Good morning, everyone, and welcome to this call. My name is Ola Ringdahl, and I'm the President and CEO for Lindab. I'm sitting here together with our CFO, Malin Samuelsson. We move to slide two and the agenda. In today's presentation, we will have a look at a summary and overview, our financials, some highlights and our focus going forward, and we'll try to say a few words about the outlook. At the end, we will open up for questions. Let's start with the overview on slide four. Some key highlights from Q1 2019. We had a good sales development, a sales increase of 8%, the organic growth was 5%.
Another thing I want to highlight is the net profit for the quarter of SEK 142 million, and that is the highest result for a Q1 that we've had ever in Lindab. We have worked quite a lot on reorganizing the company, so we have now three business areas, and we have a decentralized organization in place. We focus a lot on transparency and local responsibilities in the P&L units. We've managed to increase the gross margins, partly because of efficiency measures and partly because of stabilizing raw material costs and price adjustments. Finally, we had a celebration of our 60-year anniversary on February 6th, celebrating that across the company with customers and our employees. We move to the next slide. Some comments on the geographical regions.
We start with the Nordic region, where we had a good sales development, and we saw organic growth in all the Nordic countries. In Western Europe, we grew strongly, and I want to particularly point out the strong development we had in Germany, where sales was quite successful. In the CEE/CIS region, we continue to see positive sales development, and especially strong in Hungary, Poland, and Czech Republic. We look at the next slide and our business areas. From Q1, we are organized in three business areas. We divided the former business area, Products & Solutions, into two new business areas called Ventilation Systems and Profile Systems.
On the slide, you can see a description of the main product groups that they work with. You can see on the right-hand side, a graph where we split the sales by business area. A little bit more than 60% is within Ventilation Systems, 27% in Profile Systems, and 11% in Building Systems. Now, we take a look at the financials. I hand over to you, Malin.
Thank you, Ola. We move to slide number eight. First, the group financial highlights. During the quarter, net sales increased by SEK 162 million or 8%, of which organic growth amounted to 5%. The largest positive currency effect on sales in absolute terms, comes from EUR, followed by DKK, GBP, CHF, and NOK. The negative currency effect is limited to RUB. EBIT increased mainly as a result of sales growth, improved gross margin, and improved efficiency. All three business areas contribute to the increase in profitability. Net profit increased to SEK 142 million, compared to SEK 46 million in previous years. Let's have a look at Ventilation Systems at next slide number nine. Ventilation Systems delivered a good organic growth and improved profitability.
Net sales increased by 9%, equal to SEK 125 million. The organic growth amounted to 5%. There was a continued good sales development in all regions within Europe, with particularly strong growth in the Nordics as well as the CIS region. EBIT increased to SEK 149 million, mainly as a result of strong sales development, improved gross margins, and lower operating costs. Moving to next slide number 10. Profile Systems financial highlights. The net sales increased by 3% to SEK 525 million. The organic growth amounted to 2%, with particularly strong sales development in the CEE/CIS region. The EBIT increased to SEK 43 million compared to previous year, SEK 11 million, mainly as a result of improved gross margin and lower operating costs.
The unusually strong quarter was a result of several contributing factors, such as favorable weather conditions, product and customer mix. Moving to next slide number 11. Building Systems continued the turnaround according to plan. The net sales increased by 8% to SEK 277 million. The organic growth amounted to 5%. The increase in sales was mainly related to continued good growth in both Western Europe and the CE region. The EBIT increased to SEK 9 million, mainly due to strong volume growth and lower operating costs. The next order intake increased compared to last year, and the total backlog at the end of Q1 was clearly higher than last year. Moving to the next slide, and we take a look at the cash flow.
The adjusted free cash flow amounted to SEK 35 million, versus SEK 21 million the same period last year. The improvement in free cash flow year to date is due to significantly higher operating profit, which largely has been offset by changes in working capital and higher investment. An increased focus on the delivery precision has led to a planned increase of stock levels. Net debt amounted to SEK 2.13 billion as a result of the IFRS 16, and a net debt, EBITDA, improved to 1.7. The net debt, excluding IFRS 16, decreased to SEK 1.096 billion compared to last year, SEK 1.369 billion. Now I hand over back to Ola.
