Q4 20/21

Jun 10, 2021

Welcome to the Systemair Q4 Reports Conference Call. 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 Olff, CFO. Please begin your meeting. Good morning, everyone. Anders Olff here and Roland Casper. Good morning. Morning. We would like to remind you that you can find the presentation of today on our website, group. Systema.com. So Roland, let's get started with our Q4 report. Perfect. Let's do that. Good morning, everyone. So our quarter four report 2021, Let's directly jump to Page number 1. So as you all know, our company was started and established here in Klimskateberg in Sweden in 1974 by our Founder and Chairman, Jeroen Engstrom. Last year, we had a turnover in annual net sales of around about €850,000,000 and were listed on the Nasdaq Nordics Stock Exchange Markets since October 2007. Today, we have 54 sales companies all over the world. And we have 27 factories in 20 countries. All in all, we have around about 6,400 employees, and we have a constant export to 135 countries in the last year. Slide number 3, directly into our quarter report. In our quarter 4 in 2021, We had a total turnover of SEK 2,200,000,000. This corresponds to the growth of 8.7 percent, We're of organic 17.1%. On the right side of the slide, you see the graph, and you, of course, also see the development over the last quarters, Which is a quite nice one, it's 17.1%. Going to break down the growth Aim to go analyze in Slide number 4. So organic. We had good organic growth, especially in Asia, North America, but also partly in Western Europe. The contribution by acquisitions is rather small, impacts here of the acquisition of the company Divi, Service Provages and FICO ORS Denmark, which is 0.5%. And then we have the biggest correction here due to the strengthened Swedish krona's currency effect of negatively 8.9%, bringing us to a total of growth of 8.7%. Slide number 5. The operating profit in quarter 4. Our gross margin increased to 35.7% compared to 34.6 The corresponding year before. During the quarter, we made an impairment of goodwill related to the acquisition of Menager in Germany and made a write down of SEK 35,500,000 due to the relocation of parts of production to Slovenia. The decision was taken and the impairment down. The sales and admin expenses for the quarter decreased to 3% for comparable units, and the resulting operating profit for the 4th quarter amounted to SEK 173,000,000 compared to SEK 56,000,000 the quarter the year before. Adjusted though for these impairments, the EBIT amounts to SEK 209,000,000 profit after tax in quarter 4. The net financial items ended in the Q4 at SEK 15,100,000 negatively compared 46.6 percent. The effects of the foreign exchange on long term receivables, loans and bank balances are calculated 8,600,000 The interest expense for the quarter totaled in SEK 6,600,000, and the estimated tax for the quarter amounted to SEK 41,700,000, all amounting into a profit after tax of SEK 116,000,000 for the quarter 4 compared to negatively SEK 2,000,000 in quarter 4 the year before. Next slide, Slide 7. The cash flow analysis for the quarter 4. The cash flow from the operating activities in quarter 4, 2021 amounted to SEK 272,300,000 compared to SEK 94 quarter year before. Change in working capital amounted to 43,700,000, which is mainly due to the increased trade receivables. The net investment, excluding acquisitions, amounted to SEK 123,000,000 which is mainly due to the new production site investment in both Russia and Czech Republic. And thereby the total amount of free cash flow is SEK 106,300,000 compared to SEK 5,300,000 in the year before. Also to mention, our net indebtedness is SEK 1,500,000,000 compared to almost SEK 2,000,000,000, 1,98,000,000 in the same quarter the year before. Switching to Slide number 8, cash flow from operating activities. Just to follow-up that I just presented those figures. You also see it here in the graph, and you see the development over the last years. And also the measures taken during the years 2017, 2018, 2019, now showing the results. Going to Slide number 9 and jumping a little bit into looking at very, very briefly into the different markets starting with Nordics. Sales in the Nordic countries here this quarter increased by 9.1% in the 4th quarter. Adjusted for foreign exchange effects and Sales in Western Europe market were 6.6% above corresponding period last year. Here, adjusted for foreign exchange effects and acquisitions, It's an organic growth of 13.2%. Most countries actually in the region, including Italy, France, Germany, Show good growth in the period, while Netherlands, Belgium and Portugal decreased slightly. Next slide, Eastern European Sales in Eastern Europe and CS decreased by 10.6% during the quarter. Here though, adjusted for foreign exchange effects and acquisitions, this sales increased by 0.5%. So organic growth, 0.5%. The sales in Russia though increased 5% compared with the previous spec period. The Russian markets now account for roundabout30 percent of sales in this region, Eastern Europe and CEA. Other major markets that showed slight decline in the region with Czech Republic and Poland due to the pandemic situation, while Lithuania and Slovenia showed good growth. Slide number 12. North and South America. Sales in North and South America region increased by 7.8% during quarter. And here, adjusted for currency effects and acquisitions, sales increased by 20.9% organically in this region. And here, North America, above all, the sales of residential units and also classroom units for schools The next Slide number 13, and