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

Welcome to Systemair Q1 2026/27 Report Presentation [Operator Instructions] Now I will hand the conference over to the President and CEO, Robert Larsson; and CFO, Anders Ulff. Please go ahead.

Thank you very much. So this is Robert Larsson speaking. And with me, I have Anders Ulff, of course. We are very pleased to have you here, and we look forward to first making our presentation and then opening up for the questions and answers. So we are now on Slide #3. Many of you already know Systemair very well. The company was established in Skinnskatteberg in 1974 by Mr. Gerald Engstrom, who today remains as the main owner and Vice Chairman of the Board. And during these many years, the company has grown and has now achieved annual net sales of EUR 1.3 billion. Our core values, simplicity and reliability. We develop, manufacture and market energy-efficient, high-quality ventilation products. We are proud of our wide product portfolio, and we are determined to meet our customers' expectations on reliability, availability, sustainability and quality. Today, we run our own sales companies in 51 countries, and our products are available in totally 135 countries. 27 factories in 19 countries and 7,600 employees. Slide 4, please. Ah it has changed. Yes. Sorry. In Q1, we are pleased to see continuing growth and improved profitability. This happens in an environment with uncertain geopolitical situation. There is some cost inflation for commodities and freights and markets that can be described as mixed or in some cases, I would say, even weak. However, we are more and more often receiving signals that may lead to improved market demand in the future. Continuing on financials. In Q1, we report adjusted operating margin of 9.9% or up 0.6 percentage points compared with the same quarter last year. This makes us firmly believe that we have the long-term financial target of 10%, well within reach. Organic growth is, of course, always appreciated, but it is a bit extra pleasing with double-digit growth in North America and Eastern Europe. Our target to strengthen our presence in North America is built on organic growth well above the average for Systemair Group and then if possible, add acquisitions on top of that. And in Q1, we were very happy welcoming Temspec employees and customers to Systemair. Today, we also set out a press release about an order for a data center project in Finland, just like we should do for all larger orders. We see the global and diverse customer base of system as a key strength and data center business adds to this. The major product release in Q1 was the new Geniox with integrated heat pump running with a natural refrigerant, making it a future-proof alternative for our customers. We believe the timing came out quite right for this product. Slide 6, please. From quarter-to-quarter, we don't expect to see much shift in share between regions. Western Europe is continuing as our largest region with 44% with the other 4 regions fairly equal in size. Anders will share more details about the development in each regions later. It deserves to repeat it, one strength of Systemair is this global and diversified customer base. This gives us a solid foundation for profitable growth and also high resilience. With that, I hand over to you, Anders.

