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

Welcome to Systemair Q1 2025-2026 Report Presentation. [Operator Instructions] Now I will hand the conference over to the President and CEO, Roland Kasper; and CFO, Anders Ulff. Please go ahead.

Thank you very much. Hello, everyone, and very welcome to the presentation of our first quarter report for the year '25-'26. We, Roland and myself are today in Skinnskatteberg for our Annual General Meeting, and we expect a fairly well-visited event. We will now kick off with a rather short presentation of the Q1 report, and then open up for questions. Presentation is available on our Investor Relations website, as usual. And by that, I hand over to Roland to start off the presentation.

Thank you, Anders, and yes, hello, everyone. Roland Kasper, the CEO, so nice to be able to present this report to you. I'll start directly with our second slide with the agenda. So we will first have a short Systemair and brief, then we'll look at the first quarter summary, and then we look into the quarter 1 financials, and some highlights on sustainability projects and products. And after that, of course, we will conclude this presentation and open up for Q&As. And going directly into Slide #3, Systemair in brief. We are operating based on our core values of simplicity and reliability. Our business concept is to develop, manufacture and market energy-efficient high-quality ventilation products. With our customers in focus, we are determined to meet their expectations on delivery, reliability, availability, sustainability and of course, quality. As you all know, the company was established in Skinnskatteberg in 1974 by our Chairman and Founder, Mr. Gerald Engström. In our last fiscal year, we achieved a total annual turnover of around about EUR 1.1 billion. Systemair was 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 19 countries. And with about 6,900 employees in Systemair, we are present and sell to more than 135 countries around the world. And by that, going directly into Slide #4. A short strategic update of our first quarter. We recorded a further positive growth trend in all markets, except Eastern Europe, and this despite the challenging market environment we see around us today. In the quarter, we also made a nice acquisition of the company NADI in India, a leading producer of industrial fans. I will come back to that later in this presentation. We also acquired a new manufacturing facility in the Kingdom of Saudi Arabia to meet the capacity demands that we see in that region. Some other recent highlights in the quarter. At the recently concluded Eurovent Middle East Meeting Systemair Public Affairs representatives were invited to join and share its expertise in the roundtable discussions. As you know, Systemair as a Group is proud to be a driving force in shaping the future of ventilation, actively contributing to more than 50 industry associations worldwide. Every quarter, we also proudly present some of the product launches that we bring to the markets. Here in our first quarter, we successfully launched a major product, which is our new fire dampers and backdraft dampers from our Systemair Slovakia factory to the European markets. For us, the serviceability, ease of installation and certified performances are at top level in these fire safety products. And then going into the next slide, Slide #5 and looking into the markets. So let's have a look at the markets in the quarter. As you know, we have a global and diversified customer base, which provides us with a solid foundation for this profitable growth. Looking at the different regions, starting with the Nordic region, which is -- which represents 14% of our total turnover in the quarter same -- as the same quarter last year. Western Europe has 45% share and is thereby compared to the same quarter last year, an increase from 45% to 46% share of our total turnover. Eastern Europe, stable at 13% share; and North America shows a smaller decline from 13% to 12%. Other markets, which, as you know, incorporates North Africa, Turkey, Middle East and Asia, is continuing its growth path and shows a stable 15% share of our total share in the quarter. By that, we continue with a closer look at the financial outcome in the quarter, and I hand over to Anders.

