Systemair AB (publ) (SYSR) Earnings Call Transcript & Summary

Hello, and welcome to today's Systemair financial information conference call. My name is Bailey, and I'll be your moderator for today's call. [Operator Instructions] I would now like to pass the conference over to our host, Roland Kasper, CEO. Please go ahead. Your line is now open.

Thank you very much, Bailey. Good morning, ladies and gentlemen, and welcome to Systemair short press conference in relation to the press release that we have launched today in the morning at 8:00 Swedish local time in regards to our intention to divest our commercial air-conditioner business. With me today, I also have our CFO, Mr. Anders Ulff.

Good morning, everyone. Anders Ulff here. You will find the presentation for this call on our Investor Relations web page, on the first start page under the header, Conference Call, you'll find a link to the presentation where we have roughly 10 slides that Roland will go through, and I will also do that. Thank you.

Thank you very much. So by that, ladies and gentlemen, without further ado, I'll start with the information that we have compiled in this small presentation. Switching direct to first -- or second slide here. So as last today, in the morning, 8:00, Systemair and Panasonic, we announced together that we have signed an agreement in which Panasonic intends to acquire the commercial air-conditioner business from Systemair. This transaction, though, is subject to ordinary regulatory approvals and completion of necessary HR consultations and is expected to close during the first half of 2023. This transaction is in line with Systemair's strategy to focus on its core business within ventilation, further offering the best-in-class ventilation products paired with stand-alone and integrated heat pump solutions in our products. I will now share the Slide #4, which is, I think, together with the fifth, the important one, the transaction scope. In this transaction, it compromised the company's Systemair S.r.L. in Italy, Tecnair S.p.A. Italy and the sales part of the AC sales in Systemair GmbH in Germany. This also together, as I said before, pending on regulatory approvals, also together with our French entity, Systemair AC SAS in France. So these 4 or 3 major entities that are in totally -- consolidated revenue in the last 12 months of EUR 69 million, compromising around 400 total employees and located in two manufacturing sites, in Italy and in France. The Panasonic setup for this would be that it's under the Panasonic Holding Japan, [ majored ] by the Panasonic Holding in Netherlands and directed to Panasonic Europe B.V. that would [ now ] takes care of these three entities after [ sign-offs ]. Switching to the Slide #5, which I think is the, for us, very important to explain and show the product offering of this acquisition. As you can see on the left side of this, Systemair, as a company, we're rather proud of having among the widest product offerings in our field and business. We have everything within fans. We have fan units with and without integrated heat pumps, distribution products, all residential ventilation systems products with and without heat pumps, fire safety solutions, heaters, air curtains and the air-conditioner business. Within the air-conditioner business, as shown here on this slide, will remain in Systemair all the product in our offering. Though, as you can see in the box, those being part of the acquisition by Panasonic are the chillers and heat pumps, the water source heat pumps, the fan coil units, rooftops, close control units and the accessories here, too. And these products will further on be included in long-term supply agreement so that the offering from Systemair to our customer will still be the same after this acquisition. Next slide, Slide #6, just a little bit of the history how we have come to this. The history of the partnership between Systemair and Panasonic started in December 2018. As you can see on the picture on the side, Gerald Engström, our Chairman of Systemair; and Mr. Takagi, the former Executive Officer of Panasonic, they agreed on a strategic alliance to grow our business together. You see a little bit on the right side of this picture, the perfect synergy for cross-sell innovation, Panasonic and Systemair and our partnership here on the European market. In August 2019, Panasonic changed the HVAC company structure and also announced a change in leadership where Mr. Masaharu Michiura, the current President of the HR division, also committed to bolster the relationship which, at the end, has led us to where we are today. From here, I'll switch over to the next, to the financial output, and I hand over to Anders.

Thank you, Roland. So a brief explanation of the financial impact for Systemair Group by this divestiture then. So the price, we are being paid here is EUR 100 million on a cash and debt-free basis. Since there are not much of external cash or debt in the company's cash flow, effect of this transaction is similar to the price that we are getting paid. The preliminary calculated capital gain amounts to around SEK 450 million, but it's still very preliminary, and we need to come back to that when we do the closing here during the spring. The capital gain will be reported as other operating income in our operating profit at closing in our, probably our fourth quarter or our first quarter then, depending on when we would close this transaction. Until then, Systemair air-conditioning segment will be classified as an asset held for sale in our balance sheet until closing. This business that we are divesting is more seasonal than the normal Systemair business then, so -- where 60% of the sales in this segment is during our fourth and first quarter. We can also say that this is -- most of the sales is located to Western Europe, roughly 90% and 5% is in Eastern Europe and another remaining 5% is in the other markets for us. We estimate then to close this subject to customary regulatory approvals and completion of necessary HR consultants -- consultations, as Roland mentioned, and also during the first half of 2023. Then we go to the next slide, Slide #9, and this is the impact on our sales for the consolidated group then. So reducing sales from the AC segment is roughly 7% for the group. Since the profitability in this segment is lower than the average of the group, our operating profit is expected to increase by 0.4 percentage to 8.5% on a rolling term basis. And also, since then, most of the purchase price is affecting the cash flow, we expect to lower our debt also from SEK 2.6 billion to SEK 1.6 billion, meaning that the leverage will go from roughly 2 down to 1.26 after the transaction has been completed. Then I hand back to you again, Roland.