Thank you, Malin. Now we move to slide 14, and some highlights. Some highlights from the Q1 of 2019. I want to mention that within Ventilation Systems, we opened a new department for indoor climate innovation in the Swedish town of Helsingborg. It's called the Lindab Innovation Hub, and that will offer a startup environment for companies in the industry who can help develop new products and services within indoor climate solutions. Within Profile Systems, I want to highlight that in Q1, we launched something called the Lindab SolarRoof for the Swedish market, and that will be rolled out gradually to other markets.
These solar cells, which are attached to the roof concepts from Lindab, they are made with the latest technology and have a high efficiency rate for all sunlight conditions, also naming climate. Within Building Systems, during the Q1, we received 8 orders above SEK 10 million. Of those, 3 were in Western Europe and 5 were in Russia. As Malin said, we are pleased that the turnaround plan is followed and it's proceeding in line with expectations. To the 60th anniversary, as I mentioned, we had a very nice day on the 6th of February, celebrating this anniversary throughout the Lindab Group, together with our customers and employees. We all remembered the core values that our founder, Lage Lindh, who passed away last autumn.
He coined the 3 core values that we are still using today: customer success, down to earth, and neatness and order. Something we still follow and we find very valid still today. We move to slide 15. What are the current focus areas for Lindab Group? I've highlighted 4 different areas here. The first one is the principle of a decentralized structure with very clear accountability for the P&L units within the group. There's a lot of work ongoing, and we have taken the first steps on this journey. Focusing on profitability, and not only profitability short-term, but a sustainable profitability in line with financial targets.
That means that we are taking a lot of initiatives to make sure that we are earning enough money in good times. Also that we are in good shape for bad times in the future. We have a high focus on customer satisfaction, of course. Now we focus quite a lot on the delivery excellence part of this, making sure we deliver quickly, we deliver on time, and everywhere that our customers need our products and services. One consequence of that, as Malin pointed out, is that in certain areas, we need to have a better availability and stock levels of our high runner products. Finally, there is a significant investment need in the Lindab Group.
We have experienced a very strong and good growth over the past couple of years, but that also puts a lot of requirements on our infrastructure, our production, and logistics. If we move to slide 16, I will talk a little bit more about the investment aspect. We are increasing our investments in both efficiency and capacity, and we have outlined a program, it's a three-year program running from 2019 to 2021. We see, if we look back at the past few years, that the investments in Lindab Group have been. Now we are starting to suffer a bit from that, with bottlenecks in production as the demand is increasing. We are initiating this investment program.
It's primarily focused on the manufacturing part of our organization and the logistic part. We are focusing it on automation and improved processes. We have started to launch the program, but a lot of work remains before we have made a complete plan. We see very attractive payback calculations on the investments, but you should also realize that sometimes they are of a nature where they are complex, and it can take 12 to 18 months before they give the desired effects. As an indication, we are now designing the program in such a way that we are investing on a higher level than our depreciation rates for the next 3 years. We take a look at the outlook and market development on slide 18. Market development.
We have a very strong demand situation in Europe at the moment, but when we look at the statistics available, we can see that there is a slowdown of the growth rate. It doesn't necessarily mean a decline, but it means that the growth rates are slowing down. We see updated forecasts on GDP and construction output, et cetera, that point in this direction. We experienced a very favorable Q1, partly helped by a mild winter weather, that has also helped us to deliver good numbers for Q1. Lindab's business is late cyclical, and demand remains on a high level for us, but it is difficult to say for how long that will last before we see the effects of a reduced growth rate.
Steel prices are currently overall stable, which is positive for us. They have been increasing for quite a while, we're happy to see the stabilization and hope that that continues. We continue to improve our customer offering and efficiency to stand strong in a possible future slowdown, we try to be ready if that should happen. Now, we move to the summary on slide 20. I will not repeat the messages on there, but instead, we will open up for questions.
Thank you very much. If you have a question for the speakers, please press zero one on your telephones. We have a question from the line of Carl Ragnerstam of Nordea. Please go ahead.
Good morning. I have a couple of questions. Can you give more specific guidance around your CapEx program? Could you perhaps comment on the total CapEx levels for the program years, and when it will be allocated in terms of 2019, 2020, and 2021?
