Welcome to the Systemair Interim Reports Q2 2021/22. Throughout the call, all participants will be in listen-only mode, and afterwards, there'll be a question and answer session. Just to remind you, this conference call is being recorded. Today, I am pleased to present Roland Kasper, CEO, and Anders Ulff, CFO. Please begin your meeting.
Good morning, everyone. Anders Ulff, CFO of Systemair. Happy that you have called in this morning. You can find our presentation on our investor relations website under financial reports and quarterly report. I start to hand over to Roland here for that presentation.
Thank you, Anders, and good morning, everyone, and welcome to our Quarter Two Report. Without any further ado, I'll start the presentation. By that, slide number 2. As you all know, Systemair established here in Skinnskatteberg in 1974. We have an annual turnover of around about SEK 850 million our last fiscal year. Since October 2007, we are listed on the Nasdaq OMX Nordic Exchange, and today we have our own sales companies in 54 countries. Our 29 factories operate in 20 countries, and today we have a little bit more than 6,500 employees and making it possible to sell into 135 countries all over the world on an annual basis. By that, jumping directly into our Quarter Two Report and switching to slide number 3.
The net sales in quarter two amounted to SEK 2.4 billion, which is a growth of 8.9%, organic 9.1%. Looking directly into the analysis of this growth and jumping into slide number 4, which then is the growth analysis of the quarter two. Organic, we had growth in all regions. We have a small contribution by acquisitions, mainly by Divid Servicebolaget , Burda, and Well Technology amounting to 1%, and then the strengthening Swedish krona, and the currency effects, contributed to a negative 1.2%, which brings us to the total growth of 8.9%. Slide number 5, the operating profit in the quarter.
The gross margin decreased to 35.6%, slightly from 35.9% due to the higher material prices and some delayed deliveries and inefficiencies in our factories due to that. The sales and admin expenses for the quarters increased to 6.9% for comparable units. The operating profit for the second quarter thereby amounted to SEK 237.5 million, compared to SEK 213.5 million the quarter the year before. Though the adjusted operating margin for the quarter amounts to 10.4%, the adjustments here refer to impairment related to the divestment of Systemair Traydus in Brazil and the positive revaluation effect linked to acquisition of minority interest in Burda in Germany.
The operating profit for the quarter amounts to 9.9% or SEK 238 million-SEK 237.7 million, and adjusted 10.4% after the adjustments just mentioned. Slide number 6, profit after tax. The net financial items ended the second quarter at SEK 27.9 million versus SEK 23.7 million the year before. The effect of foreign exchange in long-term receivables, loans, and bank balances are calculated at SEK 24.2 million. Interest expenses for the quarter total to SEK 5.7 million, and the estimated tax for the quarter amounts to SEK 55.8 million versus SEK 48.4 million the year before, which brings us to a total profit after tax in quarter Two of SEK 154 million. Next slide number 7, the cash flow analysis in Quarter Two.
The cash flow from the operating activities amounted to SEK 309.2 million versus SEK 245.8 million in the quarter the year before. The change in working capital is -SEK 227.7 million, which is mainly due to the increased inventory, safety stocks, and trade receivables in these component issue times. This compared to +SEK 38.9 million change in working capital last year. The net investment, excluding acquisitions, amounts to SEK 103.1 million, which is primarily the expansion of the buildings in Slovenia, Czech Republic, and in Sweden. Thereby, the free cash flow is -SEK 21.6 million, and the net indebtedness has arisen from SEK 1.6 billion to SEK 1.74 billion in this quarter.
Looking at the next slide and moving into a view on the different markets and starting here with the Nordics on slide number 8. Sales in the Nordic region increased during the second quarter by 4.8% compared with previous year. Adjusted for the foreign exchange effect and acquisitions, the sales increased by 1.9% organic. Here the markets, Finland, Sweden, Norway showed good growth during the quarter, while the Danish markets were a little more on the negative and fell slightly. In Western Europe on slide number 9, the sales in Western Europe market increased during the quarter by 1.5% compared with corresponding period last year. Also here, foreign exchange effect and acquisitions had no impact on the sales during the quarter. Growth is 1.5% and organic 1.5%.
