...Welcome to the Systemair Q2 report. Throughout the call, all participants will be in listen-only mode, so there's no need to mute your own individual lines. Afterwards, there'll be a question and answer session. Just to remind you, this conference is being recorded. Today, I am pleased to present Roland Kasper, CEO, and Anders Ulff, CFO. Roland, once again.
Yeah. Good morning, everyone, and welcome. Welcome to the Q2 telephone conference. Due to an update on our web page, it might be a bit complicated to find our presentation. But you have to go to the web address, group.systemair.com/investor. And if you scroll a little bit down there, you will find the presentation and the report. Otherwise, you're welcome to contact us, and we will forward it to you after this call. So should we get started, Roland?
Yes, of course. Welcome once again to the Q2 report. On using the presentation, and those of you that have downloaded it and have it in front of you, I'll switch over to page 2. As you all know, our company was established in 1974 and based in Sweden. Last year, we reported an annual turnover of EUR 830 million, and we were listed on the stock exchange market last year, October 2007. Today, actually, we have more than 50 companies around the world with our own sales and things. We are listed as a 2,230 in the group. Currently, we export to more than 100 countries all around the world. Switching thereby to page 3. Looking at our markets, this is our actual market share.
So Eastern Europe and the CIS countries growing from 16%-17% in total in this turnover. North and South America increased from 9%-10%. Other markets being Turkey, Middle East, Asia, in specific, from 11%-12%. Nordic region actually declined slightly from 32%-18%, and the rest of Europe increased from 40%-42%. Next slide, slide 4. Here, we are jumping directly into the report for quarter two. In the quarter two, we achieved SEK 2.483 million of turnover, which contributes to a growth totally of 15.2%, compared to the Q2 of the year before, SEK 2.15 million, where organic is 0%. Switching to page 5: strong quarter. So, where does it come from?
On the organic part, especially good organic growth in North America and Eastern Europe, which contributes 36%. By acquisitions, we have the main effect is, the acquisition in Australia and parts of, the Systemair Maroc, which contributes to 5.2%. Then also, then the strengthening currency effect of the euro, which contributes all in all 4.2%, which gives us a total of 15.4% total growth in the quarter. Page number 6, slide number 6: operating profit now in quarter two. The operating profit amounted to SEK 284 million, contribution to 11.4%.
Meaning the group margin increased to 35.8% compared to 34.0% last year, quarter two, with mainly to high capacity, capacity utilization of factories and, as a result of our profit improvement actions. Our selling, general, and admin expenses for the quarter increased to 8.1% comparable units, and the operating profit stood at 283.9 versus 188.9 the quarter the year before, which was 3.8%. Also to see here that we have the operating profit, including one of the factors, SEK 7 million as a seller of the brand. Next slide, slide number 7. Profit after tax in quarter two amounted to SEK 194 million.
Net financial items ended the second quarter at SEK 20 million compared to SEK 11.1 million. The effective foreign exchange on the long-term receivables, loans, and bank balances were calculated at SEK 9.9 million, and the interest expense for the quarter totals SEK 10.5 million, compared to SEK 8.1 million the year before. Adjusted for the IFRS 16 effect, the interest expense showed SEK 8.3 million. As a result, the estimated tax for the quarter amounted to SEK 90.6 million versus SEK 12.5 million or 26.4%. Next slide, slide number 8: our cash flow. Cash flow from operating activities amounted to SEK 294.3 million, to be compared with SEK 196.3 million the year before.
Change in working capital was at SEK 23.6 million, here mainly consisting of increase in trade accounts receivables, SEK 137 million. The net investment, excluding acquisitions, amounted to SEK 58.5 million, versus SEK 39.9 million the year before, and here's mainly machine investment in Spain, Germany, and Sweden. In Spain, it's a machinery to increase efficiency. In Germany, a increase of, capacity for extra time, and here in Sweden, I'll come back to it in a separate slide. As a result of that, our free cash flow amounted to SEK 212.3 million Swedish kronors, compared to SEK 46.9 million the year before, and our net investment slightly increased to SEK 2.2 billion Swedish kronors. Go on to slide number 9, and look into the markets in the more specific in the regions.
