Zumtobel Group AG (ZAG) Earnings Call Transcript & Summary

Hello, everyone. Welcome to today's Zumtobel Group's First Virtual Capital Markets Day. We are very happy that you all joined us today. My name is Eric. I am heading the Investor Relations Department here at Zumtobel Group, and I am your moderator for today. Unfortunately, due to COVID, we could not welcome you here in our Light Forum in Dornbirn, where we showcase, on an area of 4,000 square meters, our full brand spectrum and our potential as an international lighting company. However, in order to give you a little bit of an impression how our Light Forum looks like, we prepared a short video. [Presentation]

We hope that we see each other very soon here in Dornbirn so that you can experience everything in person. Let me now introduce to you today's speaker, the entire Executive Board of Zumtobel Group; our CEO, Alfred Felder; our CFO, Thomas Erath; and our COO, Bernard Motzko, will share with you their insights when it comes to Zumtobel Group's presentation and strategy until 2025. Before I hand over to the first speaker, let me shortly introduce to you today's agenda. After my introduction, I will hand over to Alfred Felder for his presentation. Afterwards, Bernard Motzko will share with you our operational footprint in 2025, while Thomas Erath will share with you our financial framework until 2025. Alfred Felder will give you a quick summary at the end before we start with our Q&A session, in which you can ask your question either via the chat function in your web browser, which you can use already and also during our presentations and of course, also during the question-and-answer session or you can also ask your question via audio with your voice, so that we can hear your voice here in Dornbirn. One housekeeping item again also regarding the presentation, your -- the presentation and also a replay of our Capital Markets Day will be available after our Capital Markets Day this afternoon. And with this, I hand over to our CEO, Alfred Felder, for his presentation.

Good afternoon. Warm welcome in the name of my 2 colleagues here on the Board, Bernard and Thomas, to our Virtual Capital Markets Day here out of the Light Forum in Dornbirn. It's a pleasure to have you all here online and a pleasure for us to give you now an outlook how we plan to drive our business until 2025. The agenda for today is as follows. For those of you who are not so familiar with the Zumtobel Group AG, I give you a quick overview. First, show you what we did since we took over as a new management team in 2018, the transformation and the restructuring, the repositioning of the company, followed then on the market outlook and the growth opportunities that we have for both our businesses and then in detail and outlook on Components segment and on Lighting segment, followed by the key topics what we have now on our agenda, and we worked during the COVID namely sustainability and digitalization. Before I go into my presentation, I would like to share with you also a short video on the highlights and activities what we did during the last year. But obviously, for all of us was quite a tough one during the pandemic situation, but it gives you a glimpse who we are, what we do and what our people contribute. [Presentation]