giving you an insight about the Middle East, Asia, Australia and Africa. Sales in this region increased by 51.8 compared with the same period last year. And here, adjusted for currency effects and acquisitions, it's a whopping 80.4% increase organically. And here, of course, I have to mention this, due to the low comparable numbers, as last year in this period, this area of the world was hit Really severe by pandemic, and we had these close downs by governmental decrease. So very nice comparables, but an organic growth versus last year of 80.4%. Malaysia, South Africa and India showed strong recovery during the period and as mentioned, its last year shutdowns. So going to next slide, Slide 14. And here you then have the summary of the markets in our year 2021. So all in all, Eastern Europe and the CS countries, 14% today of our total turnover. North and South America has increased slightly to be 11% of our total turnover. Nordic region stable at 20%, Western Europe slightly increased to 43% and the other markets are 12%, also hear a slight increase. This is a total picture of our markets. Yes, this is the report of the quarter 4. The next slide, Slide number 15, is then the summary of for sales for full year of SysMLR. So in the year 2021, starting from 1st May last year to last April this year, We had a total turnover of SEK 8,500,000,000, which contributes to growth negatively of minus 4.4 percent, So organically, 2.1 percent growth. Looking here at the growth analyzed on the next slide, Slide 16, Shows that the good organic growth was the development in North America, Morocco, India and Turkey. Then a Slide contribution due to acquisitions of small acquisitions, Pacific Ventilation Australia and New Zealand, System Navorock, Polar Rec in Croatia, Free call in Denmark, dividend service will log in Sweden, 0.6% contribution. And then we have the big part here, which is the strengthened Swedish krona and the currency effect that contributed negatively with minus 7.1% on the growth side, Looking at the next slide, the operating profit for the full year. The operating profit for the financial year May 2020 to April 20 amounted to in total SEK676,000,000 compared to SEK 625,000,000 the year before. The operating profit under the item asset operating income includes also COVID-nineteen related government grants totaling of SEK 29,000,000. The total operating margin was 7.9% compared to 7%. Adjusted for impairment of goodwill both in traders in Brazil and in Germany, The operating margin is 8.5%. Sales and admin expenses for the year decreased by SEK148.9 million or 6.2 percent of the favored units. The selling expenses have been charged with SEK 18,000,000 for estimated customer losses. Next slide to conclude. Here, we can clearly and gladly state our Raul Poladeira Hanna, who is our Director of Business Development and Manufacturing Sites, has been elected to President of the U. S. End Association. You will have this leadership position within the SBA Association from 2021 to 2024. This step and to have our employee, Raul, here be elected to President is for us a very strategic way You have the focus on the building bridges and breaking trade barriers and represent the interest of all the Europe members, which will drive a positive change in Europe. So why we're doing this is, of course, that what we see in coming here is a lot of local new certifications and also governmental initiatives of making energy certifications on local and national levels. This needs to be somehow though brought together on a European level to not create trade barriers. And that is what we will work for here. Also at the same time, we are today also sitting with our Technical Director, Matt Sander, being the President of AMCA in U. S. And also our mentioned director in India, Mr. Ashukta, who is then also in the Board of AMCA in Asia. And our Our MP, Morten Schmelzer, who is today also sitting on the Board of EVA, the European Ventilation Industry Association. So Systemair is contributing and also working hard to really be a good player for the European and the International Ventilation business. Looking then at the next slide to show you a reference on our Slide 19. We have delivered about the order to deliver to Ekaterinburg in Russia for the water sports pellet for the 2023 Summer World University Games. This is a total construction of the floor area of 60,000 square meters And here, J. R. R. Have stand for the Spectators of around about 5,000 feet, and the construction work will be completed by the end of this year. Here we have the opportunity to deliver some thermocond units for the preheaters for the pools and APCON air units for the spectator area. And here the rating is that the heat recovery rates are more than 90%. And the unique reason for getting access to That's the summary of this presentation on Slide number 20. What we are facing today, The plant components is troublesome and delivery times are increasing. We have a strong organic growth in quarter 4 driven by several regions. Europe still not recovered yet. The adjusted EBIT margin is 9.4% compared to 4.6% in quarter 4 and 8.5% for the full year 2021 compared to 7.4%. This is another step for us in the right direction towards our profitability targets despite COVID-nineteen, and we also continue with investments in production capacity. The dividend suggested by the Board is SEK 3 per share. By that, I switch over to the last slide, say thank you and open up for questions. Our first question comes from the line of Karl Jaglestone of Nordea. Please go ahead. Your line is open. It's Karl here from