Lindab International AB (publ)

Welcome to the Lindab Q1 presentation for 2025. During the questions and answers session, participants are able to ask questions by dialing pound key five on their telephone keypad. Now I will hand the conference over to the president and CEO Ola Ringdahl and CFO Lars Inner. Please go ahead.

Good morning and welcome.

I'm Ola Ringdahl, president and CEO of Lindab Group, and next to me is our CFO Lars Inner. On this call, we will present our results for the first quarter of 2025. We will also look at our focus areas before we are ready to take your questions. Let's start with some highlights. Thanks to acquisitions, sales for ventilation systems were the highest ever for the first quarter. The market situation remains challenging in several key countries, and Lindab has now experienced more than two years of negative organic growth. However, I'm pleased to report that our operating profit showed resilience in the quarter and that we were able to deliver both increased turnover and an improved gross margin. The first quarter was characterized by uncertainty in the global economy and the risk of increasing trade conflicts. However, we don't see any immediate impact on Linda. Our previously announced profitability measures are progressing according to plan. Let's now move on to look at our sales development. In general, sales in Q1 tend to be lower than in other quarters due to seasonal effects. Ventilation systems has increased sales during the quarter through acquisitions and the share of the ventilation business over total revenue is continuing to grow. This is positive given the higher margin and less cyclical nature of this business. In a challenging construction market, we are defending our market shares through high sales activity levels and delivery excellence. Sales in profile systems show some positive signs in the Nordic region, where we noted organic growth in some product categories. However, in total, the revenue for the business area fell by 4%, mainly due to the relocation of a factory in the northern part of Sweden. The factory relocation resulted in a reduction of sales of approximately 50 million SEK during the quarter. That business is now up and running again. Let's now look at the operating profit development. In the first quarter, ventilation systems delivered a stable result despite the continued challenging market, and this resulted in an operating margin of 9%. Actions to reduce our cost base are expected to reach full effect from July. We are already seeing positive contributions from these measures in the first quarter. In profile systems, the adjusted operating margin was 1.1%, a low level but higher than last year, thanks to an improved gross margin and cost reductions. Profile systems is a seasonal business and Q1 is always the low season. EBIT for the first quarter was 228 million SEK, which translates into an operating margin of 7.1%, and that is on par with previous year. Let me now hand over to Lars Ynner, our CFO, for a look at our financial position.

Thank you, Ola. Linab had a cash flow in line with our expectations, as cash flow from operating activities amounted to 160 million SEK. Our net debt has been stable during the last five quarters with a small decline in 41. The end-up target for net debt to EBITDA is that it should be below three times. In 41, net debt to EBITDA increased slightly from 2.5 to 2.6 times. Financial net debt to EBITDA is at 2.1 end of March. Ola, back to you.

Now back to you and look at our focus areas for the end. Thank you, Lars.

