Thank you very much. Hello, and welcome to this call. My name is Ola Ringdahl. I'm the President and CEO of the Lindab Group. Next to me, I have our CFO, Jonas Arkestad, who will help me to answer questions towards the end. We start on slide two. Some Q1 highlights. The demand for Lindab's products remained strong during the Q1 of the year. Lindab continues to be a very reliable partner to all our customers. Our robust supply chain and high availability is appreciated by the customers. Net sales increased in the Q1 by 30% year-on-year, and sales reached a record level for a Q1 with SEK 2.7 billion. We see some growth from volume increases, but the majority of the sales growth is driven by price increases to compensate for the historically high raw material prices.
It's worth mentioning that the comparison numbers in this presentation are excluding the divested business area, Astron Building Systems, so you have full comparability between the numbers. The strong sales development enabled us to reach a record high adjusted operating margin of 12.4% for Q1. Adjusted operating profit increased by 63% to SEK 340 million. This is the highest ever for a Q1 for Lindab Group. We see positive effects from the ongoing investment program and the acquisitions. We should also note that the operating profit is adjusted for one-time costs of SEK 19 million related to the phase out of the operations in Russia. We do not see any need to make further provisions related to Russia in the future. Now let's take a closer look at the sales development on the next slide.
On this slide, we have described the quarterly sales for Lindab Group and Ventilation Systems and Profile Systems, so that you can see a little bit the trends historically. During the quarter, the price of steel, which is Lindab's most important commodity, has increased even further. In these sales graphs above, you can see that the price increases started to have significant effect on Lindab sales from the Q2 last year. This is when the higher steel prices really kicked in and had a major effect. You can also see that it is particularly valid for Profile Systems, who have increased sales quite dramatically from the Q2 of 2021. It would be fair to notice that Lindab is facing tougher comparison numbers for sales growth going forward.
In the Q1 , both Ventilation Systems and Profile Systems showed strong sales growth and reported record high sales for a Q1 . Ventilation Systems reported an organic growth of 21% with strong sales in all geographic regions. Profile Systems reported an organic growth of 26%, primarily due to strong sales in the Nordics, where significant deliveries have been made to several individual construction projects. On the next slide, let's take a look at the EBIT development. Lindab has had a strong margin development during the past years. Both in 2020 and 2021 were exceptional years. First, we had COVID-19, which affected sales quite a lot, but we managed to keep a good, solid profitability. In 2021, we were hit by shortages of steel and historically high raw material prices.
Despite this, we have managed to increase EBIT in a very stable and good trend. We've gone from an EBIT margin of 6.8% in 2018 to 13.1% in 2021. Ventilation Systems reported an adjusted operating profit of SEK 235 million and an adjusted operating margin of 12.4% in the quarter. One-time cost of SEK 19 million for Russia affects the business area Ventilation Systems. Profile Systems reported an operating profit of SEK 122 million and adjusted operating margin of 14.6%. We are very pleased with this exceptionally strong performance. Now let's move to the next slide and some other financials. Lindab has a strong financial position and we have a very solid balance sheet.
Net debt to EBITA ratio is unchanged at 1.0. The one-time costs that I mentioned before related to Russia are mainly affecting the balance sheet and not the cash flow. Cash flow before change in working capital improved by SEK 99 million during the quarter, and reached SEK 315 million. Cash flow from operating activities was negatively affected by the increased value of raw material. When there was a raw material shortage in 2021, Lindab decided to keep stock levels at a good and guaranteed level. Given the high price inflation of steel, these values have increased during the second half of last year and also into 2022.
Lindab is prioritizing high delivery performance, and this, of course, has its effect on working capital, but we know that this is one of the absolutely most valued advantages of the Lindab Group in the eyes of our customers. With that, I would like to move to the next part of the presentation on how we build a stronger Lindab. Let's jump directly to slide number seven. A little bit of repetition for those who have listened before. Lindab has now completed the three-year strategic transformation program according to plan. Lindab is in very good shape, and we have a solid platform to grow from. We are the leading ventilation company in Europe with a clear focus on our core business, and we are present in the countries where we have a strong market position in democratic Europe.