Starting with the Nordic region, sales were actually 1% lower than the same period last year, so we had a negative growth of 1%. But then, Norwegian Finnish market climbed slightly during the quarter, after which market showed a good year. In the Norwegian market, there are some signals of, indicating that the project slowdown is to be expected in here, especially in the residential part of the business. Exchange rate effect and acquisitions did not affect our sales or materially affect during the quarter in the Nordic regions. Next slide, slide number 10. Western Europe. Sales in Western Europe markets were actually 19% higher than the corresponding period last year, and, here, a major contributor is the acquisition of the Koolair in Spain, it had a quite significant impact.
Adjusted for foreign exchange effects and acquisitions, the sales growth stood at 10% organic, and the German market is now 15% of the total group's turnover. But also to say that several markets in the region performed really well during the period, especially here, Germany, France, the Netherlands, and England. Next slide, slide number 11. Eastern Europe and CIS. Sales in Eastern Europe and CIS countries grew for 20% during the quarter. Adjusted here for foreign exchange effects and acquisitions, actually, it's an organic growth of 13%. Sales in Russia increased at twenty-one percent in the quarter, calculated against Swedish kronor. Russian market today represents 30% of sales in this region, Eastern Europe and CIS. Major markets in the region are also showing good growth in the period, especially Czech Republic, Poland, and Slovakia. Next slide, slide number 12. North and South America.
Sales in North and South America region during the quarter is actually 22% higher than the same period last year. Adjusted for foreign exchange effects and acquisition sales increased 13% organic in this quarter, and here, growth we found in North American and Canadian markets have really performed well in the quarter. Next slide, slide number 13. Middle East, Asia, Australia, and Africa. Sales in this region increased by 24% during the quarter. Adjusted here for foreign exchange effect and the acquisition, sales in the region increased 3% related to figures for comparison, and were really high in this region in the quarter the year before. The effect was also influenced by the position of Sweden. South Africa, Morocco increased during the quarter, and slightly in India from the higher sales. So sales, the growth of 24% were of organic 3%.
Slide number 14. Coming into something that we already stated here in our Capital Markets Day in September, Systemair has changed the financial goals slightly. And here what we have informed about is that we are changing our growth conditions. We went from 12% to 10%, and equity efficiency ratio is still the same at about 30%. EBITDA margin 10% or higher, of course, that's our financial goal. We changed our dividend goal from 30% to 40%. So we lower our growth condition and we raise the dividend goals. Slide number 15. Our Slovenian company, Systemair d.o.o., has been given a special prize, which we want to communicate. As the best long-term presence foreign investor, we received the prize last week.
And we won this award in this category of Best Long-Term Presence Foreign Investor in Slovenia, which we're quite proud of. This prize ceremony is organized by the Spirit of Slovenia, which is part of public agency who's in connection with the Ministry of Economy, promoting Slovenian economy to get or to attract foreign investors in Slovenia. In 2012, Systemair Slovenia received incentives for investment in machinery, and so they have us on the radar, and we're really proud to get this award. Next slide, slide number 16. Also, as we also were informing about in our Capital Markets Day, we have a long-term strategy for our sustainability measures, and that's why we want to make a follow-up here on giving information about our continued environmental investments that we're doing, especially in our headquarters.
A few years ago, we have been replacing our heating system in this category with heat pumps. And with heat pumps, they are taking oil-based heating system before, which gives us an annual saving of 1.2 gigawatts of effects, and more than 500 tons of CO2 annually. Also, with the investment, our own coil plants, which we just did two years ago, we are saving up to 12% of our used sheet metal in a year, and it also significantly improves our profitability. Currently, we have a machine investment ongoing to increase efficiency with our compact units, and this will also improve the ergonomics and the ease of handling for our employees.
