Lindab International AB (publ)

Hello and welcome to this call. My name is Ola Ringdahl and I'm the president and CEO for Lindab Group. Next to me I have our CFO Lars Ylner. We start with the Q2 summary. The second quarter was a good quarter for Lindab. We increased both sales and operating profit. And we managed to improve our operating margin despite tough market conditions. Business area ventilation systems accounted for 75% of sales during the quarter. Sales increased thanks to acquisitions and the operating margin strengthened to 10.4%. Business area profile systems turned the first quarter's loss into an operating margin of .7% in the second quarter. A very welcome improvement. In total Lindab Group sales was the highest ever for a single quarter. Sales increased by 5% and we reached an operating margin of 9.6%. Cash flow from operating activities developed according to our expectations and increased compared to the same period previous year. I now hand over to our CFO Lars Ylner for some more comments on the financial development.

Thank you Ola. Let's first take a closer look at the revenue development. As you can see in the charts, both Lindab Group and ventilation systems had record sales in the quarter. Ventilation systems increased sales by 7%. Organic sales growth was negative by 4%. While acquisitions contributed positively by 11%. The Nordics reported a sales recovery in the quarter where organic growth was in line with the previous year. Particularly strong growth was reported in Denmark. Germany showed negative organic growth but we saw positive organic growth in Ireland, Italy and the Netherlands. For profile systems, the reduced construction activity continues to impact demand. Despite that, net sales during the quarter only decreased by 2% compared to previous year, which is a clear trend improvement. The Nordic market, which accounts for approximately 80% of profile systems total business, reported sales in line with previous year. Let's now move on to operating profits. Profitability also improved across the board in the second quarter. Ventilation systems operating profit was 276 million sick with an operating margin of 10.4%. The improved operating profit, which is the highest ever, is mainly explained by strengthened gross margin. Completed acquisitions have also made a positive contribution. Lindab has adjusted its cost in markets with a lower level of market activity. The group has also actively worked with the balance between volume and profitability. We declare objective to prioritize profitability. In profile systems, the operating profit increased to 75 million sick and the operating margin was 8.7%. This is the first time since the recession began two years ago that profile system has improved its results year on year. This trend shift shows that the measures to strengthen profitability are effective. For the group, the operating profit for the quarter amounted to 338 million sick and the operating margin was 9.6%. Let's now take a look at our financial position. Lindab had a continuous strong cash flow during the second quarter as cash flow from operating activities amounted to 342 million sick. In June, Lindab signed a new long-term credit agreement with a group of four Scandinavian banks. The total credit facility has increased by one billion sick and 50 million euros respectively. And if we now look into our net debt situation. Net debt to EBITDA increased slightly to 2.1 times due to acquisitions. Financial net debt to EBITDA is at 1.5 end of June. I'm now giving the world back to Ola.