At Zumtobel Group stands for innovative lighting solutions for components as well as extensive service offerings. On that page here, you see how almost 6,000 people are operating. We clocked last fiscal year with the effect of corona at EUR 1.044 billion revenue below previous year. But if you look at our EBIT and net profit numbers, we have been able to manage it very well slightly and partly substantially above previous year. Since quarter 4, we see a remarkable bounce back of our numbers with already 9.6% growth in Q4. And here on the left side, you see the growth what we published beginning of September for Q1, almost EUR 290 million and also substantial improvement of the EBIT with EUR 20.1 million as well as the net profit of EUR 13.4 million. 85% roughly of our turnover we do in Europe. We are very proud that we are operating in 90 countries with sales offices. And we are looking at a long history of 70 years out of the brand Zumtobel and over 90 years with the brand Thorn out of U.K. The business we're operating is not in all markets, what we define in general lighting. It's as you see it here, for the Components business in the electronics segment, which is roughly EUR 8 billion out of the USD 112 billion or 7% with sensors, with power electronics as well as LED modules. And then in the professional illumination segment, which is the large portion of EUR 43 million or covering almost 40% both on luminaires and on systems and solutions. And that's why we also need to be very careful if we compare the Zumtobel Group with other lighting companies that we are comparing the different business segment we are in. We are not in lamps and we are not in consumer luminaires. Looking into our 2 segments. We follow a very strict global multi-brand strategy with Tridonic or the Components segment firming under Tridonic under 1 brand with separate segments on sales, product and portfolio R&D and operations. And then we have a clear dual-brand strategy of Thorn and Zumtobel. I will come to that because that has been reshuffled since the previous time and especially the last 18 months. Also with the portfolio, the R&D operations and logistics, including the services, and we are sharing common resources on purchasing and corporate functions. The firewall here means that Tridonic is separated via a so-called firewall between Components and luminaire business simply because Tridonic does more than 80% of its business with competitors outside the Zumtobel Group. So where did we come from? As I mentioned at the beginning, towards the end of our fiscal year '17/'18, we as a new management team, took over. And you see here the development since '11/'12 and the results, what we have achieved from free cash flow, EBIT, net profit as well as the revenues. And obviously, as you are aware, since '13/'14, the whole lighting industry was benefiting from the steep ramp-up of the LED technologies, where obviously every light point in a ramping-up technology was getting a higher value, a higher revenue. We see it also here, we have been able to increase the revenue. And basically, after '15/'16, the technology started going into saturations. There was also an oversupply of LED technologies into the different market, partly also because patents on blue LEDs as well as phosphor conversion into white were expiring. And from Chinese manufacturers, a lot of LEDs came into the market. That resulted in the quite radical price erosion, where we obviously did not react fast enough to streamline our cost structure. We had inefficient processes. We had too high central cost structures and therefore, also it resulted in a negative net profit in '17/'18 of almost EUR 50 million. You see it also EBIT was negative as well as the free cash flow was negative and resulting in EUR 1.2 billion revenues only. The last 3 years until now or until the end of last fiscal year, we did a lot of corrective actions. We have been able to manage the free cash flow from the minus EUR 24 million to the plus EUR 100 million last fiscal year; the EBIT from EUR 7 million to EUR 43 million of a minus EUR 7 million to the EUR 43 million; and the net profit from the minus EUR 47 million to EUR 48 million (sic) EUR 46 million ]. This successful transformation makes us proud because on one side, we streamlined our operational footprint. And my colleague, Bernard Motzko, will give you an insight how the outlook is based on that what we have today until 2025. We closed a plant in Usingen. We closed Guangzhou. Now you can say, well, we pre anticipated COVID. That was not really the case, but we moved the production back to Europe, same was for our plant in Tridonic in Shenzhen, where we went to a smaller size and moved some for the European reexport products into our plant in Niš, what you see here, we opened in 2018. We have then closed and moved the production of the LED modules from the Austrian factory, Jennersdorf, to Serbia, and we did the reintegration of Les Andelys. We had 2 full-scale plants in Australia and in New Zealand, and we downsized this to assembly plants where we're importing the parts from the different factories what we have. So in a nutshell, you see here, we reduced the plants from 13 to 10 during the last 4 years. On the other hand, we worked in all departments in reducing the cost position and get us more efficient. We simplified the layer structure, and we increased the focus in sales, product management and R&D. And we had done a significant downsizing of the central functions and the SG&A costs. In parallel, however, we focused on innovation. And on the way forward, we had launched 18 months ago an internal program what we took and we named [ Fit-4-2025 ], which basically shows now the result what we are planning to do. We came up with a clear dual-brand strategy positioning for indoor, Zumtobel and Thorn. We did last year the integration of acdc outdoor into the Thorn brand outdoor. And last but not least, we fully scaled the development via platforms so that we are able to stretch in indoor the brands over the multiple tiers in our key applications, industry, retail and office. If you looked at the market, then we see that after the COVID, which, obviously, you see here on the gray charts, is basically recovering differently in different markets all across Europe. It's predicted that in 2021, it's roughly 3.8%, 3.9%. It's a little bit more in 2022. And the same is in outdoor, where obviously, and you will see it in the next pages, it's also triggered by the EU Green Deal by the inputs what the European Union is triggering into the market. But also here, we see a step up during the next years until 2023. We have done, with our exercise, especially on the Fit-4-2025 program, an analysis how are we positioned against the mega trends and how can we benefit from the mega trends. One is obviously efficiency and in line with that, the sustainability. We are offering the most efficient solutions. But also from a Components level, it goes into miniaturization of trust of LED modules, what can trigger again a different design of luminaires and luminaire solutions. And last but not least, the whole connectivity where obviously our Components business and the know-how in the Components business plays a vital role for our innovation towards the customers, especially for the brand Zumtobel but also for Thorn customization and creating value by our customized products to the customer is a key. And that's basically [ DNR ] what we are living every day. Our EU Green Deal. What came up is offering quite a large amount of opportunities what we categorized in 4 sectors. Obviously, lighting being a key ingredient in the building sector can benefit from that, where renovating is planned to increase to 3% of public buildings; where obviously, CO2 neutrality plays an important role, with a total investment amount of EUR 8 billion what EU plans to invest. On the other hand, transportation at everything, what is attached to that public transport, charging hydrogen stations or also the whole transportation sector. Also here, we do offer a solutions where we can benefit with a large amount invested here of almost EUR 90 billion. The third one, again, a key application on our lighting is the industry segment where obviously, the focus is on circular economy, with the new alliances with the giga factories in batteries in all European countries, and basically offering new applications also for the lighting industry, another EUR 20 billion. And last but not least, the whole energy segment with renewable energy generation, energy storage, and systems, where obviously also here, our products are able to get in. With the corona crisis, we accelerated basically 2 segments where we believe we can play a stronger role into the future. This segment are the sustainability, but also the digitalization. But let me just recap what we have done and what we announced already 3 years ago. With our strategy, what we named FOCUS, where on one side, the F stands for focused markets and applications. with a clear direction on the lighting brands for Europe, and selectively in other markets. That does not mean we are ignoring the markets, but we are not addressing this market with a full-scale portfolio because we believe in Europe, we are having the right customer access, the right portfolio, the right know-how and the service to get a larger portion of it. Components Segment, on the other hand, is offering solutions on a worldwide base and focuses on the global market. Also, and you will hear it more in detail the next presentation by Bernard, the focus on operational excellence. With our brand-new factory in Niš, our production is more competitive and is working on -- with a global network. We are closer to the customers and we offer the customer more flexibility. This C stands for Components on one side, but also for the competence in the details, namely in the Components with innovative solutions on LED modules, integrated LED modules, LED drivers, sensors, but also IoT solutions. You will see it in a slide later. Tridonic is operating our software center, what we opened in 2019 in Porto, what serves the entire group on application software solutions. A big effort we took in reshaping our brands with a crystal-clear positioning in indoor what Zumtobel stands for and what Thorn stands for. We integrated acdc in the Thorn outdoor, and we have basically the Components Segment with a single-brand strategy, namely Tridonic. And we did not ignore the new technologies, the smart solutions and services based on digital technologies. We have increased substantially the resources for the turnkey solutions. We started first steps towards light-as-a-service offering, and we are also offering, in parallel to our lighting solution, digital services for adding value to customers. But the new focus, that's why we extended the 2 letters E and D. E for the environment, where it's the clear goal, what we set to ourselves as a KPI, that by 2025, we as company, we as a group, plan to become climate neutral. In parallel, we have started with the new projects to adapt the circular economy design rules. And we are also fostering the environment and enables our employees to grow and be a stronger part of the new setup. We've rebound our efforts to make the company digital. As we learned it, partially hard way, partially the easy way during the corona crisis, how we fast can adapt to the digital tools. And we will implement a fully digital end-to-end process from the first customer touch to the after-sales so that it enables us and the specialty customers to make it much easier and much less costly to work with us. In addition, it gives us the platform for our digital products with enhanced functionalities beyond the lighting. And obviously, it helps us also to increase our digital portfolio. With that, we have completed by the end of last fiscal year the first phase out of the uncertainty. We have been fixing the problems. We have terminated and stopped the restructuring, and we built a solid foundation. In other words, we in the Board believe we have now gained the right to grow, and we are planning now to generate a sustainable growth really and being a leader in our industry. By proactively anticipating the changes and the challenges of our future, which obviously, we have already won with the material shortage and the allocation of certain components, what keeps us busy during these times. Out of our growth plan, we believe, with all what we have in our pipeline, with all the innovations, what are currently in the ramp-up phase, we are able to grow above the market growth in the range between 4% and 5%. Obviously, now we are benefiting from the COVID catch-up, especially those countries who have been suffering a lot in our portfolio, U.K., France, Italy, but also the DACH region is recovering quite fastly. We are seeing growth in core markets in Europe where we are partly have been losing market share, where we have regaining this with the new products what we have. And we also believe that we are gaining market share back in the different growth opportunities, what I'll show you into more details in the Components as well as in the Lighting Segment. Thomas Erath later on will give you an overview of what we have now as a firing power when it comes to inorganic growth where we believe also beyond that, we can grow in key technologies, in key applications, but also in key markets where we have partly white spots where we are operating. The Components Segment is characterized that it provides all the know-how and the technical solution what goes into a lighting solution. You see here, as an example, in the retail shop, you see the drivers in a trunking system from Zumtobel also from competitors. You see it also with the LED modules, the sensor technologies and also wired and wireless control solutions, but also the entire infrastructure, which is mandatory in each building on emergency converters and batteries. Tridonic is having 300 highly skilled, qualified R&D engineers in different sites. Tridonic operates 4 factories, and you see here a