When these investments are concluded, we will also then, during the first quarter in 2020, switch completely to climate-neutral electricity based on EPD wind, wind in our headquarters in Skinnskatteberg. This will meet the requirements of the Nature Conservation Association for Good Environmental Choice. So this is a long-term strategy to really switch over to be climate neutral in our own headquarters. Okay, ladies and gentlemen, thank you for listening to this report, and we, I want to open up the lines for questions.
Thank you. If you wish to ask a question, please dial zero one on your telephone keypad. Now into the queue.... Once your name is announced, you can ask a question. If you find it's answered before it's your turn to speak, you can dial zero two to cancel. So once again, that's zero one to ask the question, zero two if you need to cancel. Our first question comes from the line of Carl Ragnestål of Nordea. Please go ahead, your line is open.
Good morning. So first of all, I mean, that you reported a really strong margin on the group level. So could you specify what was the main margin driver in the quarter? I mean, could you perhaps pick up how much is price increases, maybe turn out of America and airflow and so on? If you could give some more information there.
Yeah. Well, it's quite hard for us to specify what is price increase separately. But, I mean, of course, the basic or the biggest reason here is the organic growth of 6% and the volume increase we have, which is positive, especially for these factories that we have on the restructuring. So both for America and for the AC business, this does really good for them. So it's around SEK 35 million-SEK 40 million improvement that comes from that side, really. And other than that, it's as we are running specific separate projects for pricing and also for the factory consolidation and the Geniox rollout and so on. So, I mean, we have multiple projects ongoing in order to improve the growth volume.
Okay, perfect. And going back a bit more on the Capital Markets Day, where you present the margin bridge to reach 10% margin target, could you comment on what initiatives that you plan to focus on and probably implement in the short term? I mean, in the next few quarters?
If, if you look at it like this, Carl, it's actually the most of the activities are running in parallel with the groups. And so we, we are focusing heavily, of course, on, on what we have discussed about the America. There are continuous projects ongoing with our manufacturing entities and sourcing. And, then, of course, also the, the volume surplus that we are looking for in, in the cooperation with the, for example, and others, these are all contributing things. But the, the profit improvement program, and we started already two years ago, so, there are several things going in parallel. It's, it's not that we are running one of the four, drivers, separately and then take the next one. We, we have to, to run parallel.
Okay, perfect. Thank you.
Thank you, Carl.
Thank you. Our next question comes from the line of Douglas Lindahl of Kepler Cheuvreux. Please go ahead, your line is open.
Hello, gentlemen, hopefully you can hear me. So I want to come back to the margin improvement again. I know you mentioned higher capacity utilization. So I was wondering if you could be a bit more specific. Is the Russian market, for example, a big explanatory factor? Also, I wanted to understand, going back to pricing, are you seeing a generally better price environment in the market? Start with those two questions, please.
Generally, the price increases that we're doing are things like all peers in the market. They have the same underlying arguments that we have. I mean, we're talking about the effect of raw material components, talking about the electronics and so on and so on. And a natural price increase that is ongoing underlying because of the need for better components to achieve better energy efficiency in things. So that's an acceptable one. Looking at the Russian market as such, we don't see any deterioration of the market prices for the time being. We also think that the market will continue as it is in Russia, and yes, the possibility is actually what we need to look into.
Just on Russia, is that a big explanatory factor to the very strong margins, would you say? I mean, the Russian market, it's above average profitability in Russian market.
Yeah, the profitability is above average in Russia. But this time, I mean, I mentioned the Americas and Thailand, they are main drivers, but it's overall a very positive development in most countries, I mean, Western Europe, Eastern Europe and also in North America. So this is a contribution from most of the units, really. So we don't have a lot of negative input right now.
