AB Fagerhult (publ.)

Hello, everyone, and welcome to the presentation of Fogholt Group's second quarter results for 2024. On the call today, we have our president and the CEO, Bodil Sonnason, and myself. The presentation will start with Bodil giving us a brief update on our results for the second quarter, and then Bodil will then continue to update us on some strategic highlights, today-focused science-based targets, plus innovations launched during the quarter. After that, I will follow with more details about the financial performance of the group and Bodil will conclude with a brief recap and afterwards we will open for questions. We will first allow questions from the conference call, then we will allow for questions from the webcast. You can post questions in the chat window on your screen and I will read them up for Bodil and Michael. Before we start, let me also remind you that today's session is being recorded. and will be available on our website later today. With that, I hand over to Bodil. Please go ahead.

Thank you, Michael, and welcome everyone to this Q2 2024 webcast. So in the second quarter, we saw a return to growth for us in both order intake and net sales on a group level. The market conditions remain the same, and we continue to focus on the renovation market, where, as you know, our solutions are well positioned and where we continue to secure projects. And we are contributing to renovating Europe's energy-inefficient buildings, and that is one of our ambitions. And our solutions and local footprint makes this possible. This is also balancing a new-build market that still is constrained by high interest rates, although there are regional variations and indications of a more positive outlook from next year. We're also heavily involved in outdoor projects for urban spaces, which is one of the focus customer segments in business area collection. We continue to see megatrends supporting and remaining favorable for our industry, providing a solid foundation for our strategy and future growth. And the gross profit margin has continued to improve, but the operating margin has been impacted by higher operating expenses in the quarter. We have started to address this, and we have seen some positive results at the end of the quarter and this will continue in Q3 and Q4. Product innovation activity continues to be high, and I will share two examples in my presentation today. One retrofit solution from BF and another truly innovative product from Iguzini that is playing with the boundaries of light. And as you know, sustainability is an integral part of our strategy and what we do. And later on in my presentation, we'll have a closer look at our science-based targets, the numbers behind, and what our focus is going forward. And part of sustainability is also new partnerships. And one example is what Fargo does together with Hydro to recycle extruded aluminium. But let's have a look at the numbers first. So order intake in Q2 was 2.1 billion Swedish crowns, which represent an organic increase of plus 0.8%. The organic net sales increased with 0.9%, and in numbers we achieved almost 2.2 billion Swedish crowns. At the EBIT level, we delivered 169 million Swedish crowns with a 9.1% EBIT margin. Earnings per share was 0.62 Swedish crowns, and as expected, we started to see a reduction in interest costs from the second quarter. If we then look at the year today, And the half-year result was very similar to prior year. And in numbers, it represents order intake of 4,233 million Swedish crowns compared to 4,286 million Swedish crowns in 2023. And net sales declined organically with 0.7% to 4,347 million Swedish crowns compared to 4371 million Swedish crowns last year. And operating profit is at 470 million Swedish crowns compared to 446 million Swedish crowns last year, which represents an operating margin of 9.6%. And earnings per share is at 1.40 Swedish crowns. And as always, Michael will give you more information when we come to the financial section. And first, I will show you some things that have happened in the quarter. So you know that in our quarterly report, we try to give you a flavor of our strategic group focus areas. And today's focus will be on our sustainability agenda. And you know, it's an integral part of our business strategy. And when sustainability and business goes hand in hand, it becomes a win-win situation and gives a very clear direction for the group. And this time, we will focus on our SPTI targets and what we have achieved so far, what our goals are, and in brief, our focus priorities to achieve the goals. And I will also present some selected innovations in the group that was launched in the quarter, and this time it's from Iguzini and VF. So let's jump to the sustainability agenda. And in the Q1 webcast, we spoke about what's happening on the market with regards to sustainability-related topics and legislation, and the European performance of buildings directive, and also explanation behind our taxonomy numbers. And all of these topics are, of course, driven from the need that our buildings in Europe have to be renovated, as they stand for almost 40% of the carbon footprint, And the majority of the buildings are energy inefficient. Without this, we have no chance of achieving the Paris Climate Goal or Fit for 55 to reduce emissions by at least 55% until 2030. And this time, I will focus on how sustainability agenda relates to our validated SPTI targets. And I'll just give you a quick recap with regards to the SPTI targets. You might remember they were validated in October 2023 for both scopes 1, 2 and 3, as well as for net zero in 2045. And we did an extensive mapping of all our factories and our complete footprint in 2021, and therefore we used 2021 as our comparator year for data our so-called base year. And on the slide, you can see the results for 2023, where we have reduced our total emissions combined in all scopes with 24% since 2021. And the meaning of that is, of course, that we are on a good way towards our FPTI goals for 2030. And in this slide, we see a full view of our carbon footprint. And this is, of course, coming from the research that we did in 2021. So when we look at our footprint, we can see that by far the biggest impact is in scope three and particularly the use phase that represents 88%. Of course, this is normal as lighting