Lindab International AB (publ)

Welcome to the Lindab Q3 presentation for 2025. During the questions and answers session, participants are able to ask questions by dialing star 5 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 to this presentation of Lindab's Q3 report. I'm Ola Ringdahl, President and CEO of Lindab Group and next to me I have our CFO Lars Ynne. We will begin by presenting the results for the quarter and after that we will take a closer look at our key focus areas and end with a market outlook. Following the presentation there will be a Q&A session. Now let's start with some highlights. Our largest business area, ventilation systems, showed strength and achieved the highest sales and results ever for a third quarter. The adjusted operating margin reached 10.6% for ventilation systems and 9.7% for the group overall. Thanks to efficiency improvement and structural measures, both our gross margin and operating margin have strengthened. In many markets we could see good sales growth, but in Germany and Sweden we are still affected by low market activity. Our smaller business area profile systems continues to be negatively impacted by low activity for larger building projects, and this is particularly evident in Sweden. Since development is still hard to predict, we focus on measures within our own control to improve profitability. Now let's take a closer look at our sales development. In ventilation systems, sales increased by 2% compared to the same period in 2024. Sales in comparable units was down by 1%, a smaller decline than we have seen in over two years. Many important markets for Lindab, such as France, the UK and the Netherlands, experienced positive organic sales growth. In Germany and Sweden, however, market activity remained low, influencing sales negatively. Acquisitions contributed positively with 6% and currency affected sales negatively by 3% within ventilation systems. For the business area profile systems with its higher exposure to the struggling Swedish construction market, there was a decline in sales. Activity for larger building projects has not yet gained momentum. What is positive though is that sales through builders merchants is continuing to increase and actually showed double digit growth in the quarter. The negative organic growth was significant, but it should be mentioned that around half of that effect comes from active decisions by Lindab to close businesses or discontinue businesses in both Eastern Europe and in Sweden. Now let's have a look at the operating profit. Ventilation systems delivered the highest results for a third quarter ever, with an adjusted operating margin of 10.6%. If we adjust for negative currency effects, the adjusted operating profit increased by 17%, a significant achievement. And I thank my colleagues for a very good job. Continued efficiency actions and structural measures to reduce our cost base have contributed to the strong results. Our cost reduction program, which we announced at the end of 24, reached full effect in July. Further structural measures are underway to optimize operations even more. In profile systems, the adjusted operating margin of 7% was negatively influenced by low sales volumes and continued low capacity utilization. This has been partly compensated by lower costs thanks to structured measures. I am not satisfied with the results in profile systems and we plan additional efficiency actions and structured measures to improve profitability in the business area. The group improved results as well as operating margin. And when you read the report, you will notice some one-time effects that we adjust for. And let me make a few comments on that. One of items in the quarter have a positive net effect of 176 million. This is primarily due to a reduction of the earn-out consideration for Airmaster that was acquired at the beginning of 24. Airmaster continues to deliver high profitability according to our expectations. However, the company has not met the ambitious sales targets that were part of the earn-out mechanism. The one-off items have no impact on our cash flow. Now I hand over to Lars Ynner for a look at our cash flow and the financial position.

Thank you, Ola. Linda delivered a strong cash flow in the third quarter, with cash flow from operating activities increasing to 335 million SEK. Net debt remained stable at 4 billion 411 million SEK, which is in line with previous levels. Lindab's target for net debt to EBITDA is that it should be below three times. In Q3, this ratio stood at 2.7, unchanged from the previous. The financial net debt to EBITDA ratio was 2.1 at the end of September, also unchanged compared to the previous quarter. Ola, now back to you and a look at our focus areas for you.