I think what is stated in the report is actually really the biggest driver, which is the capacity utilization in our factories, and it's really in most of the places. And having good utilization, of course, you have better margin. But the secondary is also that, as we also reported some quarters ago, we have worked heavily to switch over from huge projects with lower margins to reasonable projects with better margins. And you see effects of all these different efforts that we're having.
Yeah. We started last year also during this quarter, we were working with a Geniox rollout, especially in our Danish factory, and that caused some problems during that period, which a lot of these problems are solved today. And they are showing a much better profitability today. But, you know, when you are working with two different models parallel, and you have some startup problems in production and so on. But that, that's affecting us last year also.
Okay, and the final one for me. I know, too, that the Nordic region is still a negative territory, but slightly improving compared to previous quarter and sequentially, organically. Is this... And also I see that you have a sort of a comment on Nordic specific. Are you seeing if the trend is still negative in the Nordic region, would you say? The underlying trend, that's it.
We see mixed signals out there.
Yes.
We improve ourselves when it comes to the Nordics. So we are keeping it under close observation. That's what I can tell you, and really looking at employment and so on, and how we can be cautious with the cost really, in order to be able to quickly adjust on the cost level if needed. But, I mean, it's a little bit mixed signals. But as you know, we are quite persistent towards the market going down with being in gold renovation and new build, being in commercial and residential. So, I mean, we can handle this kind of a downturn quite well.
Okay. Thank you, Roland, and thank you, Anders.
Thank you, Nicholas.
Thank you. Our next question comes from the line of Henrik Goldstein of C WorldWide . Please go ahead, your line is open.
Okay. Yeah, hello. Well, you covered most of my questions, but the... Regarding the capacity utilization, do you see any risk of bottlenecks in many of your major products? Could you tell us a little bit about that?
You mean the supply of product to the market, as we have a higher need in the market, or?
Yeah.
Or-
Well, do you still have plenty of capacity, so to speak, if the market is favorable? Well, and so do you, are you getting closer to bottlenecks in some areas?
In general, I would say that we are not stretched when it comes to the utilization. But if we are looking for problems right now, for example, in Sweden, while doing this investment, as Roland mentioned, that creates some disturbance in the Swedish production for the moment. And we are also replacing the powder coating machine right now. So that also creates some disturbances, and that's what we see from the Swedish perspective. Other than that, I mean, in the major factories, it's not right now that we are seeing any bottlenecks at the moment.
We have. If you look at the trend and follow the trend and predict that it will continue according to our plan, then as already mentioned during our Capital Markets Day, there are three plants where we see that we would have the need maybe to extend our footprint. These were the ones that we say are getting closest to having some need for expansion due to maybe being a bottleneck if it continues. But otherwise than that, I think we can still handle this.
Yeah. All right. And then, just regarding the property improvement program and all those different things that you're implementing, are there potentially any new countries or divisions or anything that are added to this list? Well, I was thinking of maybe Brazil, maybe one of the fairly newly acquired companies. Are there... Is there anything on the horizon here?
Looking at the ones, the newly acquired actually are performing really, really well. So absolutely not. Of course, we are monitoring, especially what you're mentioning, Brazil, we are monitoring quite close. We have actually, compared to some years before, we have a really, really good development of volumes, but still not that we would be very satisfied, to the full extent or that everything is running smoothly at, at the level where the group wants to have it. But the improvements have been really positive. Should we continue long term without looking into it? It's a good question, but it's under surveillance and under evaluation, actually. Especially Brazil, I can, I should say.
Okay. Okay, well, thank you.
Thank you.
Once again, if there are any further questions, please dial zero one on your telephone keypad now. Okay, it seems we have no further questions coming through at this time. I'll hand back to our speakers for the closing comments.
Okay, ladies and gentlemen, if there are no other questions, then we of course say thank you for listening in to our quarterly report. Other than that, please contact us if any specific questions arise, and looking forward to present quarter three in three months to you. Thank you very much.
Thank you, and good day. Bye.