little bit the numbers what we have. Niš, since the ramp-up, is now producing already 15.5 million pieces per year. As I said at the beginning, some of the products from Tridonic, what we produced originally in Shenzhen for the exports in Europe, are produced now Niš closer to the customers. The portfolio is both the drivers as well as the light sources. Shenzhen is still having a high volume for the Asian market. Spennymoor is our factory and our competence center for emergency and light sensors. And Dornbirn, the advanced drivers, the high-end drivers what we have. And you see here the numbers in total of the production volume, what we do. Here we have roughly 1,100 well trained and skilled manufacturing staff. Last but not least, I would mention one more Portugal. In Porto, where we have opened the advanced software center, being able to provide solutions both for the Components business as well as for the Lighting business. And currently, over 50 highly trained engineers working there, which is also new and shows how we're investing into the future, especially when it comes to services and software applications. Last year's numbers obviously affected also in Tridonic by the pandemic situation, EUR 303 million turnover. But you also see 65% is in Europe. And a large portion of that in our strongest region DACH, followed then by Northern and Western Europe, including U.K., Eastern and Southern, and the rest of the world is about 28%. And on the right side, an interesting picture. The distribution among customers that might be for some of you not a surprise, but for some of you, maybe yes. It's 2,700 active customers, what Tridonic has. 17% Is the turnover with the group, 18% with the top 9 customers, and the rest is very fragmented what illustrates how fragmented the lighting industry still is in Europe. Tridonic's positioning in the market is very established, especially in Europe, across all the countries, we are very close to the customers with a local network in each country of the experts; with a deep understanding of the customer needs; and last but not least, with the local-for-local production, Dornbirn, Spennymoor and Serbia. We stand for high quality. We prove for having long-lasting operation monitored nowadays by IoT solutions. We are well designed for an easy integration, and easy-to-use in the luminaires, and we count on high energy efficient. But what becomes more important also towards the end user, is an understanding of the end user needs, of the whole integral understanding of the technology and its operating software. Obviously, here, there's a benefit to have components know-how and luminaire know-how under one roof at the Zumtobel Group, and therefore, the advanced understanding of the luminaire manufacturing process. Also Tridonic did work on the growth path for 2025, and there are basically 3 pillars what will drive the growth for Tridonic in the next 4 years. What is a clear synergy within the existing portfolio, where especially outdoor what has been launched late in the LED technology is gaining momentum. We are very proud that we have been winning an award of innovation with our SIDEREA portfolio. We have the single-battery emergency lighting systems compared to the central battery, which is more on the Zumtobel side, and we have wireless solutions for easy deployment in every situation. On the other hand, similar to the lighting brands, also Tridonic, have a couple of white spots. With its global reach, there are still underrepresented regions in Asia. We have the portfolio for it. And we believe that we can still leverage our strong customer base in Europe. Obviously, also with the situation that some of the European competitors of Tridonic do not exist anymore or are in transformation. And last but not least, also similar to the lighting brands. Cradle-to-cradle, the circular economy, is applied for LED drivers. We are having more and more monitoring of the data of our drivers with our lumDATA portfolio, And we do, close to the customers, with the factories, product customization where we can develop products exactly how the customer need them. And here, again, on the next slide, that is how we believe we can drive and we plan a similar growth towards the EUR 350 million to EUR 370 million by our fiscal year '24/'25, which means by April '25. On the Lighting segment, we have been working and repositioning a couple of established positioning applications. Obviously, we are operating in the 3 key and core elements in indoor with the 2 brands. The industry segment, the office and education segment as well as the retail and the arts and culture segment. And especially during the corona crisis, we learned and we adapted our portfolio and we created a dedicated team to drive the whole health and care application where a huge investment money goes in. With the integration of acdc into the Thorn brand, we have repositioned the outdoor architecture, which is unique with our acdc portfolio. But also we have newly built up sports and arena illumination, as you might have seen and what we have reported, we have been winning key projects with great soccer teams like we have the floodlight for the Borussia Dortmund stadium. We have done illumination for Bayern Munich. We have done it for Mainz 05, but also [indiscernible] spot, even in Argentina, with the Boca Juniors, we did the flood lighting solution and numerous to second- and third-league stadiums around Europe with a brand-new portfolio, and we believe that gives us additional inroads next to our roads, functional lighting as well as our urban applications. The structure of the business is quite different to the Tridonic business out of the almost EUR 800 million, what we did during the COVID period, 85% is in Europe. And here, again, like the Tridonic with a strong footprint in the DACH region, followed then by Dornbirn and Western, especially France and U.K. and then Eastern Europe. And we do about 76% with indoor and the rest with outdoor, about 25% and the rest with services and other applications. As I mentioned before, together with the marketing and the application team, with a hard exercise to reposition our brand, this pyramid illustrates a little bit our business and the market size. When we talk about the premium tier, the high end, the performance tier and the value tier application on the left side as well as on the hard side, the hard spec where we define we spec. The soft spec where we rebuild the spec, and OTC stands for over-the-counter business in the business, what is typically the trade business with our big trading partners. Zumtobel is clearly here the performance in the premium brand where we, I would say, back since 2016/'17 lost traction because we had too much overlap and not a very clear positioning between Zumtobel and Thorn. Thorn, good quality light for good money, in the lower performance tier entering into the value tier. And last but not least, our THORNeco, our OTC business, easy to use, very little consulting, what goes into the electrician via our wholesalers. On the outdoor. With the integration of acdc, which is covering the premium, we plan to lift up the Thorn brand from the performance into the premium, especially when it comes to the outdoor architecture. And you see it here, we are not having a value tier offering, we are operating with this brand in the performance level as well as entering now with acdc, which is renamed in Thorn into the premium. Here you see the summary of the bottom-up planning, how we plan to grow towards 2025. I'm saying here, the inorganic growth from the EUR 800 million to the range of EUR 930 million to EUR 965 million, with the big portion out of Zumtobel with especially the new segments, health and care, but also with the industry solutions, we have just launched the new high-bay CRAFT solution for warehouses where we see a huge momentum coming in. Zumtobel by far, offers the most sophisticated and advanced light management and IT solutions and services, and we are refocusing again on these high-spec applications like in the art and culture, working with key architects that we do, as I said, in the DACH territory now since this year, first steps into offering light-as-a-service solutions. Indoor, it's partly a catch-up effect. We have been developing and we are still developing new products to complete our portfolio for our established applications in industry, education, also health and especially in retail, especially for regaining the market share in our established markets, which are France, U.K., Nordic and the Middle East, but also that we are repositioning our standing in markets like Eastern Europe, where we go with the 2 offerings from the Zumtobel high-end as well as Thorn in the performance segment. Outdoor, as I said, functional street lighting, the urban and the city application, the tunnels and the sports and also the architecture from formerly acdc. The THORNeco portfolio is similar to that what Tridonic is offering is a global portfolio where we are planning to extend it, where it comes with all the certificates worldwide, and we are planning to go global with this one. And here, we are also using the e-commerce tools and the digital to promote and sell this portfolio because it's extremely easy to use, and it does not require a huge consultant effort. With that, I would like to come to the topics, sustainability and digitization, to share you what we are planning to do here and what we have to set with us as KPIs. We have defined a road map for carbon neutrality of our company until 2025 with clear measures and a clear reduction already starting within this fiscal year. Here, we are working together with our suppliers also to integrate them into all of our plans. We are working on an update for EcoVadis, which significantly improved data, what we have submitted, and we are expecting now the results soon by the end of October. And we are really focusing together with our entire purchasing department, on sustainability in the procurement area. We're at the beginning, but very intensive now, driving with a dedicated team the circular economy opportunities, from recycling, from the remanufacturing, the reuse and the maintenance, we have our first product portfolio, which is the freestanding luminaire, what is basically developed based on this circular design rules, where obviously, the R&D processes are adapting to it. We are using cradle-to-cradle applications for lighthouse projects, and we are constantly now doing a business model analysis to engage with the partners outside in the market. This is just an overview, and I don't go into all the details what this means for a company like us from sustainable sourcing, from the operations from Dornbirn over Spennymoor, Niš as well as in Germany. The whole consistent application of product development following the environmental data, offering then the most efficient solutions, what are not only using the most efficient LED technology, but also the whole sensor and electronic technology, what basically have the aim to use less and less energy. The health and biodiversity as an integral part of these efforts and then basically moving on into new business models, using the circular economy and using these new requirements to do additional business. We, at the group, believe that sustainability has 3 levels. On one side, it's lower costs because we have lower energy, lower water consumption, lower material consumption and also less CO2 emissions. Number two, again, for the group, that it helps us to increase the sales and improve the margins through sustainability products and solutions. And last but not least, and most importantly for our customers, we help them to use their sustainability targets with less energy consumption, less material consumption, the most efficient and electronically driven sensor-equipped lighting solutions. If you look at the digital setup, then obviously, the construction industry, and you see it here from a data from McKinsey belongs to those industries who have a very, very low penetration in terms of digitization, if you compare it with finance, even with oil and gas. And obviously, that opens additional possibilities for growth as well as for business opportunities for us in the lighting industry as we are part of the construction industry. And as we said, to ourselves, that lever, we need to use. And here is one example what we did with a client in U.K. where we offered a lighting solution, but basically with using already building information modeling, where the lighting industry and also the construction industry is far behind, for a digital twin for our luminaires. And we have been able to get into this project at a much earlier stage, helped the customers to do a better job and have exactly the right solution together with the planner and the lighting designer. As I said, we're at the beginning here, but also we believe the digitalization is for us as a group, a benefit on costs. The end-to-end process from the first customer touch until the after sales is a huge cost saving. On the sales and on the margins through the offering next to the lighting solution products, digital products and digital solution, adding additional value to the customers. And then especially for the customers on their costs and their time, they need less time for installing. They have the better planning, they have the digital twin. And basically, it saves them much more money and time in their application. With that, I would like to summarize what we did, again, here the overview on our strategy, FOCUSED. We are consequently going our path in the market with our solutions, focusing on innovation. And in addition now, we are using the sustainability as well as the digital tools and projects where we spent quite a substantial amount of money to move forward and drive our path towards 2025. With that, I would like to close for the moment and would hand over to Bernard, who will give you now an update how do we move on from that, what we have done already towards our value creation footprint 2025. Thank you very much for listening.