Thank you Lars. Let's take a look at our focus areas for 2025. In ventilation systems we have implemented structural measures and cost reductions to improve profitability. Our most recent program was announced in Q4 of last year and it included the closure of 10 sites and the reduction of 180 full-time positions of which 160 are in ventilation systems. These measures have been successfully implemented and we have full effect from these savings from July of this year. To capture the full benefits from the 29 acquisitions made since 2020, we are also accelerating the work to capture efficiency synergies across the group. During the autumn, we are now conducting a review of our production footprint and also our branch network. Further structured measures can be expected as Lindeb continues to optimize operations and our cost base. Now let's take a look at our progress with the divestment of profile systems in Eastern Europe. As previously communicated, profile systems is making an exit from Eastern Europe due to poor profitability development. The strategic focus will be on the home markets for profile systems in Scandinavia, where Lindab's market position is strong and where there are significant synergies with the ventilation business. In July, an agreement was made to divest the profile systems operations in Hungary, and this is expected to be finalized around the turn of the year. We are also in ongoing negotiations regarding the divestment of our business in Romania. Following the transactions in Hungary and Romania, our operations in Eastern Europe will focus completely on the ventilation part of our business. Now let's move on to our third focus area, acquisitions. Acquisitions will continue to form a cornerstone of our strategy. In July, the acquisition of the Polish ventilation specialist Ventia was completed, bringing additional competences in sales of technical products, including air handling units. The group management team visited Ventia in Poland in September, and I must say I'm impressed by how they work, and they seem to be in a strong growth phase at the moment. We continue to develop our acquisition pipeline. The ventilation market in Europe is still fragmented and there are many interesting opportunities. Now let me move on to the outlook. In the medium and long term, we have a positive market outlook. Our ventilation systems provide energy savings for buildings and promote a healthy indoor climate. In the short term, we expect sales to stabilize at current levels during the rest of 2025, with a gradual market recovery anticipated for 2026 for both ventilation systems and profile systems. Specifically for ventilation systems, we are pleased to see organic growth in several markets, which could indicate that the construction market is starting to recover. We are also seeing an increasing number of requests from customers, as well as forecasts of increasing building activity. The tricky question is when our sales trend can turn into positive territory in Germany and Sweden, two important markets for Lindab. For profile systems, larger projects remain at the low level, especially in the Swedish market. However, since the beginning of the year, we have seen increased sales to small projects and in the sales that goes through builders merchants. Interest rates are down significantly in Sweden and construction forecasts indicate growth for 2026. So there are some chances at least of improvements, although from a low level. To counteract the market decline and to protect profitability, Lindab has implemented strong efficiency measures over the past two years and there is more to do. We will continue to implement further structured measures to profitability. We are focusing on what we can influence so we are not too dependent on how the market develops. When the market starts to pick up again and we see organic growth, Lindab is very well positioned for profitable growth thanks to all efficiency measures and thanks to the finalized investment program. And with that, we are ready for your 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 Sophia Sorling from DNB Carnegie. Please go ahead.

yes hi thank you for taking my questions hi ola and laush and i have the first question on ventilation market and then especially on the ones that you mentioned in your reports that are going quite okay so about france uk netherlands italy and ireland and you mentioned that you have good organic growth here and what is your How should we interpret that type of comment? Do you see that actually the market has changed on these regions or is it more like stabilized and that you have more of easy comparison numbers? What is your view here?

I think comparison numbers are never easy. Thank you, Sofia, for the question. And I think we are not only dependent on market, of course. What we do in every country plays a very important role. I think in the countries mentioned, these five countries, we have very strong sales force, high dedication, and it's not so easy to say how much the market is helping us and how much we do from our own efforts. But we can probably say that the markets in those countries, at least they are not shrinking, maybe they are on a stable level. But we are doing a good job in our sales and operations in those countries. So we are increasing our sales.

Okay. And a follow-up question on market outlook. You mentioned the challenges in Sweden and Germany, that you see a negative development. Would you say that it's more at the same level, the demand within ventilation, or do you see any other more of the more negative trend during the quarter or is it more stabilizing here?

No, the trend has not worsened. It has been difficult in Germany and Sweden for the past one or even two years. We are probably at some kind of bottom of the cycle. It's not that we saw any worse trend in Q3 than we did in the second or first quarter of the year. So maybe stable low level is maybe fair to say.

Okay and about Airmaster, you mentioned that you could expect that you will keep the high profitability level here and but sales expectation perhaps will be lower. Can you give us any details on your expectations on perhaps safe development within decentralized ventilation. And also if you could give us roughly how big this part is within your ventilation segment.

So Airmaster are performing well in terms of profitability and around the same levels as when we acquired the company, which I think is very strong given the market development. In terms of sales, they are performing approximately on the level that I expected when we negotiated the acquisition. But the sellers of the business had higher expectations on acquisition. the sales level for Airmaster in the next years. So I think there are no major surprises for me. We follow the plan and the expectations. The fact that we dissolved earn-out money in the report is more related to how the targets were set in the earn-out mechanism. I would say I'm very comfortable with how Airmaster is performing. There is a future upside, of course, but given how the market is, I'm quite pleased with their performance.

Okay, thank you. And you mentioned, or you strengthened the adjusted abuse margin for ventilation during the quarter, and you mentioned that you have the succeeded to implement this cost measurement in July. But if you need to do further measures that you also mentioned in the report, what more can you do if you can give us some more explicit examples?

