Ladies and gentlemen, welcome to the Systemair Interim Report Q1 Conference Call. I would like to remind you that all participants will be in listening mode and the conference is being recorded. The presentation will be followed by a Q&A session. You can register for questions at any time by pressing star one on your telephone. For operator assistance, please press star zero. The conference must not be recorded for publication or broadcast. At this time, it's my pleasure to hand over to Anders Ulff, CFO. Please go ahead.
Thank you very much, and welcome to everybody. Thank you very much for calling in to our Q1 presentation. Me and Roland are sitting here today in Skinnskatteberg in beautiful weather. We can almost promise that when we are hosting also our annual general meeting here today at 3:00 P.M. Maybe next year you will be able to participate. You will find a presentation then on the investor relations web page under Reports and Presentation, of course. So, by that, I hand over to Roland.
Thank you very much, Anders, and hello, and welcome everyone to our Quarter One report. Without further ado, let me just jump into the report, by switching to the second page of the report, as you will find on the webpage with the agenda. I'll start with a short Systemair in brief, followed by the first quarter summary, followed by Anders with the Q1 financials. Then we have, as the fourth point, we have the first quarter acquisitions and project highlights, and we will end with a Q&A. Switching to next slide, Systemair in brief. As you know, we are operating based on our core values of simplicity and reliability. We manufacture and market energy-efficient, high-quality ventilation products. With our customer in focus, our emphasis is on delivery, reliability, availability, sustainability, and quality.
Systemair as a company was established in Skinnskatteberg here in Sweden in 1974 by our chairman and founder, Mr. Gerald Engström. In our last fiscal year, we achieved a total annual turnover of around EUR 1.1 billion. And Systemair has been listed on the Nasdaq Nordic Stock Exchange market since October 2007, and today, we proudly operate our own sales companies in 51 countries, together with 26 factories in 19 countries. With about 6,600 employees in Systemair, we are today present and sell to more than 135 countries around the world. Switching to next slide, slide number four, and looking at the highlights of the first quarter. So the organic growth sales in quarter one was closely in line with the previous year.
We see this as a sign of strength, given that we're still dealing with relatively tough like-for-like figures in an uncertain market. We did also finalize the acquisition of the AHU manufacturer, FAM, in Kuala Lumpur, in Malaysia, and we also continued our capacity investments in Lithuania, in Italy, Canada, and Germany, where we are building new facilities and invest in modern machinery. Those will all be finalized during our second quarter. At the same time, we started an expansion also of our production facilities in Dal in Norway. As you know, Systemair, we like to highlight important product launches, and here we are following up our successful launch of our Genius AHU and the side-by-side version, but also on our updated, integrated, and full reversible heat pumps with our next generation Access control systems that we have on our air handling units.
We're also glad to report, as you know, that we have finalized the move and the relocation of the Menerga production from Germany to Slovenia in our first quarter, according to the plan, and finally, of course, we want to highlight that this year, 2024, actually, in October, we celebrate our 50-year anniversary for the company, but that's switching to next slide, slide number 5, and looking at the different markets and their shares, so let's have a look at the markets in the quarter. As you know, we have a global and quite diversified customer base, which provides us with a solid foundation for profitable growth. Looking at the different regions, starting with the Nordics, which represent 14% of our total turnover in the quarter and stable.
Western Europe has a 45% share and is thereby compared to the same quarter last year, and a slight decrease from 46% to 45%. Eastern Europe, stable at 13% share, and North America has been grown to become a 13% share today. Other markets which, as you know, incorporates North Africa, Turkey, Middle East, and Asia, is continuing its growth path and increases from 14% to 15% of our total sales in the quarter. By that, we continue with a closer look at the financial outcome in the quarter, and I hand over to Anders to next slide.
Thank you, Roland. I will start off talking about net sales then. Net sales in the quarter amounted to SEK 3,111 million, compared to SEK 3,175 million last year. This is a decrease in sales of - 2%. However, it should be noted that in the comparison, that last year's figures were very strong due to the recovery of the earlier supply chain problems that led to an organic growth last year of 10.7%. In Q1, we are reporting a smaller negative organic growth of 0.3%. We can currently see that the previous negative trend in declining organic growth is starting to flatten out. To give a bit more flavor on the net sales, we saw organic growth in Eastern Europe, North America, Middle East, Asia, and Africa.
The acquisition of FAM in Malaysia contributed to sales by 0.5%. Then finally, currency effects negative by -2.2%, coming from the strengthened Swedish krona during the quarter, where the biggest effect is from the U.S. SEK conversion. We come to the geographic breakdown, and I will focus on the organic growth rates for each region. Starting off with the Nordics, where all major markets in the region contracted during the quarter, leading to a negative organic growth of -4.1%. This is mainly due to the reduced activity in the residential sector that we have experienced for some while. In Western Europe, we saw an organic sales decline of the same number of - 4.1%. Within the region, we can see both positive and negative signs.
