BELIMO Holding AG (BEAN) Earnings Call Transcript & Summary

Good morning, ladies and gentlemen, and welcome to Belimo Full Year '24 Analyst and Investor Call. My name is Marta Bruska. I'm the Head of Investor Relations at Belimo, and with me this morning is Markus Schurch, the Group CFO. We will begin with prepared remarks by Markus, followed by Q&A session. [Operator Instructions] Thank you. And with that, I pass on to Markus.

Okay. Thanks a lot, Marta, and a warm welcome also from my side. So it's a great privilege and honor to present this full year results. Just -- we will start with the business highlights, covering with the market and the highlights of our business, and then go into the details of the sales performance both in terms of the regional performance, but also the performance by business line. We'll then open for Q&A later in the call. So 2024 was an extremely successful year for Belimo and that was driven by, first of all, a supporting market, especially in the Americas, where we had good market conditions in almost all our segments. So a robust construction sector and some very well-performing subsegments in there, especially in line with the reshoring. So things like semiconductor manufacturing or also obviously, data center performed very well. The only weakness we were seeing in the Americas was the new construction of new office building, but as was more than compensated by a lot of renovation going on either by repurposing of existing building or then also by the need to increase their energy efficiency not so much from an environmental point of view, but more from a grid stability, and the need to offload the grid in large cities and therefore, increase the efficiency of buildings. We saw a lot of growth in data center. Overall data center accounted for about 1/3 of the growth in the Americas. That's coming from both the traditional data center business, so which is mainly an air business, so air cool data center, but also now the increasing demand for liquid cooling, and that's also a key growth driver for us on the data center vertical. And then we also saw quite some momentum from the renovation requirements, especially in EMEA that was able to offset the weak new construction market. And therefore, we were focusing on the renovation market, which was showing good growth and was supporting our overall business. Overall, so what have we focused on internally? So obviously, with the key growth we're investing at the moment in investment mode, we are investing into capacity and expand our capacity in all our major sites. We're able to inaugurate now the new site in China, which supports there the growth. And we are, at the moment, building up here the new logistics and customization center in Hinwil in Switzerland, and will start then by the end of the year, early next year, the capacity increase in Danbury in the U.S. We also were able to launch a lot of new products and digital tools that are enabling the seamless integration of all our products. So very proud we were able to launch our system app, and also the retrofit app that simplify the use of the identification of what to do in a retrofit job. We're also able to increase our network both on the retrofit part to onboard new retrofit partner and increase our digital ecosystem partners that are able to use our products within their solutions of the digital side. In line with the strong growth of the data center market, we've launched our internal initiative on data centers, a dedicated growth initiative on a worldwide basis, specifically focusing on the requirements for the data center, both from a product point of view, but also from a customer serving point of view, which is a truly global market and also requires a global key account management and the global support of those key customers. And lastly, we're very proud, we're able to submit our SBTi commitment and submit our commitments to the carbon reduction targets, that's in line with our overall target to reduce our Scope 1 and 2 emissions in our own facility, but especially also focusing on our Scope 3 emissions, which have both supply chain aspects, but also use phase aspects, where we will have over the lifetime of the products, a strong focus on reducing the energy consumption and reducing there the carbon emission. And lastly, we're also able to make a lot of progress on our Climate Foundation, supporting their buildings and the renovation in buildings for third parties. Going into the results, we have achieved sales of CHF 943.9 million. That's a growth rate of 13.1% in local currency or 9.9% in Swiss francs. So a very strong growth momentum in 2024. From a regional split, so Americas is now the, by far, the largest region with 46% of our turnover followed by EMEA with about 41%, and then Asia Pacific was about 13%. Looking at the business line, Control Valves accounting for almost half of our turnover is 49.6%, followed by Damper Actuators was about 