solutions have a long lifetime. And when light is on, energy is consumed. And we know that lighting is 15% of a building's energy consumption. The second biggest number is related to suppliers and material use in our products, accounting for 8%, where the highest part is coming from electronics. The footprint from our factories is a very small part. Only 1% pertains to direct emissions. So we have established short- and long-term targets to reduce direct and indirect emissions. And the short-term targets that apply from 2021 to 2030 are reducing scope 1 and 2 by 70% and scope 3 by 30%. And to reach this, we have defined and prioritized around 20 activities based on the insights we gained in 2021. So we call these our levers. So there's actually 24 projects that we're working on. And I will highlight two of the major ones today. And in scope one and two, the most important levers in our factories is our internal heating and paint plant that consumes a lot of gas and electricity and represents 50% of our direct emissions. And as you might remember, we're already on 75% of usage in renewable electricity in our own operations. The reduction of 30% in scope three is a very ambitious goal. And this is where sustainability and smart go hand in hand. And we have a vision to be 100% smart by 2030. This implies that by 2030, we need to have sensors in all our lighting solutions that go out of our factories. And that is a big undertaking from our side, both internally but also externally, to spread the understanding for the why and how of smart lighting. With a sensor in each light connected to the network or to the cloud, we can optimize the energy consumption for the user during the full lifecycle of our products. And our scope three is our customer's direct emission, meaning scope one and two. So that means that we are to a large extent in this together with our customers. And all this technology is in place today with the organic response and city grid solutions. So that is why it's so important to spread knowledge about smart lighting. If we go back to the basic assumptions, we know that lighting is 15% of the energy consumption and that the energy consumption already today can be reduced with up to 90%. with a combination of LED and smart lighting compared to a traditional installation. We should use the light where and when it's needed. And as we spoke about in the last webcast call, we will get help from legislation in the European Performance of Buildings Directive that will be implemented in local legislation by the latest in spring 2026. And that implies smart lighting and also implies higher renovation rates. This is only the first step in our journey towards net zero, where the usage of smart lighting will play a major impact together with a circular approach. So when developing new products and solutions, we strive for modular development. And this is to achieve standardization and, from a circular perspective, enable us to simplify renovations and upgrades. And we gave you some examples of these models at last time. But this also takes us to new partnerships. And I mentioned Hydro in my first slide. So this is an example where Fagerholt is cooperating with Hydro Extrusion in Sweden. And they together have made a pilot project to explore circular processes for the use of extruded aluminum. And this was done for Telenor's headquarter in Oslo. where a product of Fagerholt was installed in 2002 and now renovated with the goal of saving 50% energy. And in the pilot project for hydro extrusion, the goal was to preserve material properties and not downgrade the aluminium. And we want to be able to recycle extruded aluminium as it's a very common material in our light fittings. And that has so far not been possible. So therefore, this pilot project has been very important to us. So what we did was that we took back the light fitting to our factory, where they were taken apart and sorted. And then they were sent to hydro extrusion, where the aluminum was melted and then extruded again. So for us, this is a big step forward, because it enabled for a circular process when using aluminium in lighting solutions. So another step towards circular solutions. Then let's leave sustainability and go to the two innovations I promised you for the quarter. And the first one you see here is Trick E up to EM, which is from Igazzini. And I would say this solution really takes innovation in how you can play with light and push the boundaries to a completely different level. It showcases the group vision statement, a world enhanced by light, and it really gives lives to architectural buildings at night with a lot of possibilities to play and doing tricks, therefore the name of the product, with light both in indoor and outdoor application. And as you can see on the picture, if you look closely, you can see there is a diamond-like part of it, And that is one of Iguzini's core strengths, being optics. And this product is difficult to describe in words, so I would really recommend you to go onto the internet and have a look at the film, Trick EM, at theiguzini.com. The next product I want to share with you is an upgrade kit, or a so-called, we call them upgrade kit or retrofit kit from VF. which is in line with us helping renovating buildings and cities in an energy-efficient way. So this kit can be used on luminaires dating back to 2014, and it takes only five minutes to upgrade, thanks to pre-configuration done in the factory. So a very easy and sustainable way to enhance the lifetime of your solution, and also an example of what I said before, that modular thinking has been with us for quite a long time. So you can get 40% more light output with the new version and you can choose whether to get the higher output or decrease the power consumption and therefore reduce your energy cost. And this luminaire can of course also become smart by using the Saga-based smart controller from CityGit that we announced in Q1. And with this, I'm sure you're curious about the numbers. I will soon hand over to Michael. But I thought, you know, we have a lot of beautiful pictures and we are in the middle of the summer. So with this picture from Stockholm and Riddarholmen, where you can see the traditional beautiful lights that have been updated with LED modules from Atelier Lyktan. And with that, I hand over to Michael.

