Welcome to the Systemair Interim Report Q3 2021/22. Throughout the call, all participants will be in listen only mode, and afterwards there will 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 here speaking. Thank you for calling in. You will find our presentation for today on our corporate website, group.systemair.com. I'll start off with turning over to Roland then for the presentation.
Good morning, ladies and gentlemen. My name is Roland Kasper. I have the pleasure to present our quarter report. For that, I immediately start with changing to slide number 1 in the presentation. As you know, Systemair established here in Sweden, in Skinnskatteberg in 1974. We have a annual turnover of around about EUR 850 million, and we're listed on the Nasdaq Nordic Stock Exchange market since October 2007. Today, we have our own sales companies in 54 countries, and we have 29 production facilities in 20 countries and employ round about 6,600 people. Today, we have a continuous export into 135 countries all around the world.
Slide number 3. Our net sales in the quarter three. Our net sales amounted to SEK 2.278 billion in quarter three 2021/22, which is a growth of 13.7% or organic 11.8%. Slide number 4. The growth analysis. Organically, besides Western Europe, all regions showed good organic growth. We only had a small impact from acquisitions, which amounted to 0.9%, and we had a strengthened currency by the end of quarter three in the euro, U.S., but also Canadian dollars, which is 1%, which gives the total of organic 11.8%.
Next slide number 5. The operating profit. Despite the material shortages and a record high sick leave, especially in end of December and beginning of January, the gross margin did only decrease slightly to 33.2% compared to 33.6% the year before. Our operating profit amounted to SEK 131 million or 5.8%. The sales and admin expenses for the quarter increased by 11% for comparable units, and the operating margin continued to improve to this 5.8%. Looking back for the last five years, it's a continuous improvement.
Next slide number 6. The profit after tax. The net financial items in the third quarter amounted to SEK 2.3 million. The impact of foreign exchange on long-term receivables, loans, and bank balances totaled SEK 4.8 million. The interest expense for the quarter totaled SEK 7.1 million, and the estimated tax for the quarter amounted to SEK 34.2 million brings us to total profit after tax of SEK 95 million for the third quarter.
Slide number 7, the cash flow analysis. The cash flow in the quarter from the operating activities amounted to SEK 142.3 million compared to SEK 139 million the year before. The change in working capital is SEK 115.5 million , which is mainly due to the increased inventories. The net investments, excluding acquisitions, amounted to SEK 44.4 million compared to SEK 133 million the year before, which is primarily the final investment in our factory equipment in Czech Republic, in Canada, and in France for coil and filters, which amounts then to a total free cash flow of SEK - 17.6 million. This brings us to total net debt of SEK 1.8 billion in the quarter.
Next slide number 8. This would then be our market share breakdown, which in quarter three 2021, 2022 amounts to Eastern Europe and the CIS countries, an increase from 14%-15%, North and South America from 10%-11%, other markets stable with 12%, Nordic region also stable with 20%, and a slight decrease in Western Europe from 44%-42% market share. The next slide going into the markets in depth. Starting with the Nordics, s lide 9. During the third quarter, sales in the Nordic region increased by 18.4% from the same period in the preceding year. Adjusted for the effect of foreign exchange and acquisitions, sales rose by 14.6% organically. The markets in Sweden, Norway, and Finland showed growth while the Danish market receded.
Slide 10, Western Europe. Sales in Western Europe amounted in the quarter to 4.9% higher than in the corresponding period last year. Adjusted here for foreign exchange effects and acquisitions, sales rose by 1.2%. The U.K., Spain, and Italy showed growth over the period, while France, Netherlands, and Belgium saw a sales decline. The biggest impact from material shortage and record high sick leaves have been here in Western Europe.
Next slide, Eastern Europe and CIS. Sales in Eastern Europe and the CIS rose by 19.2% during the quarter three. Adjusted here for foreign exchange effects and acquisitions, sales rose by 15.7%. Systemair discontinued its deliveries to Russia and Belarus the fourth of March. The Ukrainian, Russian, and Belarusian markets accounted for 4.5% of the total sales. Other major markets that showed growth in the region were Estonia, Hungary, and the Czech Republic.
