Welcome to Systemair Interim Reports Q3 2020-2021. During the call, all participants will be in listen mode only, and afterwards there'll be a question-and-answer session. Just to remind you, this conference call is being recorded. Today, I'm pleased to present Roland Kasper, CEO, and Anders Ulff, CFO. Please begin your meeting. Good morning, ladies and gentlemen. My name is Roland Kasper, CEO, and with me I have Anders Ulff, our CFO. Good morning, everyone. Welcome to the telephone conference. Yeah, well, as usual, you can find our presentation on our investor relations website, and you have to click on the link how to join the conference really to find the presentation. So I hope everybody has been able to do so. Perfect. Without any further ado, let me start and go into the presentation, switching to slide number one. As you all know, Systemair was founded in 1974, and our last fiscal year we had a turnover of EUR 890 million. Systemair is listed on the NASDAQ stock exchange market since October 2007, and today we have our own sales companies in 52 countries all around the world, and we have 19 production facilities. We employ around about 6,200 people in our company, and we export steadily to an excess of 130 countries all around the world. What we do in Systemair, our business model, we provide products and solutions for ventilation and air conditioning. With that, we provide good indoor air quality that is good for health, performance, and comfort for human beings and industrial processes and others. Of course, it's all under the total umbrella of energy saving. So going to slide number four, net sales in quarter three. So our net sales in quarter three amounted to SEK 2.04 billion, which is a negative organic growth of 6.7%, net organic growth of 1.5%. Directed to slide number five to break down this growth analysis for quarter three. The organic growth was especially good in North America, where it amounted to 13.8%, Middle East, Malaysia, where it's in excess of 6%, and also in Europe, where we had 2.3%. All amounted together in 1.5% organic growth. Contributing by acquisitions, only a minor, Frico in Denmark and Frico AB in Sweden with 0.3% in total. But then we had the big effect of the strengthened Swedish krona, the currency effect, which contributed negatively with 8.5%, which gives a total of negative growth of 6.7%. Next slide, slide number six, operating profits. Our gross margin decreased slightly, 0.2% to 33.6% from the prior year's 33.8%. The sales and admin expense for the quarter decreased by 7.8% for comparative units. The operating profit for the third quarter thereby amounted to SEK 108 million Swedish kronor compared to SEK 112 million before. This gives a figure of operating profit of 5.4% compared to 5.2% the prior year. Next slide, slide number seven, profit after tax. Our net financial items in the third quarter were SEK 7.3 million Swedish kronor. The impact of foreign exchange on long-term receivables, loans, and bank balances totaled SEK 19.6 million Swedish kronor, and the interest expense for the quarter totaled in SEK 6.2 million, and the estimated tax for the quarter amounted to SEK 29.8 million Swedish kronor or 29.6%. So for the quarter three, the profit after tax is SEK 71 million Swedish kronor. Changing to slide number eight, our cash flow analysis for the quarter three. The cash flow from the operating activities amounted to SEK 139.4 million Swedish kronor. The change in working capital, which is mainly due to decreased trade accounts receivables, amounted to all in all SEK 105.1 million compared to SEK 163 million the year before, and the net investment excluding acquisitions amounted to SEK 133 million Swedish kronor, which mainly relates to new production facilities that we are investing in Russia and in Canada. The free cash flow thereby ends up to be SEK 110.9 million Swedish kronor. Also, absolutely to mention our net indebtedness, which goes to SEK 1.6 billion Swedish kronor compared to almost SEK 2 billion the year before in the same period. Changing to the next slide, slide number nine. Here you have a graph making visual of our cash flow development from the operating activities. There you see that the positive development has continued, and this is according to our plan. Going to the next slide, slide number ten, and going into the markets here, first overview. As you can see from this slide, this pie chart on the left, also in the report you can read out that the organic growth in Eastern Europe and CIS countries has decreased. So we are going here from an average of 17% down to 14% as a market share. North and South America have 10% still. Other markets stable at 12%. Nordic region slight growth to 20%, and Western Europe slight growth from 42% to 44%. Let's go down and look into different regions. Nordic. During the third quarter, the sales in the Nordic region decreased by 7.5% the same year as the preceding year. Adjusted for the effects of foreign exchange and acquisitions, sales were down 4.5%. All markets in the region decreased during this quarter compared to the year before. Slide number 12, Western Europe. During the quarter, the sales in the Western European market were 2% lower than the corresponding period last year, but adjusted for foreign exchange effects and acquisitions, sales actually increased by 2.3%. Here especially Germany, Ireland, and Spain showed growth in the