Thank you very much, Vars. We have for a couple of quarters included this slide to show our ambition to reach 20 billion sick in sales in 2027. Growth will take place in ventilation systems in a combination of organic growth and acquisitions. The goal is for the operating margin to exceed 10% and over time, I believe that an operating margin between 12 and 15% should be possible. Demand for energy efficient solutions and a healthy indoor climate will be high for a long time to come. Our ventilation business is developing in a very exciting way. Adding smart products and new technologies. Acquisitions will continue to play an important role in Lindhav's future development. And we estimate acquisitions to account for approximately two thirds of our growth until 2027. One of our focus areas to achieve our 2027 plan is to continue with good profitability focus and cost control. The growth margin continues to improve during the quarter. We continuously analyze the market, our competitive position and our cost structure. And we implement measures to streamline the organization and adjust our pricing. We're also accelerating the synergies with the acquired companies as well as rationalizing our footprint. As an example, we are merging distribution centers where the Lindhav organization and the acquired organization have branches located close to each other. We still put extra energy into profile systems to bring that business back to stable and predictable profitability levels. And we have seen some good signs of improvement in the second quarter. If there are parts of the profile business that cannot perform at the right profitability, we are considering structural measures. Another focus area for us is investments and to ensure that we get the planned improvements in terms of efficiency from those investments. Lindhav's investment program has been at the top of our agenda since 2019. And we see very good results in terms of higher production efficiency, higher capacity and a safer work environment. As planned, this accelerated investment program is coming to an end in the next quarter. And this is exactly how we want it to end in 2024. And moving forward we expect an annual investment level of approximately 250 million SEK, which is in line with the actual investments that we have seen in the last 12 months, which have been 229 million SEK. When the market picks up again, Lindhav is in an excellent position to quickly take advantage of higher demand. The operating margin will increase with growing volumes thanks to our investment program. Lindhav is now shifting the investment focus to digital tools and services in order to further increase our service level to customers as well as to increase efficiency even further. Acquisitions. We are continuing to add high quality ventilation companies to the Lindhav Group. In May we acquired Venti in Denmark. Venti is a company manufacturing circular and rectangular ventilation ducts and they are also a distributor of ventilation products such as silencers, ventilation fittings and a wide range of technical products for air diffusion. Sales and distribution take place in two locations in Denmark outside Aarhus and Copenhagen. Venti are not currently selling Lindhav products so there is good potential for increased sales via Venti's current sales chance. Venti has an annual turnover of approximately 120 million SEK and has 34 employees. The acquisition was closed on the 2nd of July and Venti's numbers will be included in our Q3 report. In total we have already added almost 1 billion SEK in revenue through acquisitions in 2024 and I'm convinced that several more will follow. Let's now conclude this presentation with some comments about the market situation and the outlook. Yet today we estimate that the European ventilation market has declined by an average of approximately 5 percent. The Nordic region has had a more challenging market conditions than Western and Southern Europe so far. The market situation remains subdued with many projects on hold but signs of recovery have been noted in the second quarter, especially for profile systems but we also believe that in ventilation systems the bottom has been reached and we are going to see improvements. Continued interest rate cuts will stimulate the construction industry. Linda believes in gradually increasing volumes during the second half of 2024 however from low levels. The long-term demand for energy efficient ventilation will be strong. There are several factors working in our favor. Energy efficient ventilation is an attractive investment in itself and furthermore stricter legislation and the sustainability agenda are creating strong forces to invest in energy-efficient buildings. We saw a recent example of this now in May of this year when the European Union adopted the revised energy performance of buildings directly. In short new buildings must meet the requirements for net zero emissions by 2030 and for existing properties residential buildings must reduce their average energy consumption by 16 percent by 2030 and by 20 to 25 percent by 2035. And since ventilation is one of the areas that offers the highest energy savings in the building the directive is expected to have a positive impact on the demand for energy efficient ventilation much to Linda's benefit. Our assessment is that the ventilation market will enter a multi-year growth phase from 2025 and onwards and we are excited to utilize this opportunity to grow our group even further.

We now conclude this presentation and we open up for questions.

If you wish to ask a question please dial pound key five on your telephone keypad to enter the queue. If you wish to withdraw your question please dial pound key six on your telephone keypad. The next question comes from Carl Ragnestam from Nordea. Please go ahead.

Good morning it's Carl here from Nordea. A few questions. Firstly you mentioned in the report that you continue to implement price increases in both segments or that you have and still is it the same price increases that we discussed in I think for Q1 or is it new ones you're implementing?

Thank you Carl. We are always looking at the average price level and the discount levels and try to optimize our pricing. However I mean we should not think that it's only about price increases when we strengthen our gross margin. We are working on efficiency measures throughout the organization and we also benefit from the investments that we have made. But for every company and every market we have a pricing action plan and we have we're updating that so that it stretches at least two or often three quarters ahead so that we understand those actions in good time. This message today is not in any significant way different from what we talked about when we released the Q1 report.

Should I interpret that as it's included in the around -single-duty price increases you talked about before then or is it them plus maybe some further because I guess the ones you talked about during Q1 were supposed to be implemented during Q1 and Q2. So the ones you're talking about coming three quarters, two three quarters ahead is new ones then.

Then if you interpret it in that way then yes we have a pricing plan for Q3 and for Q4 and when we come when we move a couple of months into the future we will also have a pricing plan for Q1 next year. Some pricing agreements are valid for only one month some are valid for three or even six months. So there is a need to always plan ahead two or three quarters.

And on an aggregated level is it those single digits we're talking about still or one two three percent or?

Yes I think that would be fair to say.

Okay that's fair.

You also stated that you expect gradually increasing volumes during second half. Is it too early to turn into positive organic growth in Q3 or is it that Q4 will be good enough meaning that combined it will lead to positive organic growth in second half or how should we interpret that comment at all?