Thank you, Roland. First of all, the net sales amounted to SEK 3.094 billion compared to SEK 3.111 billion last year. This corresponds to a decline in sales of minus 0.6%. The decline, however, relates mainly or only to currency conversion effects. Organic growth was positive with 5.7%. We can conclude that the fourth quarter in a row, we are reporting organic growth in a relatively slow, but recovering market. Slide #7. To give you a bit more details behind the net sales development, we saw organic growth in all regions, except for Eastern Europe. In this quarter, there are no acquisitions affecting the growth figures and the acquisition of NADI in India will be consolidated starting from the next quarter, our Q2 report. And then finally, currency effects. The strengthened Swedish krona resulted in negative effects on sales by minus 6.3%. Our main currency exposure is towards the euro and Canadian and U.S. dollars. Going into Slide #8. We come then to the geographic breakdown, and I will focus on the organic growth rates for each region then. Starting off with the Nordics, where we saw a growth and a positive development also in this quarter in Sweden, Finland and Norway. The Danish sales declined slightly in the quarter. All in all, a continued positive organic growth in this region of 6.4%. In Western Europe, we saw organic growth of 5.8% for the quarter. Within the region, we experienced a positive development in Netherlands, Italy and Spain, while the German market is still not on track along with countries such as U.K. and France. We are although happy to see yet another quarter with positive organic growth in Western Europe. In Eastern Europe, we experienced a weaker quarter with organic growth of minus 0.7%. Sales increased in Czech Republic, Slovenia and Estonia, while Azerbaijan, Lithuanian and Poland declined. Last year, we did some project deliveries in Azerbaijan and sales in that region tend to be quite volatile from quarter-to-quarter due to the high share of project-driven sales. Going then into North America. The organic growth rate was 1.4%. We saw good growth in U.S., while Canadian sales contracted. There's a stable demand in North America on our commercial and residential products, while school ventilation is currently on the lower level than 1 year ago. The ongoing tariff discussion is creating a more volatile market. As described earlier, we have a regional production strategy with factories, both in U.S. and in Canada. And if needed for economic reasons, there are possibilities to transfer production volumes from Canada into U.S. to mitigate these effects. At the moment, we are only affected by minor effects from the tariffs. In Middle East, Asia, Australia and Africa then we had an organic growth of 14.3%. This increase was mainly driven by increased sales in India, Saudi Arabia and Turkey. In India, we had, in last quarter, some delivery constraints, while moving the production in Hyderabad, but that is now all solved, and we are back to normal delivery capacity. All in all then, the total organic growth amounted to 5.7%. And then Slide #9. Our gross margin for the quarter was again strong and amounted to 36.4% compared to 36.0% in previous year. We are really happy to see this continued positive development. This is due to the contribution from implemented restructurings, cost reductions, but also favorable product mix, despite also the negative effects from currency, especially in our Swedish operations. Our adjusted operating profit amounted to SEK 288 million or an operating profit margin of 9.3% compared to 9.8% in last year Q1. The adjustment for the quarter relates to capital loss in an associated company of SEK 5.7 million, and costs related to the replacement and hiring of a new CEO of SEK 14.6 million. Selling and admin expenses in comparable units increased by SEK 28.5 million. Going now to Slide #10. Profit after tax amounted to SEK 193 million compared to SEK 210 million last year. Net financial items for the quarter were negative by SEK 2.7 million compared to minus SEK 16.8 million last year. Currency effects on bank balances and loans were positive and amounted to SEK 12.4 million. Interest expenses amounted to minus SEK 12.4 million compared to SEK 15.6 million, 1 year ago. Tax rate for the period amounted to 27.3%, which is more or less in line with last year, with a cost for the tax of SEK 72.4 million. And then Slide #11. This would be my last slide. And a positive cash flow development for the quarter, despite an increase in the working capital of SEK 91.6 million, we achieved a free cash flow of SEK 108.4 million compared to SEK 91 million same quarter last year. Within the working capital, the increase in inventory and trade receivables was less than last year. Net investments in the quarter amounted to SEK 109.7 million, mainly relating to investments in our factories in Saudi Arabia, Sweden and Norway. Looking at the debt situation, we continue to decrease our loans, and it amounts to SEK 830 million currently compared to SEK 1.56 billion, 1 year ago. Our adjusted net debt to EBITDA amounts to the very low 0.52, and we have plenty of headroom for strategic M&A and further investments going forward. And by that, I hand back to you, Roland.