Thank you, Alfred. Warm welcome from my side to all of you. My name is Bernard Motzko, and I'm the COO of the Zumtobel Group since 3.5 years already. At first, I would like to present the current operations footprint followed by explanations about the path to excellence. Details regarding our license to operate completes the overview, finally. Our global production network has 4 component and 6 lighting plants, as you can see here in the chart. The Components business is highly competitive and characterized by high volume-based scale effects, sees demands, low labor cost to become efficient and competitive in the market. Therefore, the main volume sites are in the network, Shenzhen and Niš. Shenzhen in China produces standard value applications in high quantities for Asia and partially for European. Niš is meanwhile the volume side for Europe and is growing year-over-year. Additional to these 2 sites, we have 2 specialized sites in Europe on the Components Segment. The competence center for outdoor and emergency applications is located in Spennymoor. Dornbirn directly in the headquarter of the business is focused on high-end solutions like human-centric light and complex technology ramp-ups. Coming now to the Lighting business. Lighting production network is mainly European-centric. Only our Highland plant in U.S. is a satellite for local U.S. demands. Asia Pacific demands are fulfilled by our partner network with a staging hub in Sydney and Auckland in this region. All European lighting sites are working very closed cooperation and clear strategic positioning as following. So therefore, each and every site has a specialized positioning and value creation. In Spennymoor lighting, we produce Thorn luminaires predominantly for U.K. business. And after Brexit, more than important to be there. Les Andelys is specialized as competent center with product management, R&D and production functionalities in auto applications. Same competence center approach is a success factor also for our Lemgo site in Germany for spot and down lights. Finally, in Dornbirn, we're producing the headquarter area, highly automated volume products like our trunking system TECTON, which is very successful and competitive in the market. All production demands which has a high labor cost, we have started a couple of years ago to produce in Niš in the Lighting business. Our operations network, as Alfred already explained, this is in a major transition towards efficiency and customer orientation. Due to significant shortfall in the business in Lighting on Components in the last 3 years, we had to adapt our network, reduce the capacity and optimize it overall. So therefore, we closed several sites, like Usingen in 2017, Guangzhou, Jennersdorf and finally, also Barrowford in 2021. Additionally to that, we rebalance the capacity and the cost structure of all the other western sites by around 30%. And in parallel, we ramped up our Niš site as best-cost production site in Europe, close to European customers. Part of Shenzhen volume was also relocated to Niš during that time. This helps significantly to shorten the supply chain for European business and to become more agile. In current year and the following ones, we are coming back to a growth path like Alfred Felder explained. This gives us now a great opportunity to follow up our strategy and to get the benefits, increasing, doubling more or less the volume in Niš without restructuring efforts in other sites. We will have optimization efforts, but we do not talk about closing a site furthermore. This will result in great scale benefits overall in our network, and we will improve our cost position significantly. Now some details about our Niš ramp-up. We started to produce a Niš in 2018 and invested more than EUR 40 million in building and machineries. During the last 3 years, we ramped up the volume to around EUR 80 million and plan to double it up to EUR 190 million in the next 3 years. Additionally to the pure production capabilities, we decided in early stage already that we need much more functionalities in the site, which can be beneficial for our business. And therefore, we ramped up and invested in engineers. We have already 42 engineers working in Niš. So therefore, we are now in the luxury situation that we are starting to develop products also in Niš for the Niš production and our customers, especially in Europe. So overall resource availability in Serbia is good. There are very competitive salary conditions there. And therefore, we are investing also in additional functionalities, so-called nearshoring functionalities, to complete the site. These are, for example, quality functionalities, which we have in the site. We have a master data team purchasing for Eastern Europe. Our supply -- global supply chain functions are already built up in Serbia. The following video demonstrates the capabilities of Niš plants in detail and to get a flavor of this. As you will see, we developed Niš as real technology site. The plant will become soon the largest one in our operations network, enjoy the video now. [Presentation]