We cannot give you exact numbers year by year. We have tried to indicate in the presentation material that the investment rate will be above our depreciation rate, which is quite a large difference from where it has been over the past two years. We are talking a significant increase of the investment level, but we also have to have the internal capacity to both plan and execute these investments. I cannot be too detailed on the actual CapEx spend exactly year by year.
it will be a back-end load, so to speak, more in 2020, 2021 rather than 2019? Or?
Sometimes when you design these programs, you have ambitions, but the lead time on these investments can be longer than you are hoping for, because it's not only Lindab that has a high capacity utilization at the moment, but also the companies delivering automation equipment. Our ambition is to increase investment significantly already in 2019, and to keep it on a higher level also in 2020 and 2021. It can, of course, happen that certain investments, due to this high demand, are delayed in terms of final installation and when they're activated.
Okay. Could you perhaps give some examples of some of the projects, larger projects that's included in the program?
We are investing in machinery, highly automated machinery for production, quite a lot in the ventilation area. We are investing in increased capacity, both in terms of space and production equipment. That goes for all three business areas. We are also investing in IT tools to help us become more efficient in both our operations and our logistics. We are in the interest of both, you know, saving on freight costs and in the interest of the environment, trying to fine-tune where we have our local manufacturing spots, so that we are as close as possible to the customers, so that we avoid unnecessary transports. Those are some examples.
Okay, I have a couple more. Can you give an historical view of the seasonality within Profile Systems and Ventilation Systems? If you could quantify the margin drivers behind Profile Systems this quarter, and how much of that was sort of mix and weather effects?
If we start with the seasonality, we what we normally see, that can, of course, be different, in one particular year. What we normally see is that Ventilation Systems has less of a variation between the quarters, in terms of sales levels. It is a more even demand. Most of those products are installed indoor, so it's not so exposed to external weather conditions. In Profile Systems and Building Systems, you have weather effects. A lot of the work there is done outside, and installation is difficult if it's a harsh winter or if it's frost and minus degrees.
Normally, for Profile Systems, you have a lower sales in Q1, and then stronger in Q2, and then the strongest quarter is the Q3 in the year, in terms of sales. Building Systems, you also normally have a rather slow start of the year due to the winter conditions, and then better in Q2 and strong in Q3. You asked about the margin drivers for Profile Systems.
Exactly, yeah.
I mean, there are several margin drivers, and we are working on trying to improve all of those parameters that we can. We are trying to catch up on the pricing. It's a lot of steel content in the Profile Systems business, so we must try to adjust our prices when raw material prices have increased. Pricing is definitely one aspect. We have Profile Systems activities in many countries, so making sure that all those units are performing is another important aspect, and that has in itself many different activity areas. Not all companies within the Lindab Group are performing on exactly the same level.
We have, as any organization, or countries where we have less profitability, and countries where we have better profitability. I could also add that for Profile Systems, we have a strong demand situation, and now we are, with an increased focus on profitability, we are not taking all orders that we could. We are sometimes saying no, when the profitability is not on the level where we want it to be. We can afford to be a bit more selective when we take projects in the market.
Okay, and have you taken the low-hanging fruit, so to speak, in terms of price increases?
Price increases, I mean, that's you can think that is a low-hanging fruit, but there are not so many low-hanging fruits. All pricing discussions are complex. The competition is intense out there, and we have customer relationships that we want to take care of in the long-term perspective. Doing, you know, very short-term things, damaging relationships, is not something that Lindab wants to do. We have been around for 60 years. We plan to be around for many more. We need to work closely together with our customers. It's important to be long-term in the thinking.
A lot of the improvements we can do, we have to do them internally, and we have to be on a competitive level when it comes to the combination of price and value for money. We handle the pricing tool with a lot of caution.
Okay, thank you.
Thank you. Our next question comes from the line of Max Frydén of Danske Bank. Please go ahead.
Max Frydén from Danske. A question on Building Systems, increased order intake, strong backlog. You have the effect from efficiency program last year. You also have the positive weather effect here. Help us understand EBIT in line with historical seasonal pattern, with Q1 being the weakest quarter and Q2 and Q3 stronger. Is that realistic to looking forward?
As I mean, when we analyze the historical numbers, that is, that is the normal pattern. There can be a lot of other factors influencing that. If we see a sudden drop in the economy, of course, that can, that can hurt us during a quarter, which would normally be a strong one. But if we, if we think about it as, if it follows the normal trend, then that is what we should see. Q1 being the weaker one, and then, gradually stronger, during the next, two quarters.