We have a leading product offering and an efficient manufacturing and distribution network, and with a sustainability profile, we benefit from a market that's focused on reduced energy consumption and healthy indoor environment. As you can see on this slide, we have taken a number from our recently published annual report and confirmed the taxonomy alignment at 66%, while we before had an estimated range between 65% and 70%. Lindab is now accelerating the growth activities, and I will talk more about them on the following slides. Let's move to slide number eight. Investments. Our investment program plays an important role in our efforts to grow organically with healthy profitability. In the Q1 , we invested SEK 106 million in our European operations, and we will continue to invest on a higher level until 2025.
It will be gradually reduced from the peak that we had reached in 2020. We estimate that we have come about halfway through the program when it comes to decisions and about a third when it comes to implementation. The payback periods on these investments are very short, and the investments are already contributing substantially to our improvements in both efficiency and profitability, and part of that can be seen in our quarter one results. Another important area for profitable growth is acquisitions. Let's move to slide number nine. Acquisitions strengthen our product offering and also our geographical presence. Lindab's strategy is to acquire well-managed, successful companies that complement our offering in selected regions and also in selected product areas.
We let the acquired companies continue to operate independently under their own brands, while at the same time benefiting from Lindab's sourcing agreements, expertise, and sales network at their chosen pace. In December, we announced the acquisition of Alig Ventilation, and we closed the deal in January this year. Alig Ventilation is a Swedish company focusing on residential ventilation, and they have annual sales of approximately SEK 65 million. I must say that the start of 2022 has been very successful for Alig, and we are very pleased with their performance so far. In January, Nord Trade was acquired. This is part of our strategy to strengthen our presence in the north, in the northern part of Sweden. This is a geographical area with many ongoing investments, such as, for example, the Northvolt battery factory in Skellefteå.
Just so happens that Nord Trade is located in Skellefteå in the northern part of Sweden, and this gives us a good platform to further grow from. Current annual sales is around SEK 20 million. In March, we announced our largest acquisition in many years. Felderer is the name of the company, and they are the leading ventilation wholesaler in Germany and complement our current business in Germany very well. I believe that the German market has great potential for the Lindab Group. Just like in the Nordic countries, the buildings in Germany are well-insulated and need efficient, high-quality ventilation. In addition, German authorities are focusing on reducing energy consumption in both new and existing buildings. Felder has annual sales of approximately SEK 700 million. This means that we will increase our ventilation sales for Lindab Group by approximately 10% through this acquisition.
Sales and distribution of Felder takes place in seven locations in Southern and Western Germany. With the acquisition of ventilation sales in Germany will more than double, and Lindab gains a strong position throughout the country. Acquisition was conditioned by approval from German antitrust authorities, and that was obtained on the March 30th. Tomorrow, I will go to Felder in Munich and officially close the acquisition. Felder will be part of the Lindab Group from the April 29th. Now let's move to the next slide and talk about our priorities going forward. The year has started at a good pace for Lindab, and we still haven't seen any signs of slower business due to war or anything else. It is, of course, difficult to predict the market demand for the second half of this year and for next year.
We believe that there is a risk that Russia's war and the ongoing cost inflation and increasing interest rates can have a dampening effect on construction activity in Europe. However, there are also reasons to be optimistic about the future demand for Lindab's products, as the interest in energy savings and healthy indoor climate is growing substantially. This is also supported by stricter legislation and the EU Green Deal. I should add here that Lindab sales is typically around 50% to the new buildings and 50% to the renovation and upgrading. We have an exposure to both of these segments. When it comes to our priorities for 2022, well, delivery performance is absolutely key in times of turbulence, and the high availability of Lindab is extremely appreciated by our customers, and is one of our most important competitive factors.
We always have material, we always have products, in the right place at the right time, and we deliver on our promises even during difficult times such as COVID pandemic, steel prices, or war. On the sustainability side, with the EU Green Deal, we expect the demand to increase for ventilation products, improving the indoor climate and reducing the energy consumption. We have developed some quite exciting products, in this area, and we continue to invest in R&D and product developments to launch new products in this area. Investment program, I can confirm that it is proceeding according to plan, and we continue to implement it at a high pace. I mentioned already acquisitions. I believe we have a very interesting acquisition pipeline, and there will for sure be more acquisitions to come.