Our focus areas for 2025 are three. First one, fully implement our cost reduction program to capture the full benefits of our profitability measures as soon as possible. Second, to divest the profile businesses in Eastern Europe in accordance with our plan communicated during the fourth quarter. and finally to continue to make value enhancing acquisitions for our group. Let's take a closer look at each of these areas. We start with our actions within ventilation systems. At the time of weak market demand, we have taken structural measures and implemented cost reductions in several waves to improve the profitability for ventilation systems. The latest measures were announced in the fourth quarter. And I'm happy to see that this work is progressing well and is on track. Fixed costs will be reduced by a total of 120 million SEK on an annualized basis. And we reached 75% of the effect in the first quarter. The full effect will be realized by July 2025. So far, we have closed eight branches out of the 10 that we announced in Q4, and that is following our plans. We will also reduce our staff with 180 full-time positions up until July 25, which is close to 4% of our workforce. This is also progressing according to plan and the emphasis is on ventilation systems. Now let's take a look at our actions within Perfil Systems. As communicated in the fourth quarter, Perfil Systems is making an exit from Eastern Europe due to poor profitability. The strategic focus will be 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 look at where we are on this journey, first of all, Czech Republic, we closed the profile business in Czech Republic at the end of 2024. Slovakia, in February, we announced an agreement to divest the business in Slovakia to local investors, and this divestment was completed on the 2nd of April. Estonia and Poland, these two small profile businesses were closed during the first quarter. And finally, Hungary and Romania. The divestment of the operations there are expected to take place in the second quarter. and we are in constructive negotiations, hoping to give you an update shortly. Finally, to avoid any misunderstandings, Lindab's ventilation business will stay in Eastern Europe through our successful operations in Poland, Czech Republic and Hungary. Let's now move over to our third focus area for the year, which is acquisitions. In March, we announced that Lyndab will acquire the Polish ventilation specialist Ventia. This acquisition will complement Lyndab's operations in the Polish market and is another important step in increasing sales of technical ventilation products, which is a priority for Lyndab Group. The transaction is subject to the approval of the Polish Competition Authority, and the expectation is that it will be approved and completed during the second half of 2025. With Ventia included, Lindab has acquired 29 companies since 2020 and added well over 4 billion second sales to the group. We have broadened our product offering, added new geographies, gained access to new customer segments, and improved our distribution. We have many interesting acquisition prospects in the pipeline, and we will continue our acquisition journey. Now let's round off this presentation with a market outlook. And here I must say that it's usually hard to predict the market development and maybe this time harder than ever because of the uncertainty in global politics, economy and trade. Let me start by commenting on the U.S. market. Lindab's exposure to the U.S. market is limited. We acquired the American company Vicon Group in early 2024 and they have local manufacturing in the U.S. But the tariffs should not affect Lindab or Vicom in any significant way. However, there can of course be other indirect effects on the European economies. And Lindab has 95% of both business and sourcing in Europe. That remains to be seen how the European economies develop. We note that the market situation for ventilation systems remains challenging in several key countries. but we expect market activity to pick up gradually and slowly during the second half of the year. We have earlier communicated that we see positive signs in Scandinavia for profile systems, and this development is continuing, especially for small projects and for builder merchant sales and the do-it-yourself segment. If market conditions change for the worse, we are prepared to take further steps to strengthen our profitability. Still, it's important to underline that there are several things in Lindab's favor. Thanks to the significant investments we have made in capacity and automation, we will have a very strong profitability leverage when the markets start to recover. We have trimmed our cost base and taken measures to protect and strengthen profitability. So it's a leaner Lindab Group going forward. And with the many acquisitions, we are strengthening our position as a leading European ventilation group. During 2025, we will accelerate synergy opportunities within logistics, insourcing, purchasing and co-locations of businesses. And we see quite significant opportunities here.

With that, ladies and gentlemen, we are ready for your questions.

Joan Sundmark from SEB, your line is now unmuted. Please go ahead.

Hello and thank you. So firstly on the gross margin development, it's up a decent bit year over year. So if you could elaborate a bit on the driver buying this increase.

There are several drivers. I mean, we of course work continuously with different pricing activities. That is one key parameter here. But we are also working very hard on operational efficiency. And with the investments made and with very hard work by our operations and several factory units, we are achieving cost optimization and high efficiency. in our factories. One part of that is that we try to do insourcing activities so that we fill up our factories as best as we can, even when the market demand is slow. I think it's a combination of factors, but we are working very hard on many types of efficiency measures.

Okay, very clear, thank you. And then second question on the market recovery and sort of what signs that you currently see that potentially could drive up the market demand for the second half of 2025?

We see increasing quotation activities. We see some positive signs in building permits and the projects starting up that have been on hold for some time. But I will say that there are still small positive signs and that recovery is still a few months out. So those comments go for ventilation. We have already started to see the positive signs in Scandinavia. Typically the the product sales in profile systems that's earlier in the cycle than ventilation systems so it's more roof and facade where you install the products earlier and then a few months later three six maybe nine months later you start to work on the installations inside the building and that's when the ventilation products come so several factors tell us that it is reasonable to expect the market recovery starting gradually and slowly at some point during the second half of the year.

All right, and then if we sort of take a follow up on that, do you expect the market improvement to, especially in ventilation, to be driven by further acceleration in

already growing markets poland italy or is it rather sort of the nordics in germany that you expect to turn north in terms of growth to drive demand in ventilation it's correct that we see continued good activity in the countries that you highlight i do think that we will see better activity level at least year on year in scandinavia i think it will take a bit more time before we see the German market picking up again with new investment initiatives and new government in Germany. We are quite hopeful for 2026, but I do think that it will take some months before we see any real impact from investments in Germany. So, German recovery a bit slower, some of the other countries

should be able to show some some growth year on year sooner okay thank you very much that's all for me thank you very much the next question comes from hannah grimborg from handelsbanken please go ahead yeah hi hannah here um so i have two questions firstly In the report, you said that sales in Western Europe increased slightly for profile systems. And I know this is a small part of profile systems, but since that market represents a bigger part for ventilation, it would be interesting if we could get some more info on this. I mean, did it seem like a shift in trend or what do you read into it? So that's the first one. And the second one is just on your margin target. After the report, do you feel more or less confident in reaching 10% for 2025? And now with the trimmed cost base and all measures you've taken, how do you feel about 2026 if the market would remain this week?