Okay, thank you, Bodil. And leave a note for the second time, a very good morning from me also. It's great, I think, Bodil, to see that we've got such a high rate of innovation and new products constantly coming through across the group. It's part, it's testament to our strong view of the future that we have. I think in many aspects, the second quarter was very similar to the comparable period from 2023. And in the report, we mentioned higher operating costs. I see some of you have already mentioned that in your updates. So I will try to deal with that now and give you a little bit more flavour around our commentary there. In the early part of the quarter, we did get ahead of ourselves when it came to revenue investments. We took immediate actions in the early part of June and these actions will continue during the third and fourth quarters and where they will enhance the operating margin in the second half of the year. It is a significant benefit to the group's decentralized operating model that we can react so quickly when the need arises. And we already noticed an improvement in the situation in the month of June. Let us see what the second quarter brings, was what I said to you guys at the end of Q1. Let us see what the second quarter brings. Well, the second quarter did bring growth. We returned to 1.1% overall order intake growth. And to me, this is a signal that perhaps we see the renovation growth and no longer a declining new build market because one is beginning to pass the other. So that, to me, is another positive sign for the Fargo Group. And with lead times now back to normal, it is expected that some of the order intake growth translates into net sales growth. and the group delivered another solid 2.2 billion, which was ahead of last year. Our ability to meet customer delivery expectations is good across all brands, and again, this is another strength of our operating model. Decentralized make product close to where our customers are. The growth in the second quarter was also delivered at an improved gross profit margin, and we shall remain active in portfolio management, pricing and cost management, support this in the future as mentioned the operating profit was short-term affected by higher operating costs and we are confident of a somewhat lower operating cost level in the second half of the year operating cash flow was was good almost sufficient to neutralize the dividend release that we did in early may and we expect that lower interest rates would come through in the second quarter this was our expectation and in the report we know that this was in excess of 10 million Swedish crowns in the second quarter. Unfortunately, the impact from currency movements are not controllable. We expect the net debt to further reduce in the rest of the year. Looking at year-to-date now for us, looking at year-to-date position, the second quarter order intake and net sales began to close the gap from the first quarter. So for us, it was a better second quarter as far as the activity level went. Order intake, net sales, the gross profit margin also improves compared to last year, and we have initiated actions where we have needed to in order to improve the operating margins in the coming two quarters. Operating cash flow for 2023, if you recall, was a record, and we also see a very good performance on the cash generation side during 2024. The net sales for H1 2024, January through to June, shows a 3.7% growth compared to the net sales for H2 2023. And this is why we begin to see the rolling 12 months no longer continue to slightly decline, but now more positively, it begins to improve a little bit. We look to continue this with the market opportunities that present themselves. Looking at the margin, I'm not going to dwell, no longer dwell on the operating margin. We've clearly now communicated in the report and in my earlier words, what actions have been taken and will continue to be taken in the second half year to address this. And we do expect a resurrection of improved operating margins as we go through July through to December. Collection. We reported quite an optimistic view of collection at the end of Q1, and that optimism continues for second quarter. Business area collection continues its strong overall start to the year that we reported in the first quarter. The year-to-date collection has delivered order intake growth, net sales growth, and the trends for operating margin and operating profit remain very positive. For us, this is critically important. It is our largest business area. The 11.1% operating margin is by a long way, not only 4.3% ahead of last year, but also raises the bar further with a new quarterly record for the businesses in collection. The steady migration from family-owned businesses, excepting Atelier Lipton, of course, takes time, as we have previously reported. And now we begin to see good progress in Igazzini, Lead Linear and VX. Once again, we continue to win some great projects. Coming to premium. For business area premium, I would like to clarify one point. You can see the slide for yourself. I'm not going to talk through each individual part, but I would like to clarify and explain a little bit. And that is the fact that the business area premium takes the full impact to EBIT of our growing investment levels in our smart lighting solution organic response. That has accelerated this year. The future lighting industry, we are convinced, will be shaped by smart lighting solutions. Of that, we are very, very sure. We continue to invest and we do not take the investment to the balance sheet, nor do we adjust the operating result. When we say EBIT, we mean EBIT. What you see is what you get from Fargo Group. I think this is important in the understanding of our results compared to our peer group in the industry. But just as an indication how we see things going in premium, looking at the 11.1% year-to-date operating margin that you see in the report, I can tell you that the operating margin for the two Luminaire brands in the business area combined is a very healthy 13.9%, almost 14%. Coming to professional, last quarter we reported a very high comparable order intake in period Q1. 2023. To Q4 2024, the professional business area has delivered strong order intake, almost 14% ahead of Q2 last year. The growth in net sales of 8.7% included the delivery of some of those large projects from Q1 last year. And that sometimes is an indication of how long the delivery programmes are. Some of you will remember the names Everton Football Club and Hinkley Point Power Station that happened in Q1 order intake last year. And now in Q2 2024, the deliveries have taken place. The business area has grown its order backlog position in recent months, and that provides confidence for the future. The two-and-a-half-year operating profit and operating margin trend, the line to the right-hand side, remains positive, and here we also see good projects for renovation and growth in smart lighting solutions. In business area infrastructure, I have less good news to report, although the order intake in the second quarter did show growth compared to last year. However, we clearly see the impact of the weak Q1 order intake, which was 21% adverse year on year, and the year-to-date order intake in business area infrastructure lags last year by 11%. The softer market conditions that we reported last quarter do continue, particularly for VACO business in Holland, where we take a full business structure and strategy review during the current quarter. The long-term design plan investment in the German transport and custodial segments begins to make a more significant difference and we see higher and increasing levels of order intake for design plan in their German operation. We will come back to the VACO situation in the Q3 report. But for now, we will take a full review as we go through July, August into September. Cash flow. On the cash flow side, we continue in a very positive way. The chart remains positive. Now with nine quarters of generating a positive cash flow, it will, as previously reported, be difficult to match the 1.2 billion from last year, but we still see room for improvement in some of our businesses. As you can see, the net debt increased in the quarter due only to the dividend release. The operating cash flow was, as reported, very strong. We do report a net debt of 2579 million adjusted to 1842 million for IFRS 16 and the net debt EBITDA ratio of 1.9 means we are in strong position for our new M&A opportunities with the recruitment of the head of M&A from last September. Before handing back to Bodil for closing and Q&A, I'd like to end as traditional with a quite short summary message from myself. The group for ourselves, we are in good control and we're in a strong market position with healthy margins and a strong balance sheet. We see increasing traction of the mega trends, Bodil's talked about these earlier on this morning, and with tailwinds for growth from the ban on fluorescent lighting anticipated pickup in the construction market and through M&A further consolidation activities in the industry. There is no reason for us to lack confidence in what we see in the next one to two years. Thank you and with that I hand back to Odin.