Nordea. A couple of questions from my side. Firstly, on the organic growth, obviously, Very impressive with the 17% organic growth. And could you say anything if there's anything of a nonrecurring nature in it Fueling the numbers in Q4. And also on North America, obviously standing out on the positive side, is Fair to assume a continued high organic growth pace to coming quarters given a good demand from the classroom ventilation Okay. To the organic growth, something on reoccurring. I think, first of all, we had quite nice comparables given where we were what situation we had last Here in the same period. But it's also reported, I mean, we had just for Asia, for example, 80% organic growth, which, of course, Just to come back to normalized volumes, but what we see in the pipeline is that it's coming back with some hurdles maybe. Just now in Malaysia and India, there's still restrictions. As you know from the newspapers, the pandemic is still quite severe in that region. But all over the other markets and regions, we see a good recovery. Talking about North America, here the organic growth is continuing. It's hard to predict the path or the how to say how well it will continue, but we see positive continuation. It's mainly driven by residential and also the classrooms. It's not that much about coming back to work. It's more about upgrading existing residential And the new builds and on the school and the classroom investments is to really upgrade of existing. Okay, perfect. And on the order intake side during Q4, is it still looking as well as in or as The organic growth in Q4 or I mean how should we look at the organic growth number in Q4? And how much could we, I mean, possibly extrapolate from that? It's hard to say for us for the moment. Of course, it's Partly a catch up effect, we believe that included in this also. But still, we are quite optimistic in many regions. I mean, we can see underlying drivers in the market that really give us potential to further growth. And we believe, I mean, that we are Going back towards at least 6% to 8% organic growth here going forward. But maybe, I mean, Part of the extreme growth this quarter is some kind of catch effect as well then. But also to just complete what Anders is saying here, Karl, is, of course, yes, we think that the organic growth that we normally historically have between 6% 8% Going forward, absolutely possible. The troublesome part of the outlook, I would say, is just now the material situation, Not the cost increase, it's the availability. Order intake has been very good in quarter 4, as you can see in the figures. But we have a problem with the material availability and some of the suppliers not even confirming orders anymore because material is not available for them. Still, we can balance it, but the situation would need to stabilize. Okay, perfect. So I guess Slide on the negative side for Q1 on the component side than compared to Q4, I guess. As I said, for the time being, we can balance it. It's just the outlook. We need to see some time down the road how this On midterm or long term, how it will stabilize. There are some good points that we can see on the horizon, but also some negatives. So We'll see how it ends up. At least we are not the only supplier in the industry that have this kind of problem. So it's the same for our competitors as well. Okay. Perfect. On that note, I mean, the raw material prices, I mean, especially On the steel side, the prices are continuing up. So could you elaborate a bit on where you are in terms of pricing? And if you see The risk of facing more headwinds in the coming quarters compared to Q4, how should we look at that? We have, of course, been following that very close. We have done our price adjustments to the markets. We have in some markets, For some products, we have done it twice. And we are seeing in some areas, we see the need, but also A push from other suppliers to us that will have a need it might be to have Some more price adjustments in summertime. But that is, for us, easier to handle as the market acceptance. I mean, everyone has the same position. Everyone has That's the same situation. So at acceptance level, also at our customer base is very, very good. It is more about material availability, which is a bigger headache than the with price increases. Okay, perfect. And then the final one, looking at the margin uplift in the quarter, I mean, it's pretty clear that it's partly or the majority driven by SG and A and but of course, also positively impacted by the gross margin increase. So first on the SG and A side, would you say that the current level is somewhat long term sustainable? Or do you need to do a ramp up here in the coming quarters Due to more traveling fares or to meet the demand or and that's the first one. And on the gross margin side, What would you say is the main driver behind the increase year over year? I think you will see that sales and admin expenses will normalize, maybe not 100 In some areas, it works pretty well. I mean without participating in 1st, there are other ways of doing product launches and so on. So that's part of it. But going to the gross margin, and of course, it's different reasons. But of course, The improvement is partly due to the nice increase for the months to get the growth, the organic growth and also the mix So which factories or so that are growing the most for the moment and what kind of products. So for us, it's very Positive, for example, when we see a growth in the residential ventilation. That's one example. Our next question comes I was wondering, could you elaborate a bit