Lindab International AB (publ)

Good morning and welcome to this call. I'm Ola Ringdahl, president and CEO of Lindab Group. And next to me, I have our CFO Lars Inne. On this call, we will present our results for Q4 and the full year 2024. We will also look at our focus areas for 2025 before we are ready to take your questions. Now, let's start with the fourth quarter. As presented in a financial update in January, low market activity in the fourth quarter weakened the demand for Lindab's products, affecting both sales and profitability in a negative way. The month of December was especially affected by low sales. Nevertheless, we ended the year with the highest fourth quarter sales ever at 3.3 billion SEK, and this was driven by acquisitions. Organic growth was negative at minus 5% due to the current market situation. This was, however, balanced by the acquired growth of plus 6%. Business area ventilation systems, which now accounts for 77% of Lindab's total business, reported its highest sales ever for a fourth quarter, driven by acquired growth. The cash flow was record strong in Q4. Let's move on to the full year highlight on the next slide. Lindab ended the year with the highest sales ever for a full year, 2% up on the previous year, also this thanks to acquisitions. As a result of our European expansion, our region, Western Europe, is now the largest region in terms of sales for the first time, while the Nordics is our second largest region. This demonstrates Lindab's transformation into a leading European ventilation company. The market situation was challenging throughout the year, which affected both the organic sales and adjusted profit. The adjusted operating margin amounted to 7.8% for the year. Ventilation systems reported an adjusted operating margin of 9.1% for the full year and profile systems a disappointing 5.4%. Cash flow from operating activities was very strong during 2024. And as you can see in the table, it was also very strong in 2023. In the fourth quarter, we have announced strong measures to strengthen profitability, which have entailed one-time costs. Let's take a closer look on the next slide. During 2024, one-time and restructuring costs of 308 million were reported. The largest financial effects relate to our decision to divest and close the profile business in Eastern Europe, which all in all incurred one-time costs of 400 million SEK, of which 250 million was related to impairment of goodwill. Structural measures to reduce our fixed costs incurred one-time costs of 74 million SEK, and another 24 million SEK were related to other structural measures primarily related to the costs for moving our sandwich panel factory in northern Sweden to a new location. Finally, as a consequence of the tough market situation in Germany, our acquisition Airmaster did not reach the ambitious earn-out targets for 2024. This resulted in a release of earn-out provisions to the amount of €220 million. Now let's take a closer look at the revenue development. Ventilation systems increased sales by 4% in the fourth quarter. Acquisitions continued to make a strong contribution to our sales growth, adding 8% to our sales. Organic sales growth was however negative at minus 5% due to low market demand. Here I want to underline that Lindab defends its market shares in a challenging market. For profile systems, total sales decreased by 8% in Q4. The business area reported negative organic sales growth, which is explained by clearly lower demand in the construction market, mainly relating to new construction. If we disregard the profile business in Eastern Europe that we are now discontinuing, the negative organic growth was limited to minus 3% in the Scandinavian market. Let's not turn to operating profits. During Q4, ventilation systems reported an adjusted operating margin of 7%. Actions to reduce our cost base have been implemented during Q4 and will gain momentum during the first half of 2025 so that we can increase the margin for ventilation systems. Over the past two years, profile systems have been negatively impacted by reduced construction activity in the Nordics, and a very challenging situation in Eastern Europe. In the fourth quarter, the adjusted operating margin was 3.3%. This low level of profitability is not acceptable for us, and we will come back to this topic. I will now hand over to Lars Yllner, our CFO, to take a look at our financial position.

Thank you, Ola. Yllner had a continuous strong cash flow during the fourth quarter, as cash flow from operating activities amounted to 629 million SEK. As you can see on the graph to the right, our net debt increased in Q1 2024 due to acquisitions. Net debt has remained stable since then and is well under control. We have a strong underlying cash flow and have initiated cost saving programs that will improve performance at EBITDA level. We have also come to the end of our extensive investment program. Let's now go to dividend. In the light of the strong cash flow and healthy financial position, the board of directors proposes a dividend of 5.4 SEK per share, which is unchanged compared to last year. This is in accordance with the dividend policy of minimum 40% of Lindab's net profit, considering the group's financial position acquisition opportunities and long-term financial needs. The dividend is proposed to be distributed on two occasions, one during the spring and one during the autumn. I'm now giving the word back to you.