period, but other markets that are important to us like the UK, Netherlands, and Italy declined. Next slide, slide number 13, Eastern Europe and CIS. Sales in Eastern Europe and CIS decreased by 15.8% during the quarter. Adjusted here for foreign exchange effects and acquisitions, sales still decreased by 2%. As we always mention, especially sales in Russia decreased by 8.9% compared with previous periods calculated in Swedish kronor, and the Russian market today accounts for 29.7% of the sales in this region, Eastern Europe and CIS. Other major markets that decline in the region have been Czech Republic and Poland, which both are for us strong and stable markets before, but Serbia and Slovenia showed growth. Going to the next slide, slide number 14, North and South America. Sales in the North and South America region increased by 1.2% during the quarter compared with the same period last year, but adjusted for foreign exchange effects and acquisitions, sales increased by 13.8% in the quarter. Here it's primarily stable residential ventilation, but also ventilation units for schools, which showed a really positive growth in North America. Next slide, slide number 15. Here now coming into Middle East, Asia, Australia, and Africa. Sales in this region decreased by 12.7% compared with the same period last year. Adjusted for the foreign exchange effects, acquisitions, sales in the region increased by 5.9% positively. And here it's Malaysia, Australia, and Morocco that showed good growth during the period, while markets such as Turkey and India weakened. Slide number 16, going out to the markets. Here is one of the projects delivered during the period, RelAix Networks in Germany, a data center. And what we have here is we delivered Menerga Adsolair units with indirect adiabatic evaporative cooling. We'll say that all the cooling is conducted with water, no refrigerants. They provide perfect climates in this data center in Aachen in Germany. This adiabatic cooling, and that's why we highlighted from this RelAix data center, they are saving up to 440 tons of CO2 per year compared to conventional cooling and refrigerants. So it's a really good and sustainable solution for the future. Next, also that we during the period got the order to deliver in this and next period for a big data center in South Africa. It's the project Teraco. Systemair South Africa, where we invested in a new factory last year, has been appointed to supply the AHUs from the factory for the first phase, which is 40 double-deck units, rather large units, for a total order value of EUR 2.5 million. Go to slide number 18, product development and sustainability. As you all know, energy saving is the central theme in our product development. In Europe, this development is being driven by EU directives, and they impose requirements of energy smart products, but as well as energy efficient buildings as a whole, and it's in this area where Systemair makes the biggest difference from a sustainability perspective. As we get this question, we estimate that 47% of our products today, according to our calculations, are in line with the new EU Taxonomy. Slide number 19. We at Systemair were taking our responsibilities in the future. With our products and services, we actually take care of people's health and wellness, and here especially when it comes to comfortable indoor climates and the right amount and high amount of fresh air, especially in this pandemic spaces. Of course, with the solutions that we provide, we are taking care of the sustainable environment, especially for the air handling and air conditioning with the minimum energy use, but also looking out for the product life cycle with the lowest possible environmental impact and that we use the best possible refrigerant when it comes to GWP, global warming potential. As a summary of the quarter three in our slide number 20, so we're back to organic growth, especially good growth in North America, but also solid in two other regions. We have an improved operating profit, while volumes still are affected by lower demands from our customer side. The announced resilience programs in both Europe and North America, as of today, also for North America will support the future growth, absolutely. Our own internal ongoing investments that we have done in both North America and Europe will strengthen our ability to supply those products in line with the market demand for future. Positive outlook. By that, I switch to slide number 21, say thank you, and open up for questions. Thank you. If you wish to ask an audio question, you may do so by pressing 01 on your telephone keypad. If you wish to withdraw from your question, you may do so by pressing 02 to cancel. Once again, please press 01 on your telephone keypad. If you wish to ask an audio question, there'll be a brief auditory wait for questions to be registered. Our first question comes from Carl Ragnerstam from Nordea. Please go ahead. Good morning. It's Carl here from Nordea. A couple of questions from my side. Firstly, could you start off with commenting on the effect's impact on EBIT in the quarter? Thank you. Yeah. As you well know then, I mean, the Swedish krona has continued to strengthen against most currencies, really, so it has impacted quite significantly our top line, really, and also then in the same relation, also further down in the operating profit then, but so it's mainly rubles, it's