Thanks. All markets are not moving at the same in the same cycle. We saw the Nordic countries moving into negative organic growth early and later we've seen that happening in some other European countries. I guess it depends on how sensitive a country is to interest rate hikes. And we also have a difference between ventilation systems and profile systems where profile systems is normally entering say a recession around six months before that happens to ventilation because of how the sequence works in on the construction site. So I expect the volumes for profile systems to pick up a little bit earlier than they will do for ventilation systems. My best guesstimate is around six months earlier. So you know knowing what will happen in the future is of course extremely difficult but there is a some kind of likelihood that we will see volumes in profile systems starting to show organic growth during the second half of the year. However I think small numbers and for ventilation systems I believe that we will have to wait until 2025 before we see organic growth. And I've earlier also tried to forecast that the volumes for ventilation systems full year 2024 will be approximately 5% below 2023. And I still still believe that.

Okay that's very helpful and also what utilization rates are you currently running ventilation and profile on? And if we assume that volumes will pick up by a couple of percent in 2025 or maybe for profile in second half what sort of incremental margins could we expect I guess given the high automation levels you have in many parts of the operation today I guess they might be even better than historical?

We will have fantastic leverage on volume growth with the efficiency that we have in our factories and the investments that have been made. We can without any problem increase output from our main ventilation factories and profile factories by 20-30 percent without adding much cost at all. So I believe that the volume increase when it comes will be very beneficial for Linda for our gross margin and our operating margin.

Okay that's obviously very good and the final one from my side is a bit on Germany one of the biggest markets for you in ventilation. Is it weakening or is it as it flattened out on a low level of what you see there and secondly on down market you're referring to as a good growing market in the quarter is it one two bigger project or is it simply a more healthy underlying market as well?

In Germany we saw the decline starting in August last year so we are if we can say absolute terms I think that Germany has stabilized in terms of volumes on a say sequential month by month development so that I don't see a big drama in that we will we will enjoy when the volumes come back to the to a good level but we are also able to handle the current situation with profitability in the German markets we have a very adaptive organization and quite a lot of synergies between the acquisitions that we have made that protects our profitability in a good way but yes it has become a one of our biggest markets for Linda so Germany is important for us. Denmark fantastic performance in the past six months one of the strongest markets and it's not only one or two projects but overall the Danish economy is relatively fine and their sensitivity to interest rates is less than in neighboring Sweden for example so it's a it's a sound market and we have a very good team there.

Okay very clear thank you so much. Thank you Carl.

The next question comes from Sophia Sording from Carnegie. Please go ahead. Yes thank you

Sophia here from Carnegie. I will continue on Germany as a big and important market for you. Given weaker demand from this market ahead although you see it maybe sequentially stabilizing a bit but how should we view the the impact on your margin profile since it's quite a good market for your decentralized ventilation if you could give us some more color on that. That's my first question.

Thank you Sophia. Well we acquired Airmaster and earlier this year and they had a 12 month period during 2022 and 2023 where they were selling quite a lot to the German markets where there were subsidy programs ongoing to renovate schools and we knew that that subsidy program would end around summertime 2023. So when looking at that company and that acquisition we kind of discounted that unusual growth they had for a period of time and now the market activity because the subsidies are gone is is much lower in the also could foresee that so that is there's no big drama in that. Airmaster's sales to all the other countries where they are active is actually developing quite well with organic growth and healthy margins and everything so Airmaster are doing fine. Then when it comes to more the German markets well everything connected to housing apartment blocks and so on that that is on a really low level we are not so exposed to that. We see public investment, industry investments, offices etc. There the pace is quite okay and so yes our sales in Germany overall is down but with intact profitability and quite a lot of good cost savings from structural work when we coordinate the different companies we have in Germany. So I'm you know given the market circumstances I'm quite pleased with how we are doing in Germany.

Yeah all right so then I could actually interpret as the current margin profile would be expected ahead as well no declining margin profile given a weaker market in Germany for you.

That would be a fair assumption yes.

All right great and and what do you expect to see needs to happen in order for the German market activity increase again?

Yeah that's almost a question for the German politicians. Germany is under a bit of pressure politically and economically but it's a huge market. It's Europe's biggest ventilation market. We have a strong position there but we definitely have a lot of possibilities to grow market share and to advance our position and we just recently added you know one small acquisition that strengthens our position in the northwestern part of Germany and there are several more add-on acquisition opportunities that we can do. So I think Linda will continue to both increase market share and find add-on acquisitions and continue to strengthen our position in the very important German market.

Okay and just to ask you a little bit about this quote about you see the ventilation market will have multi-year growth phase in 2022 sorry 2025 and onwards and could you give us some more details on how you view this growth pace? Do you expect like more closer to five percent growth per year or if you can give some more details on what you see and maybe what you base that on?