Thank you, Anders. And changing to the next slide, which is #12 and here coming back to that I already mentioned in the beginning of this presentation that Systemair acquired NADI air technologies in India. In August, we completed the acquisition of NADI Airtechnics Ltd. This company with more than 70 years of experience in designing and manufacturing industrial fans with the company headquartered in Chennai in India, where they are producing high-performance, centrifugal blowers and axial fans for multiple advanced applications and today have an annual revenue of around about EUR 13.5 million and 220 employees. Their actual achieved profitability is slightly above Systemair's target margin. And NADI will not only strengthen our position in the growing Indian market, but will also bring valuable expertise with very strong potential for international expansion to the Group. With that I go to next slide, Slide #13. Next slide, Slide #13, ladies and gentlemen. As Systemair carries the brand Menerga and its units proudly in our product portfolio, we, of course, also want to highlight what we can achieve with this. The Menerga units are designed for highest possible energy efficiency in humidification. That's why we're proud to be able to present this new product where we are part of the new way to build community swimming pool halls. The structure of this new building is designed with 30% to 40% less concrete, resulting in a significantly reduced CO2 footprint. It also incorporates substantially more wood in the main construction. We're in the Nordics, highlighting sustainable building materials, of course. With our unit as base, it features a unique energy saving solution with Menerga as key partner in achieving this outstanding efficiency. The project itself is located in Nacka, Stockholm, and consists of a new swimming pool facility and surrounding installations. This building will cover a total area of 5,300 square meters and the project schedule is running from 2025 to 2027. Very exciting, and we look forward to its inauguration. Switching to next slide, ladies and gentlemen, Slide #14. Systemair is proudly supplying axial fans for demanding environments here in Stockholm. Systemair has been entrusted to deliver ventilation solutions for the Stockholm Metro Blue Line extension, a major infrastructure project expanding the line from south to north and serve the route and the extension that will increase the capacity between the North and Southern Stockholm and enable new housing developments in the region. The order includes jet fans and axial fans for emergency and tunnel ventilation across 7 new stations. This long-term project underscores Systemair's strong position in providing tailored energy-efficient and sustainable ventilation solutions for complex infrastructure investments such as metro, tunnels, railways and airports worldwide. This Blue Line extension is scheduled to open in 2030. Going to next slide, Slide #15. This is the last project I would like to highlight in this presentation is the new swimming pool project at Krško, in Slovenia. Systemair Slovenia secured this project for a new public investment for the Krško swimming pool facility. The delivery includes not only air handling units along with water-to-water heat pumps, which are integrated into the hydraulic system for sanitary water, but in addition the project features a Menerga Aqacond heat pump solution that recovers energy from wastewater generated by the pool filtration system. This order is a showcase of advanced technical solutions and clearly shows that our sales engineers have the competence to combine our products to high efficient and sustainable solutions. Next slide, Slide #16. As you know, ladies and gentlemen, we have already established our first Made in Saudi production in Riyadh in Saudi Arabia. Though for us to continue to grow according to the market demands, Systemair will have to expand capacity, the offering and shorten the delivery times. The solution to this problem is our new acquired facility, which allows us to do so. Our new production facility in Saudi is our second in order. We take a next big step forward in the local expansion with the establishment of this new factory facility located in Modon Industrial City, one of Saudi Arabia's most prominent industrial hubs. With this new plant, which is covering 13,500 square meters, we are considerably enlarging our production footprint. The new facility will increase our capacity to meet growing demands in Saudi for a wider range of Systemair manufactured products Made in Saudi Arabia. The launch of this new factory is scheduled for October this year, and will begin its full-scale production by January 2026. And by that, ladies and gentlemen, I switch over to Slide 17 and open up for Q&A. Thank you so much.

[Operator Instructions] The next question comes from Joen Sundmark from SEB.

So if we start with the organic growth development, it seems like Q4 was sort of a bump in the road negatively. Is it fair to sort of say that the momentum that this is now could continue similarly positive and maybe accelerate even, or do you rather see more uncertainty in the horizon now that you have sort of entered H2 in the market?

