Zehnder Group AG (ZEHN) Earnings Call Transcript & Summary

Thank you very much. Also a very warm welcome from my side. I know you're in the busy reporting season. It's wonderful weather outside. So I very much appreciate that you took the time to be either here or to dial in into the call. Today, we'll do it like in the past. I will give you an update on where we stand in the next 30 to 40 minutes. So I'll do that together with Rene, our CFO. And I will start first with a review of 2025. Rene will then dive deeper into the financials. And finally, I will talk about current market trends that we see what that might mean for us. But let me first start with a review at the glance. We had very positive ventilation sales growth, 18%, and that means the first time reached EUR 0.5 billion sales mark. And that was possible due to market share gains in most of our key markets. And I think that is a very sound basis also going forward. This is not just how we anticipate or estimate the market. This is also how it is confirmed by statistics from local associations. I think also good for us to see is that the acquisitions, which we made in the last few years are contributing over proportionally. The latest one was Siber last year. And also with Siber we see that the original plans in bringing these products outside of their home market in Spain are progressing nicely. But it's not just Siber. It's also a company like Airia, which we acquired a few years back in Canada, which really is the sound foundation for sustainable growth in the North American market. And even the smaller acquisitions like company Caladair, for light commercial, but Filtech, they're doing really well. A very important topic for us is to grow service business. The people who attended the Capital Market, they know that we're really putting major efforts into that. And again, there, we made substantial progress in our initiatives and we can say that service is really becoming more and more a relevant pillar of our activity. And the same is true for indoor climate solution. Maybe I can refresh your memory. Here, we're talking about air-based climate solutions, which can cool and heat at the same time, with exchanging the air and bringing a good air quality into the house. It's a niche that we really want to become a dominant player in. Also there, we were able to really substantially increase growth. Now on the other hand, we have another activity, which is radiator, and it's fair to say that the pressure is on, it's market induced. And obviously, the focus there was a totally different one. It was about further adapting capacity and reducing costs, while at the same time, obviously maintain the operational strength. But let me look first a little bit more into the market itself. And I think it's fair to say that the overall in security and uncertainties still weighed last year on our activities. And so we didn't see any broad recovery of the market. That is true for both new build but also for renovation. Just to give you a couple of figures and there from the latest Euro construct statistics from last December. If you look at the overall new build completions in Europe, they again went down 10% in 2025. Actually, the decline was stronger than the year before. And our 2 largest market, which is Germany and France, they are the tail lights. Germany is minus 19% and France with minus 17%, but also U.K., Italy, Spain, other important markets, they did not show any growth. In the case of Spain, for example, the anticipation going into 2025 was very positive. But when you see what actually happened, it was another decline of 3%. And even renovation did not show any recovery. And renovation actually last year was more negative than anticipated again. If you take Germany, for example, it was now in the fifth year, negative. Now this doesn't sound very positive, but at the same time, I can confirm that we see some pockets of recovery and some signs of growth in certain regions. So U.K., for example, and that is not new build related, but is really related to renovation and is regulatory related or Eastern Europe, Poland, for example, where the interest rates have come down, and now it starts to slowly pick up. Also Holland, and I will talk about it in the outlook, we see a positive development. Now the other important market for us is North America, and I guess there, it was relatively stable, not so much if you take the U.S. in terms of new build construction that was also declining. But there, it's for us about penetration. And what we see is that the regulations are going in our direction, not across the total country, but in certain states, and that helps us. And Canada is our core market for ventilation, actually was relatively stable. And again, there, we were able to gain market share. We also have activities in China. And China, it's fair to say that our traditional model, which we had until 2021 or until the COVID crisis is dead. So there, we are really shifting to new pockets and have the initial successes, but it will take time until we see there a substantial growth again. And again, radiate the market, I mentioned that before, negative, the market as such. And we also have that confirmed by first figures that are presented from our competition are published. But at the same time, and I think that's another element that we have to consider. We have a certain structural change in the market coming from more expensive products towards lower products and [indiscernible] as a premium provider, obviously, is very much affected by that. So how do we do in that challenging market environment? I think we're reasonably satisfied, and I think we had a reasonably good year. Two markets, Netherlands and the U.K., they really show the growth spurt. U.K. already explained. And in the Netherlands, I think it's fair to say that we were able to achieve substantial market share gain. Siber rollout. I also mentioned that before. We have initiated or we have launched these products in markets like Italy. We have also launched them in the Nordic markets. We're in the midst of launching them now in other European markets and actually, we're ahead of the original business plan. The air-based climate solution, yes, it's still a relatively small portion, but it's first year that we achieved a double-digit sales turnover, and that represents a growth of around 80% in volumes. And I think -- that's a very good achievement, and we are very happy about that. But also the sales in North America, they grew, and that is in both markets, Canada and in the United States. And it has to do that we were able to secure new distributors for certain new regions, but also expand our sales team. And finally, again, something that people are very familiar since our Capital Market Day who ever attended. We have that business, which we call Clean Air Solutions, which is a service