Most countries in the region, including Italy, Portugal, Belgium, showed growth in the period, while smaller entities like Austria, Switzerland, and Netherlands reduced sales. Moving to slide 10 and Eastern Europe and CIS countries. Sales in these regions in Eastern Europe and CIS increased by 17.6% in the quarter, adjusted for foreign exchange effects and acquisitions, it actually increased by 18.2%. Our special view again here on Russia, when the sales in Russia increased by 20.7% compared with previous period and calculated this in Swedish kronor. The Russian market accounts now for 31.6% of the sales in this region. Other major markets growing in the region were the Czech Republic, Slovenia, and Slovakia. Growth 17.6, organic 18.2% in Eastern Europe and CIS. We're going to slide 11, North and South America.
Sales in North and South America region increased by 27.5% during the quarter compared with the same period last year. Here, adjusted for foreign exchange effects and acquisitions, the sales increased by 25.4%. Here it's above all the Canadian market that is showing really good growth in this period. Next slide and next region on slide number 12 being Middle East, Asia, Australia, and Africa. Sales in this region increased by 18.3% compared with the same period last year. Here, adjusted for foreign exchange effects and acquisitions, the sales increased by 25.1%. Organic 25.1% growth. Turkey, India, Morocco showed very good growth in the period while sales in the Middle East declined a little bit.
This brings us to the next slide, which is slide number 13, and the press release that also went out to the market today in the morning, where we announced new members of the Systemair Group management. As you see that the demand in the world is increasing for our energy system solutions and our products, with the search for good and better ventilation and indoor air quality, we also see with our different initiatives that we have launched in several countries in the regions in the form of recovery funds, this results in a very favorable market ahead for the group. To strengthen our future investments, we have done two new hires in the most strategically important business areas for us.
We present here, Anders Gustafsson, who will join us in February as the new Vice President Global Supply Chain, and Jannie Weber, who will be the new Vice President for M&A, also starting in February next year. Starting then from February 2022, we have a new component of the Systemair Group management, which will consist of Anders, Jannie, Björn Samuelsson, Olle Glasell , Anders Schultz, and me. Going to next slide number 14. Some nice reference here. We've delivered nice ventilation and cooling products to the university in Morocco, in the town of Rabat. Here to the Mohammed VI Polytechnic University. It's one of the biggest universities in Rabat, Morocco, where we have done a very nice project.
This construction started in December 2020, and it's planned to end in 2025, and it's divided in 4 phases and will at the end host a little bit more than 5,000 students. To this different building phases, we will deliver 40 chillers and heat pumps and more than 50 air handling units to a total amount of in the order of EUR 2 million. Next slide number 15. The 10th and 11th of November, we had two very nice events in Dubai on the Swedish Pavilion on the Expo 2020, where we had invited the experts and customers to come and to talk about the HVAC and indoor air quality community.
We had guests from all over the world, and for our keynote event titled The Future of Sustainable HVAC: The Trends and Innovations. It was a very, very nice afternoon and evening where we shared knowledge and experience with all the industry and all together were a little bit more than 150 live attendees and 800 virtual attendees in this event. This is how we utilize our sponsorship of the Swedish Pavilion in Expo 2020 in Dubai. By that, I want to close and thank you for listening to the presentation for our quarter two report, and I'll turn silent and switch over and open up the channels for questions. Thank you.
Thank you. If you wish to ask a question, please dial zero one on your telephone keypads now to enter the queue. Once your name's been announced, you can ask your question. If you find it's answered before it's your turn to speak, you can dial zero two to cancel. Once again, that's zero one to ask a question or zero two if you need to cancel. Our first question comes from the line of Karl-Magnus Stam of Nordea. Please go ahead. Your line is open.
Good morning. It's Karl from Nordea. So just a couple of questions. Firstly, on Systemair Brazil, you divested it looks like. Is that sort of a measure to focus the company towards core markets? Or what is actually behind that? Should we see it as a start of you totally exiting South America?
Good morning, Karl. Yes, a good question. It is for two reasons. I mean, the long-term prognosis for South America might not be that appealing, not before and not after the pandemic. We had several plans how to do, and the divestment of Systemair Brazil was a move that we had investigated and had looked into that for a longer time, and we finalized that now, just recently. We will of course review, let's say a little bit more, some of our footprint, and that will be something that is in our strategy also for the future, which we also see a little bit with the announcement of the new management, Karl. We are looking at our back end, at our footprint, and how we can rearrange going further in the future.
Okay. Sounds great. Also I was a bit surprised. I mean, you had component issues, negative geographical mix, raw material headwinds, but yet you managed to keep gross margin fairly flat year-over-year. If we strip out those effects, what would the gross margin be then in the quarter?