I would say then, if I start to respond a bit on that, for the Nordics and Western Europe, I mean, the trend has been positive now for several quarters in a row. So I think we can expect that to continue like that, maybe not 100%, but still positive note, so to say. Eastern Europe more volatile, but we don't see any fundamental problem in the demand there. And then U.S., that was maybe a bit more negative last quarter, now more back to the normal situation, but of course, then due to tariff discussions and everything else ongoing there that we can expect some turbulence, but -- and in the other regions, we see a positive. What we had last quarter there with the closure of the factory in -- or the move of the factory that was a onetime effect.

Okay. That's clear. And then in terms of the German market, it seems to continue to decrease. Are you seeing any signs there of improvement? Or what's sort of your base case for the rest of the year in Germany?

Yes, that's, of course, a really good question, which is hard to answer. For us, in Germany, we, at least, for our business today, we'd rather see a flattening out it's not further decreasing, but it's flat and stable. The question, of course, is when will it turn to be a clear -- a positive increasing business? I cannot say that today. It's a little bit too vague. If you look at the available normal outlook by 2026, it is at least forecasted to be on a positive again. But it's too early to say something actually here.

Okay. That's clear. And then final question on the gross margin. So do you expect this level to be sort of where you're at now, or do you think that there's more to be done to even get it up a bit further going forward?

Yes. I mean, this is a long-term project for us to improve the gross margin. And I think what we are seeing right now is also partly the effects of the relocation of the production from Menerga in Milan to Slovenia, but there are various reasons behind also then. And of course, within an organic underlying growth in the Nordics and Western Europe, I think we could be fairly optimistic here going forward. But -- and then you have also a little bit -- we had the currency against us also, so there could be more.

The next question comes from Carl Ragnerstam from Nordea.

It's Carl here from Nordea. A couple of questions from my side as well. Coming back to the gross margin, 36.4%, could you help us split up the different parameters here? You mentioned FX also touched upon mix in the report. Because given the organic growth you are presenting, it feels like you don't really get the sort of drop-through it discerns sort of. So how should we think around the operating leverage here on the gross margin in the quarter?

We haven't specified that in the report, as you see. And of course, I mean, if we talk about, for example, the restructuring done in Menerga, that is a project that is going step by step. And sometimes you follow the plan or sometimes you fall a little bit behind. And I think there's also a learning curve on the receiving entity here also, and that is also happening as we go along. So I don't want to give any specific figures there. They all count in here really. If we look at the currency effect, there maybe I can help you a little bit with the figure then we have specified in the annual report, I think that it's around 5% change in currency of euro-SEK, it gives an effect of roughly SEK 60 million, I believe. And I would say that half of that relates to the Swedish business really and which is having a headwind then, which is not really change in the sales, but it's only change in the profit margin since they have a loss of turnover in euros, if that's clear? Yes. But as -- and I also, I always point -- you know, you have this.

Okay.

Now if I go to the final word here, regarding we have a project-driven business also and that affects the margin as well, and that's the mix problem here really to specify how much that is.

So it was a negative mix in the quarter?

In this case, we -- yes, it depends on where you have the projects as well. If you look only on Eastern Europe, it was more positive than since we had these deliveries to Azerbaijan last year, but in that specific case, maybe the margin was not that bad. So it varies. I'm sorry not to be able to give a more clear answer here, but it's a lot of...

Okay. Fair enough. That's fair. And also touching upon the gross margin here. In India, is, of course, great to see the numbers that you're recovering nicely with the production ramp-up. When you're doing a production ramp up in, let's say, this case, India, what are the margin impacts on the gross margin level when you're ramping a production that heavily? Does it lead to inefficiencies, or is it a usual drop-through, you'd say?

Yes. In India, as it looks today and those projects that we are serving with our strategy that we're following in India, as you know, we're only going for, let's call them, the high-quality projects around the top of the positioning levels, where normally the prices are not very -- I would say, not very low, very moderate for what we are doing, which means also that for us, the ramp-up as such is trained to learn and to get in more people to help us on the production lines. We will have the second and the third step, we will also need to invest more on the machinery and manufacturing side, but that's not where we are today. So I would say that a big part of the volume increase is also actually a drop-through in India, where our profitability is much higher than our peers in the local market, absolutely.