business for filtration of air in industrial environment. That is a steady contributor. And we again expanded in new markets. We opened or we started sales in the Czech Republic. We also started sales in Spain and in Hungary. So we can anticipate a similar development like we had in the last 3 years. Finally, school business, it's a typical application for light commercial, that's an application where in various countries, you have seen subsidies, for example, Germany. Unfortunately, we missed out at that time when this program was happening in Germany, but we were able to participate in Ireland, where you also have now mandatory in every school, a heat exchange-based ventilation solution. They're partially subsidized. And I think that for us, in that relatively small activity is rather a breakthrough. Now at the same time, I mentioned services. We harmonized the service packages. We rolled them out all across Europe. We introduced new services, for example, tube cleaning, but we also multiplied online training for our partner companies. We installed new academies like we have here in Switzerland, for example, in the U.S.A. at the East Coast, but also in the U.K. We just opened in January in the Netherlands. And even in Norway, now they're not at the same size like the one we have in Granichen, but it's really the location where we can bring in all stakeholders, educate them and really bring the concept of good indoor climate across to the decision takers. So as a consequence, we had a good growth in service. And so these efforts start to pay out. Finally, I think it's always nice to get. We also received multiple awards, for example, in Switzerland, the Swiss Architect Darling Award, where we are now in the top 3 position for many, many years on a continuous pace. And also another award, and I have to read how it is exactly expressed, The Solution of the Year 2026 for Renovation Award in France for ventilation, new ventilation products, and also the Top 3 Recognition for German Sustainability Award, which also shows that we are still believing in these efforts that we're doing on the sustainability level. Now let's look at the radiator segment. And yes, there, the focus obviously is a total differ. It's about adapting capacities, about cost reduction. And as you know, we closed the factory in Switzerland last year. and that is concluded. But we also adapted the capacities in our other big plants, for example, in Germany, we're in Lahr, that's in the South of Germany, where we reduced as of 1st of January to 1 shift from 2 shifts. But also, it was a measure that we took in the towel radiator factories to really adapt our capacity to the market demand. What we're also doing all the time is to look at opportunities to outsource certain production steps. That is not necessarily a cost reduction, but it obviously helps us to flexibilize costs. And we're initiated a portfolio adjustment, again, to make it less complex to ultimately also have a benefit on the cost side. We need to do that without weakening the operations. And I think with the closure of Granichen, we have now no product that is produced in multiple locations anymore. We have one product or every production is focused on certain products and gives us synergies, not just because of the cost base, but obviously also how we deal in the processes. We also launched a couple of new radiators, and we also launched a new immersion heater platform. That's the electronic element that heats the radiator, for electric radiators, which is up-to-date design, but it's also a new software platform. It's connectable. It is something where we obviously can really be on top also in that part of the business. Maybe just one word to the North American market. In the U.S., actually, the radiator business was rather stable, which is good. There, we have a relatively old plant. We have to obviously make sure that we maintain the plant because we also see that, that market is holding on. But it's clear, our transformation is progressing and you see that we are now 2/3 ventilation business. And so we are really shifting from a component manufacturer. Radiator as a component for a water-based heating system towards a HVAC solution player in the ventilation and all the topics around it industry. And again, you see the growth over the last few years, average around 15%. We feel that is something that should be our ambition also going forward. Now maybe I can just show you a few reference projects to give you a feeling of the breadth of our offering and the relevance in different geographies, but also in different subsegments. What you see here is a development in social housing in the U.K. It's just a first phase, and they are supposed to be many more coming. Our traditional product, the ComfoAir Q was put in all the apartments. But we also are in different segments, for example, in the luxury vacation home segment. And this is a complex in Colorado. Again, to show that also good indoor climate is a big topic in the U.S. market. I was just recently in California, in Big Sur, that's in between San Francisco and Los Angeles. We were just installing ventilation in the spa of one of the most reputable hotel, that's the Post Ranch Inn. I didn't stay there, the net cost $2,700. But I was told that when I was visiting Brad Pitt was staying there because it's right between Hollywood and Silicon Valley. And so it just shows that we're really the thought leader also in this particular market and segment. I mentioned schools. This is an example from Ireland, and you see bottom right, the unit is different. It's a light commercial unit. And it's obviously a topic that is not just an Irish topic and many other schools. In fact, we know that pretty much all of the older schools have that issue of that quality of air. They have a potential and I think to have succeeded in that project is really a first step hopefully of many more to come. But also a couple of flagship projects for the radiator productivity. Last year, we were part of the renovation of the Waldorf Astoria in New York. You see the product on the bottom right. These are these flat steel tube panels, a very nice project and obviously, also a good reference for us, or another one in Germany, the Castle in Oberschleissheim in Bavaria, where we have a typical application for our radiator activity. You see the radiator is relatively large, has to fit into that niche and that's what we do on spec, produce of what is needed for renovation. And finally, also a nice project because it combines 2 of our product offerings, one side, the ceiling panel on the other side, the ventilation, a sports hall with ceiling panels. You see them on top of these trips which is, again, also a very typical project that we handle in this activity. So much for the business review, Rene, I would ask you to your explanations about the financials.