Coming to the next topic. Having a good setup with the individual site on the right place, we have to have also the right way of working. One trend in our Components and Lighting business shows clearly that customer orientation is key for future success, an individualized product and solution offering, hence the capability to serve the market faster and more flexible, are becoming more and more important. Three topics are needed to fulfill these customer needs and to create additional business. The technical and organizational capabilities to design customized solutions; the availability of a local and flexible supplier base; and third, finally, is the capability to produce efficient, highly configured and customized products. Our digital transformation program, as mentioned, as part of our to be FOCUSED strategy, gives us a possibility to develop our processes according to these demand and to make these, in future, very cost-efficient and reliable for our customers. The digital factory functionalities, for example, to manage shop floor activities, an integrated end-to-end network planning and new solutions on the supplier base are giving us these advantage to manage our business efficient and agile for our customers. Especially in the last 1.5 years, during the COVID situation, we recognize how important it is to take care of health and safety of our people. We manage it quite good. We had, due to consequent measures in all our sites globally, no major incidents COVID-related, and the businesses could run efficiently all of the time. But additionally, we learned out of it, and we decided to implement also health and safety certifications in all our sites. We are already certified in Serbia and all the other sites will follow. Additionally, in the chart, you can see the LTI rate from all our sites in average and this shows a reduction of safety incidents in the last years. And with clear measures, we are going further in the future to optimize it furthermore. So therefore, responsibility for our teams, responsibility for people is key to have motivated teams onboard. Additionally to these in our FOCUSED strategy, we have positioned us clearly in the direction to become carbon-neutral Zumtobel Group in 2025. To make it done, we started already years ago. Although we ramped up Niš site, we could already reduce our emissions by around 20% in the last 3 years. Investments in reduced power consumption for heating, for illumination, for production processes are partially done. Others are planned to be done in the upcoming months and years. Additionally, we invested, for example, in our own photovoltaics in Dornbirn, and source, meanwhile, energy with less carbon emissions, like hydropower, and use biomass local heating for our processes. All these will contribute to our overall target and will contribute also to our customers to fulfill their environmental targets. The same expectation we have towards our suppliers. There is a big change going ahead to make all this done. In our supplier selection and audit processes, we implemented years ago already sustainability criterias, but not so sharp like today. Higher rate of local sourcing, which you can see in the graph, upper left, where helps us to reduce the transport-related carbon emissions year-over-year. So therefore, local sourcing is not only good for higher flexibility, also for our sustainability, it's a positive trend. So first, suppliers will report the carbon emission soon, and we are working with all -- with the key 100 ones to make them carbon neutral as well. Additionally to this, it's a fundamental importance that we get all material declared by our suppliers, which ingredients are in these materials which we are sourcing. This is very important for our cradle-2-cradle certification on products. Alfred Felder mentioned it already that we are on the way to certify the first luminaire and to certify -- get us cradle-2-cradle certification also for component driver. Circular design rules are already in use for new product development and will create sustainability effects in future because from the beginning, we are selecting the right suppliers, which are going with us on this way along. The overall picture shows our path to an optimized operational network and product supply. As explained, there is a main transition ongoing to Eastern Europe to utilize the advantages of Niš and to adapt our European -- Western European sites to a level where -- which is the best fit and brings the best value for our business. With a reduced number of owned sites down from 13, down to 10, further streamlined supplier base in future and the higher local-for-local content, we will position well to make our midterm goals. Coming to the end of my explanations, I would like to sum up these 3 takeaways. We have built up a cost-efficient production network already, close to our customers with potential for further improvements. Our high flexibility of in-house production processes, combined with a local supplier base, creates additional value for our customers. Finally, we will produce carbon neutral in 2025 and help with our offering to support customers' sustainability goals. Thank you very much.