Okay. Very helpful. And the final one, if I may, is on U.S. You mentioned the uncertainty still in North America, which is fair given the -- I guess, current turmoil. Could you help us a bit understand what you see, especially on the resi side that could be vulnerable from the price increases as well as consumer confidence fluctuation. So what do you see there? And secondly, on that is a bit on the Canadian market. If you've seen -- you saw that you've seen it, I think you said decreasing. Is it worsening, or is it flattening out at a low level, you say?

All in all, I would say that the impact for us to start there with the turmoil and discussions on tariffs is so far very minor. There -- in the beginning of this week, there were some new developments that we still need to look into. But given overall, I would say, if you compare it to the last quarter and the same quarter the year before, we had actually, in the last quarter, our last fiscal year, we had record high volumes of the residential units to the market. It's, of course, very hard with these comparables. So that's one of the positions. But I would say that we have normal volumes just now. The Canadian market as such, we don't see any considerable heavy downturns, something like that. It's a stable and good and healthy market for us. The Canadian market at the time being more stable and more -- maybe more interesting than per se, the American market. American market, though, has gone from a little bit more volatile as Anders was into, a little bit more stabilization, but, of course, very hard to say they're cautious in their behavior, in their orders, just due to the discussions around everywhere.

Yes. On the school ventilation side, we have been delivering here for some time.

Okay, very clear.

On record levels. And so it's coming down more to a normalized level, I would say, not to a low level. So that is what's happening. Sorry for the delay here in the responses. There seems to be some lag here.

On the technology, yes.

Yes.

The next question comes from Anna Widstrom from DNB Carnegie.

So firstly, I would like to go back to the German market that seems to remain in decline with maybe some signs of stabilization. And are there any like subsectors that perform a bit better or a bit worse, or is it very light general in that market?

Yes. That's a very good point, Anna. We -- for us, as you know, in Germany, we are manufacturing axial fans for industrial MRT applications. And that is, to us, still a rather stable market with a consistent demand. We see on the commercial ventilation side; it's a little bit more volatile and still not really recovered. But as I said before in this call, all in all, we think that the German market and the customer behavior, at least, is stable. And also when we follow our peers, we get the same signals back. It is stable, not declining, but we don't really see the upturn yet, which, according to common understanding and discussions is it has to come with incentives, political achievement, these kind of things. So we think that the market is healthy, but it needs to pick up.

Okay. Great. Very clear. And are there any similar trends like looking on Europe as a whole because both the Nordics and Western Europe has seen a quite good momentum for several quarters now. Is that driven by like any specific subsectors or...

Overall, if you look at Europe, including West Europe, Northern and South, I would say, overall, we see a trend, of course, as we all know, residential is not that strong anymore. The commercial is stabilized, but not on the highest level, on a lower level than before. And still industrial investments and infrastructure are today promising areas for engagement in our business. And that's the same picture all over Europe, I would say, today.

Okay. Great. And my last question is on M&A. So I think the NADI acquisition sounds very interesting and like a good fit for us. Is there any of those kind of companies in that region specifically to find, or is it sort of a unique find that you found?

I think all M&A cases need to be unique finds, Anna, at first. But let me say like this, what we were looking for and what we are following, of course, is to strengthen our approach in application, the industrial part of the ventilation business. So we have now -- with the acquisition of NADI, we're very happy about the surplus in knowledge and manufacturing capability for that part of the world. Of course, we're still interested and also find that in the other regions where we're active, where partly we're doing it ourselves, but to add on similar businesses in other parts of the world is, of course, still of interest. So it's not the end. We're looking.

Great. Just a super short follow-up on that one. Is there -- when trying to like expand into the sort of industrial part of the application, is there a sort of a clear difference in the business dynamics like having more service or different kind of pricing, et cetera, or is very similar to your current structure?

It's a little bit -- it's a good question...