We had a positive percent, positive development in Azerbaijan, Serbia, and Czech Republic, while markets were slower in Slovakia, Slovenia, and Poland. In North America, the organic growth rate was 1.8% +, which was split up in a very positive Canadian market, while the U.S. market contracted in the period. In Middle East, Asia, Australia, and Africa, we had good growth of 10.7% organically, driven by, mainly by the markets in Malaysia, India, and Singapore. So all in all, the organic growth in total amounted to -0.3%. We are proud of our gross margin for the quarter. It was strong and ended up on 36.0%, compared to 34.6% in the previous year.
The increase is affected by previous price increases, a change in product mix, but also positive effects from the divested AC business. Our operating profit margin amounted to 9.8%, compared to 10.5% in the previous year. The operating margin is lower than last year, as you hear, but however, last year was exceptional, and in comparison with the previous years, 2021, 2022, 2022 to 2023, we can confirm that we are gradually improving the margin with our profit improvement actions. It is, of course, possible to improve the margin even further in a better market situation. Selling and admin expenses in comparable units increased by 3% or SEK 34.6 million. Profit after tax amounted to SEK 210 million, compared to SEK 242 million last year.
We had a negative effect from net financial of -SEK 16.8 million, compared to -SEK 18 million last year, where currency effects on loans and bank balances amounted to -SEK 0.4 million, and the interest expenses amounted to -SEK 15.6 million. By reducing our net debt significantly, the interest expenses is SEK 5.3 million lower than the same period last year. The tax rate for the period amounted to 27.1%, or SEK 78.3 million. And then finally, the cash flow for the quarter. Our working capital increased, leading to a decrease in the cash flow by -SEK 190.9 million, and this was mainly due to the increased trade receivables, decreased trade payables, but also a smaller effect than from increasing inventories.
This led to a free cash flow of SEK 91.3 million, compared to SEK 177 million last year. Our debts then are significantly lower than last year, amounted to SEK 1,056 million, compared to SEK 1.4 billion one year ago. Net debt to adjusted EBITDA amounts to the very low 0.71, compared to 0.9 last year. By that, I hand back to you, Roland.
Thank you, Anders. Let's now have a short look at the main events and order highlights in the quarter. But as now, I'm on slide 12, and I switch to slide number 13. So, in May, Systemair finalized the acquisition of the air handling unit manufacturer, FAM, in Malaysia. FAM is a manufacturer of air handling units and fans for commercial applications, with today's sales both in Southeast Asia and Australia, and located in Kuala Lumpur, Malaysia. During the last financial year, that ended in March 2024, they had a turnover of roughly 47 million SEK. The acquisition gives us Access to expertise and locally manufactured air handling units for the fast-growing market in Southeast Asia and Australia.
As FAM Engineering manufactures and develops products that are mostly customized to the local market and complement Systemair's offering, well, with no overlap in the existing product range, we see very good future synergies for Systemair's existing sales organization across South Asia and Australia. Switching to the next slide, slide number 14. Systemair has discontinued Menerga's production in Germany, following the plan, as we announced in November 2023. In July, all production has successfully been transferred to Maribor in Slovenia, where production of all units on the new platform is now fully operational. We are very proud for the efficient execution of this transfer project, and are now looking forward to the improvement this new platform will give us.
This reorganization is expected to generate annual cost savings of at least SEK 70 million, with full effect in our next financial year. But that's switching to the next slide, slide number 15. At the end of our call here, I would like to present to you two projects that are following our strategic focus as presented in our last Capital Market Day. One of them being service and retrofit projects, and here is one very nice that we just recently executed. This is a retrofit project for ASML in the Netherlands, which is a leading manufacturer of chip machines that are supplied to the semiconductors industry. To achieve better energy performance and prolong the lifetime of our installed units, our local team upgraded these units to new specs and changed essentially technical functions to new efficient standards.
Total value of this energy upgrade for Systemair as an order value is about EUR 450,000. Exciting! Switching to next slide, slide number 16. Also here, the second project that I would like to present is for pharmaceutical and hospital applications, another focus area for Systemair, and here we supplied for a medical research center in Sicily, in Italy. The Ri.MED Center will be dedicated to research and development of drugs, cell therapy, and organ and tissue engineering. We delivered our ADP products to a total value of round about EUR 1 million for this application, and showcased our ability to fulfill high standards for any clean room application. With that, ladies and gentlemen, I'd like to conclude, switch to the last slide, slide number 17, and open up the lines for Q&A. Thank you very much. Operator? Hello? All right.
Okay, we have to wait a little bit here, ladies and gentlemen, for the operator to reconnect to be able to open up for the Q&A.
