Release Date: July 19, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Lindab International AB (FRA:L5E, Financial) achieved record sales in Q2, with a 5% increase in total sales and the highest ever operating profit for a single quarter.
- Ventilation Systems, which accounted for 75% of sales, saw a 7% increase in sales, driven by acquisitions, and achieved an operating margin of 10.4%.
- Profile Systems turned around from a loss in Q1 to an operating margin of 8.7% in Q2, indicating effective measures to strengthen profitability.
- The company signed a new long-term credit agreement, increasing its total credit facility by SEK1 billion and EUR50 million, ensuring strong financial positioning.
- Lindab International AB (FRA:L5E) continues to focus on acquisitions, adding almost SEK1 billion in revenue through acquisitions in 2024, with more expected to follow.
Negative Points
- Organic sales growth for Ventilation Systems was negative by 4%, indicating challenges in the core business despite overall sales growth.
- Germany, one of the largest markets for Lindab International AB (FRA:L5E), showed negative organic growth, impacting overall performance.
- The reduced construction activity continues to impact demand for Profile Systems, with net sales decreasing by 2% compared to the previous year.
- The company anticipates that organic growth for Ventilation Systems will not be seen until 2025, indicating a prolonged period of subdued market conditions.
- Net debt-to-EBITDA increased slightly to 2.1 times due to acquisitions, which could pose a risk if market conditions do not improve as expected.
Q & A Highlights
Q: You mentioned in the report that you continue to implement price increases in both segments. Are these the same price increases discussed in Q4 and Q1, or are they new ones?
A: We are always optimizing our pricing and discount levels. This message is not significantly different from what we discussed in the Q1 report. We have a pricing plan for Q3 and Q4, and we will also have a plan for Q1 next year. The price increases are in the low-single digits, around 1% to 3%.
Q: You expect gradually increasing volumes during the second half. Is it too early to turn into positive organic growth in Q3, or will Q4 be good enough to lead to positive organic growth in the second half?
A: All markets are not moving in the same cycle. Profile Systems might see organic growth during the second half of the year, but for Ventilation Systems, we will likely have to wait until 2025. We expect volumes for Ventilation Systems to be approximately 5% below 2023 levels for the full year 2024.
Q: What utilization rates are you currently running for Ventilation and Profile Systems? What sort of incremental margins could we expect if volumes pick up?
A: We can increase our output by 20% to 30% without adding much cost, thanks to the efficiencies and investments in our factories. Volume increases will be very beneficial for our gross margin and operating margin.
Q: How is the German market performing, and what do you see in Denmark?
A: Germany has stabilized in terms of volumes, although organic growth is still in decline. We are handling the current situation with good profitability. Denmark has shown fantastic performance over the past six months, with a healthy underlying market and strong team.
Q: Given weaker demand from the German market, how should we view the impact on your margin profile?
A: Despite the weaker demand, we have implemented cost savings and structural work to protect our profitability. The current margin profile is expected to remain stable.
Q: What needs to happen for the German market activity to increase again?
A: This largely depends on German political and economic conditions. However, we are well-positioned to grow market share and make add-on acquisitions to strengthen our position in Germany.
Q: Can you elaborate on the expected multiyear growth phase for the ventilation market from 2025 onwards?
A: The demand for energy-efficient buildings and stricter legislation will drive growth. We are well-positioned with high-quality products. While it's difficult to predict exact growth rates, a 5% annual growth until 2030 is possible.
Q: What more cost-saving measures can you implement for Profile Systems if necessary?
A: We are managing the summer period without extra labor and continuously working on gross margins through pricing and efficiency. Structural measures, such as shrinking the business or divesting, are also being considered if performance does not improve.
Q: Can you give examples of what you are spending on R&D and whether you are developing these in-house or through acquisitions?
A: We focus on energy savings and renovation products, mainly developed in-house. Acquisitions also play a role in bringing new technology. We have a new R&D manager with an exciting agenda, and we are investing in production development to maintain our advanced and automated production capabilities.
Q: What is your outlook for the market situation and future growth?
A: The European ventilation market has declined by approximately 5% year-to-date, but signs of recovery have been noted. We believe in gradually increasing volumes during the second half of 2024, with long-term demand for energy-efficient ventilation remaining strong. The market is expected to enter a multiyear growth phase from 2025 onwards.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