Yeah. I would say it's quite hard to answer that question because there's so many parameters included now when we have all the inefficiencies in production due to the shortage of components. We have the cost increase also on the material. I mean, what we see, we are continuing our work to improve our margins really, and we are doing the price increases as we go along, even though it's somehow a little bit delayed to the market so in some cases also. But year- over- year, I mean, we are still looking ahead for our target of reaching 10% operating profit, which we think is not that far away for us really, under normal circumstances, of course.
Do you expect to be fully compensated in Q4 when it comes to price increases? Or in next quarter? Sorry for you.
We are doing a new price increase here from first of January, which is quite significant also. But as you know, we as being present in so many markets, really over 50 markets, you know, it takes time, and it depends a little bit also if it's the project market or if it's the standard products, also the smaller. After that also, as we see it's quite likely that some of the prices will continue to increase after that as well.
I just wanted to add here, Karl, the problem that we have or the problem that everyone has just now in the whole building industry is that all sub-suppliers are facing that the raw materials prices are adjusted on a almost weekly basis. So we also have now built in the possibility that we can adjust our prices to our customers on a monthly basis, because we don't see that the outlook today doesn't give us a stop of when these adjustments stop coming. So by that, we can adjust on a monthly basis, and we will do so. So for us, it's not the big issue. The material price increases, it is more the availability and of course also logistic challenges.
You mentioned that you saw a strong order intake in the quarter. Could you perhaps give some flavor on this, which markets that are growing quite nicely? If you could give some indication of how much orders are up? Perhaps on that as well, I mean, in this inflationary environment, how do you ensure that orders are taken at the good margin level?
Yes. When we look at the environment in the world today, I mean, we still have the 2030, 2050 goals when it comes to Green Deal, it comes to Renovation Wave, we talk to energy efficiency, all that is still there. All that is confirmed all the time was that we have the toll gates of 2030, 2050, where we have to fulfill certain measures. The underlying need of renovation and upgrading energy efficient HVAC systems is still there, and we still have the stop date 2030. The renovation and the upgrade still had to be done. It's just the same amount of orders ahead of us, it's just that we have a slight challenge when it comes to the components.
The order intake for us on a year-over-year basis is we're somewhere in the backlog of a plus of 20%. It is very positive, and it still needs to be done. We think that the whole market is developing quite well. On top of that, not only that we have the HVAC energy efficiency, but also the higher awareness and need of good indoor air quality. For us, it's actually a positive momentum going forward. We really look forward to this.
The final one from my side, sorry for that. When we're talking these numbers and then as well as your organic growth in the quarter and try to benchmark with some of your direct peers, it seems like you're gaining market share. Is that your view as well?
Yeah. We're seeing some of our main markets that we're gaining share. Yes. Absolutely.
Perfect. Thank you.
Okay.
Thank you. Our next question comes from the line of Henrik Alveskog of Redeye. Please go ahead. Your line is open.
Okay. Hello, good morning. You hear me?
Good morning, Henrik.
Hi. Well, could you maybe comment a little further on your performance here in Canada, which was seen quite spectacular? Is there anything specific behind these strong numbers?
Yes. I mean, starting with the pandemic, but already some months before, there was a big switch over and turn in the building codes and also description of the Renovation Wave in North America, especially Canada, when it comes to residential and schools. This was, though, through the pandemic, even enforced largely. We have seen a tremendous positive development by almost tripled or more than tripled volumes for residential ventilation in Canada, and a lot of investment in whole North America for schools and classroom units, which we have a factory in Toronto, and for the residential, we have the factory in Bouctouche, also in Canada. Both those factories are benefiting largely from these trends in the Canadian and North American markets. It was a very, very good one.
Was there some sort of pent-up demand realized in this quarter or do you see this trend as a sustainable one?
It's what we see just for the outlook that we have today. The visible one is still very positive as I mean, let's call it the Renovation Wave and upgrades for schools and classrooms. You can imagine, I mean, North American market is huge, and the need is also huge. Also now, again, mentioning the pandemic and indoor air quality awareness that they have to do a lot more than just open up the windows if they really want to do it well. This also combined with energy efficiencies, of course, then you keep the windows closed, and you have a good ventilation and heating system. That's what is realized now in North America. When it comes to the residential part, it is that we have gained market share.
We have done good acquisitions some two years ago, plus that they have changed the building codes in other parts of North America. Building codes, they are then a given that you have to follow, to fulfill and to get the authorization for the whole building. These building codes, they are now more aware about the importance of the balanced ventilation, prior to that has been that you just can have an exhaust fan. Now it's balanced ventilation and residential ventilation. It's change of building codes and awareness and renovation.