That's a strong one.
Yeah. We're still waiting. Sorry for this. Hope to be able to come back here soon. We're not able to open up the line from our position right now. Yeah, I believe now they will open up for a question from Carl Ragnerstam from Nordea. Carl, can you hear us? Let's see if we can hear you.
Very unfortunate situation.
Hello, I think many of you have been disconnected from the call, but it should work if you connect via the webcast and post your questions there. Hello? Well, we're truly sorry for this. Seems to be still some technical issue. We can't hear you, Douglas. Yep, we'll do so. Please go ahead.
Yes, okay, so for the U.S. market, there is, we reported a slight contraction of the volumes. This is more related to the distribution business that we have in the U.S.. We see that more on the short term, not on the mid or long term. We think that the market development is slightly positive, and this is just in the quarter, a little reaction on the summertime and the distributors' warehouse situations, nothing big.
Yeah, we tried during the presentation to give a little bit of the background for that, and we pointed out three factors, but of course, there are many factors behind this. I mean, we have been communicated in the past about profit improvement programs on the recent Capital Market Day, and we have step by step taken a lot of actions here in order to improve the margins, but also in the last years, we have done price increases that is coming through still, and also the divestment of the AC segment, of course, has an effect also here.
I just want to highlight that, of course, if you look back in the material from our Capital Market Day, we highlighted five in each of these different events. We highlighted path to how we want to stabilize on a higher level on the gross margin, and we're following through those activities. So this is something that we really are working on in dedicated projects on the long term.
Do you have any more questions in the webcast?
Okay, so for the pricing, yes, it's right. We didn't do any price adjustments for the last quarter. That is not included. We did one in the beginning of the year, but this was only smaller adoptions, where certain components or variants have been, I'll say, right priced. For the outlook, we don't see for the time being a need to make price adjustments. This is what we see for the next three to five months ahead, at least. So that is the status where we are today. In regards to the Menerga move, we are very happy to report that everything is done. Now we're in transition phase for the change of the local organizations, where the production is now, of course, ramping up in Slovenia.
You will see the full effect of these moves, as also reported when we announced that we will close down in Menerga and Mülheim. We'll see the full effect of the savings in our next fiscal year, and it's estimated to be around about an effect of SEK 70 million.
Thank you very much. We have another question from Henrik Alveskog. Question is, you write that work is in progress at several units to realign costs to meet any decline in sales. What units does this concern?
As you know, we are constantly reviewing both footprint and profitability in our units, of course, and this is. I assume that the question is mostly headed towards our operations. We have, of course, where we see that volumes are contracting or that other circumstances are leading us to it. We are looking for profit adjustments or adjustments in operations to improve our profit, of course. In looking back for the last quarter, only minor things have been done, mostly on the efficiency on the sales side, a little bit on the operations in Canada, and smaller effect also in Turkey, but overall, it's been a normal average quarter this year.
Thank you very much. We have a question from Carl Ragnerstam. The gross margin continued to strengthen year on year, which is great to see. So firstly, what is main driver behind that? Secondly, we see that SG&A level increasing by 140 basis points year on year, or 3%, while the total sales are down 2%. Is that driven by wage inflation or temporary costs related to the production move? And should we expect this to come down when you are set in Slovenia?
Yeah, I think this is the question we already got and tried to explain one time, but I think the connection has been poor, and I suppose that's the reason why we get the question one more time then. But as said about the gross margin, I mean, this is a long time commitment that we have had. We have been working, you know, with a plan in order to do profit improvements, and first time we presented this was on the Capital Market Day in twenty nineteen, and then we did a follow-up in 2023 Capital Markets Day and also an effect then from price increases, not now, but the previous price increases that are implemented and taking effect now.
It's also a question about divestment of the AC segment and a little bit more than a year ago. Those three are the main drivers, but there are also multiple reasons in this, of course, so it's a blended message here. On the SG&A, then, of course, we saw when we did all these price increases one year ago, and if you put the selling and admin expenses in relation to sales, that decreased quite significantly. Now we're seeing that the costs and the inflation, salary increases, the cost of services within IT, for example, all that is coming back now. We saw, especially here in our fourth quarter, that the SG&A was increasing.
We are, as Roland pointed out here previously, attacking that and trying to work with our cost structure and see. I mean, then where we have lower volumes, we are also adapting the cost. So this is a constant work that we are doing.
Thank you very much. We have a question from Adela Dashian at Jefferies. Can you provide some more color on the stabilizing performance in the Nordics? What's the visibility and expectations for the remainder of the year?
Yeah, that is, of course, this crystal ball question. It's very hard to actually answer that one. We see in the quarter, as also reported, that all the Nordic markets were a little bit not in decline, but a little bit weaker than the previous year. So as it is, all of the markets, and we still see that the industrials are performing quite well. We see a good activity level as reported, the consultants and installers. Not utterly concerned, but of course, it's not where it should be. It's very hard for us to make an outlook, and I would say that it's now not possible to estimate, but we think it's flattening out as in a stable way as we are today.