euros, it's Turkish liras, yeah, and US dollars. What magnitude are we talking about? Is it possible to quantify and range for? No, we don't really do that. I mean, it's the same relation on the top line as on the operating profit. Okay. Perfect. And also on the Nordics, I mean, the organic growth is looking a bit on the soft side, I mean, both in absolute numbers as well as sequential development. So firstly, could you please give more granular explanation what is behind that, if you can split it up by end markets? And also if you can see improvements in the Nordics at the end of maybe Q3 or going into Q4. And also another question on that is, of course, if this is the primary reason behind the gross margin drop year over year. Yeah. Carl, if you look at the Nordic region as such, we have of course some very strong markets like Sweden and Norway in this Nordic region. What we saw in the beginning of quarter one, quarter two already is of course that Norway, due to the local restrictions, is impacted, and so it was also for us in the quarter three, but I need to point out that it was rather severe in the beginning, but it has improved over time, but we're not yet back on the levels that we were in the quarter three the year before. Also, Denmark is a little bit lower, and Sweden, as you know, is quite okay, but the sum for the Nordic region is impacted by especially Norway and Denmark for us. Looking ahead, I would say it has strengthened. I think what we have just now on the outlook for Norway is a good path on the way back, but I would not say straight up to the hills, but it's a good positive development looking forward. Perfect. And the gross margin impact also, could you comment on that? I guess the Nordics is one of your most profitable segments. So I guess this is driving a negative mix effect in the quarter. Is that correct? You're totally right, Carl. Here, as you see also in the report, we have two regions that are impacted negatively also in the growth that have no organic growth, which is Eastern Europe and North. And both the Nordics and Eastern Europe are for us good margin areas. So yes, that would be it. Okay. Perfect. And also on, I mean, there's been a lot of discussions on the raw material prices, both steel and copper have rallied the last couple of months. I mean, how has this impacted you in Q3? Have you implemented price increases in order to offset this, or are you planning to implement price increases in Q4 or Q1 instead, or how do you manage this? Yeah. Well, of course, we are following the raw material fluctuations quite intensely. We have already implemented price increases 1st of January that will get into effect both in February and March, and the next one is coming for April. It depends a little bit on project or standard product sales. Where we have existing standard price slips, they are adjusted according to agreements in January and April, and for the project is of course project by project immediately affects. So you will see that coming ahead, but what we don't see, of course, is that still the raw material prices, as I say, there is a rally and it's still ongoing. So we will be able to adjust it also going further down the road. Do you feel confident that you are able to fully offset the raw material prices through price increases, or how do you view that? Or are you planning to take out a bit on internal efficiency as well, or? So far, I would say we are lucky that we have a really good sourcing department, which is really working really good with our suppliers, and with the existing negotiations and also the agreements that are in place and that have been discussed over the last couple of weeks and months, we are quite satisfied and on the safe side, I would say, but of course, as I said, we are following this really, really close, and we are prepared to do more if we need to. Okay. Perfect, and another one from my side. Given that COVID came in the middle of the high seasons for air conditioning last year, would you say that there could be still a pent-up demand for air conditioners now that we once again are entering or slowly entering the high season? Yes. Last year, I mean, as you know, I mean, the high season of the air conditioning, as you also mentioned here, was absolutely in the middle of the pandemic. For this year, we see a little bit more ease on that. I would be happy if the vaccine wave will be a little bit faster that we can really enjoy the high season for air conditioning. As it looks today, we see some positive signs. I really hope that they will fall through. It would be really good for us. Perfect. And the final one, sorry. I'm sorry, a lot of questions, but it's been a while ago since you did a fair number of M&A. Could you please update us on your pipeline or shortlist? How is it looking currently? Also, I mean, the somewhat slow pace in the past quarters, is it due to COVID making it more difficult to travel and meet targets, or is it mainly due to you being a bit more picky? I don't know. How should we look at that? I would say actually it's a combination of both, Carl. Our pipeline is we are a little bit more picky. So I mean, in the beginning of COVID, I think there was a lot of projects on the market. We have some projects actually in the pipeline that are evaluated, where we have sent also local teams. But for final steps, we are still not allowed for some three, four countries