Next slide number 12. North America. Sales in North America in the quarter were 26% higher than in the same period last year. Adjusted here for foreign exchange effects and acquisitions, the sales rose by 16.8% organically. Here it's mainly the Canadian market that is showing continued strong growth in the application for residential and school. Next slide number 13. Middle East, Asia, Australia, and Africa. Sales in this region rose by 23.4% compared with the same period last year. Adjusted here for foreign exchange effects and acquisitions, sales rose actually by 36.5% organically. Here it's India, Middle East, Australia show good growth during the period, while sales in Malaysia declined slightly.
Slide number 14. As you know, we have been or we are the sponsors for the Expo 2020, which is now Expo 2021 in Dubai. On the 16th February, on the second occasion, Systemair Sweden was hosting guests in the Swedish Pavilion at the Expo. Our Managing Director of Systemair Sweden, Sofia Rask, introduced the event with topics like Let's Co-Create for Sustainable HVAC, which then followed by presentation of Systemair's products and solutions, a tour of the pavilion, as well as networking dinners with our guests.
Slide number 15. As reported in the quarter, Systemair acquired Tecnair LV in Italy. Tecnair is an international supplier of indoor close control air conditioning units, and the products are delivered to hospitals and data centers. Here, the Italian market accounts for around about 25% of their sales, and the rest is exported within Europe. Tecnair is located in Uboldo, outside Milan, but will with immediate effect after closing, relocate to Systemair's existing premises in Buccinasco, which is only a distance of 15 km. Tecnair sales in 2021 amounted to EUR 12 million with an EBITDA result of EUR 1.2 million. The company has 43 employees. By that, I'll end the presentation and open up for questions. Thank you.
Thank you. The first question is from Hjalmar Jernström of Erik Penser Bank. Your line is now open.
Good morning, and thanks for addressing my question. I was wondering if you could elaborate a bit on the North and South American markets. They keep delivering strong growth. Can you elaborate on particular segments that are contributing? Is it still educational facilities in Canada and the U.S.?
Thank you for the question. Yes. What we see is that still, Canada is very strong in residential, primarily. In the U.S., the educational sector is investing quite a lot. What also happened during the last two quarters is that the building code regulations have changed in parts of the U.S. It was now in the summer, they started in California and in Arizona, and now it's following Texas and other states where they changed the building code to be inclusive for residential, which hasn't been the case before. This is, of course, something that is very beneficial for our factory and our sales organizations in North America.
All right. Thank you. Also on the gross margin, you mentioned the price hikes that you were not fully able to carry out in the quarter. Are you confident looking forward that you will be able to carry out price hikes, or how should we view this statement?
Yeah. We have implemented several price increases, and especially now, from beginning of January, we have done the latest one also.
The fifth one, yes.
Yeah. The fifth in order. I mean, as always, it takes a little bit of time in order for them to have full effect. We expect it to have, you know, increasing effect during 2022. Of course, then what is happening now with prices and so on, we will of course be also looking into making further price increases if needed now.
All right. Thank you. Also on the M&A agenda, I was wondering if you could elaborate a bit on the current pipeline and perhaps elaborate in particular whether you target residential, commercial sector or if you view certain segments that are particularly interesting within these segments.
As you might have seen, as we also did from first of February, we have also changed our management, and we have a new position, Vice President of M&A. Of course, this is something that we will focus on moving ahead. The pipeline is, of course, quite exciting, and it's very interesting. Our focus, if you look at our main markets, which is of course Europe, is exactly what you're describing here, Hjalmar, which is that we're looking into residential and light commercial because of the Green Deal, the renovation wave, and of course also to increase energy efficiency of buildings, which is something that is driving us forward for the 2030, 2050 agenda.
All right. Thank you.
Thank you.
Thank you.
As a reminder, if you wish to ask a question, please press zero and one. The next question is from Anna Widström of Handelsbanken. Your line is now open.
Hello. Thank you. I'm just curious about the component shortages, if is there in some ways, you know, affect the product mixes and if that could have any margin effect that we should be aware of?