Thank you, Matt. Welcome also from my side. Let me now take you through the financials in 2025. We were able to increase ourselves by 8% organically was 7%. The first 6 months, it was 8%. And then in the second half of the year, it was 6% organically. Thanks to the clear sales increase in both our profitability. So the EBIT adjusted is now 8.6% margin. And in EUR 65, that is an increase of 30% compared to the year before. We had EUR 1.8 million one-off cost that was related to adjustments in the area, production, Matt mentioned the one chief model, but also on the sales side to reflect the declining market and volume development from our side. With a strong focus on cash generation, we were able to increase our cash flow, operating cash flow by 32% to EUR 80 million. And that, I think, was a big focus to make sure that we can also pay back the syndicated loan facility. Net profitability. Remember in the year before, it was a loss. And in 2025, we were able to achieve EUR 47.8 million, thanks to the better profitability of the business. Also an important key figure is return on capital employed. There we have a clear improvement of nearly 7%, thanks to lower capital employed and higher profitability. Let's have a closer look to the sales development between 2024 and 2025. So 2024, the total sales was EUR 706 million. And then in the first 6 months, we had 2 M&A effects. There were the investment of the climate ceiling business with a negative impact of 8 million sales. But then on the other side, the acquisition of Siber, EUR 20 million additional sales in the first 6 months. The second half was like-to-like, so no acquisition impact anymore. On the radiator side, we lost EUR 13 million. In the first 6 months, it was only EUR 4 million. So we lost more compared to the last year in the second half of the year. The opposite on the ventilation side, we increased the sales by EUR 62 million. In the first 6 months, it was EUR 30 million. So we even had more sales in the second half of the increase compared to the first 6 months. On the other side, there was a negative foreign exchange effect. The first 6 months, it was more or less 0. And now in the second half, it was about EUR 6 million, mainly due to the weaker U.S. but also Canadian dollar. All our key financial figures improved. I just want to highlight EBITDA development. So the EBITDA adjusted increased 16%, and we were able to achieve a double-digit EBITDA margin again with 11.7%. Let's have a closer look to the 2 half years. In the first 6 months, the EBIT margin was 8.5%. And in the second half, it was 8.6%. And we also need to consider on one side, yes, we are able to grow, but we also continue to invest. So it's not the idea that you freeze out the lemon. It's to find the right balance between profitability improvement and to strengthen our foundation on the product innovation, but also to develop new markets like in North America, like in South Europe, like in Eastern Europe to make sure that we can further develop our business. From the ventilation side, the sales was EUR 248 million in the second half. That is less compared to the first 6 months, but that is the normal seasonality for the ventilation business. Because in the first 6 months, you have more working days on the construction side. The second half of the year, you have the summer break and you also have the Christmas break. And that's why it's normal to have less sales in the second half of the year. And in both half year, we were able to increase our sales on the ventilation side. So organically, the first 6 months, it was 15% and in the second half of the year, it was 14%. So the organic growth rate was very similar in the 2 half years. It was the opposite on the radiator side. So there was a decline of 8% in Euro. And organically, it was 3% less in the first 6 months, and it was 6% less in the second half of the year. We still do the main part of our business in Europe with more than 80% of the sales. There, we were able to grow 10% and North America contributed about 15% of the total sales. Also there, we were able to grow by 4%. On the left side, we see the main ventilation and radiator countries, the top 5. So on the ventilation side, Netherlands is clearly #1, then followed by U.K., Germany, Canada and Switzerland. And also positive to