on the pace of the growth? Was there an even recovery or even growth? Or was the growth, for example, focused towards In that quarter, all the 3 months were particularly good. I would say, started a little slow with a good growth, but then quite impressive growth for the last 2 months. But then at the end of the last month, we started to see this material availability problem. All right. Thank you. And also you mentioned the material availability in the price levels. Has this any effect on the inventory levels of your Could there be a potential hamstring effect in the quarter? Yes. At least we saw it. We also launched here during the period the internal price And we saw also internally that there was some kind of hamstring of before the price increase. It's a little bit more hard to measure how much of that was brought out to the end customer really. But I mean, you mentioned previously that you estimate that the 47% of your revenue is taxonomy eligible, if I recall correctly. Is this Your assessment or do you have a more recent number available? No, we're still on that number. Yes. We are working on this and following already all the updates coming on. But the latest was that, I mean, the reaction reporting will not be due here by for the quantitative The amounts will not be due here end of the year. It will be delayed one way. So it will be more qualitative reporting done by the end of this year. But we are working on it, and we will come back as soon as we have some updated figures here. All right. Thank you very much. Thank you. And we currently have one further question in the And our next question comes from the line of Henrik Alveskolk of Redeye. Please go ahead. Your line is open. All right. Hello. This is Henrik. Hey Henrik. Just going back hi. Going back to briefly to the gross margin discussion. Should we understand it as In order for you to reach the 10% EBIT margin target, you will need to increase your gross margins a little bit further. Is that what you're aiming at? I think looking at what has happened during the last one and a half years is, Also, as announced on our Capital Markets Day in 2019, we have done several There are several projects where we have been working towards streamlining our internal processes and different things to come be able to bring the company to that new to the edit level. So I think we were in a good situation when the And in the kit because we were working on a lot of internal things to be much better internal to be able to achieve it by own power, so to say. What we have seen now is that, of course, that what has been missing for us to come there in a faster pace has been volume. Now it's more volume driven. So what we would need now is not that we maybe would expect that we need 2% or 3% more on the gross margin. All right. And then more specifically, could you comment on your outlook for the AC segment? The ACE segment was one of the areas that we're working on also in this restructuring, as you know, Henrik. And during the pandemic, they have been suffering volumes, but actually the profitability was quite okay compared to what we are after for. So I would say that the measures done on the AC have been very successful. And here's also again that now we're going into the season and we see that these effects are quite positive for us. So I would say that the situation in AC is much less troublesome than it has been before. Absolutely. And what about the well, your pipeline order pipeline and the outlook for the Demand for those products? I think it's quite positive because what has been done, of course, During the pandemic, we have not stopped the product development and all that. So in the pipeline, it's also partly already launched. We have some products that are Quite ahead of technical like our Sys Aqua Blue with Global 1 potential only 3, but also a total renewed Product portfolio when it comes to rooftops, when it comes to the heat pumps, that are all brought to The highest standards now when it comes to restrictions, to efficiencies. So we are just now, I would say, on the products, more competitive than ever before. So it's we're I would say, we're coming into a situation where we can really take the benefits of the things that have been Okay. Thanks. Just finally then, a while ago, you Mentioned that you're making a push for CECO in the United States or maybe Canada also. And you had some quite ambitious goals there for growing your sales. Could you just briefly comment how that is progressing? And also maybe comment On, well, heating products for the total group, if that was a significant impact on the product mix It's continuing to developing really well. Meanwhile, I'm not going to say before, but we had the opportunity now to open the local warehouse to inform some more people because its development is very positive for us, has been mainly been driven by markets in Canada, some in U. S. And Some key customers, as also reported before, and that is continuing quite well. As you know, the funding into The market in North America has been quite well, so this is continuing at the same pace. But for the time being, I would say that the pace is More positive on residential. I mean, as we have reported, it's really nice growth in residential, which maybe gives a little bit of I appreciate on the FREQUO business in North America, which is also developing really well. When it comes To the 3 core development overall in the group, the development in the, let's call it, the cold season has been Better than expected. But now we are going into the warm season, which normally is not the higher