Thank you, Robert, and a very good day to everyone. Our first quarter of the fiscal year '26, '27 is covering the months of May, June and July. Q1 and especially Q2 are from a seasonality perspective, our strongest quarters of the year. As indicated in our last couple of quarterly reports, we can still notice a bit of volatility between the individual months. The quarter started off a little bit slow in May, strong in June and then more normal in July. Total net sales amounted to SEK 3.28 billion compared to SEK 3.09 billion last year. This corresponds to an increase in sales by 6%. The currency conversion effects were minor during the quarter. We can conclude that for the eighth consecutive quarter, we are reporting organic growth in a relatively slow market, as Robert indicated. Next slide, please. A bit more details on the net sales development. We are happy to conclude on organic growth in all regions during the quarter. We completed the acquisition of Temspec in Canada on 23rd of July, but it will impact the income statement of the group will start from August. The acquisition of NADI 1 year ago contributed 1% to net sales for the quarter. And then finally, currency effects. The strengthened Swedish krona resulted in a negative effect on sales by minus 1%. These effects comes from several currencies, but the major part relates to the conversion of Turkish lira, Canadian dollars and Indian rupees. Next slide, please. Then we come to the geographical breakdown, and I will comment on the organic growth rates here for each region. Starting with the Nordics, where we are happy to conclude on 8% growth in the quarter. Sales in Sweden showed the greatest improvement, but all countries in that region had positive development in the quarter. Western Europe, our single largest region, had an organic growth of 3% for the quarter. Within the region, we experienced a positive development, especially in Italy, Greece and Ireland. In Eastern Europe, we had again a very strong organic growth of 11%. Sales were especially strong in Czech Republic, Poland, Azerbaijan and Serbia. Then we come to North America, where we saw the highest organic growth rate of 15%. We have experienced several changes in the tariffs between Canada and U.S. recently, leading to price increases, which explains part of this increase. From the beginning of April, the tariffs were increased to 25% of the total product value. But start of June, they were revised to 15% for most products. Our conclusion is that the latest change here from Section 338 will have a minor impact on our sales. Our ambition is still to forward any additional tariffs further on. The acquisition of Temspec will affect the group accounts then starting from 1st of August. In Middle East, Asia, Australia and Africa, we had an organic growth in sales of 4%. We experienced the quarter with good sales development in Australia and Malaysia, but slower in Turkey and Saudi. All in all, the total organic growth amounted to 6%. Next slide. Our gross margin showed a slight improvement up to 36.5%. We see this as a sign of strength considering the recent price increases on several components and freight. As earlier communicated, we have introduced a price increase from 1st of June. Overall, we are happy to see yet another quarter with strong gross margin. Our adjusted operating profit amounted to SEK 324 million or an operating margin of 9.9%, which is 0.6% above Q1 last year. The adjustments in this quarter relates to our U.S. operation and amounts to minus SEK 13 million. Selling and admin expenses in comparable units increased by 5%. Next slide. Profit after tax amounted to SEK 229 million compared to SEK 193 million last year. Net financial items for the quarter were negative by minus SEK 5 million. Currency effects on bank balances and loans were positive and amounted to SEK 7 million, and interest expenses were minus SEK 9 million compared to SEK 12 million last year. The tax rate for the quarter came in at 25.2% compared to 27.3% last year same quarter. And then Slide #11, cash flow development for the quarter. We achieved a free cash flow of SEK 69 million compared to SEK 108 million last year. Within the working capital, there was a significant increase in trade receivables of SEK 173 million due to the increased sales, especially at the end of the quarter. Also, our inventory increased affecting working capital negatively with SEK 113 million. The increase of inventory is due to higher safety stock of certain components. Net investments of SEK 114 million relates to production capacity investment made in Slovakia and Sweden. Our net debt increased to SEK 1.1 billion, which is SEK 270 million higher than 1 year ago. And the reason being is the acquisition of Temspec that has increased the debt. The leverage, net debt to adjusted EBITDA amounts to 0.65, and we have a strong balance sheet that enables us to further invest in organic and acquired growth. And then Slide #12, sustainability targets. On Scope 1 and 2 emissions, we are aiming for a reduction of 42% by April 2031 compared to the starting point in April '24. In Q1, we achieved a reduction of 11% compared to the base year. We have continued to install solar panels. And in this quarter, we achieved a record solar power generation with an increase of 17% -- our actions to reduce work-related injuries are continuing to be successful, and we achieved a 6% reduction in the quarter. And then finally, our target to achieve a minimum of 25% female leaders. We are currently on 23.2 and we'll continue to launch different activities to improve this KPI. One example is the female mentorship program that was just finalized before summer and the new one is planned for the fall. And by that, I hand over to you, Robert, and to finalize the presentation.