where we would have an interest to enter into the country to make the final discussions. So yes, we have a stable pipeline, and we have a common understanding that we will postpone a little bit due to the circumstances in the world just now. So we will look forward when we can go out and travel and visit those projects. Yeah. And the focus is on distribution and no new production units, or? You're totally right in that, yes. Okay. Thank you. All for me. Thank you. Our next question comes from Ms. Marcela Klang from Handelsbanken. Please go ahead. The line is now open. Hi, Roland and Kasper. Very good question from Carl. I have a few more, but he asked a lot of relevant questions. Maybe if you could talk about any kind of improvement already seen in February compared to the third quarter. Or is the trend continuing? This is the first quarter with positive organic growth. Has the trend continued after you closed the books? Or have you seen any other hiccups after Q3? It depends quite a lot on what will happen here with lockdowns and so on, but I mean, as you say, then the trend has been positive here in the last quarter, so going in the right direction, but still a bit gloomy in some regions where we face the lockdowns, but I think part of the answer to your question, Marcela, is of course also if you look again on the five regions that we report, three of them are having positive organic growth already, so I think that's the answer to it also. Can you speak about the Nordics and Eastern Europe, both in negative organic growth territory right now and both high margin areas for you? Are you seeing positive signs in both of these? And is it any specific segments where you want to grow in order to bring the margin improvement back on track again? I think for the Nordics, I already mentioned under Carl's questions that it was mainly Norway and Denmark that impacted us, but there we see a stable and positive development out of that. As you know, both those countries have rather severe lockdown restrictions, but they're easing it step by step. And we hope that that will continue. We hope that. But we see some positive things there. In Eastern Europe, it's not about the application as such. It's more about certain markets that have had some limitations. For us, a stable and good one has been over the last couple of quarters, also Czech Republic, that had some severe hits in the beginning of year and end of last year on the pandemic lockdowns that was not in place the whole last year. They were more free. That is now that they had a real severe lockdown. And then it's of course for us, it's Russia, as you also saw in the figures. They have had some implications also due to COVID. And it is general in quarter three, I have to say, that especially Russia, they go for the Christmas vacations in the middle of December and not coming back before the 10th of January. So it's of course for us, that's something that we always feel, but this time is also to lower volumes because of the pandemic. But here we see that the markets are of course looking forward because the market activities coming into the snow-free times of the year will be positive. Yeah. And then you also mentioned some interesting product launches. When do you expect some significant effect from these? Is it in a year or two? I think we first expect to see the. Or is it? When it comes to the air conditioning side, we're talking about the SysAqua Blue, for example, with the very, very low GWPs. We will see that gradually starting already from the first quarter of our next year when it's in different tenders. On the other side, as you also saw from our presentation, part of these new things that we have launched on the Menerga side with water cooling and this kind, these are coming into effect and already being delivered. So I think you will see a gradual step up every quarter this year, these new products taking place. Sounds good, and the final question. You mentioned 47% of your product portfolio now, EU Taxonomy aligned. Can you talk about your targets where you want to be next year and then 2023 when this becomes compulsory? First of all, our internal goal that we have taken on board on all the R&D developments, of course, that we are working heavily with all the different requirements outlined also in the taxonomy. So every new product will be better than the old one and of course following more and more into being aligned to the requirements. So I think that you will see that number gradually step by step being more correct and even being increased. About how fast, it's a little bit early as we're in the evaluation. As you know, that the 600 pages of the taxonomy, it's hard to say. It's a big book, and you really need to go into depth on this, which we're doing. But the target, of course, is to increase that figure, absolutely. You actually are at a very high level right now compared to some of your peers. Yeah. That was my questions. Thank you so much. Thank you, Marcela. Our next question comes from Douglas Lindahl from Kepler Cheuvreux. Please go ahead. Line is now open. Yes. Good morning, gentlemen. A few questions from my side as well. Starting off with the Menerga situation, I noticed that you continue to hire people there. Can you give us an update on what's going on in Menerga specifically? Thank you. Yeah. In Menerga, we are doing a lot of activities when it comes to restructuring of