Yes. Thank you, Hanna. Well spotted. Yes, we do have some profile business remaining in what we call the Western European region. More specifically, it's in the UK. where the majority of that region's sales is. We are a niche player, you can say, in premium exclusive products like rainwater systems, some roof products in the UK. It's a small part of what we do in the UK, but a nice and profitable one. I would not say that it is signaling any great shift in the UK construction activity. We are a relatively small player in an exclusive niche there. So I don't dare to draw any conclusions about the total UK market due to the positive... Typically in Scandinavia, we do see a correlation between profile system sales starting to pick up and then normally, and I don't know if we live in normal times, but normally we see a recovery in ventilation systems six to nine months after we have seen the positive signs in profile systems. And then to your second question, the profitability target. I mean, the activities that we take, they are designed to enable us to reach the financial targets. And we work very hard to do that. We have now completed one quarter, typically the weakest quarter of the year, the Q1, where we are in low season. And there is a clear, strong ambition that we will reach the financial target both this year and next year. We do need some help from the market during the second half of the year if we should be able to do it. And I'm still hopeful that we can get that. So yes, we are determined to reach our financial goals.

All right, very clear. That was all my questions. Thank you for that. Thank you, Anna.

This question comes from Carl Ragnarstam from Nordia. Please go ahead.

Good morning. It's Carl from Nordia. A few questions from my side. Coming back to the gross margin, you mentioned pricing as one effect of it. I'm curious to hear how the pricing sort of blended pricing developed during the quarter here.

How the pricing developed?

What was the price effect on the gross margin?

That is difficult to answer, Carl. We aim for price stability at the moment in a relatively soft market where many players have overcapacity and there's quite a lot of price fighting on projects, etc. Lindab's ambition is to have price stability and not reduced prices. There is always a price erosion. If you wait for some months and you don't do anything, then average prices will start to drop. So you have to constantly try to increase the prices to be able to maintain the prices. And I think that that is what Lindam has managed to do in a very challenging environment. We've managed to uphold price levels and maintained or gained market share. And I think that's quite a strong achievement. We do that because we have strong salespeople in the organization, but we also have a very strong distribution network and delivery excellence in every way. So I think it's a combination of effects that we see that enable us to improve gross margin. The main driver is operational efficiency, but we have to have price stability or slightly increasing prices to be able to continue to increase gross margin. And that is becoming more and more difficult after two, two and a half years of negative organic growth in the market.

Yeah sure also I asked if I remember correctly you had a minus one percent pricing impact on average I think during Q4 so the fact that we have a stable pricing or even maybe slight positive it is obviously good to hear and how do you expect will you keep prices slattish for Q2 Q3 here as well or how do you look at it?

Depends on many different factors it depends on raw material prices it depends on currencies we have seen quite a lot of currency movements lately Swedish Krona strengthening which is unusual and in some ways surprising we see raw material prices increasing now since two three months back if that continues Linda will continue to and we will have to increase prices for the third quarter. For the second quarter we are all right on the levels we are now but for the third quarter we will need to increase prices for material is quite a large part of our cost base.

Okay that's very clear.

You mentioned that the production move is finalized which is good to hear. Was it finalized from just a couple of days back? I mean, from what point did you see the normalization? Should we expect normalization throughout Q2 or is it maybe slower ramp during the earlier part of Q2?

We started production again early April and we have a ramp up period of some weeks before we can reach full capacity. My expectation for Q2 is that we will be on around 75% of normal output from that factory. And I think that so far, last three, four weeks, that has been the pace, or the pace maybe, but the trajectory that we are following. I expect around 75% output from that factory compared to normal in the second quarter.