Okay thank you Michael. So I'll also give you my conclusion and a picture before we move into questions. So the conclusion for the second quarter is that it is a good return to growth on both order intake and net sales. It's good to be on the positive line. And together with high and improved gross profit margins. It's also very positive with the improved results in collection in combination that we are securing projects on the renovation market. And also renovation projects often have a strong sustainability angle and often the user experience all the owner of the building is involved. So therefore, we actually see a higher adoption of smart lighting in renovation projects. And also, as an additional benefit, organic response is a wireless system, which makes it very easy installation in a renovation project. So today, we focus on how ambitious our SPGI targets are. and what we are going to do on our journey towards smart and circular as we continue to renovate Europe. We are well positioned with regards to the market trends and we continue step by step to work towards our ambitions. And this is making us well positioned when the new build market again turns positive. So with that, before we open up for questions, you can see another nice picture. And this is the Kaibukishu Tower in the Shinjuku area in Tokyo. And the Kaibukishu Tower is a 225 meters high building that was completed last year. And the lighting you see here is some LED linear. And I hope you can see that the lighting is enhancing the architecture of the building. And it's a vertical entertainment complex. And actually, the first great building in Tokyo that is designed by a woman, which is the contemporary architect with the name of Yoko Nagayama. And with that, I hand over to Magnus and questions from the phone line.