This is a very relevant growth driver for Lindab going forward. Further on sustainability. In the annual report that was just released, we communicated our updated sustainability plan, including the outcome for 2021. We're also doing a pre-study on science-based targets that will form the base for our continued work to lower our emissions. Fossil-free steel is one important activity in that plan. We would now like to conclude the presentation with some highlighted activities on the next slide. Upcoming events. Slide 11. Our annual shareholders meeting is held on the May 12th, at our new head office in Grevie. It will be a physical meeting, and we are looking forward to meeting our shareholders in our nice new head office and experience center.
If the meeting decides according to the board of directors' proposal, the first dividend of two will be paid on the May 19th. The proposal is to pay out SEK 4 in total, but shared on two occasions, one in May and one in November. We are also very pleased to welcome investors to our capital markets event in Grevie, our head office, on the June 20th. The first half of the day will include a factory tour and product demonstrations on-site in Grevie. In the second half of the day, we will have presentations from Lindab management and also from one of our largest customers. The presentations will be possible to follow online, including questions. With that, we thank you for listening and open up for questions.
Thank you. Ladies and gentlemen, if you wish to ask a question, please press zero one on your telephone keypad. Our first question comes from Carl Ragnerstam, Nordea. Please go ahead.
Hi, it's Carl here from Nordea. A few questions from my side. Firstly, with, of course, the ongoing inflation in the construction industry and of course everywhere else for that matter, but have you seen customers postponing projects or postponing ongoing projects going to cost overruns, et cetera? Or is it too early?
We have not seen those signs yet. One should maybe add that we are not if we talk about the ventilation part, we are a little bit later in the cycle when our products are installed in the building. We read occasionally in the newspapers that there are some hesitations about starting new projects. Overall, we see very strong building activity today. We have not noticed anything for Lindab yet.
Okay, perfect. Brilliant. On the margin uplift of 250 basis points year-over-year, how much would you say is the pricing effect of that?
Indirectly, there is some pricing effect because of course if your top line, your sales reaches a higher level thanks to this type of inflation, there's of course more money on the top line to cover your fixed costs further down in your P&L. There is help from the price increases, but it is absolutely not the only explanation. We have managed to strengthen gross margins because we have improved efficiency, and part of this is of course the investment program that we have been working on now for the last three years. I believe we are also taking a little bit of market share because we are a reliable partner who can deliver when there is shortage of material and when others are struggling.
We are also seen as a very sustainable partner. We are not sourcing material from Russia, for example, we haven't suffered any consequences from having to shift suppliers. I think that we are seen as a very clean and sustainable and ethical partner to deal with.
Perfect. In terms of the recent steel price upticks, would you say that with the price increases you are implementing in May are on par with those, or do you need even further price increases when we're entering the summer period?
Our price increases that we implement now, they reflect the quarter two material pricing from our suppliers. We don't yet know the quarter three prices. We know that we have guaranteed availability of material, but the exact prices will be determined later.
Mm.
Yes, we are making necessary adjustments of the prices to our customers, now, and we try to do that, you know, every month, basically.
Mm.
What they would look like in the Q3 and in the Q4, that is too early to say.
I guess your contract prices you're buying from, they come with a lag to the spot price, right? Your Q3-
Yeah.
Buying prices might be up versus the Q2 prices. I guess then the third or second price increase during summer might be necessary or?
If it is necessary, then we will implement it. We do not have the possibility to absorb major price increases on steel. We have no choice but to forward them on. We will do what we need to do.
In terms of Felder, which you acquired, do you know if they have the same pricing discipline as you have with regards to steel prices?
They are a ventilation wholesaler. Well, they have production, but it's relatively light production and only a smaller portion of it. The nature of their business is a bit different. They buy and resell. If they have the same price discipline as we have, I will find out tomorrow when we will start to talk about that. They are good business people, and they have a wholesaler pricing discipline. That is for sure.
