized process 3 times a year. But for the next -- which is coming in the window here, it is only minor adjustments, as Anders also indicated, a little bit plus, a little bit minus depending on different components developments. There is no big swing just currently, no.

[Douglas Lindahl, analyst]

Okay. So it should be fairly natural going forward.

[Roland Kasper, executive]

Yes.

[Douglas Lindahl, analyst]

So on -- previously, you've also given us an indication on the book for bill situation. Are you able to give some sort of color on that, would be super helpful.

[Anders Ulff, executive]

It's not something that we have communicated in this report right now.

[Roland Kasper, executive]

No.

[Douglas Lindahl, analyst]

But it's fair to assume that it's below 1, at least.

[Anders Ulff, executive]

I think you see the current trend right now in some of the markets, but it's also very positive in others also. So in general, it's hard to give a strict answer on that, really. And we have not planned to communicate anything on that topic, really.

[Douglas Lindahl, analyst]

No, I'm just trying to understand how much to extrapolate in your positive order intake comment and the delays of that really, but I appreciate it. Then on looking at your cost base, can you maybe give some comments on how you're working to adjust that and now that we're entering sort of a softer market?

[Roland Kasper, executive]

Absolutely, yes. So for us, of course, is also answered to some of the questions before that we have during the call. For us, it's a little bit plus or minus. We have sourced some entities where we have to adjust the cost base, and we have others where we have to gear up to be able to deliver on the capacity that is demanded from the customer's level. So I would say we have mostly in Europe. We have -- not everywhere, but in some spots, we have been in the process of having adopted the costs.

We have adjusted the FTE level. And in other countries, we have -- like in India, we have been gearing up. So yes, we have done quite a lot during the last 9 months in this fiscal year for us, and we are proactively looking into that, of course, constantly. But also to be very clear, as we have areas where it's growing really hard, we have some areas where we have to gear up and others that we have to adjust. So for us, it's a plus and minus all the time.

[Douglas Lindahl, analyst]

Fair enough. I understand that. And on the sort of 10% EBIT margin target, I realize it's a tougher market now, but how are things moving? Is your perception that things are moving in the right direction fundamentally structurally within your business, so to say, in terms of pricing projects and those components that we talked about historically?

[Roland Kasper, executive]

Yes, Douglas. We still see that we are moving in the right direction. The process and the underlying things that we're doing in the company and on the pricing on the market price levels, we still see that everything is according to our plan. So yes, there is no known deviation from that time.

[Douglas Lindahl, analyst]

And would you consider further sort of restructuring of your business or basically letting go underperforming assets?

[Roland Kasper, executive]

That is of course something that we are constantly reviewing, Douglas. We always do -- as we also announced in, not only our Capital Markets Day, but, of course, also in other interests, that we have an internal always ongoing plan of reviewing our footprint and our operations. If you have areas in the world, as we all know, they are -- as it is today, they are developing dynamically.

Sometimes you also have to draw the right conclusions and maybe to step out when it's needed. So we are having that with a normal process under surveillance all the time, and we have the ability to also step down when it's needed. Gladly, these days, we don't see that the mid- and long-term outlook for Systemair and for our products and our services that we bring to the market is quite positive. So we are, of course, being careful but we are positively careful.

[Operator]

The next question comes from the line of Dahl, Johan with Danske Bank.

[Johan Dahl, analyst]

Just two questions basically. Firstly, on the actions -- the CapEx project is ongoing Lithuania, Germany, automation, et cetera and also the Menerga move. Would you be able to put some sort of number to the targeted efficiency improvements from those projects? Alternatively, just express some sort of payback period on the charges you're taking from the Menerga move right now. That's the first question and possibly some timing on that.

Secondly, can you give some sort of progress update on potential redeployment of the cash from the [ air con ] business into existing Systemair business, whether you have made any progress, that will be interesting to hear.

[Roland Kasper, executive]

Maybe if I start with the first one there, Johan. When it comes to the CapEx investments that we do in Lithuania and Germany, it's about building the possibility to gear up the capacity. As you know, in Lithuania, we are actually manufacturing air handling units, but also having our center of excellence and also the development center for our residential air handling units.

The residential market, as such, looking at the European development in future, is deemed to be very, very positive. So we really need to gear up because the factory was really running on full capacity. So we are just expanding and be able to cope with future demands.

That will -- that factory and that investment will not be in full operation until beginning of 2025 as it is expected today. So we just concluded that one. In Germany, investment is actually expanding warehouse and some production capacities, also because we are running out of space. So it's more into that. And that will be finalized if everything is according to plan by end of this year, somewhere in November, December. So also not really in the plan just now, but it will come by end of this year.

When it comes to the Menerga restructuring, as we said, this is an ongoing project where the move as such is planned to be done during these next year, '24, '25 or finalized in that. And then we will take the gains out of that coming down the road, as also explained in our announcement at beginning November '23. I hope that answers your question number one. When it comes to the deployment of the cash.

[Anders Ulff, executive]

Yes. The question again, Johan, was regarding what we will do with the cash from the proceeds of divesting the AC business? Or..

[Johan Dahl, analyst]

I mean, I guess, reality changes every day and you made that divestment and you have a great return on capital employed in your existing business. I was just wondering whether sort of how you're progressing and sort of seeing the potential to redeploy that cash.