mention is that except Canada, all of these 5 countries had a double-digit growth. Canada, local currency was close to double digit, but due to the weak Canadian dollar, it was then just a small growth in Euro. On the radiator side, all European countries were faced with a declining market environment and also a declining development from our side. In U.S., there was a small growth in Europe, but also in local currency. Our 2 segments, ventilation. So as mentioned by Matt, we were able to achieve the first time in the history more than EUR 500 million. So to be exact, it was EUR 501.7 million sales, in Europe was an increase of 18%. Organically, for the whole year, it was 15%. And again, the development was quite similar for the first 6 months and the second 6 months from the organic growth rate, driven by Netherlands and also Ukraine, we really had an extraordinary growth in 2025. So the strong sales development supported also the margin improvement. So the EBIT adjusted, but there was no special impact in 2025, increased by 42% to EUR 62.8 million. And on the EBIT margin side, it was 12.5%, so 2% increase in margin. And again, it's always a balance at the end between profit realization and further investments in R&D, in market development. On the radiator side, it's exactly the opposite build. So we have a declining sales development of 8%. Organically, it was 5% and also the adjusted EBIT decreased again significantly. Despite of a lot of measures taken, I would say, to compensate the lower volumes. I would say we were able to compensate the lower volumes with cost measures, close of Granichen, [indiscernible] model also adoption of the organization, but there was also pressure on the prices. So we had a negative price impact, which we're not able to compensate. And positive is the first 6 months, it was a loss -- a small loss. The second half of the year, it was at least a small profitability, thanks to the different measures taken over the last few years and the impact of it. Cash was a very important focus for us. So we had an operating cash flow of EUR 80 million, and that was then -- that gave us the possibility to fully pay back the syndicated loan facility, which we used for the acquisition of Siber in 2024. So we paid back EUR 60 million to the banks. CapEx was on a low level. So we invested about EUR 17 million. That's clearly below the depreciation level. And so also there, we were very careful to manage that in a proactive way. Balance sheet. We still have a solid balance sheet, supported by the good cash generation and also our financial discipline. So we were able to decrease our total assets -- we are able to increase our equity ratio from 51% to 59%. And again, we now have a net liquidity position of EUR 32.8 million compared to a net debt the year before of EUR 11.8 million. Long-term development. So between 2022 and 2024, we lost sales and also profitability. And thanks to the positive development in 2025, we're able to change this trend. So we're able to increase the sales again and also the profitability. The picture looks different for the different segments. So on the ventilation side, even in a difficult environment between 2022 and 2024, where the market were declining, we're able to achieve a double-digit EBIT margin and with a further improvement then in 2025. On the radiator side, it's declining now since 2022. And despite a lot of measures and the reduction of the breakeven point, we were not able to change the negative trend on the profitability side. And again, now 66% is ventilation and 34% is radiator. So the portion of the ventilation is clearly increasing over the years. Thanks to strong cash generation, we also increased the dividend. So we have a dividend policy to pay out between 30% and 50% of our net income. And so the Board of Directors proposes a dividend of CHF 1.40 compared to CHF 1 a year before, and that is an increase of 40% or a payback ratio of 36%. The dividend amount, if that will be approved, then about EUR 70 million. There will also be some changes in the Board of Directors. So Urs Buchmann will not be standing for reelection, and the Board of Directors will propose the election of Mara Zehnder as a representation of the family. With that, I would like to hand back to Matt for the outlook and the market development.