Thank you, Bodil. And hello, everyone on the call. I am Magnus Hegemark, and I am the head of M&A here at Fogler's Group, and I will take care of the Q&A today. And I will now ask the operator to open for questions from those on the telephone line.

If you wish to ask a question, please dial pound key 5 on your telephone keypad to enter the queue. If you wish to withdraw your question, please dial pound key 6 on your telephone keypad. The next question comes from Nicola Kalinowski from ABG Sundal Collier. Please go ahead.

Morning all. I hope you're doing well. Just a couple of questions from me. I'm a little curious regarding the stronger order intake momentum towards the end of the quarter. Could you perhaps say anything about which segments this affected and maybe even provide us with some additional color?

It's a good question, I would say. And I think if I look into the quarter as such, I don't think there is anything that stands out specifically. So, you know, we're referring sometimes to bigger deals in the different parts. But I think in the Q2, it was more what I said before. We see a continued good uptake in... in renovation projects. So we see that continue. And we also see, I would say it's more a continuous trend on that side and also the same continuous trend on the smart side. I also highlighted in my initial presentation, I think we see that continue as well. In addition to the renovation products, we see quite a lot of urban spaces projects as well. which if you look into the collection this quarter, we had quite a good and many nice projects on that side. I don't know, Michael, if you have anything to add specifically, if you come to think of any specific events for the quarter.

Yeah, well, I think you saw in infrastructure and professional, they had stronger quarters than they did in the first quarter. So the comparisons were better for professional infrastructure. Year-to-date, we've said that collection and premium remain ahead of order intake compared to last year-to-date, which is good. I'm not aware either. I vote a lot of individual large mega projects. I do think we see quite some increased activity on that order intake side, subject to the comments that were said in... professionally, it was quite a good rebound from a poor Q1 for them. So generally, I think in the report, I think, Nicola, we talk about business as usual in the second quarter, and that's quite how we see it.

Yep, understood. Very helpful. Thanks. And then a quick one on the gross margin. Could you perhaps provide us with some detail on what has been the driver of the gross margin expansion year on year?

Everybody knows that the supply chain cost pressures that we faced in late 21 through to 22 when we were encouraging our businesses to think about pricing and price improvements. This took place during 2022 into 2023. You guys, as well as ourselves, we were keen to see the impact of this coming through in the income statement. It did quite strongly come through in the last two to three quarters of 2023. And that was mainly through pricing to recover the cost impact in the supply chain, but also as well on the employment costs that are part of the margin calculation. We've been through a period of higher employment cost levels. And what we see in 2024, Nicola, is a little bit of a combination of It did take a long time for some of these pricing improvements that we've made to impact our results. And that has continued partly in 2024. But also on the supply side, we do see now input costs beginning to reduce. So in this year, it's a combination of continuing to benefit from the pricing improvements that we've done. It takes anywhere between six and twelve months for them to be fully through into the income statement But more quickly we get into the into the EBIT number and the impacts of any input cost reductions and we've had we've had those in two broad areas on base metals Steel copper aluminium and but also in in lead electronics across across our businesses So this year, different than last year. Last year was about pricing and cost increases that we had to overcome. This year, it's been about continuing the pricing and input cost reductions.

Yeah, thanks, Michael. I appreciate the detail. And then finally, on smart lighting, would you say that you continue to experience positive business momentum and client reception, or is it perhaps a little bit stagnant? Because investment sentiment is perhaps generally dampened.