Yeah. Not overly concerned there. Yeah. In terms of the final one is regarding the investment program. You said that one-third is implemented, right? Is it fair to assume that the return on investments is somewhat lower as we go, as I guess you're making the more attractive investments earlier on, or?
I understand the question. It would be natural to think that way. I think on a, say, an annual average, it is probably true. They might move from, you know, average payback two and a half years, and then to three years, and then to maybe three and a half years. We are still talking short payback times for machine equipment. You also have a situation where if you want to build a new factory, for example, in order to increase output in a certain region, first you need to build and create the building. Payback of that is difficult to calculate, but before you've done that, you cannot install machine equipment. Once you install machine equipment, that payback is extremely short.
It is a bit mixed, but most likely seen over the course of this five- or six-year program, it will be more and more difficult to find returns that are as attractive as we could in the beginning. That is also why we are tapering down the program gradually now until 2025. We have the same strict requirements on the investments today as we had when we started this program in 2018.
Sounds great. Thank you.
Thank you, Carl.
Thank you. Our next question comes from Douglas Lindahl, DNB Markets. Please go ahead.
Hello, gentlemen. Thanks for taking my questions. Look forward to the CMD this summer and also getting some feedback from your Felder meeting tomorrow, Ola. Coming back to your sort of, forward-looking statement. In your CEO comments, you seemed a bit cautious, and I guess you've framed that a bit more during this call. If we just to clarify the cement issues that are ongoing in Sweden, do they cause any concern for you, or have you know, had that in consideration when writing your uncertainty comments, so to say? That's my first question.
I did not have the segment issue in Sweden in particular in mind. I'm looking more at the European picture.
Yeah.
Of course seeing what happens to energy prices, construction material prices, interest rates. It would be natural to assume that there is a risk that you will have a slower activity in the construction sector.
Mm.
You know, other people are more skilled to make forecasts about that than me. I think it is prudent for Lindab management to have a little bit conservative view here and.
Mm.
Be prepared if demand should drop by a few percentage points in the next two years. I'm hoping it will not, and I'm hoping that we will.
Mm.
You know, by gaining market share and being strong will have good sales. Surely there must be some risks in this area.
Yeah. Yeah. No, I just wanted to sort of isolate that to see if that was any concern for you or if that was the reason for your confidence on that. It could be useful for your color.
If cement production in Sweden stops.
Yeah.
It is a concern, not only for Lindab.
Yeah, okay.
It's a concern for the country.
Yeah, of course. On growth in Profile Systems, and I think you mentioned that Sweden was doing well. Sweden is 50% of that, roughly. What can you say about the other 50%?
We've had very good development in Profile Systems in most of the markets, I must say. Very strong start of the year. Norway is strong. Has strong growth in Central Europe. Sweden is the engine here in our Profile Systems business. If it goes well in, you know, Swedish operations, then Profile Systems they are doing great.
Okay. Just to come back on your M&A opportunities here in 2022. I mean, I don't expect you to disclose the pipeline, but what sort of products or geographies or what sort of piques your interest, so to say? You can give some sort of
Well-
Clarification on that.
Rather than expanding geographically now in the periphery, we prefer to make our network of geographical sites more dense. We are looking to grow almost inwards rather than out.
Mm.
We are finding the local white spots where we can strengthen our position. We are looking for products that can do kind of the same, meaning they will fill some spots in our product program that are a little bit white or soft today. The ventilation products in Europe, you have many different national standards, and you have many different preferences. You can be very strong with a product in 10 countries, but you know, in some other countries, that product doesn't. It isn't the norm. Combining the product and the geographical approach, you will find these spots that you need to improve. That is what we're trying to do. This is mainly when we talk about these say, smaller to medium-sized companies.
That is the main focus for this right now.
Okay. Coming back on products and product development, you hinted on that a bit, but can you give some examples of which type of products you're focusing on? I'm guessing energy efficiency into products like the Ultra BT system, for example, UltraLink. Is that where you see more opportunities or?