Very clear. Just to follow up on the gross margin expansion, which accelerated substantially year-over-year in Q1 compared to the two former quarters. Just help us understand a little bit, sort of the lag in the system here, that will you still see positive effects in the next quarters from price increases done during the fall? Or is it more from more recent price increases? Just trying to understand the duration and the lag in the system here a little bit.
Pricing, the pricing decisions and the, all the negotiations, they are mainly handled, country by country.
Mm-hmm.
They are happening at different times, depending on the type of contracts we have, the type of business culture, et cetera, in those countries. We are gradually adjusting our prices in all the companies within the Lindab Group. It is not something that suddenly happened on 1st of October or any other specific date. We are continuing to work on the pricing levels. We have not yet caught up with all the effects we had from the significant raw material price increases we experienced in the past 2 or 3 years. There is still more work to be done. We are not, we are not there yet.
Perfect. That answers my questions perfectly. Just sorry for one technical question to bother you, but the positive effect from IFRS 16, around SEK 20 million, on EBIT level on a yearly basis, Malin?
Yes.
Okay. Thank you so much for taking my questions.
Thank you, Max.
Thank you. Our next question comes from the line of Kenneth Toll of Carnegie. Please go ahead. Your line is open.
A couple of questions. First, let's continue to discuss prices and steel costs. As you mentioned, steel prices are moving up for quite a long time, and that has been the justification for you to increase prices. Now when steel prices are flat or might be slightly down even, isn't that making it a lot harder for you to increase prices, even though steel prices were up a couple of years ago, as you say?
It is, of course, harder to increase your prices, if you cannot refer to a very recent increase in the material prices. Lindab lost a little bit of time, and that is what we are catching up with now. You are right that it can be a bit difficult to explain why we are continuing to do this now. Of, you know, if we have close relationships with those customers, they will understand gradually, but we cannot deviate significantly from the competitive environment around us. We need to work on many fronts. We need to work on our own internal efficiency, in production, in our freight costs, et cetera. We also have to work on our purchasing and our external pricing.
We are working on all of that. In a situation where the demand is significant and where we are experiencing record volumes in several of our factories, we have to somehow prioritize and make sure that we both have a volume we can handle and a margin that can justify future investments. We need to increase the earnings, but it's definitely not only by using the pricing lever. We are playing on all the instruments that we can.
Mm. So far, it's a, it's a nice orchestra playing, I would say. Also on Building Systems, you have, reported, a very strong, order intake for 3 quarters in a row or so. There is a lag between you get the order and you start delivering. And you say that the order intake is significantly higher than it was last year. Do you have some hints on when those orders are really kicking in? Should we expect sort of dramatic organic growth rates in coming quarters for Building Systems?
I don't think you should expect anything dramatic. I don't really like dramatic. We want to have a steady development and a development we can foresee and forecast and plan for. The Building Systems, they are producing, they have an excellent product range, I must say. I'm impressed by what that organization can do. There are not many companies in the world who can do what they are doing. We are talking quite complicated projects, and they are gradually becoming larger and larger. We have something unique there. You are right that it takes time between, you know, order intake and delivery. It can take anything from 3-12 months.
It could, of course, take even longer, but let's say 3-12 months. So having a strong order backlog is that's a great comfort. We all know that if the economy starts to become really worried, we all know that an order can also change into something which is on hold.
Mm.
We are not taking anything for granted. We are being, you know, quite paranoid there, and we are making sure that we are in excellent shape in all the, all the operating units within Building Systems. So far, they are doing an excellent job in the turnaround, and they are following the plan perfectly.
Yeah, then you also, when you talked about the profiles side of your business, you said that not all the units you are operating are performing on the same level, and that there might be underperformers in the groups and so on. Could we expect any sort of larger actions in taking care of such underperformers, like divestments or closing of a factory to move products or something like that during this year? Do you mainly see sort of smaller improvements going on?
I'm relatively new as a CEO in of Lindab. What I try to do is I try to give everybody a chance to show how well they can perform. Before we take any, you know, decisions to make anything more drastic, I want to make sure that we have given everybody a chance to show their absolutely best performance. That is our focus now. We try to address the units that are not performing on the expected level, and we try to get everybody in the best possible shape.