Okay I base it on several factors. One thing overall is that in any new building today with the demands for zero emissions and high energy efficiency the demands on the ventilation system is way higher than it was 10 years ago and so more spend per square meter building is needed on the technical installations not only valid for ventilation but definitely valid for ventilation and their Lindas products are the absolute highest quality so if you want to have really energy efficient building you're going to have to use Lindas products to a large extent so we are very well positioned say quality wise specification wise for those needs. Then we have the whole renovation side we need to catch up and that is a huge debt that has to be paid if you're going to reach all the targets that have been set up so a lot of legislation and directives are working in our favor then of course you know the question is who is going to pay for this and how will it be financed and it's difficult to know how quickly will it happen but the deadlines are quite soon the year 2030 is not far away and a lot of things have to be fulfilled until then so we are very well positioned to take advantage of that if you want to translate that into a percentage growth that's of course very difficult it's GDP growth plus something but plus how many percent is it possible that it can be five percent growth per year until 2030 yeah I believe it is possible yes but you know who knows but I would not say that it's completely unlikely that that it can be those numbers

okay and yeah two more questions and it's about profile systems divisions so you mentioned in the report about these macro factors rate cuts for example that it will have a positive impact for your business do you start to like a more faster recovery within the renovation market here or do you more referring to that maybe the new build market will start increasing again and that might impact your business well into 2025 or if you can give some more elaborate on that

profile systems we saw like if we take the most important markets first in profile systems that's been with around 50 percent of sales for that business area and we could see immediately when the first interest rate cut was was done in may that we you know discussions restarted on delayed or postponed projects so I believe that the next rate cut is already anticipated and we see increasing quotation activity and increasing traffic in our stores etc so yes I am optimistic that we will see a strengthened demand for prefer systems during the second half of the year both for new build and for renovation

yeah okay and final question here if necessary what more cost saving measures can you implement for the profile systems division

there are always things to do right now we are trying to handle the summer period without taking any extra summer labor trying to manage it with the people we have but normally we take in temporary labor during the summer months so there are always things you can do and I think we have now you know after two years of declining sales and profitability under pressure we have of course done a lot and but there is more more that can be done if we have to but we also we need to work on the gross margins continue that good development we have about pricing it's about efficiency but there comes a point where you also need to consider the structural measures that I have been talking about shall you shrink a business into shape shall you divest it shall you close it down and the organization knows that my patience is quite limited at the moment if if there is not the desired performance so we have some units under special scrutiny and we don't see improvements soon then we will take structural measures

okay all right thank you for all your answers this was all my questions

thank you sofía

the next question comes from douglas lindahl from dnb markets please go ahead

hello

ola and larc actually I had only one question coming back to what you mentioned previously ola that you continue to add smart products so it's a question of r&d I guess can you give some examples of what your I'm sorry bending research and development on right now I notice it's up slightly year over year are you thinking of it you know developing these things more in-house or in collaboration with others as you've done historically or should acquisitions more be a driver of adding these solutions just yeah your thoughts around that will be interesting here

in in general I think that the linda group is not spending enough on r&d so I would wish that we could spend a bit more I think there's a lot of exciting technology developments happening but we are mainly focused on r&d internally focusing on energy savings and renovation the products that are suitable for renovation so that you can quickly upgrade the ventilation system and make it much more make it smarter but also make it more energy efficient and we have many of those solutions developed in-house but then as you mentioned definitely acquisitions is a way to in a quicker way get more technology into the linda group in areas that where we might not be the experts for example decentralized ventilation quite r&d heavy air master is spending a large part of their budget on on r&d and they are really at the forefront and we have other examples where we have acquired companies who are really good at r&d we can learn from them and we also need to find our way how to focus our limited r&d budget since one year we have a new r&d manager who has a very exciting agenda and we see a lot of good projects and activity in the r&d field and then we have one final comment perhaps quite a lot of our what we spend on technical development is spent on production development we we have very advanced and automated production that nobody in the industry can really match so when making standard products which you might when you see them they might not look so technical but the whole technology behind producing them in the way we do and at the cost and speed is quite advanced

Okay, no thanks so much for elaborating a bit on that. That's it for me. Thank you Douglas.

There are no more questions at this time so I hand the conference back to the speakers for any closing comments.

Thank you for that and thank you all for listening in we are quite happy with the result that we could present today that we think it shows stability and endurance in a difficult time and I'm pleased that we are able to show the operating margins we do in a tough market as it is and with negative organic growth but I'm proud today to be able to show these results and thank you all for listening.