[Anders Ulff, executive]

Right now, I think we are in a quite good spot really with the current interest rates and so on. And from my perspective, as CFO, of course, it feels comfort to be on this side. And as Roland also mentioned, we have hired a new Vice President, M&A also, and we also have then the potential to continue with the acquisitions, also even though we have been in a lower activity level here for some time now. So I think we are good as we are for the moment and we are happy to have this possibility to continue to develop the business.

[Roland Kasper, executive]

If you do understand, I mean, also with our history, Johan, of course, we're looking into further expanding our footprint also into attractive applications or markets. And that is, of course, also possible with M&A. So we're quite happy to be on the spot of where it is.

[Operator]

The next question comes from the line of Henrik Alveskog with Redeye.

[Henrik Alveskog, analyst]

My first question is probably for Anders. Looking at the region, rest of the world, there is a big difference obviously between your reported sales growth and the organic growth. And if you could just help us understand, which currencies are making up for a major part of this difference.

[Anders Ulff, executive]

Yes. So there are two parts in that. I mean, currencies then, mainly from the Turkish lira then but also from the Indian rupee in that; and secondly, it is also the effect from the divestiture of the AC segment, and that makes the big difference then.

[Henrik Alveskog, analyst]

Okay, I see. Great. And then just if you could maybe comment on what you see and, well, what you expect in terms of raw material and component costs going forward? Is there anything we should be aware of here.

[Roland Kasper, executive]

Yes. Looking into those main raw materials and maybe also components -- electrical components, for the time being, as also stated earlier, we don't see a bigger, how to say, changes coming. There are some of the materials going down in costs, but others still being stable or even increasing slightly. So we think our outlook just now will be that it's balancing itself and it only will lead to minor adjustments on the pricing side.

[Operator]

The next question comes from the line of Blume, Lina with Handelsbanken.

[Lina Blume, analyst]

This is Lina Blume from Handelsbanken. The first thing I was wondering about is regarding the development in the Nordic region. Have you noticed any difference in demand comparing the beginning of the third quarter and the end of the quarter? And what are your expectations going forward?

[Roland Kasper, executive]

Yes, Lina. If you look at the beginning of our -- which is November, as already stated before, we still see rather good activities on the industrial side, especially in the Nordics. As you know, we have huge investments ongoing when it comes to not only maybe, what you call, data centers, but also we have on the energy side, a lot of things ongoing, but also in some infrastructure movements or in, for example, fish farms.

So we still see good activities in the Nordics. What everyone is looking at, which is only a smaller -- really a smaller part of our business in the main areas, of course, the residential new build, which was on a very low level. But we saw a little bit of new activities here in January. So we'll see how it will continue. We don't see that the industrial investments will slow down. It is more the average new build construct that is on a lower level, as everyone knows, based in the Nordics.

[Lina Blume, analyst]

Perfect. And then also on the back of your new Vice President of M&A, what is your view of the M&A environment at the moment regarding purchase multiples? And are there any specific geographical regions where you're currently focusing on for M&A?

[Roland Kasper, executive]

Yes. For us, it's -- for the time being, I would rather say that we're -- first of all, of course, very, very happy the Ulrika has joined the team. And we have a rather nice pipeline in M&A possibilities that we are reviewing. We see that still there are a lot of potentials. There is, of course, a different set of expectations especially mainly in the North Americas on valuations, but still a very positive and interesting market ahead of us. So we are quite active and looking into a lot of different activities there also. When it comes to regions, I would say it's rather balanced between North America, Europe and Asia for the time being.

[Operator]

[Operator Instructions] Sorry, there are no further audio questions. So I now turn back to management to take over.

[Anders Ulff, executive]

Yes. We had one question also from the webcast, and I will read it out for Roland here. What is the short-term and long-term business plan for Group SCS in the U.K. that we have acquired? And I guess by that, isn't it good also to tell a little bit more what they are doing also?

[Roland Kasper, executive]

Yes, of course, that's a very specific question, though, thank you very much, Anders. Group SCS is an acquisition that we did in U.K., and they are specialized in smoke extract ventilation and here also pressurization systems. This is, of course, something that is, especially in U.K. market, really growing application following the tragic appearances in Grenfell Tower that I assume that most of us know of.

By that and the aftermath of that, there is a change of legislation or demand on the market in U.K. when it comes to existing multifamily houses, which will develop the market rather possibly going ahead. And that for us is, of course, something that we want to be part of as we also, in the Systemair Group, we do produce a lot of the components that you need for a complete setup of these systems.

When it comes to Group SCS, what we value quite a lot is, of course, their local knowledge, but also their technical component knowledge in the application, but also integration with the whole systems. And we see that we can develop the company in a much, much better style on the whole U.K. but also take advantage of the knowledge in the rest of the Systemair Group, as we have this pressurization systems, not only in U.K., but for all Europe but also in Middle East.

And that is maybe, I think, a little bit the biggest outlook for Group SCS. First is integration locally, development locally and then taking knowledge and application knowledge and some of the products even on an international level. That is the plan that we are installing and integrating the company, too. I hope it answers the question. As it is read up from the queue, I don't see it is positively in terms of if it really answers the question of the region, but I hope so.

[Anders Ulff, executive]

Okay. If we don't have any more questions...

[Operator]

No, there are no further questions.

[Anders Ulff, executive]

All right. Okay. I guess we conclude the phone call and we wish you welcome to call in on 4th of June for our Q4 report, to see you then again. And we are, of course, available to answer any questions you might have.

[Roland Kasper, executive]

Thank you very much, ladies and gentlemen, and hope to hear and see you soon again. Take care. Thank you very much.

[Anders Ulff, executive]

Thank you.