internal staffing, organization, but also on the platform as such when it comes to products, IT structures. We are also looking to outsource from the Menerga factory certain highly standardized units to other of our existing factories. We have a project where we are doing the units now for private pool is being moved over to our Slovenian factory in Maribor to ease off certain load issues that we have in Menerga and also competence issues. Here we are working quite hard, and we see improvements here from quarter to quarter. And would you be able to give some sort of time frame on when you expect this to sort of normalize? And also the additional hiring, previously it has not been driven by demand. Is that still the case? We're hiring more in 2019 than we did in the last year. I believe in the previous quarter we talked about you needing to hire additional staff to comply with the regulatory COVID demand in the specific region, right? Yeah, but. Is that still the case? Or is this more demand-driven hiring? Yeah, you're right. So this was mainly driven by that we had a high order intake load. And to comply with delivery times, we were really on the high side on delivery times because of the load and of the restrictions giving us that we need to work different shifts and, I mean, establish time in between for cleaning and disinfection. So due to that, we had to hire an amount of temps. We have not made hirings of staff on other levels. It's only to ease off the load in the factory. And that's why we're now also taking the steps that we will transfer over volumes to existing other factories where we're talking about these standardized units from Menerga. It's really to go down on the temps heavily, but also to be faster in delivering the orders. Okay. I understand it's difficult, but is it possible to give some sort of time frame on when you expect Menerga to be sort of normalized or basically where you want it to be in terms of setup? It's hard to predict. It depends a bit on the activities and what we are discussing, and account is close what we have with the workers' council and this kind. But of course, it's very high on our list. I can just say that. But you will see improvements here next year. It will be totally different. Okay. Thank you. You've had another topic. You've quite recently announced several new products, the Topvex and heat pumps for commercial buildings. What can you say with regards to the market's reaction to these so far? The market reaction has been really positive, especially the SysAqua Blue has not only gained internal and by customers, but also from competition, which has seen some reactions, which is of course positive, which means that it's a competitive product. When it comes to the Topvex, but also some of the residential products that we've launched, this is actually where the market just now grows the most. It's on the light commercial and residential side, but also for schools. Just to mention that also, for example, in North America, the big growth that we have there is on the residential, on the light commercial for this kind of units, Topvex and the residentials. It's the same in Europe what we can see just now. So light commercial and smaller complex units together with residential, that's a very good area. Okay. Very interesting. Thank you. Yeah, that's it for me. Thank you very much, gentlemen. Thank you. Thank you. Just as a reminder, if you wish to ask an audio question, please press 01 on your telephone keypad. Once again, that's 01 on your telephone keypad if you wish to ask an audio question. Our next question comes from Johan Dahl from Erik Penser Bank. Please go ahead. Your line is now open. Good morning. Thanks for addressing my question. I was wondering if you could elaborate a bit on the organic growth in the U.S. and the drivers and perhaps on the dynamic, whether there is a linear growth or is this focused towards particular ones? Yeah. The growth in the North American market is, I mean, it's threefold. The main part for us is absolutely residential and the school, the classroom units. The school is our residential unit that is mainly driven by the plant in Canada, where we see really good growth throughout all Canada, but also in the U.S. market. This is by some of the incentive programs rolled out by both governments, but also an increase on the different building standards and codes when it comes to balanced ventilation and indoor air quality. The same goes for schools and classrooms, where both governments also have increased demands and the codes, which is very beneficial and also fueled by the different incentive programs. Nonetheless, also the one that was released or discussed today in the morning in the U.S., this will give us some extra boost. Another one that is really good for us in especially the U.S. market is that we have launched one year ago a heavy campaign for radon ventilation, which is giving us good growth in the fans and the fan application amongst the mitigators for radon throughout the southwest of the U.S., which is a really growing market for us. So these are the main drivers. And what we also see now coming more is on the light commercial and commercial ventilation for the air units that we started off. We made some investments, as you could read in some of our reports, in Canada with a new factory. And that one, I can just say, is really well booked already for the