Good afternoon, ladies and gentlemen. My name is Thomas Erath, and I am the CFO since August of the Zumtobel Group AG. Very welcome to our Capital Markets Day. I hope you will get a lot of insights of our company during our presentations. And I would like to show you 2 things. First, where do we come from? Where are we now? And where are we going to? And how do we create value for our shareholders? Although there will be some overlap with my colleagues, with Bernard and Alfred, I would like to list what we did so far in the transition phase from 2017 to 2021. The actions I will share with you are not in a chronological order, but they will give you an explanation on how our cost structure changed in the previous 3 to 4 years. So first, in the U.K., the British people decided to leave the European Union and created, in the lighting industry, a huge downturn in the market. We, as a company, lost about EUR 100 million in sales in the U.K., one of our biggest market apart from DACH. And there was a huge need that we restructure our production plan to the actual needs. So downsizing was necessary in Spennymoor. And as well, we had a second production facility in the U.K. for AC/DC, which did not make sense anymore. So we closed it down and moved the products to Spennymoor as well. We had also a facility in France since the acquisition of Thorn in 2001 in Les Andelys. We decided to sell this plant and to lease production capacity back so that we are more flexible to the actual demands for our products. And the plant was good. Unfortunately, we had a lot of issues with our supplier that we get the right quality in the right time, and so we decided to take this plant back. In Germany, we had restructuring of our sales organization as well as of our production plant. And after the restructuring, we had an agreement with the labor unions that we will guarantee the workplaces for our factory in Lemgo until 2023 in exchange for a payment cut. In Dornbirn, our headquarter with also 2 big operation plants, we transitioned the factories to highly automated production facilities where we produce our core products and our more complicated products. Not only that we optimize production here in Dornbirn, we also optimized logistics and closed down some rented warehouses in the surroundings of Dornbirn and integrated the volume through improved space management. As also Alfred explained, we closed down our manufacturing plant in Jennersdorf and transitioned and moved the production to our biggest site currently in Niš, which is our main production strategy that we will have our biggest factory for both lighting brands and component brands in Serbia, and this will be the core of our production. There will be high-volume products, and we will still have our value and premium products here in Dornbirn. As well, we did some downsizing in China. There, we have 2 plants. One is with the lighting brands or the lighting segment. That one we downsized and changed the strategy from own production to third-party sourcing. And you see here the financial performance over time. You see in '17/'18, the group had EUR 1.2 million -- EUR 1.2 billion in turnover and achieved a net profit of minus EUR 47 million, a negative cash flow of minus EUR 25 million. That led that the Supervisory Board decided to implement a new board. My 2 colleagues, Alfred and Bernard, were implemented, and Thomas' role as CFO. And they started with the strategy focused and implemented the necessary steps and all these measures, which I showed you on this previous slide, and brought the company into a turnaround. In '19/'20, the company was close to having more sales than in the previous year with EUR 1.13 billion but 2 months already under the influence of the pandemic. And in '21/'22, despite COVID, the company was able to create a cash flow of EUR 100 million, I admit with some special effects, and an EBIT of EUR 46 million. But if you remember Alfred's presentation, the company had, in 2016/'17, an EBIT of -- in the same amount, EUR 46 million, but not with -- EUR 1.044 billion in turnover with EUR 1.3 billion. So you see how much the cost structure was reduced over time that it is possible to achieve, for the circumstances, a decent result. I want also to share with you our financing arrangements and our balance sheet. The Zumtobel Group has a very solid ground of financing. We have a consortial credit agreement, a syndicated loan with 6 banks and the term ending in November '22. And out of the maximum volume of EUR 200 million, only EUR 20 million are drawn upon. We have got also loans with the European Investment Bank with a total of EUR 80 million and, in addition, uncommitted bilateral lines of around about EUR 63 million. The financial covenants for our main credit agreement was to syndicate our debt coverage ratio, which has to be, at all times, less than 3.55x; and equity ratio, which must be always above EUR 23.5 million. And you see on the chart how much headroom we have with these covenants. We have an equity ratio currently above 32% and a debt coverage ratio of 0.085%. So we are very happy that we have a solid financial fundament, and with this fundament, we are very confident that we have also a very bright future. So what will we do? We will focus on creating value. We will allocate the capital we have in a smart way. We want to grow, and we want to enable growth. We want to increase our cash generation. And of course, we also want to improve the return on investment of our shareholders. If you look at the CapEx, what we are spending on average, it's roughly, in the next years, EUR 55 million. And then I have prepared you 4 sectors on what we are spending our money. As an industrial company, we need to be state-of-the-art manufacturing and there where we have to continuously invest in new technology and in efficiency. Otherwise, we are not able to compensate the steady wage increases, and we have to be lean and efficient. So 45% of the CapEx will go into renewal of machinery. Here is our line, TECTON, to be mentioned. That's the main product group of the Lighting segment. And we have designed this completely new and need new machinery to produce the new TECTON. In Tridonic, we will focus on automatization, flexible testing and odd form placement. Odd form placement that most of you will not know, on a PCB, you place components, and some are so big that you can't place them with radial or XL machines, nor with SMT machines. So we have to use hand. And we want to get rid of the manual processes, and that's why we try with robotics to replace the manual work. The second biggest part of our investment will be R&D. As you all know, under IFRS, if you fulfill certain criteria, you have to capitalize your R&D expenses. Also here, the biggest investment in R&D will be the TECTON platform controls and connectivity in the Lighting segment and the Gen4 platform on the component side. Gen4 is the working name for our new platform creation in Tridonic. And you can imagine that about 80% to 90% of all products will be based on these new platforms. The premium products will have our new ASIC in there, and these products will be more cost efficient than the old ones and will be adapted to the needs for the future as for [indiscernible] and data catching and data analysis. Digitalization and software will be another big part of our investment. We will go from SAP R3 free to SAP S4. We will start this with the Components segment, and this will be a greenfield approach. We said we don't want to put old processes and old data into a new system, which is 20 years old or 25 years old, but want to check all processes and all data whether we can improve the processes or whether we need the data. So we will have a new and lean system in the future, also fit for the digital world. And we think this will help us gain efficiency in all areas. Then we will also invest heavily into the digital journey of our customer on both brands, on Tridonic and Zumtobel, and as well on a manufacturing execution system for the Lighting segment. Under IFRS 16, you have to capitalize some leases if they qualify for capitalization. So we will have also some CapEx for sales offices and, of course, some CapEx in operational sites, which belong to ourselves. And there will be green investments as in solar panels and into efforts to recuperate energy. The drivers for our organic growth will be the following: we have really a lot of tailwind with the green deal and the effort worldwide to reduce energy consumption. Our products will help our clients and our customers to reduce their energy bill. So with this portfolio, we will grow as more and more money will go into these green investments. More and more money will go into refurbishment of old buildings. Also, smart cities will create a boost for our products. We have, as Alfred said, an intelligent outdoor system, SIDEREA, which will benefit of these developments. We will grow in underrepresented regions with some investment into the sales force, and we will disproportionately grow in those regions, and we will also grow with offerings meeting the times period. More and more of our customers ask for sustainability and cradle-2-cradle certification. Governmental institution require for tendering processes that you qualify for this criteria, and we are putting a lot of effort into these certifications, into our behavior and into reducing our carbon footprint. In the Lighting segment, the tailwind will also come from governments because they will invest in education or are investing in education and health and care massively. Then we'll benefit from the megatrends from investments into warehouses, data centers and, as said before, also with the Components segment into green refurbishments. Then outdoor lighting will benefit from the smart city approach, also with Tridonic products but also with some Zumtobel products, and the infrastructure projects will also grow our sales. Then we will also grow with the value tier in countries where we had not a suitable offering so far. So also, in EMEA and South America, we will have some growth in the future. Then we don't only want to grow organically. We have also the ambition to do some M&A activities. We will invest our money wisely, so we will not buy everything under all circumstances. We will focus on geographical white spots in the Lighting segment only in Europe. In the Components segment, we could also imagine that we could invest in the U.S. if a suitable target is coming along. And the next one are new technologies. We are always interested in new technologies. We are observing the trends. And if we find the right object, could be in urban farming or horticulture, but there are other points of interest as well, we will also take the opportunity and buy the company. We will also look at companies doing data collection and analysis as we provide the entrance for data collection in buildings, the ceiling, and the ceiling will be more and more digital. But we could also imagine to invest into new business models, not only service models, but also digitalization of buildings where we see a big trend in the future. Our acquisition capacity is between EUR 200 million and EUR 300 million. So we could invest into a significant acquisition, which would increase our sales by about 20%. And as said before, we are not investing at all odds. We want to look at profitable growth, which suits to the company and bring us to the next level. Then how do you -- do we want to increase our profitability? There will be 4 pillars which allow us to become more profitable. We gain more operational efficiency through digitalization. We will need less people to do the same what we do today. This is also the reason why we invest heavily into software and into a new SAP system as well as customer experience system. We will capture economies of scale, and strict management of overhead costs will allow us to increase profitability by far more than we increase our costs. Then lower manufacturing costs will be also key that we increase our result. Today, we have about 1,400 people working in lower-cost countries like Serbia and China. About half of our production capabilities are in those countries. And as we grow, the share will be shifted more to those countries than to Central Europe. And last but not least, we all suffer from increased raw material prices, and we need to pass on these prices to our customers. And there is no other way that everyone facing such price increases passes these costs on. And it's also kind of healthy for us because in former times, we only experienced price erosions for our products, but I think these price erosions will be suspended for quite some time. What do we think where our EBIT margin will go? We strongly believe that we increase our profitability by far in comparison to the past. If you look at '17, '18, where the group was negative, in '18, '19, '20, the group was on a very low profitability. '19, '20, 3.1%; '20, '21, at the profitability of 4.2%. And we think until '25, we will increase this profitability to 6% to 8% EBIT margin, but not EBIT adjusted. We think it will be sustainable EBIT, not EBIT adjusted. In the past, the Board reported on adjusted EBIT. We want to report on real EBIT. I mean profits will not skyrocket. We will still have some homework to do. We need to invest into digitalization. We need to invest into innovation and our product portfolio, and we need to further streamline the organization. But with that, I think we will have the fundament for the next step and even further improved profitability after this period. Coming to the cash flow. Sustainable cash flow generation is also imperative for a company. And we have generated quite some liquid funds over the last 2 years, where you see we had cash flow in '19/'20 of EUR 53 million and in 2021 of EUR 100 million, although the EUR 100 million were heavily dominated by special effects. The cash flow this year will be not in the region of EUR 100 million, but it will be positive cash flow, and we will improve our cash flow year-on-year. Due to the increased sales, we'll invest some into working capital this year because of higher receivables, because of higher inventory levels due to the shortages. Nevertheless, this will be to normal levels, I guess, in the year after next year. And the biggest impact on the free cash flow will be our improved profitability. So our sustainable cash flow generation will be backed by profitable growth, continuous cost optimization, maintained working capital discipline and smart CapEx spending. And with the excess cash, we plan to acquire companies which fit, that we provide our shareholders with continuous and reliable dividends or repay some loans. Also, share buybacks could be possible. So to our dividend policy, we will continue with our dividend policy as in the past. We aim to distribute 30% to 50% of our consolidated net profit to our shareholders, and the range will be determined by our debt level. If we have high debt coverage ratio, it will be less. If you have a low debt coverage ratio, then it will be more dividend for our shareholders. The key takeaways from my presentation will be: we want to drive performance. We want to be more profitable. We want to grow. And we want to enable the growth either organically or inorganically. And we want also to reward our shareholder. I think in the future, the shareholder will benefit from our efforts and will get an increase in dividends year-over-year. And with this, I would like to end my presentation and hand over to Alfred for a summary of his presentation.