With a majority of your current structure?

Yes, it's a good question, Anna. It's a little bit different set of customers. It is that typically, the products are not so standardized. And it's typically also that it is longer lead times, but it's stable and it's a good margin business. And to your question, it's also recurring service, absolutely.

[Operator Instructions]

All right. If we don't have...

The next question comes from Adela Dashian from Jefferies.

A couple of questions from me. Firstly, on the lost sales, I guess, you could say from the Indian factory relocation and maybe not lost sales, but the timing effect of that. Do you feel like you fully caught up on that now, or will we continue to see some catch-up in the coming quarters?

Adela. Yes, we have caught up a little bit, but we are continuously -- we are increasing the capacity in that new established factory. As said, we were moving into a new factory for around 20,000 square meters manufacturing surface, moving out of a 5,000 square meter big one. And the move was the biggest impact of the loss in this volume that we reported. Now we've started, and we are now, of course, increasing capacity to look for best possible outcome when it comes to delivery times for our customers, but at catching new orders and, of course, increasing our total volume in the near future.

Got it. I appreciate that color. Could you, alongside that, maybe also specify where you see your CapEx levels from here on out then?

Yes. I think for the coming year, it's somewhere around SEK 350 million, something like that in the coming 12 months.

Got it. Okay. That makes sense. And then maybe lastly on the -- you mentioned here that you had some negative mix effect that impacted the profitability. It seems like you were focusing in more on the project mix rather than regional mix differences. Or is there a combination of both?

I would say there's a combination of both. If we do in specific regions where we have more project-driven business like Eastern Europe or other markets, and we'll deliver to bigger projects there it normally tends to be with a lower margin than -- so it goes hand in hand, I would say.

And do you have quite good visibility then for the near term?

Sorry, come again?

Do you have quite good visibility then on what you're supposed to deliver in the coming quarters that could suggest maybe a continuation of the dampened margin trajectory, or you feel like it could be a quicker turnaround?

Yes. As I tried to say a little bit on the response to Carl here earlier, I mean, also some projects, some regions could also be with better margins. So it would be incorrect to say that it's constantly the bigger projects that pushed down the margin. So it could be different, depending on the product and on the geography also. So sorry, but it's not really that easy to give a straight answer on that. But this is...

No, that's fine. That's what I'm -- yes. I guess what I'm trying to get to is what the average lead time is on the project to have a better flavor of what your visibility looks like?

That's a little bit -- to Anders' point, that's a little bit our problem in this -- problem. Project business is by definition can be air handling units can also be axial fans. The axial fans would, in that case, be in infrastructure projects where the project execution is somewhere between 6 months to 2 years and the air handling business between 6 weeks and 6 months. So it depends on the projects and it's very, very hard to give a common answer to that.

And the competition in that region I suppose as well.

Yes. So it's a little bit -- when you enter the project business, it really depends on the project demand, project-by-project. So it's very hard to have one solution to all.

There are no more phone questions at this time. So I hand the conference back to the speakers for any written questions or closing comments.

Yes. I think we have two written questions, one from Henrik here at Redeye regarding NADI and new business areas here. I think we have more or less already responses -- responded to that, Roland.

Yes. Correct.

Yes. And the second one, which cost items in the P&L includes the nonrecurring cost? And then I can respond to that. It is -- the bigger part here is the admin expenses then for changing CEO. And for the other part is, other operating expenses regarding this capital loss on this divestiture that we did. Hope that responds to that question. And that's all, there are only two questions we got here in the chat. So I think maybe Roland, do you want to conclude the meeting?

Yes. Thank you, Anders. So ladies and gentlemen, thank you very much for calling in. We presented our first quarter where we think that we really present a strong organic growth. And given the market situations out there, we're fairly happy with that. Today, we will, after this one now hold our Annual General Meeting with more than 130 people being here in Skinnskatteberg, our headquarters. And of course, we're looking forward to presenting our second quarter in beginning of December.

Yes. Thank you very much all for calling in.

And looking forward and take care. Thank you very much.