Thank you. I switch to Slide 13. So Systemair acquired Temspec Incorporated on July 23. And on the picture, you see Steve, who is to the left, who is running our North American business; and Mark, who is on the right side then, of course, who is the Temspec President and second-generation owner. Temspec is a leading manufacturer of decentralized ventilation solutions for family -- multifamily residential buildings and schools. And just like Systemair, the company has a strong company culture based on customer focus and entrepreneurial spirit. The product portfolio is focused on energy efficiency and low noise performance, addressing 2 key market trends in indoor environment quality. This is a well-established business founded in 1971, headquartered and manufacturing location in Mississauga, close to Toronto in Canada. The company has about 90 employees and an annual sales of approximately SEK 200 million and with the EBIT margin above Systemair group average. At Systemair, we have lately improved how we operate our sales and marketing in North America and the Temspec acquisition is now benefiting from this, and there are plenty of growth opportunities as we see it. Next slide, please. The launch in June of the Geniox air handling unit with integrated heat pump running with propane or R290, as it's called as a refrigerant is a step-up in value for our customers. It continues to be a product that is easy to configure and buy, easy to install, easy to operate and maintain. And now in addition, it is future-proof for our customers since it contains a natural refrigerant, it is PFAS-free, and it is also an improvement in efficiency. We also changed how we introduced the new products to the local markets. It is now more orchestrated. Our local sales organizations is receiving better support -- and with this orchestrated approach, they can better share learnings and experiences and ultimately create more of tailwind for each other. Slide 15. Our opportunities in Saudi have continued to materialize after expanding our manufacturing presence. CEER is a fairly new electric car brand in Saudi, and they are well funded and very determined to build a strong position in the region. Currently, we are winning business due to the made in Saudi status we have now, and it helps a lot. At the same time, we are facing challenges with logistics due to the war continuing in the region. Slide 16, please. As already mentioned, we today sent out this press release about an order for a data center project in Finland, just like we should do for all larger orders. We see the global and diverse customer base as a key strength for Systemair. You heard this already, and a bit more of data center business would be a welcome addition. This project demonstrates that we can develop relationships with global and very demanding customers and that the products we offer are competitive. In our product portfolio, we have a lot of ventilation products that are needed also in data centers. We have also some derivative products intended for data centers, but we have not seen that we should invest in very specific technologies or products only for use in data center applications. With this, we conclude our presentation and look forward to answering your questions.

[Operator Instructions] The next question comes from Lara Mohtadi from ABG Sundal Collier.

You gave a monthly split for Q1 slow May, strong June, more normal July. How has August developed?

That we didn't say really. And I don't think we do not have a strategy to disclose that at this point. So I don't have any comment on August figures.

And then on the margin, May was the one month without the price increases in place. Should we expect that to show maybe or input costs still moving?

Yes. I think input costs are still moving. And also when we announce the price increase from 1st of June, there's a bit of lag in that implementation also before it reaches all customers also depending on what kind of agreements and what kind of products we are talking about. So it's a bit of a lag there as well.

Okay. Clear. And just a bit on the market. Western Europe, you still reported positive organic growth, but it slowed a bit to 3% this quarter. Germany wasn't mentioned as a stronger geography or recovering geography this quarter. You were cautiously positive last quarter. Would you say that the German market has turned or maybe the sales and service restructuring is maybe weighing on the momentum here?

Thank you. No, this is Robert here. Well, I don't feel worried about the German market. I think we are receiving a lot of, let's say, interest from our customers also going forward. From sometimes, let's say, I think there is a bit of up and down in the markets and so on. So -- but to repeat, I don't see any concerns. And I don't -- going forward. I don't think that restructuring has had an impact on these numbers. Would you comment any more on that one, Anders?

I think a little bit the message we wanted to send through here really with the months being a little bit up and down really, and that also goes for a single quarter then. So I think what you see here in Q1 is maybe not a shift in trend. We see the same signals as before in the market that we have a fairly good demand in the market where we are present.

And also, you mentioned Finland and you said there's a bit more data center business that would be a welcome addition. Could you maybe an opportunity for us and maybe just quantify how large a part of the revenues data centers stand for today?

I can start and then maybe you add to the comments later on. Well, today, let's say, data center is not a significant business in Systemair, I would say, from a size point of view. But having a broad customer base and being exposed to many different industries, it's healthy for us. So we are happy to see that we are competitive. We have something interesting to offer. And then, of course, we may have more kind of there might be more -- or you may see more of these orders going forward, but I still think it's going to -- it's not a change in strategy that we intend to make this a significant portion of System. That's not what we try to communicate. Would you add something, Anders?