I think it's what I said before. I wouldn't say it's dampened. I mean, that's more relating to when you look into renovation and new build. And for us, as I said, smart lighting very often is very, very good when we do renovation projects. We are closer to the decision makers that will have the benefits. the energy production. And also it's very good for doing easy installation as it's wireless. So I see a higher uptake on the renovation side. I think then otherwise it's more, as what I said also, this is a question about education and knowledge. And that work we will have to continue for many years to go on the smart side. And Then the other point, which I think is important here as well, is we all saw the re-election of Ursula von Leyen. And one of the first things she did was to reinstate or to push on the Green Deal. And that is important for us because that goes in line with renovating Europe. And then we need the smart lighting. And in the last webcast call, we spoke about the Europeans' performance of building directive. And there is actually legislation in there for smart lighting. That, as I said, goes into national legislation into 2026. So maybe that will give us a little bit of an additional push from 2026. But I don't see any reasons why we shouldn't, in the meantime, continue to see good inflow of projects. There is also a question about What I said, that we're saying that we're having everything being smart in 2030, having the sensors in the lighting solutions going out of the factory, that also demands a lot of work internally to make sure that that happens around our product portfolios. So there was an example in the report this quarter in Whitecroft where we have the first circular products which now has the organic response also included into it. So we also take step-by-step in terms of making it available in a wider product portfolio. So I think I would actually say it's more depending on ourselves and how we make steps forward than the general market sentiment. And then I think we get help from the renovation market.

Yeah. I think that last point that Bodil made, Sniffa, there is quite important. The current form factor, the shape, size, of the existing organic response sensor node is incorporated very well into many of our indoor luminaires. Remember, it's an indoor smart lighting solution. And we were in southern Germany, our LTS business recently, late June, and they were very proud to show their development of integrating the organic response technology into a smaller round luminaire. Some too that Bodil refers to with the Whitecroft launch in the second quarter. So a lot of it does depend upon ourselves by being able to integrate and offer a wider array of our portfolio with the organic response technology. And that we can see taking place across the whole group.

Yeah, wonderful. That's all from me. Thanks for taking my questions and for answering in great detail.

Okay, thanks, Nicola.

The next question comes from Mats Lis from Kepler-Tuvriax. Please go ahead.

Yeah, hi. Good morning. A couple of questions. First, I mean, you mentioned... that you have implemented some measures to improve profitability and operating mode in the second half. Could you be a bit more specific regarding what measures you have in place?

Yeah, no, we think we've moved early. We saw the need and we jumped on it straight away. And I think that was the right thing to do. The benefit of our operating model says that once we jump on these things, it can happen rather quickly. And we did see quite a good impact of this in the June result. Obviously, you guys don't see the June result, but we do. And what we've done is we've taken early action on those discretionary spend areas that's not going to hurt the future. And we've also slowed down our recruitment of roles around the group. We've not said stop. That would be the wrong message. That would be too harsh. But we've just said make sure that we get the right person 100% every time. And I think that will have an impact of slowing things down a little bit, which won't damage us in any way. So discretionary spend areas has been one topic. And then on the headcount growth, is a second one. And we know that those things will come through with quite an impact. We saw it already in the end of the second quarter. We're not looking at cross-group restructurings or anything like that. That's not on our agenda because that would be damaging for the longer term.

Okay great thank you and the second one is sort of I mean in premium there you mentioned the investments in smart lighting and organic response and if I got it right I guess you have sort of some four or five percent of the margin affecting in that segment affecting well the costs that relate to smart lighting. Will this level continue in the second half? Do you expect that?

Let me just understand. We talk about the year-to-date operating margin in the Q2 report that you see at 11.1%, lifting to 13.9% once you look at just the Luminaire brands in premium. So we see a 2.5% to 3%. delta there and that that that will continue in the second half year uh though there will be some discretionary spend controls as well uh brought into all of our businesses no no nobody is uh is deserving of special treatment that's part of our model uh so when we are all asked to to help and then everybody is asked to help and the expectation is that everybody contributes to that that help um So it will continue at its current level, and it will continue to grow, but not as rapidly as it has done in that first quarter.

And is this sort of a trend that affects you? I mean, you have this 2030 ambition, so it's sort of necessary to do this to stay competitive, I guess.