Thank you Lars. Now we shift the focus from these initial numbers and go to our priorities for 2025. So to summarize into three different priority areas, these focus areas are to fully implement our cost reduction program, capture the full benefits of our profitability measures as soon as possible, to divest the profile business in Eastern Europe in accordance with our plan communicated during Q4, and to continue to make value enhancing acquisitions also in 2025. Let's take a closer look at each of these areas. Lindab is entering 2025 as a leaner but stronger company. On the 28th of November last year, we announced measures to reduce fixed costs and to improve the profitability for ventilation systems at a time of weak market demand. The measures are progressing well and according to plan. They include closing 10 branches in various countries and also a reduction of our workforce with 180 full-time positions and that is corresponding to between three and four percent of our total workforce. Fixed costs are reduced by a total of 120 million SEK on an annual basis and we estimate that in Q1 we will be up at around 90 million SEK saving pace. The full effects of the program will be realized by July 2025. We continue to our actions within profile systems, and here we have some different information. As we communicated in mid-December, business area profile systems is exiting Eastern Europe due to poor performance. We will stay in the Eastern Europe region, but we will there focus purely on profitable growth for the ventilation business we have in Poland, Czech Republic and Hungary. Profile systems will have its strategic focus on the home markets in Scandinavia, where the market position is strong and where there are significant synergies with the ventilation business. If we take a quick look at where we are in this progress, the profile business in Czech Republic was closed at the end of 2024. The profile businesses in Estonia and Poland are being closed now during Q1. And this is all progressing according to plan. The divestments of our operations in Romania, Slovakia and Hungary are expected to take place soon. We are in constructive negotiations and hope to be able to give you an update shortly. The exit will have a positive impact on profitability. And as you can see at the bottom of this slide, the adjusted operating margin for profile systems would have increased from 5.4% to 7.2% for the full year. And it also makes an impact for the group as a whole, where the EBIT margin would have increased from 7.8% to 8.3% for the full year. And you can also here see the numbers for affecting the fourth quarter. Let's continue to our third focus area, acquisitions. Since 2020, Lindab has acquired 28 companies, that have added new regions, improved distribution and broadened our customer offering. We've added more than 4 billion SEC in sales to our group. The rapid pace of acquisitions continued during 2024, with six strong companies joining Lindab Group and complementing our current operation. In February, we made our first acquisition in the US, and in March we added Airmaster, European market leader in decentralized ventilation. In Q4, we added two acquisitions in France and we have a very strong position in that market today. We have many interesting acquisition prospects in the pipeline and we will continue on our acquisition path. Now let's look at the market outlook for the year. And yes, the market is difficult to predict. Recovery is on hold in the Nordic countries. Recovery for ventilation has not yet begun. And the activity in several countries in Central Europe is well below normal. And Germany is having a challenging time at the moment. Profile systems, which is earlier in the construction process than ventilation, is showing some signs of recovery in Scandinavia. And in the do-it-yourself segment of the market, we have seen some organic growth in the last months, and this has also continued in January. However, the project market is still quite challenging. We expect the market for ventilation systems to remain weak in the first half of the year, but to pick up in the second half of the year. And here I want to underline that we are monitoring the situation very closely and should the conditions for a market recovery change, we are prepared to take further measures to strengthen profitability and counteract a possible delayed recovery. While the market situation may be somewhat challenging, it's important to stress that the long-term demand for energy efficient ventilation is strong. Now we move to our last slide. Last but not least, it's important to note that there are several things in Lindab's favor. Our strategic focus is ventilation, an attractive market with a strong outlook. Ventilation accounted for 77% of sales in 2024 and will continue to grow that share. When the market recovers, we will have strong profitability leverage thanks to the significant investments we've made in capacity and automation during the last years. And while the market is slow, we have taken actions to protect and strengthen profitability through the measures described earlier in this call. We have acquired 28 ventilation companies since 2020, and we see clear synergies materializing. We will accelerate these synergies during 2025 to capture the full benefits. Last, our pipeline of attractive acquisition prospects is strong, and we aim to continue our acquisition journey. With that, we are now ready for your questions. Thank you.

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 Johan Sundmark from SEB. Please go ahead.

Hello, and thank you, Ola and Lars. So first of all, you mentioned a mixed impact negatively affecting profitability. Could you explain a bit more on the type of mix here and if this is something more temporary or something that you think we should extrapolate going into 2025?

Thank you, Johan, for that question. A combination of market mix and product mix did affect the profitability in Q4. I would not say that that is any long-term trend, and I wouldn't draw too many conclusions from that. But we, of course, have different gross margins and profitability in different countries, as well as in different product groups. And the One example is we have normally a good profitability in the Swedish market. If the negative growth in Sweden is higher than planned for, then of course there will be a consequence both on geographic mix and product mix. I wouldn't make too much of that, but in Q4, yes, there was such an impact.

Okay, thank you very much.

That's very helpful. And then also you mentioned this early signs of recovery in profile, particularly in the Nordics and the DIY segment. How much of a profile would you say is related to these growing segments?

It's around half of today's profile systems is in that

basket or in that area, roughly speaking. Okay. That's all from me. Thank you very much. Thank you, Johan.

The next question comes from Carl Ragnarstam from Nordia. Please go ahead.