volume season But I would say overall in the last year for us, FREQUO has been developing a little bit better than the years before. And also to mention that we have a new member of the group management who will be responsible for the Frico business globally. And he has good experience from FreeCo, for example, in Norway and U. K. And so on. So we hope he will bring in some Fresh IDs and also a booster sensor frequency. We're optimistic in that area. All right. Thank you. Our next question comes from the line of Karl Agnes Thumb of Nordea. Please go ahead. Your line is open. Hi. Just one more from my side. And you mentioned in the report that you're taking impairments related to Mennerga And as you're moving part of the production to Maribor, and what is the rationale behind that? And should we see it as Do you, over time, will reallocate the vast majority of the production to more sort of low cost countries? Or how should we look at that? It's more about, how to say, refining what we have. We are actually moving the, Let's call on the absolute standardized units for private pools and smaller units. We're moving to Maribor. We 2 years ago, we acquired a company in Croatia, which to be supplied to that factory there. So it's, I would say, strategic move to do that. Offloading and decomplicating the situation at Menagera and giving them the opportunity to focus on the core, which is the bigger, more complex pool unit. So we're taking out Some of the units that are some troublesome for the existing manufacturing and also being able to, by that, of course, reduce the total cost for staffing. So it's a step to make the Menaga business for us easier in Germany. Okay, perfect. Thank you. Thank you. And we have one further question in the queue. That's Just a clarification question from my side. Roland, when talking about the 10% EBIT margin target, you sort of came back to the CMD efforts that you presented back in 2019. Did I get that correctly that you now sort of assume that All of these efforts have been materialized, meaning the IT and EU casing platforms, the pricing and margin focus, the manufacturing efficiency And you sort of said that you're missing the volumes. Did I get that right? So that's question number 1. And Just going back to the 2019 CMD efforts, the ones mentioned just now, which of these have been more difficult to sort of execute than you thought. And obviously, I realized that COVID was not in the expectations at the time, but just trying to adjust for that, if that's possible. So coming back to the Capital Markets Day, I mean, the 5 main activities or 4 that we presented there, We have been I would say, we said that we were in a lucky position that all of them were on the way when moving into situation because they strengthened us. They are not all done, but they all have progressed according to plan through the pandemic. But they gave us an advantage internally that we were working on the right things already. So they are not done, but they're progressing according to plan and not being slowed down by the pandemic. So that has helped us. When it comes to if we could Some of them are not contributing as they should. We had 4 major, but we also have one which was to work more proactively with Certain things at the customers with them and out on the field on the market, which has, of course, been the one that we couldn't do in a planned way during the pandemic. But also as mentioned prior here by Anders, there are some other questions. We have through the pandemic also, of course, We've been able to establish a work in process in sales and together with customers on a more digital basis that we think will prevail also after the pandemic and maybe make the sales efforts a little bit different than they have been before. So that will still be a little more unclear one. Okay. Thank you. And just coming back to your answer then, the first question. What is the main sort of lever left? You mentioned not everything is Fully executed, which one is the main one that we haven't yet seen, would you say? I would say it's a little bit in all the 4, but the one being not problematic, but which is working quite hard just now that 1 of them was sourcing excellence that we have been at the sourcing organization. And of course, they have had quite a troublesome year when I mean, of course, one big problem for us is COVID-nineteen, and it has affected the volumes for especially for AC, but also for Menariganda. I think in order to realize the potential there, we need more volumes and But that's purely related to COVID-nineteen. But underlying, I mean, this year has also given us the possibility focused on internal work and investments and so on. So we have done a lot of the work that we presented here. Okay. No, I understand it's a difficult question given COVID. I missed part of the call, but did you give any sort of comment now on Q1 current trading, what you've seen so far in May and then in June in terms of overall demand? No, we didn't give any outlook really. We normally don't do that. But I mean during the quarter, the order intake 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. So then ladies and gentlemen, thank you very much. Looking forward to the next reports And maybe take this opportunity to wish all of you a very nice summer. Yes. We will present the next The report of our Q1 report in connection to our AGM Annual General Meeting on the 26th August at, I think, it's 2 o'clock Correct. Well, 1 in this, we present the report. All right. Thank you very much for today and for calling in. Thank you. Have a great day. Bye.