Good morning, Anna. The component shortages is of course just now an issue that is continuous bothering us. It is changing a little bit from what components are in that we're looking for. It has been quite a lot to focus on motors lately, but now it's cabling, it's processors and more on the electronic side. This is of course something that is bothering us a little bit because the logistics cost for these components has increased quite tremendously. In some areas where we have to have safety stocks, it's of course also something that is impacting. Looking ahead, we see that the situation has eased a little bit. It's not being really good, but a little bit better. I hope that the actual situation that we have around us today, in Europe will not have a bigger impact, which of course would be possible. We are a little bit waiting on the next couple of weeks to evaluate the situation.
Perfect. Thank you. I know this is, you know, impossible to know, but if you were to maybe think about some indirect effects you could have from, you know, having to close down Russia and Belarus, well, do you see any, you know, indirect effects that could happen within the upcoming quarters?
Yeah. We're of course looking into these issues. I would say that just standing here today, it's very hard for me to make a conclusive answer to this. We're looking into what are the different scenarios. I would of course on a human basis hope that everything will end by tomorrow and with the ongoing activities in Ukraine, and that we would have a clear view on how this will move on. I cannot take a clear statement to that today, but it's under evaluation of course, very deeply so.
Perfect. Thank you.
The next question is from [Bertil Sindler] of DNB Markets. Your line is now open.
Yes. Hello, gentlemen. Sorry, I missed the beginning of the call, so apologies if this question has already been asked. I note that you continue to reduce staff in Menerga. I just wanted to see if you can give us an update on how far you come there with getting that business into the shape you want it to be. Or should we see this personal reduction more as driven by short term volume issues? Some sort of comment on that would be useful. Thanks. Start there.
Yes, absolutely. Thank you for the question. Yes, in Menerga, we are following the plan. As announced earlier, we are shifting over part of the production from Menerga in Germany to Slovenia. This of course has an impact on the staffing also. We are a little bit delayed on that shift over because the fans ordered in February, March last year and some of the electric components for the units to be shipped from Slovenia are delayed until March this year. We're starting this as soon as we have the material in place. Of course, everything else that could be physically moved has been done. You will see further actions in that activity.
Okay. I guess the timeframe is uncertain.
To us it's more or less as soon as possible.
Obviously. Sorry again, I assume that the questions for Russia have already been asked, but I just wanted to understand. Obviously, you said now that you will not deliver products and so on, but what sort of risks do you see? Do you have any sort of, I don't know, obligations to clients to deliver certain products or what sort of liabilities might you have in Russia beyond you just shutting down sales?
We don't see that.
Belarus and Ukraine obviously included there.
Yeah, absolutely. Let's focus on Russia. We have no obligations that we can interfere with in that sort. It's more of taking care of course, the staffing that is still with us and looking into how we can take it from here and what the impact will be and how we should take it. It's a constant evaluation that we're doing, looking into this of course. As announced, we have stopped the deliveries to Russia by last week, so.
Are you able to pay salaries to these employees or how does that work?
Yeah, we will be able to continue to pay salaries for, I mean, for the time being. I mean, they also continue to sell on the market from stock as it is. At some point, I mean, it will be impossible without sending more money-
Yeah.
-to the entity i n order to, you know, pay the wages for the staff.
Okay.
I mean, it's really early and I mean, we need to look into the different scenarios here and yeah, there's a lot of things going on especially in Russia for the moment, also with all these companies shutting down their operations.
I guess you're looking into sort of the long-term plan with Russia as well?
Yes.
We can talk about that later, possibly, but.
Yeah. It's of course looking into how you should sustain or close down of course.
Okay. Thank you very much, gentlemen.
Thank you.
If there are no further questions, I hand back to the speakers.
Okay. Thank you very much for today. Should there be any other questions that are coming up later on, we are more than happy to accommodate those. Please give us a call or a mail if you want to address more questions regarding our quarter report. We'll be happy to do so. Otherwise, thanks a lot.
Yeah. Thank you very much for calling in, and otherwise we will keep in contact each of you when we present our Q4 report. Hopefully it'll be better news at that point. Yes.
Okay. Thank you very much. Take care.
This now concludes our conference call. Thank you all for attending. You may now disconnect your lines.