Thank you very much, Rene. So again, let's look at the market trends first. This is the guesstimate Euro construct new build completion. You see good thing is it starts to change from red to yellow and partially even greenish. And I just would like to highlight a couple of figures. First one, 2026, Germany, minus 10%. So it's anticipated that Germany, again will have a decline. On the other hand, and I think these are first positive signs. If you look at the new build permits in Germany, actually went up by more than 10% in 2025. And if you look at the minus 10% and you compare it to the year before, actually, the year before 2026 was still seen more negatively with minus 15%, now it's minus 10%. So it's really a question mark when will that end with us because we are late cyclical. But I think also in Germany, there is a certain light at the end of the tunnel. Another one that I would like to point out is Holland. You see the plus 16%. I mentioned it before, there is a massive lack of apartments. roughly 500,000 units, and it is one of the top topics also for the new government, which was just installed the other day to make sure that there is now a start of building happening. And it is clearly an anticipation that restrictions that were hindering will be eased. Where it's going to be the 16%, I think that's a question mark, but definitely a direction towards positive. Spain, again, very positive, anticipated was also for 2025 did not happen. And I mentioned the issue there is really to find qualified labor. So we'll see whether there is an improvement there. I would be still a little bit skeptical whether these figures are coming through. But nevertheless, you see that overall, it goes in the right direction. That's also true for renovation. And Germany, after now several years of a decline is for the first time, again, anticipated at a very modest growth. And Italy, which was lousy in 2025 that had also to do with certain subsidy programs that the government had installed before that, is supposed to stabilize and similar is true for France. So we believe that there is a certain recovery in the market. And we also believe that this will gain momentum throughout the year as we go. Longer term, the building codes, they are happening. We know that buildings close to zero energy standard will take more penetration in Europe. But I think on the other hand, we also don't know whether we have additional insecurities, global topics that will affect that. Right now, there are debate in Geneva, Iran and U.S.A. and nobody knows whether that or what that will bring again in terms of insecurity. And I think that's a fact. We have seen it in 2025, and we have to assume that will continue a price pressure, particularly also on the radiator side. Now if you look at the North American market, I think overall, relatively stable, different by segment. But I think there in the U.S., it's mostly the regulation that will support in the long run. And if you look at Canada, it was stable in 2025, and we also anticipate to be stable in 2026. What I wanted to show you on that top -- the bottom right graph is the situation in China. And what you see in the orange line, that's new starts. And if you look at '21, take that as 100%, we are now in January '26 at a 25% level of what it used to be, just to illustrate that there is really nothing happening there. And if you look at the green mark, these are completions. And logically, completions follow new starts. So completions, they will further go down. And that's the reason why we have and we are changing the business model there. We are venturing into new potential markets. One is light commercial. I'm really happy that we're able to secure a framework agreement with the largest hotel group in China, the H World Group or H group. And there, for example, the master licensee of the [ Accor ] Group. This is a relatively more stable business than what we used to have in the real estate development for big apartment buildings. Nevertheless, we cannot assume that we'll have any support from the Asian or from the Chinese market. So what does that mean for us? Yes, a slightly positive, more friendly market environment. But I think the strong growth, particularly in Holland and also in the U.K., we cannot assume that they're repeating. I'm not saying that they're coming back down, but that we have another jump to a next level, that's probably not realistic. You have seen we have several initiatives that we're working on. These are strategic initiatives. We're standing firm to those initiatives, and they start to contribute more and more, and that should help. Nevertheless, in light of all the other things around us, we stay cautious and we'll also -- will not jump to hoops. And we want to maintain the investments. Because we feel that we're on track, and we want to make sure that they pay out more and more as we go. So outlook, we don't want to give an outlook for the full year at this stage. We don't feel comfortable. We do it like last year. We plan to give you an outlook by midyear when we have a better understanding of 2026 really brings to us. But I mentioned before, strategy is clear, and it's also clear that we stick to our course. We want to and seek expansion in North America. We also seek penetration in Europe and we will support that. And this is in certain segments where we still see a bigger potential in our traditional segments, for example, in multifamily homes, but also light commercials. The service business, we have 1 million units in the market in Europe. It's an addressable market that we really want to build up as we have made first progress last year, but we'll continue on that. But also the acquisitions, we're constantly seeking new opportunities. I mean it's a little bit difficult to exactly predict when something like that can happen. And also on the renovation side in terms of product offering, there are opportunities that we have not fully embarked on. So we believe that the growth that we have seen also in a very challenging time in ventilation proves that we are going in the right direction. And obviously, we want to stick to that and make sure that we can continue that. Now if you look at our midterm targets, you see that we achieved the 4% if you compare it to 2020. Well, we say 5%. But don't forget, that is including all the issues that we had. Nobody is talking about Brexit, nobody is talking about COVID. Nobody is talking about energy crisis anymore. So in a very adverse environment, that's also including a radiator activity, which had a double-digit decline over the last 3 years. And in that light, if we do have maybe a little bit more stable situation going forward and more -- a little bit better market environment, we believe the 5% are achievable. If you look at the EBIT, we are at least close to the bandwidth. That's positive. Again, we just saw it before, that is at a radiated activity around the breakeven point. And if you look at return on capital employed, I'm glad that we already hit north of our target with the 22% versus the 20% that we set out as our target.