Good morning, it's Carl here from Odea. A couple of questions here as well. I think you mentioned December sounds like a weak month. Is it possible to give any flavor on the organic crop in October, November and then also December and also potential? What impact December standalone had on the margin during the quarter either in profile or ventilation? And also, it sounds like you've seen a better momentum so far in January.

Can we say, well, we can speculate. It's in a slow market. It is not unusual that the, say, Christmas holidays happen. are very slow in terms of business. And that period of slow demand or slow sales extends from already the middle of December until at least a week into January. And I think that is what we saw in 2024. We had fair order intake and sales during the first half of the month. And then from around 15th of December, it dropped dramatically. And normally we have a good pace until, say, the day before Christmas Eve. So that took us a little bit by surprise. You can say maybe we should have anticipated that. We did not. So a month where we would have should have had at least three good weeks of invoicing shrunk to two good weeks of invoicing. And yes, I hear from other industries that they have also seen this pattern. I don't think it's Lindab specific really, but it really hurt our margins and both volumes and consequently the margins in December more than we expected. And that also led to the profit warning. October was fine, November was okay, and December was really weak. What can we say about January? We see a relatively normal January, not at all weak as in December. Then you can, of course, speculate, is it because some orders for or deliveries from December were pushed into January, so that it's some kind of additional effect, that is difficult to say. Looking at January isolated, I don't want to draw too many conclusions, but I can at least comfort you and say that January looked like a pretty normal January.

That sounds good. Looking into, I'm not sure if there's a rumor in the market, but steel contracts for Q3 coming up a bit, so we heard at least. You, of course, have a good dialogue with SSAB. What is your view on steel prices? Looking at the hot-dipped galvanized steel, it is quite flattish for now at least, but if so, it will come up. So will you proactively raise prices or what is the plan to meet the potential pickup in the steel price here in Q3 or Q4?

Steel market speculations are, it's a risky area. There are so many things happening now in the world with possible tariffs and what will US impact be on global steel trading? Where will the Chinese steel be redirected to? We see many steel producers having a very tough time, and I can understand that they're trying to push the prices up in Europe, but the demand situation is still very soft in Europe. What I can say here, I mean, Our stock of steel is in good balance. It's not too low, not too high. The price points are good. We have a mechanism in the company and a dialogue with the steel producers, so we have time to prepare and increase our prices in case of raw material price increases. Right now, it's not a big worry for me. If steel prices go up 10% or even 20% during the second half of 2025, we can handle that. It's the dramatic volatility that we saw a couple of years ago. That is more tricky to handle, but I think this situation we should be able to handle well.

Okay perfect and you also moved the production or one of your productions in profile in Sweden during the quarter and also entering this year. Could you give any flavor on what impact it had on Q4, what it will have and also once you're done with it I guess mid Q1 or late Q1 Would you have a backlog in that business where you could catch up with lost production, pushing up the utilization? Or how does it work?

Yes, as I mentioned briefly, we are moving a factory and it's a relatively large factory, around 15,000 square meters of production space. It's in the north of Sweden. We move it from one town to another town from Luleå to Piteå in the north of Sweden. And it's a big move. So it takes two or three months to complete the move. We are right in the middle of it now. And that means that we are not producing December, January, February. We produce stock before the move. And yes, we have orders waiting now so we can start as soon as we get up and running, we can start producing. But we do lose invoicing at least equivalent to two months of invoicing due to this production moving. So it is a drag on our sales and margins in Q4 and Q1. The size of this business we're talking about is around 500 million SEC in turnover. So I would say it affects sales by minimum 50 million SEC spread over these two quarters.

That's very clear. And the final one, if I may. You seem a little bit more optimistic towards the potential divestiture of Eastern Europe coming up here soon. Could you give some insights into where you are in dialogues with potential buyers of it?

The three companies we are aiming to divest have a long and proud history. good machinery, good locations, skilled people. And we have had good profitability in those companies in the past. But the last few years, the market has been very challenging. But there are investors and companies in that region who see the value in these assets that we have. And we are in dialogue with several parties. So yes, I have good hopes that we can reach an agreement for these three sites in the near future. And my very clear ambition is that we will have completed that exit during the first half of this year. And if we can do it sooner, then It's good for all parties. So we aim to do it as quickly as we can.

And we are in very constructive dialogues right now. Perfect. Thank you so much. Thank you, Carl.

The next question comes from Hannah Grimborg from Handelsbanken. Please go ahead.

Yeah. Hi, Ola and Lars. My first question was also on the seed prices. If you think that you'll be able to compensate in case your price... Hanna, I'm sorry.

I have difficulties hearing you.

Okay. Can you hear me? Can you hear me now?

A bit better, yes.