45%. And then Sensors and Meters getting close to 5% of our turnover. When we look at the composition of our growth, we have 9.8% is attributable to volume and mix. So a strong contribution there from volume growth and then about 3% from price. And we were able to almost offset with price increases, the FX effects of minus 3.2%, and then a small contribution from others, leading to this 9.9% Swiss franc currency growth or this -- the 13% growth in local currency. When we look into the regional performance, so by far, the strongest growth momentum came from the Americas with close to 20% growth in local currency. That was driven by a solid growth in -- from all the market segments and verticals. We're very proud of the 6% growth in EMEA. That is in a very demanding construction market, a very demanding environment in the EMEA. So there we were able to focus on the renovation markets, and also in the southern part of Europe, where there was no momentum also in new construction. Asia Pacific with 14.6% growth in local currency. There also all the regions were contributing to the sales growth across all our key countries. We'll come to that when we discuss them in more details the different region. So we'll start with EMEA with a growth of 3.7% in Swiss francs, so 5.9% in local currency. Despite a very challenging market, especially in the German-speaking part of EMEA and there, especially in Germany. So we were able to really focus on the retrofit on the renovation market. There was a strong growth in there and a strong need also to improve these buildings. And by focusing on that, we were able to offset this missing support from the new construction. As mentioned, especially in the German-speaking part, the new construction or the construction activity was very low. It was a lot better in the southern part of Europe. So in countries like France, Italy, Spain, we had very good growth, and we're able to focus and offset, there also the weaker market conditions in other parts of Europe. What's also worth mentioning, there was a modest recovery also of OEM volume. So the destocking is now really over, and we see there from a very low level, a small increase also on the demand of the OEM part. With that, moving over to the Americas with 16.1% growth in Swiss francs, so 19.8% in local currency. So there, as mentioned, we had strong growth from all the verticals and all the business segments with the exception of new construction of office buildings. A lot of contributions from data centers. So we expect about 1/3 of the market growth is coming from data center. And therefore, by from both ends mainly in this year -- in the last year from the traditional part of data centers, but increasingly also from liquid cooling, supporting there also the growth of our Control Valves business. So we saw their growth across all our market segments and across all our business lines. Moving over to Asia Pacific with 10.2% growth in Swiss francs or 14.6% in local currency growth. And there as well, we saw double-digit growth in all our key markets. We're very proud of double-digit growth in China, despite a very challenging market environment. But there again, the focus on the high-growth segments also the data center, a very important growth driver and focusing on this attractive vertical, we're able to get this high growth in Asia Pacific. Very strong is also the market in India. So a booming economy, a lot of investment also in the HVAC industry, there as well, not only data center but also the increasing establishment of a high-end segment that also requires high-efficiency HVAC system, that also helps us there to grow the Indian business. If you look at the business line, so we have got the growth Damper Actuator with 9.6% in local currency growth. So there, we see the recovery of the OEM business and also a lot of effects of the data center business, the airside cooling of data center that helped us to grow the Damper Actuator business by 9.7%. Control Valves, very strong growth with 15.4% across all the segments and also the need for higher quality, higher functionality valves, there especially strong again the growth of the -- the pressure independent segment of the Control Valves contributing and attributing the 15.4% growth. And lastly, Sensors and Meters contributing with 25% growth in local currency, there our youngest segments continuing to see high growth rate and accounting now for 5% of our turnover of 44% in Swiss francs. With this, just a short outlook on the next event. So we will release our full year results together with also the guidance for this year on February 24. We will have only 1 hybrid meeting and not a sales call in front and then the meeting. So we'll have a hybrid event at 10:30 on the February 24 and then the Annual General Meeting on March 24 and the other part then move to the capital market. So with this, we are at the end of our notes, and we will open the call for questions.