Okay, that is good. Looking at profile then, excluding the production move, it looks like you are growing organically mid single digits in the quarter, if I understood it correctly at least. You're also saying that you see slightly improved markets. when you talk about slight improved markets are you referring to the around mid single digits then which is the base and then you see slight improvement from there or is it from the negative territories including the production move and the second part to that is what underlying operating leverage you get on these volume improvements if it's even possible to do that calculation with all effects happening right now but

To do that live in this conference call is maybe a bit difficult, but that is good. I mean, we remember that Q1 is low season and high season starts now, say, second half of April, typically. So we normally do have a strong leverage on the volume increases from low season over to high season. And then when you ask about organic growth in the underlying business, yeah, I would say around mid single digits would be a fair estimate at the moment. That's how we are performing. We should remember that we have closed down some units in Eastern Europe. that is weighing down the growth rate. And then we have this factory move. So the remaining part is actually not doing so bad. It is growing, but low season is one thing and high season is another thing. And now we don't know yet how strong this, the first few months of the high season will be. That remains to be seen. But I do expect organic growth in, say, the core business in Scandinavia during the coming months.

Okay, that's clear. And the final one from Iceland, sorry. It's on ventilation systems. You said that as of May, you've closed down eight out of ten sites, including, I guess, including Norval branches. the organic growth was was it negative three right? So how much of the sort of lost sales I guess sales must have been impacted to some extent at least from these. So how do you look at the possibility to capture some of these volumes from adjacent branches and what is the organic impact from these size closures on adhesion?

When making those decisions to close down some branches, we evaluated that carefully before we did it, and we are able to capture a very high percentage of that sales through other branches. So I would say that the impact from closing down so far eight branches is minimal. It does not explain the 3% negative organic

growth or even it's a very small fraction in that case. Okay, that's very clear. Thank you. Thank you.

The next question comes from Anna Woodstrom from Carnegie. Please go ahead.

Hi, Ola. Hi, Lars. Thank you for taking my questions as well. So my first one is just a follow-up on the production of the sandwich panels. Now that production is normalized, do you also have a backlog to work through or should we just think about normalized activity levels from this period going forward?

Thank you, Anna. It's a fair question. The type of products produced in such a factory, they are quite special. They are made to order. They are very bulky to store. We did try to produced ahead before closing down. And now we have a scab backlog. But to recover that sense that we lost when the factory was closed, we were not able to recover all of that. So we have decent good order books and good production scheduling for the coming months, but I would not expect an over delivery from that factory. The ramp up period takes its time, also training new people, trimming in the equipment. So, as I said, I expect 75% of the normal output in Q2 and in Q3 we should be back to 100% of the normal pace.

Okay, thank you. Very clear. And also, could you maybe tell us a bit on sort of the trends in activity that you've seen during the quarter in both divisions and also how April has been?

We don't see any major trend shifts so far in the second quarter. There are some typically at this time of year when having this one has to mention some kind of Easter effect. And I'm sure that there is some kind of Easter effect also this time. Last year Easter was end of March, beginning of April. Now it was fully in April. Maybe there is some effect from that. Very hard to estimate how much that is. But we don't see any major trend shifts. The business continues to develop approximately like it did in the first quarter.

Okay, perfect.

And just as Hungary and Romania is expected to be divested quite soon, how much of sales is that representing?

So out of the

units that we highlighted in our quarter four announcement. We said that the business in scope for divestment or closing down was around 500 million SEK and it was a little bit loss making minus 20% EBIT. The two largest units out of the six units that we addressed That is the Romanian and the Hungarian unit. So I'm looking over here at Lars Ynner, but I think approximately sales of 300 million SEK annualized would be a better summary of the turnover of those two units. So it means that we have by now completed and addressed around 40% of the total turnover of what we said that we were going to divest or close down and still 60% is remaining to be done.

Okay, great.

And just my final question is on airmasters in Germany generally seems to be remaining in sort of a challenging How is Airmaster, because it has a slightly different sort of product offering, how is Airmaster currently experiencing its market?

They are performing a little bit better in Germany compared to the second half of last year, but still a challenging market environment for them in Germany, but not worse than what we saw in Q3 and Q4. Maybe some small positives in the German market, but still relatively low sales. Overall, Aermolster have started the year on plan. So no major negative surprises there. But they are still below the pace that we had one year ago.

Okay, great.

Thank you. That was all my questions. Thank you, Anna. Thank you all for listening in.

We are Proud today to deliver a stable result in a challenging market environment, and we continue to work hard to improve even further. Thank you all.