Yes. Welcome back again. So I hope the presentations, what we gave to you could give you an overview where we stand. And obviously, the key question is now how to proceed. Obviously, we believe that we have done our homework, and we finally earned the right growth. Thomas was saying it. If you just compare our fund -- our numbers that have been all-time high the last 10 years in '15/'16, we had a revenue which is EUR 300 million higher than we clocked last year, obviously, with a big impact on corona, but pretty much the EBIT was the same. So that means we have done our homework. We have streamlined the cost. We have streamlined the operational footprint. You also see in the outlook. We have repositioned, not only our brands, but also our infrastructure, our way on going to market. We managed the corona crisis, and we are now focusing on the innovations of basically driving the lighting industry forward. So why to invest in Zumtobel. We believe we have now 3 pillars, what basically speak for itself. On one side, we live, we drive lighting and the applications around lighting. So we are a highly innovative European lighting company. We have, with our footprint now, a flexible and efficient production close to the customers. And even better, we have, in most of the locations, and we will also build up in Serbia, development close to the factory, which means we are flexible, we are fast and we can do customization. Number three, our clear focus is to become production carbon neutral by 2025. Bernard has explained the measures that are currently underway, and more to come. Thomas was showing you that in the last 3 to 4 years, we gained substantial liquidity position, what give us the necessary firepower to invest into new applications, new technologies, into white spots where we believe we can grow faster market share than organically. And last but not least, we are set for a sustainable, profitable growth on our end but basically also helping our customers to do so. With that, we are coming to the end of the presentation session and are open and curious on your questions, and we are trying the best to answer them. Thank you very much once more for your attention listening to us.