I think that's spot on. I mean we have sold products now and then into the data center industry for 10 years or so. And -- but we have not really developed a new part of product portfolio, especially for that purpose outside of our core of ventilation, I would say.

And Robert, you said that you're more and more often receiving signals that may lead to improved market demand. Could you maybe just be a bit more concrete about what these signals actually are? Is it maybe quotation activity or project pipelines? And maybe just talk a bit about which regions or segments that you see these developments?

No, I don't want to quantify this in a way. But it is kind of clear that in some of the markets where we have seen very low or even very low market activities, we have the opinion that, let's say, the actors very early in the value chain that could be consultants or architects. They seem to be working a bit more organized and firm on projects now than before. Still, it will take time before that materializes. So that would be my comment.

The next question comes from Jakob Marken from SEB.

So firstly, you mentioned some negative effects on the cash flow from building safety stock. And I'm wondering, in general, how do you see the current component situation? And can you elaborate a bit more on how you see it in the different geographies?

I didn't really catch the final part of your question there. There was something with the.

If you can also say is there any differences in the different geographies.

In general, we have, let's say, from time to time, we experience that we have, let's say, we have to do replanning and so on. I think it is at the level, let's say, component supply, it is causing some irritation, but I wouldn't say that it is damaging. Could be that things kind of get more challenges ahead of us. We don't know that. I'm really happy to see how the organization is managing this because our ultimate target is to provide excellent service to our customers. I don't see that we really have a regional perspective on this. It's certain components that is that there is shortage of. And of course, prices for aluminum and copper has been very volatile lately. That has been kind of a bit challenging to manage, but seems to be, I wouldn't say under control because it's not under our control, but we're managing it quite well. So I'm happy with how the organization is responding.

Okay. Perfect. And then I'm just wondering about the recent acquisition that you also mentioned here, if you can just tell us if there's any large seasonality that you should know about?

Would you start commenting on that, Anders?

Seasonality related to Temspec.

Yes.

Well, a significant part of the products relates to where we are already present, meaning ventilation for schools, so indoor ventilation units. And there is a seasonality in that because most of them are installed during the summer period. So lower season when it comes to December, January and then ramping up production for installation during summer months.

Okay. Perfect. That's very clear. And then my last question. I'm just wondering quite large shift here in organic growth in the Nordics -- and you mentioned Sweden, of course, as the standard, but can you give any more examples of specific end markets that have turned and what you see from Q4 here into Q1? And what's been the big drivers for the positive numbers?

Do you mean specifically for the Nordics or...

Yes, for the Nordics.

No, I think I'm happy with how the organization is performing across the Nordics, all our sales organizations. And I think Anders phrased it well. We are seeing kind of very good development in Sweden. But you also know that we have made some efforts in changing how we operate and also leadership there. So I think to some extent, what we see is the impact from our own activities.

Okay. So would you say it's a very broad-based recovery then in the Nordics?

I would say so.

The next question comes from Adela Dashian from Jefferies.

Just a few for me as well. If we go back to the data center topic and the order that you received or maybe if we could start with the commentary around not wanting to, I guess, invest heavily into expanding your capabilities beyond what you already have in the data center space. How comprehensive is the current product offering? Is it very much so only air handler based? Or can you also go into, I guess, you would say, the next-gen data centers and become more liquid cooling compliant?

Okay. Thank you for that question. We have -- let's say, we are very proud of our broad product portfolio targeting ventilation. Some of these are very useful for data center applications also. And as I said also before that we have a few derivative products that is a bit tweaked towards what data center applications and customers expect. But we do not have specific technologies or we have selected not to develop specific technologies and so on. So I think we stick with that one. We believe that this is a healthy expansion of our, let's say, it's a healthy part of our product portfolio, and we are happy to announce larger orders whenever we get them. And for us, SEK 60 million is a fairly large order. So it's not a change in strategy.

But are you able to be a bit more specific here? When you say ventilation products, like are you able to dive into liquid cooling at all? Or is that not really something that complies with your focus?

I would say liquid cooling is not really a ventilation product.