Okay. Sorry. Can't you... Okay. I'll try to speak clearly then. So the first was also on steel prices, in case you think you'll be able to compensate for potential price increases during 2025, considering the market. But it sounded like you think you'll be able to handle that. So the other question then was that you said that the cost measures in ventilation systems should contribute to margins above 10% in 2025. So first, if you can just confirm if that's dependent on the market recovery or not, and also what you can say on profile systems here and what type of margins to expect for the EU.

Thank you, Hanna. Yes, the measures we are implementing are designed in a way so that we should be able to exceed 10% margin on ventilation systems. But you are correct, there's also an assumption that we will see, as we pointed out in the market outlook, we will see a slow demand in the first half of the year, but then gradually demand picking up during the second half of the year. If we, when we come closer to the end of the second quarter, cannot see any signs of recovery, then additional measures are necessary to exceed the 10% margin in ventilation systems. So we base it on the assumptions we have listed and we are ready to do more when needed. Then when it comes to profile systems, it's correct. We have not provided any guidance if they should be able to reach 10% during the year or not. It will be challenging considering the level they are showing right now. My ambition is that they should be trending on the 10% during the second half of this year, but I do believe that we will see a tough Q1, Q2, considering where they are starting from. Of course, the divestments will help and other measures will help, but we will not be able to suddenly jump to 10% plus.

that quickly it will take a bit more time all right and in ventilation in case you are needed to take more measures is that measures that could be quickly implemented or would that potentially also take a couple of quarters for full impact and that will depend on whether we

do a restructuring plan including one-time costs or not. Measures can have quick impact but then they often cause one-time costs which we would like to avoid and we have been very restrictive with and we had to deviate from our normal pattern in Q4 and actually take substantial one-time costs to find the right measures. If we want to have quick impact, then we can, but then it will sadly then also result in some one-time cost because we have to touch the structure of the company. I mean, after two years of negative organic growth, of course, the easy savings, they are already done and the difficult ones remain. We can always do more, but we have taken out more than 400 people from the company in the past two years, and then now an additional 180.

So we are constantly trimming the organization.

All right, then that's clear. Then that was it for me, so thank you.

Thank you, Hanna.

The next question comes from Douglas Lindahl from DNB Markets. Please go ahead.

Hello, Ola and Lars. Thanks for taking my questions as well.

I wanted to focus a bit on acquisitions. Thanks for clarifying the Airmaster part there. So my first question is sort of how far are we from the historical profitability levels for Airmaster? Obviously, they were very high at the time you acquired the business. So that will be my first one, just to get a bit of an understanding on that.

Airmaster has a history of good profitability, and they have been performing at between 15 and 18 percent operating margin for several years. When they joined our group, they had a good start up until August, performing really well but the situation in germany with a very low demand in that market which traditionally is one of airmasters most important markets that that led to a disappointing period september to december in their invoicing and hence in their profitability they have performed a double-digit ebit margin during the during the year 2024 but they can they can do clearly better. So in the purchase mechanism, when we acquired the company, we of course, I mean, they had ambitious targets for themselves and we had ambitious targets in the earn out mechanism, which is covering 2024 and 2025. But given the slow last four months of the year, they did not reach the earner targets for 2024. And hence, we are releasing some provisions. But, you know, I'm optimistic about Airmaster's development in the medium and long term. But in the current market, it is a bit challenging. We have also trimmed the costs in Airmaster to make sure we have a continued high profitability in the company. But in addition, we of course need higher sales.

Understood. Thanks for clarifying that.

And there seems to be a further earn out element for 2025.

Did I get that right? That is correct. Yes. Okay.

And maybe on that theme, Is there any possibility for further one? Of course, you already mentioned you obviously don't like taking them, but there is an earn out element for Airmaster. Are there any other acquisitions that might have a sort of similar one time implications as we move into 2025?

The only really significant one is Airmaster. The other are minor in comparison. So I don't anticipate any other one-time effects.

Okay.

And sorry to linger a bit on acquisitions, but Felder obviously having a significant German exposure. Could you say maybe a few words on how that business is performing now as well, given the tough German market?

We can only admit that the German market is tough and that has put pressure on Felder's margins. We are, however, helped by good integration synergies between our different German companies, where we are gradually integrating them with each other and realizing significant cost savings. So we have been able to counteract quite a lot of the negative effects from slow demand and trimmed the cost base and found synergies in a good way. But it's correct that the sales numbers for Felderer for 2024 are lower than planned for, but they are also very agile and are compensating on the costs to still achieve good results. And of course, with that trimmed organization, when we start to see some market recovery, then I think we will see a very attractive development for our German businesses.

I look forward to that, Ola. Thanks so much for answering my questions.

Thank you, Loras.

As a reminder, if you wish to ask a question, please dial pound key five on your telephone keypad.

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

Then from our side, we want to say thank you for listening in and for all the good questions. We hope that we have been able to show here our determination to safeguard margin and to run Linda in a successful way during 2025. Thank you very much.