We are always reviewing where is it optimal to produce certain products, how many branches do we need to serve our customers, how many warehouse points do we need to have a good logistics setup. And we gradually find more and more opportunities. So we have done a lot in the past two, three years in terms of restructuring and improving efficiency. And the more we do, the more we find. So I'm indicating here that there is more to be done to optimize Lindab's footprint, both in terms of where we produce what and how we distribute it and how many. distribution points we need in the organization. And of course, with the acquisitions that we have made, our footprint is developing and we are getting more and more sites. We have in total close to 200 sites where we have activities in Europe. And obviously there are opportunities to streamline that footprint gradually over time.

Okay, thank you. And my last question. You did quite significant write-downs of intangibles within the ventilation segments. What was that related to?

I'll move the microphone over to Lars Ynner so that I'm not saying anything wrong.

Hi, Sofia. It's mainly related to AirMaster. the intangible assets, yes. Okay.

Okay. Thank you so much for answering my questions.

Thank you, Sofia.

The next question comes from Joan Sundmark from SEB. Please go ahead.

Yes. Good morning, and thank you so much, Ola and Lars, for the presentation. So, firstly, I was curious about sort of the trend throughout the quarter. It It seems like the start of the summer was quite a week, listening to some of your peers. Would you say that that's sort of the case for you as well, or have you noticed any specific trend throughout the quarter? Was September better than July, trend-wise?

Thank you, Johan. Yes, I've also heard some other companies commenting on that pattern. And typically when we are in the business cycle where the business is a bit slow, people or companies tend to close down a bit longer during the summer break and also over Christmas. And I think we did see that also this year. So the sales and order intake during July, August was a bit soft. September, we came back quite strongly. So we have a positive momentum and we were quite pleased with the sales levels for September isolated.

Sounds promising. And would you say that Sort of the uptick in September is driven by pent-up demand from lower volumes in July and August, or sort of is this something that we should extrapolate, or is it rather just pent-up demand that's coming out in September, do you reckon?

That is of course difficult to speculate about, but we see signs of a little bit stronger momentum in the sales and in the markets for ventilation systems coming out from that summer holiday period. I would not say that the strong September is only a result from pent-up demand, but probably indicating a little bit stronger momentum in the demand.

Okay, it makes sense. And then on the M&A side, it slowed down a bit recently, and you are relatively close to your sort of leverage target. Could you talk a bit about the pipeline there and when you expect to start acquiring businesses again? So your reasoning around those topics.

We had really a lot of M&A activity in 2024 and of course that had some consequences on the pipeline, how many companies we had moved to find the stages of the acquisition pipeline. It takes a little bit time to fill up the pipeline again. I'm very pleased with the acquisition of Ventia in Poland. We are filling up our pipeline and we have several good interesting discussions. As long as we talk about small to medium-sized acquisitions, I'm not worried about the financial leverage. We are generating really strong cash flows and continuing to do so, and we could see it in the Q3 report as well. So we have good capacity to continue to make add-on acquisitions. Then, of course, if we speak larger acquisitions, it's a different matter. But the typical acquisitions we have made for the past five, six years, we can definitely continue to do that. And I would say sales equivalent to between 500 million sec and 1 billion sec annually, we can cope with that with our current cash flow and profitability.

Okay, very good. Thank you for that. And then as the final question, sort of in terms of market share and sort of on the back of the fact that it's been a rather tough market for the past almost three years now, have you seen areas where competition is easing? Maybe some of your smaller peers are going out of business, or would you say that you're market share in general is rather flat overall.

Unfortunately, we don't see enough companies going bankrupt, but the profitability demands for smaller companies or privately held companies, they are fine to earn zero for some period. We have other demands on Lindam Group, of course. It's a balancing act. Markets, price management, and then we also have to take into account the capacity utilization in our factories. I think we have managed that balance well. We see gross margin development is good. Efficiency improvements are helping. We try to have price stability. We are selectively taking market share, but we are not sacrificing our gross margins just to take market share. So this is a balancing act. But I do feel now that we are We are well invested. We have highly efficient production units. We have made several cost reduction programs, etc. I think we are in a position where we can be a bit more aggressive on taking additional market share. I feel that we have that strength. I'm looking forward to playing a little bit more offense in the next quarters.

Okay, very good to hear. Thank you for taking my questions, gentlemen.

Thank you, Johan.

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

We know that there are many reports today and a busy schedule for all of you. We want to thank you for listening in on Lindab's Q3 report. And I want to extend my gratitude to all fantastic colleagues in Lindab Group who made this possible. Thank you all. Have a good weekend.