Okay. Great. Also just, if you would like to comment on Russia and your new facility, which I guess is almost up and running now. Or could you just update us on that and, well, how that will impact maybe sales over the next year at least, if you could, if you have some transparency into that.
Yes. The building as such is, of course, finalized. We have moved in our warehouse that we had in a rented premise before, and the factory part is slowly coming up in pace. We had some delays on the factory part because of, again, in the pandemic to bring in machines was possible, but not the operations installation and commissioning people to set up the machine lines in a good way. This is now done, and we have started in a small scale production and will be up and running by February. What we are aiming at here, Henrik, is mainly that, after all the different restrictions put on the Russian market from Europe, it was a changeover on the Russian market from a lot of imported goods to having goods that should be made in Russia and have this seal of Made in Russia.
Today, with being a sole importer, you have only access to, let's say, to the top of the iceberg on the market for this really, let's say, financed by European companies, building projects. By having a factory in Russia, we have access to the total market, to the total installations, which of course opens up for us to be on a much brighter scale being a supplier to all these different projects ongoing in Russia, where it's still a high demand and a high investment level. For us, this opens up to develop the market even further and to utilize the 17 sales offices that we already have and the 15 warehouses. We see a very positive momentum moving on.
Yeah, great. Just finally, if Anders could maybe say something about what kind of tax rate you are expecting going forward on. I saw it was a bit lower this quarter. Is there any change, or is it temporary?
Yeah, it's a little bit hard to forecast, but I guess we can see that it's going down a little bit for different reasons. One is that we have been careful or more prudent in really realizing the losses carried forward in some places. Now that view is changing because we're making profits in places where we haven't done so in the past. I would say that hopefully it can be improved with like 1% or something like that, yeah, going forward.
Okay. Well, thank you. That's all for me.
Thank you, Henrik.
Thank you. Once again, if there are any further questions, please dial zero one on your telephone keypads now. We've had one further question come through. That's from Jimmy Engström of Erik Penser Bank. Please go ahead. Your line is open.
Good morning, thanks for addressing my question. My question is regarding the current surge in energy prices. Could you elaborate a bit on what effects you currently see from this and maybe in Sweden and the rest of Europe? Also, if there's a prolonged effect from this, could this be something that potentially benefits the construction market, perhaps if we see that buildings are being upgraded?
Good morning. Yes. So the impact on our own production, I mean, we saw that coming, so we invested in other systems, and we have our own heat pumps and of course, HVAC systems that are highly energy efficient to offset that. When it comes to the impact on the market, which most probably is the more important or interesting question here, what we see is a rising awareness driven by the need, by these costs that are increasing, to really look into the energy efficiency of existing buildings. On the side of everything that is ongoing on the market with new builds, we see more and more building owners looking for greater efficiency in their own existing ventilation systems and looking to bring the energy consumption down.
We have started with our newly started service department to look in what we call energy upgrade systems, to really go into existing buildings, existing installations and discuss and offer upgrades driven by the aspect of being more energy efficient with the new component in existing ventilation systems.
All right. Thank you. On the subject of the construction market, do you see any particular strong contributors in terms of growth looking forward, whether it be data centers, distribution centers? What is the main driver of the construction market in Europe?
For the time being, the big, let's call it hypes or drivers, are those that you mentioned. We have the data centers, but we have a lot of school and public buildings now after the pandemic that need upgrades when it comes to indoor air quality and energy efficiencies. That is a big one, especially for schools. It's a lot of discussions and activities. That is really quite official to us. Yes.
All right. Thank you. Also one final question. I believe you previously mentioned on speaking of Taxonomy that you have a eligibility in terms of 47%. Is this still the latest estimate or is there perhaps a more recent estimate that is available?
No, it's still the same, 47%.
All right. Thank you.
Thank you.
Thank you once again. If there are any further questions, please dial zero one on your telephone keypads now. Okay. There seems to be no further questions coming through at this time, so I'll hand back to our speakers for the closing comments.
Okay, ladies and gentlemen. Thank you very much for participating in our call for our quarter two report. We look forward to our quarter three report to welcome you then to answer your questions. Meanwhile, any other questions regarding to the quarter two, please let us know and please contact us. By that, from my side, thanks again, and I think it's this time of the year we also have the opportunity to wish you a very, very good next year and very merry Christmas. Thank you very much.