Mm.
When we have done that, and we are not gonna work on that for 10 years, we are working on that for a limited period. If it then shows that some units, well, you know, market conditions or something else, doesn't really make it possible for us to make the right kind of profitability in those countries, and we cannot achieve a leading position in those product areas where we are focusing, then it is time to evaluate other options. First, we see if we are performing as well as we can today.
Okay. Finally, on the new organization that you introduced. I mean, results are really strong, but internally, are employees happy with the new organization, or are there conflicts anywhere or some hiccups, or can you elaborate a little bit on that, please?
You know that, all that kind of information maybe doesn't reach the CEO, but I think so far the this way of organizing the company has been well-received. I think more people are being seen today, and have a distinct responsibility compared to how it was before. I think we try to decentralize and make people, you know, really responsible for their units. A lot more people are now in the spotlight than in the past.
Mm.
We as group management, our job is to support the units out there, if they can shine and look great on stage, I'm happy.
Great. Finally, with the new divisional split, it would help if we could get the historical numbers of sales and EBIT for the two new divisions. That would help us to set forecasts for going forward.
You mean for 2018, quarter by quarter?
Yes.
That
We note that, and we will see what we can do about that.
Okay, great. I saw you short.
They are effective. They are good.
Thank you very much.
Thank you, Kenneth.
Thank you. Our next question comes from the line of Marcela Klang of Handelsbanken. Go ahead.
Good morning, Marcela Klang from Handelsbanken. I also add to the request from Kenneth for some Q2, Q3, and Q4 comparison figures for the new divisions business segment. I have a follow-up question cause before 2013, Lindab was split into three business areas. Is it possible to draw any comparison to the Ventilation Systems now and before 2013, and the Profile Systems and the Building Components divisions? You have been merging these two for six years. How are these divisions now different to what you had 2013 and before?
Thank you, Marcella. That is an excellent question to the new CFO and CEO, we are trying to dig in the archives to also to understand that better. What I have been able to conclude so far is that you cannot really compare that like for like to the situation today. The business areas look slightly different then, there have been reorganizations and acquisitions and divestments, et cetera, since that time. We are not able to answer your question exactly at this moment.
Are you doing anything because the merging process was also basically to merge the retail outlets? Are you doing anything in practice to separate these two division Ventilation Systems and Profile Systems, or are they so far separated right now that it's basically just to read the results per business area?
There, in quite many countries, there are significant cost synergies between Ventilation Systems and Profile Systems. Mainly in sales, you can say, like, pro shops to local warehouses, but also in logistics and to some extent in production. They are not completely separated today. We have to analyze unit by unit and define what are the associated costs to the different business areas.
You will probably, case by case, try to separate them a little bit more compared to where you stand today, if I understand you correctly?
I wouldn't necessarily say that.
I think this comes down to when it makes sense from to having a combined setup in a store or in the logistics setup, it makes sense, then there's no need to split it, because then.
Mm-hmm.
we have a competitive situation on being good in cost levels and so on. That we want to keep.
If you walk into a Lindab store in Sweden, for example, you will see that it is very integrated. We have the Profile Systems product there, and we have the Ventilation Systems product there. That would be a very difficult exercise to separate those from each other.
Yeah.
They are together.
Is there any case where it makes sense to separate Ventilation Systems and Profile Systems more compared to today? Can you imagine such a case?
No, I don't. I don't have any good example. I mean, where there are several countries where we have only ventilation sales.
Yeah.
There are countries where we have a little bit of one and more of the other. There are countries where we have 50/50. We try to use the positive synergies as much as we can.
Mm-hmm.
We are not forcing people to, how should I say, to use each other's services if it doesn't add value.
Yeah.
It should be value creating and positive synergies, but not, synergies just because you want to integrate. We have, we want to avoid complexity costs.
Yes
... simplifying everything is a mantra.
Yeah. Thank you so much for your answers.
Thank you, Marcella.
Thank you. May I remind everyone that if you want to ask a question, please press zero one on your telephone keypads. There are no further questions at this time. Please go ahead, speakers.
I want to say thank you to everybody listening in, and I also want to extend a thanks to all the Lindab colleagues who have done a fantastic job in Q1, and we hope that we can continue to deliver on a good level. Thank you, everybody.
Thank you. Goodbye.