Thank you. We have three questions through from Anna Wallström at Carnegie. First question is, Menerga situation, how is it going operationally, and how is the cost situation developing, and your expectations for the near term? Secondly, cost development, freight, salaries, materials, et cetera. Third question, profitability in markets outside of Europe has been very good compared to a few years ago. Are there any specific events or strategies that explains this?
Okay, let me start with the Menerga situation. After the move, the situation in Maribor, we're actually really happy. Let's say this, you can see a challenge from different views. When we closed down and moved over all the manufacturing from Mülheim to Maribor, as normal, when you close something, the order intake is on a really high level, like it's following you. So we had a start with challenges in Maribor because we had a very nice backlog, and of course, customers needed to have goods in short delivery time. So there has been a tremendous good job done by our colleagues in Maribor, and we're working hard to get down to normal delivery times in the rate for October, November at the latest.
We have a good backlog and a good profitability development, actually, and there is, as always, when you're starting a production from how to say, from scratch and ramp it up, there will always be some challenges, but we are really, really seeing very nice improvements coming up to nice levels, so a good move and very good results from that part. On the question on salaries and freights, I assume that you're asking for how the costs have developed. For us, of course, salaries have, with inflation, everything, there has been quite an increase throughout Europe. Also, freight rates have gone up, but now lately, they have stabilized. So overall, of course, the surrounding costs are increasing. That is absolutely like that.
But I think it's, for the time being, it seems to have stabilized.
Yeah, and for outbound freights, we are trying to transfer that towards the customer side also.
Yeah.
Yeah, and we don't have that much freights also from Asia, so income, so that's a very low amount. There was a question also regarding, I think, the profitability in the other markets down there. Yeah, noticed.
Yeah, that is something that we have. I think there is a misunderstanding from any of the earlier quarter reports of the other markets, and here we're talking about North Africa, Turkey, Middle East, Asia, and India, then of course, that the profitability level should deviate from the group's target, which is not. It's up to group level. So, it for us, it's a good market, and of course, it's very positive for us that that region for us is on a nice growth path.
Yeah, and also step by step, as we are getting bigger in that region, we are growing quite a lot, and we are taking a stronger market position. By that, we can also push the prices in a better way.
We're happy with that area of the world.
Next question, please.
Thank you very much. We actually have a follow-up from Anna Wallström. The question is: In more challenging markets, how do you view the competitive landscape? Are you stable in market shares in Nordics and Western Europe?
In the Nordics, in those markets where we are present or those applications that we're present, from what we can see from statistics, we have a stable market share. In mid-Europe, we even see that in some of the applications where we're more active today, that we are taking some market shares. This is especially related to mid-Europe, Germany, Benelux, UK and France.
Okay, thank you very much. We have another question from Carl Ragnerstam. I was a bit surprised over the somewhat lower organic growth pace on the rest of the world. Still good versus other geographies, but we have perhaps been used to a slightly higher growth rate over the recent years. Is it a bit slower markets or just quarterly volatility?
Hmm. Good question. In the quarter, when it came to the organic increase that we see in other markets, it was specifically in Turkey and Middle East. There was you had, of course, the Hajj to Mecca and other things for especially for Saudi. But that time of the year is a little bit slower, and so that is the explanation. But the rest of the other markets, like North Africa, India and Asia, was going strong still in the quarter.
Yeah. And of course, it's not really sustainable to keep on growing in our industry with 20%-40% organic growth. I know, last year we did some record big deliveries also in the northern parts of Africa, also last year. So I think, we can be happy with the growth rates that we are presenting then, about 10% here.
Mm-hmm.
Thank you very much. Apologies once again for the technical difficulties we've faced today. As a reminder, if you would like to ask any questions, please do pose them on the webcast facility. The questions box is located just above the slides. We'll pause for a few moments just to give people an opportunity to register further questions.
Me and Roland are available if you have any questions that you would like to ask us or so. So please, feel free to contact us.
It appears we have no further questions, so I'll hand back to the management team for closing remarks.
Okay, ladies and gentlemen, as said already, really sorry for technical difficulties in this call. I hope you got the answers that you were looking for. As also mentioned before, anything else that you would like to ask or get the answer to, please let us know. We are very happy to serve. By that, I would say that we are closing today. Thank you very much for attending, and hope to see you soon again, and that will be on this-
Next time, in the beginning of December.
Exactly.
Yeah.
Exactly.
For the Q2 report.
Perfect.
Thank you very much, all. Take care.
Thank you very much, ladies and gentlemen. You may now disconnect your lines. Thank you for joining.