Thank you very much, Markus. We have a first question from Martin Husler.

Maybe the first question on data center, you referred on growth in North America, 1/3 impacted by data centers. Can you maybe break this also down for the full group? How much of the growth was driven by data center and maybe even to say how important is data center today in terms of sales? That's the first question.

I mean, overall, we have roughly 12% of sales for the group is attributable to data center growth. We have a lot more data on the Americas. As mentioned there, about 1/3 of the growth is coming from data center, a lot smaller in Europe because most of the investments are going at the moment into the Americas or in Asia Pacific. And also a lot of sales that is done in the Rest of the World is channeled through the U.S., but also in Asia Pacific, a lot of the growth is coming from data center, and we accept that, especially in China, the majority of growth is attributable to data center.

Okay. And then maybe the second question, on -- if you look at cost inflation, let's say, for this year, so what's the situation here, maybe labor inflation, but maybe also some raw materials? And then what would this mean for your reaction on price increases? Should we expect further price increase this year? Or is that just a spillover of last year's price increases that will remain also for this year?

I mean, overall we're looking at more of a normalization also of the supply market. So prices have stabilized. So that means they are stable. And therefore, we're also back to our normal pricing rounds, which is 1% to 2% on an annual basis, and that's also what's the plan going forward.

And labor inflation does not worry you?

I mean labor inflation is in the range of inflation what we have. And therefore, once our key advantage is that we have the majority of our labor costs still in Switzerland with quite low inflation.

Next question is from Martin Flueckiger.

Just two basic ones, actually. Just wondering about the momentum you've seen in the U.S. in 2024, how sustainable you feel that is for 2025 because success brings with it that the comps are getting tougher, and they're quite tough now for '24. That's my first question. And my second question would be on your expectations for the 2024 EBIT margin guidance. I realize you didn't -- because it's a sales release, so you didn't mention it in your press release this morning, but if you could just lose some words on your expectation regarding profitability for '24, that would be great.

Okay. So look, I mean, we're just commenting on the market. We're not commenting here overall on our full year results, just but we can update on what we said in the half year. So overall, we see a stable market in the U.S. So we don't see a change of the market environment, so the same growth driver that were supporting our second half year are in place. And therefore, we see that the market condition is similar like we saw it in 2024. Like mentioning on the full year guidance, so we're not providing the details of our EBIT. But we always told you that we have -- we see in the half -- for the second half year, we always have slightly higher costs than the first half and we were expecting there in the half year call, we're highlighting the risk from the U.S. dollar exchange rates to the Swiss francs. I mean now you know what's the U.S. dollar did. So it was slightly better than the expectation at the half year, but it didn't come back to the average rate of the first half year looking at the exchange rate in Swiss francs.

Next question is from Brijesh from HSBC.

So two questions from my side. The first one is on EMEA region, obviously, in second half double-digit growth, which looks in this market pretty strong. And I appreciate you've put in 3% price growth in, so roughly around 6%, 7% probably the volume and mix effect. Can you just split that number into -- is everything of that growth coming from renovation, there is no new build growth in it? So I'm just looking forward, if that was the case, and you are talking about data center being a very small part of your EMEA number. So when you look forward, do we see this is the reason where you probably see an upside potential if the market were to kind of move up a bit in new residential or new build?

Well, I mean, there, I think we need to differentiate in EMEA and it's a very mixed bag. So we saw especially no new construction or very weak market in the German-speaking part. As mentioned in the southern part, there was new construction. So the economy and also the construction market was a lot better than in the central, German-speaking, more northern part of Europe. And therefore, also, obviously, the increasing demand on construction puts an upside on the part in Central or in the German-speaking part and probably a stable market in the southern part. And obviously, data center construction is also an upside in EMEA, although we expect the majority of the data center being built in the Americas and the Asian region.

Okay. Understood. And then looking at the Americas growth, which looks stronger and as you imply, probably the growth is still solid at this point in time. So in terms of the capacities, you are coming up with your logistics by end of this year, as you say, how practical it is kind of, to kind of continue to ship to the Americas? And do you see any challenges with the Trump admin coming in? Any tariff issues you find is probably be a hindrance to your growth potential?

I mean -- overall, I mean, we're fine with the capacity and we're still producing the majority of the base actuator in Switzerland, and therefore, they also need to be assembled here and then sent to the U.S. And there, we have -- therefore, we're also starting with the capacity expansion here in Switzerland and then continue in the U.S. So from this respect, we can support the business with the capacity at hand. Now from the overall part of the tariffs, we don't see a huge risk at the moment. We don't have a lot of imports into U.S. from the high-risk countries like China or Mexico. So from this aspect, we have got a very limited exposure towards the tariff situation. What we're obviously exposed to is the general economic reaction of issuing tariffs. So that -- if that's going to impact the overall economy, then obviously, that will have a knock-on effect on our business, but we don't see specific risks for us from the tariff discussion.

Okay. Sorry, if I may just add one more question. It's on the mix effect and 2024 had a significant mix -- positive mix effect. Going into 2025, how do you see the mix coming through? You're talking about pressure independent valve continue to grow there. And then data center is obviously has a higher value proposition and thus adding to the mix effect. So how do you see 2025 mix effect panning out?

I think it's a continuation of what we saw as a long-term trend. So we have the shift towards this pressure independent part, and we have to shift towards more value-add customers, and that is also supporting the mix components in our growth composition.

The next one from Fabian from Jefferies.