Yeah, in that same slide, I mentioned that we do see the lighting industry in the future will be shaped by good, robust, open smart lighting solutions. And organic response technology is very definitely one of those. It's robust. It's easy for the installer community to install. It's very robust. um and it is capable of a lot more we've talked through before uh i think in the q4 uh presentation uh the the 70 savings by going to led and another 20 savings making 90 savings overall by going to smart led with organic response um so that that's uh critically and i think

And I think there is another few points here, which are very interesting. I mean, for us, it's completely logic that this is the way we go. But there is also, I think there is also a large competitive benefit with it. Because if you look into, we do the same smart lighting solutions for all our brands that they're able to benefit from. And if we take a step back and look at the lighting market, we know it's still extremely fragmented. And I think when we look into that it's going to be interesting to see how the dynamics of smart lighting will change the industry dynamic Because it will be more difficult if you're a small player to be able to also have software development So I think there is there is also and take a little bit of a longer perspective There is many industry dynamics which are interesting and also for us. It's very good. I think we've mentioned before that that we have an average sales value which is 30% to 40% higher when you do a smart lighting solution. But if you look into the payback times of that, because if you go back to the matrix of that when you have a traditional lighting solution and you go to LED, you save 70%. And when you go from LED to smart, you save another 70%. And that makes that we have quite short payback times on this. Then, of course, it's depending a little bit on the electricity pricing. But we are down, we are at levels which is, I would say, around, it's depending on application, but let's say around two years. So that makes it a very, very interesting investment from a company. And at the same time, they decrease, what I said before, they decrease their carbon footprint in scope one and two. all property owners who have SPTI targets, this is a very, very easy move to do for them. So I think there's many benefits in it. I think I've said it before, it's more the knowledge about how to do this and what the benefits are that we need to make sure that we work with.

Okay, great. And looking at infrastructure, I guess I was a bit disappointed on the margin there, but Now orders are improving somewhat. Do you see an increase in volumes to support margins going forward, I guess?

Yeah, I think we do. Despite what we mentioned about infrastructure and the review that we are embarking upon in Baker, we do see a more positive order intake position in the second quarter. And that will help, of course. And we talk about some of the activity that the design plan does in Germany, with Deutsche Bahn in particular, on the refurbishment and renovation of the railway estate in Germany. It's an activity that they started many, many years ago that's now coming through to benefit. We will be taking a long, hard look at VACO. and realigning their strategy with them. And we do hope that, maybe not Q3, Matt, Q4, but certainly in 2025, you should see improving margins coming through in the next year period.

Great. Finally, just about, I mean, M&A, I guess, gearing is down to pre-Iglesini levels and the market is sort of maybe a bit slow for some competitors. Do you see opportunities to move forward and make some additional acquisitions or is it sort of a wait and see game?

It's a little bit of both. It is wait and see, because we can't say too much, of course. But we are moving forward with second and third round conversations with contacts and opportunities that we have been discovering in the first six months of 2024. Magnus, who's on the call with us, he's hard at work doing that. So we are optimistic. for the future in our new M&A agenda. But it is, as you say, Matt, wait and see.

Okay, great. Thanks a lot.

As a reminder, if you wish to ask a question, please dial pound key 5 on your telephone keypad. There are no more phone questions at this time, so I hand the conference back to the speakers for any written questions or closing comments.

Thank you. We have some written questions here and I start with one here to perhaps maybe to you make reference to the new build market, possibly at the bottom with a pickup expected. When do you see this pickup and can you add some more here?

I mean, it's always difficult to look in the prediction in the future. But if you look at the building market in general, I think we also need to see that our global footprint makes the fact that we see differences in different regions. You have some regions that haven't been impacted, which is good and positive. But if you look into the latest statistics from Euroconstruct, we see a positive on the renovation market, which you hear us speak about loud and clear. But going into 2025, which might be also natural, seeing the development or the hope development on the interest rates for the fall, there is a discussion starting about that the new-build market will become positive from 2025 again. And of course, that would be very good. I think we see some regional... Differences there as well. I think one very good thing is that think about good activity in the UK Where I hope we now have some stability and as you know, UK is is our single biggest market So it's an important important market for us.

I Think that is that is how much I can say about it Thank you and the other written questions we have here are already answered during the Cool. I think we have a question still from Carl. It looks like he's trying to add via the phone here. So I asked our moderator to see if you can help him to ask the question.

The next question comes from Carl Norwin from SEB. Please go ahead.