Thank you very much, Anders. And I think by that, we will open up the lines for questions, ladies and gentlemen.

[Operator Instructions] Our first question today comes from the line of Carl Ragnerstam from Nordea.

It's Carl here from Nordea. Obviously, it looks like a very nice divestiture. So first of all, would you say that the divestiture will lead to any operational nonrecurring items seen in Q2, such as advisory or similar, which will impact results?

Not in Q2. That will come later on at closing, I would say. So we don't see any big financial impact during our Q2 results from this transaction.

Okay. Very good. And also, could you positively give any flavor on the capital structure of Airwell and also give some, I guess, early indications on the preliminary divestiture allocations?

Roland, can you explain the...

How will the balance sheet look post divestiture?

Yes. I mean what we have here, we have two factories also. It's the building values and I would say, it's book value of roughly EUR 10 million standing in these two companies. And operation is financed internally through our cash pools really. So -- and as I said, we will let the -- cash flow effect is roughly the purchase price, and that will be used then to decrease the loans to start with for the group plan. So that will be a positive effect then on the leverage.

And do you -- as of now, do you see foresee any regulatory risks with Panasonic buying these assets? I guess they have a very small presence in both France and Italy, right, with several products at this, right?

That's correct.

We don't see any real risk now.

Okay. Very good. And the final one from my side is with your net debt-to-EBITDA coming down one notch post divestiture, what is sort of your view of the balance sheet and your leverage? Would you keep sort of a lower than historical leverage in order to be prudent ahead of potentially, at least weakening European construction market? Or will you accelerate M&A to use the cash for maybe increase dividend? I know it's up to the Board, but would nice to hear your thoughts on it, at least.

Of course, Carl. It's very nice to have a better leverage, but we have, of course, as you know, that's part of our strategy to also be very active on the M&A side. So this, of course, gives us a good base to stand on.

[Operator Instructions] Our next question comes from the line of Anna Widström from Handelsbanken.

I have two questions. Basically, I'm a bit curious on the quite recent acquisition of Tecnair. Was that -- like how -- when did it stand sort of starting to rise? And was this sort of in your plan when you looked at that company in January?

Yes, Anna. That's a really good question. We actually -- we concluded the acquisition of Tecnair almost fully when this opportunity came up and we were approached by Panasonic. And we understand your rationale for Panasonic seeing this acquisition to have in Tecnair, which was a really good completion of the offering, and of course, also a very good add-on to the operations in Barlassina, Italy, to our factory. It actually a really well sense and Panasonic realized that and that product in this process. So it was not really our intention when the doing the Tecnair acquisition to go in this way. It came afterwards.

That's very clear. And as you mentioned, your sort of M&A strategy going forward is quite ambitious. What sort of -- because previously, you've been able to look at companies such as Tecnair. What do you think your scope of M&A will be going forward as you're now trying to focus on the ventilation side rather?

Yes. We are looking to strengthen our offering within certain applications and product areas. And of course, when we see the outlook for the European and maybe also the North American markets, we have certain areas that, of course, will grow very well and be a part of the transition to the green levels. And here, especially, of course, indoor air quality, talking about all of possible fan applications, talking about residential ventilation with and without heat pumps. So all of this scope will, of course, be in our interest for future.

[Operator Instructions] There are no additional questions waiting at this time. So I'd like to pass the conference back over to Roland Kasper for any closing remarks. Please go ahead.

Thank you, Bailey. And thank you, ladies and gentlemen, for joining our little call here for the explanations. Of course, any other questions arising, you're free to approach us any time. We'll be very happy to answer those questions then. And otherwise, we'll hopefully see you here back at our quarter 2 report in December. And thank you very much from my side. Take care.

Thank you very much.

Thank you. This concludes today's conference call. Thank you all for your participation. You may now disconnect your lines.