The Ultra BT is. I think it's an amazing product. What you can do with that is you can take a ventilation system in an existing building. Let's say it's a 20-30-year-old building. Ventilation system is not very efficient. It's a constant flow system, meaning the fans are working hard to push out air into the building at a constant pace. In a modern building, you do a demand-controlled ventilation. You direct the flow to the rooms where it is needed through presence sensors and temperature meters and so on, CO2 meters. With the Ultra BT, you can actually make an old ventilation system new and smart. You can transform it from a constant flow system to a demand-controlled one in a very simple way.
Because you cut out a piece of the duct system, you install this very smart measuring device, measuring the ultrasonic the airflow and then the quality of the air. With the control valves, you allow more or less air to flow through different parts of the building. We have measured energy savings in the ventilation system from this by up to 70%, compared to a normal system. With you know without having to rip out all the old equipment, you can do this in a very surgical way, and the payback is fantastic. This innovation is receiving a lot of interest from property owners in Europe who see this as a very good shortcut to achieving high savings quickly.
Would you say that this is sort of a great example of a product category where you, let's say, see development opportunities, not talking about the specific-
Yes, definitely. There's so many.
Sort of branching out of it?
Many millions of buildings in Europe that have to be upgraded. You need to
Right
You need to find these very smart solutions how to do that in the existing systems. Because there's no way that we will be able to keep this kind of renovation pace needed to reach the climate goals otherwise. Here, I think Lindab plays a very important job because the measurement devices and control devices in the duct system will be key to achieve this.
Absolutely. Okay, thanks so much, Jens.
Thank you.
Our next question comes from Sofia Sörling, Carnegie. Please go ahead.
Hi. Thank you very much. Sorry if repeating any previous questions. I have some technical problems here. Let's start about demand, similar as you have secured material and delivery capacity, do you believe your customers have done the same during Q1, and that it might have dampened demand in Q2?
Sofia, do you mean that they might have built up a lot of stock?
Yeah, thank you.
It's difficult to hear. If I assume that your question is if there can be some stock effects with our customers, the answer is no. I don't think that our customers have built up big stocks during Q1, for the simple reason that it is extremely difficult and expensive to do so. We have
Yep
tens of thousands of different articles. They don't know what they need two weeks from now. The answer is no.
All right. Thank you. Also a question about your profitability target now that Building Systems is fully divested, and you're now by far over-exceeding your target of minimum 10%. Is your guidance still to reach above 10% going forward or can you give us some color on that?
Well, we are very pleased to be well above 10%. It is a relatively new phenomenon for the Lindab Group. We've struggled for many years to reach it. The board of directors updated our financial profitability targets in September last year when we announced that we were going to divest the Astron business.
Mm.
If we continue to perform at a high profitability level, I am sure that the board will look again at this target. However, it doesn't say that it should be maximum 10%. It says it should stay above 10%, and it should be on that level every year as a floor rather than a target. It allows some flexibility to make acquisitions. The Felder acquisition, for example, Felder is a company making less than 10% operating margin. We will have to work on that and improve their margin. There can be from an acquisition, some dilution of margin. We are not seeing that this target here is limiting us in any way today.
All right. Thank you. My last question is about new regulations. You're operating in several different countries. Have you seen any new potential regulation that would give some government support for that will boost your sales of type of products? I mean government support related to energy savings in buildings that actually would support your sales going forward?
There are many. I think one of the most prominent countries in this area is Germany. That is why I'm extra happy that we are poised to triple our sales in ventilation in Germany because there is a lot of state subsidies and a lot of focus on this from the government. I know that in many other countries, there are also programs to improve especially energy efficiency. Now with the energy crisis caused by Russia's war on Ukraine and the risk that there will be no gas deliveries and we have to cut down on energy consumption, I am very convinced that all governments in Europe will do a lot more to reduce energy consumption in their countries.
Buildings represent around 40% of energy consumption, so this is an area which they have to address.
Yes, okay. No further questions. Thank you so much.
Thank you.
Thank you. Ladies and gentlemen, as a reminder, if you wish to ask a question, please press zero one on your telephone keypad. We have no further questions. Dear speakers, back to you.
We would like to thank everybody for listening, and we wish you a nice day. Thank you.
Thank you.