next couple of months ahead. So this is a good future for us. All right. Thank you. And perhaps could you elaborate some on the selling expenses? So this like-for-like decrease continues. And could you shed some light on your perception of the sort of long-term normal state? When will you sort of achieve this long-term stable level of selling activities? Normal state of selling activities. It's a little bit going into the direction of what is the new normal. We have, of course, adopted a lot internal more on the digital side, on the sales tools and sales activities. The biggest trouble, I would say, for our salespeople is to reach out and be able to meet our contacts and consultants. A normal platform, for example, just an example, has been all the different exhibitions that we're participating on in the past. We had up to 70 different exhibitions all over the world, and all of them are canceled. Some of them are today held digital, which, of course, is a totally different setup and not the same thing in communication with the consultants and installers. But we have adopted quite well, I would say. We are following up with the CRMs and other systems, and we see a good increase on contacts, though they are different than before, but it works quite well for us. The question is when and how it will come back. What we're a little bit insecure, I think, as everyone in our industry is, how will the new normal be? I need to say I cannot say that 100% today. Thank you. Thank you. Our next question comes from Henrik Alveskog from Redeye. Please go ahead. Your line is now open. Okay. Hello. Good morning. Good morning. Good morning. Could you just briefly please remind us of the Russia plant? When will it be commissioned and say something about its capacity and products, if you may? Absolutely. We are just now, we had the possibility to enter into the building or to start to use parts of it by end of January, according to plan, actually. We are now building up the racks and everything because we have already an existing local warehouse in Moscow that will be moved into this new facility also. This is just now ongoing. Machinery deliveries and everything that is on the plan will be for the next couple of six weeks, and then it's commissioning of these machineries and starting up. We're just in the hiring phase, so I would say that to summer or directly after summer, it will be up and running. The focus here, just to remind that, the focus here is absolutely for air units and some other light products that have to be according to the governmental decrees made in Russia, which is the part of the market where we cannot reach today. But we're really looking forward to taking some shares in. Okay. Well, thank you. And I was also wondering, you acquired a small company here in Sweden, Servicebolaget, which is your partner in Sweden for installation and services, I understand. Should we see this as very specific to Sweden, or is this like a new area where you are interested in expanding further? In Sweden, as you said rightly here, Henrik, Servicebolaget has been the partner on the residential side. They have today 26 different places from where they operate with partners and franchise partners. And they have been helping us on residential, but also partly of them have been helping us on the light commercial and compact units. So we will explore that more in Sweden, of course, to work more close and have it as a part of our offering to customers to also have the commissioning and the startups as part of that. And it is also part of a little bigger attempt that we're doing. We have actually hired a specialist on a group level to look into building a service organization where it's needed and to combine the existing ones under one umbrella and to form this offering towards different markets and applications in a more process-style way. So yes, it's part of strategy and will be more in the future. Okay. Thank you. And then just finally, regarding the Menerga evaporative cooling that you showed a slide on here, is this an area where you would benefit from some sort of other partnership in order to access the market, or are you planning on marketing this on your own? We're actually going on our own because from the start, what Menerga had a weakness was that they only had parts of it. They had the evaporative cooling, but you need to have other, let's call it normal air handling units around in what we call the dry areas of buildings and applications. But we partnered this together with the Systemair air handling units parts. So we can now do a total offering, which Menerga couldn't do before. So we plan to go absolutely on ourselves, on our own forces. Okay. Yeah, you're right. Well, thank you very much. That's all for me. Thank you, Henrik. Thank you. There appears to be no further questions, so I'll hand back to the speakers for any other remarks. Okay, ladies and gentlemen, thank you very much for very interesting questions. It was a pleasure to answer them. And looking forward to meeting you digitally and virtually again next time in our quarter four report. And thanks for today. You take care. Stay safe. Yeah. Thank you very much. And please don't hesitate to call us, give us a call if you have any further questions. Thank you very much. Bye-bye. Bye-bye. Thank you. This now concludes our conference call. Thank you all for attending. You may now disconnect from the.