Yes, good morning. I just have some clarification questions. And the first one is from the operating cost during the quarter. Would you say that there's any specific like one-off impact or is it a quite clean cost base in the quarter?

Quite clean. There's no one-off in that first quarter.

That's clear. And then just a question here on the cost measures taken. I mean, looks to me like your number of employees has declined quite a bit or declined in the last quarters but they were up a little bit sequentially so i'm just wondering a little bit regarding how much you think that it's gonna impact uh i think i know you don't guide but could you say anything regarding what you saw in june yeah um yeah you're right i'm glad i'm glad you had to mention that we don't guide um so

So thank you for that, Carl. No, I mean, we had an impact in June and the immediate impact we were pleased about because it showed that the message had landed well and people had jumped to it. But we expect once the message is taken a little bit deeper into their businesses, We do expect that we can perhaps improve in the second half year over what we did in June, because June was very, very new, very recent. So we expect a little bit more. I think I'm entitled to expect a little bit more in the second half of the year than what we got in the immediate reaction in June. Yeah, sounds like.

And then I have a question regarding the seasonality in the business. Can you just remind us a little bit there how the summer impacts, etc.?

Yeah. We used to be quite seasonal. If you go back quite some number of years, and I'm going back to maybe the early teens of the current century, Carl here, and it was very, very clear that Q2, Q3 were by far our strongest quarters back then. But I think with the shape and size and dynamics of the group now. And by dynamics, I mean Northern Hemisphere, Southern Hemisphere, global businesses, European businesses, indoor and outdoor. I think the seasonality that we used to see is not as clear as it is. It's not that clear today. So I think it's more evenly spread today across the application areas and across the geographies. within our businesses. So we've not really had a seasonality conversation group for quite some number of times now. And I suppose I'll just add one part to that, though, Carl. The last two to three years have been heavily, what's the word I'm looking for, disguised, shall we say? the quarterly performances in the last two to three years have been heavily disguised with one, the recovery coming out of COVID, and two, the impact on, first of all, order intake and then on net sales from the supply chain crisis. So I remember talking about Q4 2022 was an all-time high quarter. And for that to happen in the Q4, You say, is that realistic? Is that repeatable in Q4 to come in the future? No, it's not, because it was a catch-up period from the supply chain. So it has got a little bit disguised and quite unclear. We look forward to 2024 being a normal season advocacy quarter, and then when we get into next year, we'll look back at it and then decide where we go.

Yeah, I'm sorry. And then just the last question, if you could say anything regarding the growth within new build compared to renovation in the quarter. Is it possible to quantify that?

I would say it's very difficult to quantify it. What you can see is if you look in general on the market, if you look at the building market as such, it's half, half almost in Europe if you quantify the new build construction market and the renovation market. And we are more renovation than we are new build. And if you look also on the growth rates on the market, you have a growth rate on the renovation market, which you don't have on the new build market. Okay. It gives you a little bit of a feeling for it. That's why I say that it will be positive having growth again in the new build market. Yeah.

And it sounded in the CEO letter, that new build is expected to be a bit more stable going forward, maybe.

Yeah, I think that's what the research is saying. And I think, I mean, it is dependent on interest rates as well. So let's hope they're right. And I think you hear me also saying that for the renovation side, there will be legislation. So I think we will get more of a boom on the renovation side, if you look from relative.

Yeah, that's good. That's all for me. Thank you. Thank you, Carl.

Thank you. And with that, we are done for questions for today. Bodil, any last comments from your side?

I'll make a very quick one because we're running out of time. It's very nice to have so many questions today. We enjoy that. But I think in a brief conclusion is that we delivered positive numbers both on order intake and net sales combined with very strong gross profit numbers. And we are, as you've heard us, focusing on balancing net sales and the cost levels for the remainder of 2024, and we're expecting a positive improvement here in the second half. At the same time, even more important, in line with our strategy, we continue to make progress in all our initiatives, being sustainability and smart lighting that we spoke a lot about today, but we're also working really, really hard the talent development which you know people first is what makes the difference in the end so we continue to see many opportunities and that makes me confident for the future and i think with that we'll wish you you all a continued good summer and hope you'll get some deserved vacation thank you everyone for joining today's conference call next we will publish our q3 results on october 28th

and we will host a web course on the same day. Have a nice day, everyone. Thank you. Thank you.