[Operator Instructions] Now we will hand over to Eric for the written questions.

Yes. Thank you very much, [ Stuart ]. We will start with the first written questions. The first one is for Alfred. "Your growth target is between EUR 1,200 million and EUR 1,300 million in 2025 without M&A. What could we expect from you after M&A, revenue-wise?"

Yes. Basically, what we have shown to you is the organic growth, what we believe will come up. Obviously, it depends heavily, as I said, what kind of M&A we are planning to do. If it's investing into innovation, into technology, it most likely will help us to drive the innovation beyond the lighting -- pure lighting applications in sensor technologies in IoT. If it is to develop geographically, then obviously depends on the size of the company what automatically defines the additional growth.

The next question is also regarding M&A, and therefore, I would also say for Alfred. The question is, "Concerning your M&A criteria and capacity. Please explain a little bit more in detail what you meant. Which regions in Europe and why?" And there are also 2 related to them. "What does profitable growth mean? Which KPIs are important for you? And will the M&A activities influence your EBIT margin guidance?" And the second one related to this, "In order to get more color on your M&A strategy and having the acquisition capacity in mind, can we expect one big transaction? Or are you rather looking for multiple ones?"

Well, there are a couple of questions. Maybe you repeat them again.

Yes. I start...

The first one is what are basically the territories. Obviously, as you might know, and for those of you who have seen, we have a couple of countries where we are #1 or #2. But we have also a couple of countries in Europe where we are in the #3 or #4 position. That are countries typically in Southern Europe and in Northern Europe where we are weaker. And if it goes into a geographical expansion, that would be the setup what we have in that territory. The second one on the KPIs, I would hand it over to Thomas, who is more qualified to answer. But maybe you repeat the question.

Yes. I will repeat the question. "What does profitable growth mean? Which KPIs are important for you? And will the M&A activities influence your EBIT margin guidance?"

I don't think it will affect our EBIT margin guidance as we want to have a certain EBIT margin on our acquisitions. And our KPIs is return on capital employed, and we are looking also at reasonable numbers here. And also, on multiples, we need to pay in the market for EBIT or EBITDA.

And the last one regarding M&A. "in order to get more color on your M&A strategy and having also the acquisition capacity in line, can we expect one big transaction? Or are you rather looking for multiple ones?"

Well, again, as I said before, it depends, applications, technology or geographical setups. Typically, now, if you look into geographies, these are typically midsized companies. Obviously, it means more than one. If it comes to technology, it's even the same because typically, these are smaller start-up type of companies.

Now a question for Alfred and Bernard. The question is, "Looking at chip shortages, the raw material costs and logistic cost situation. Currently, they are heavily impacting you. But this wasn't a topic in the presentation that much. What is your view? Will costs come back? And will the chip shortage end? And if yes, when?"

Yes. You're absolutely right. That was not part of our presentation as we prepared the strategy towards '25. And we assume that between now and '25, we are, for sure, out of that one. But obviously, in the day-to-day business, we are -- have to manage the -- on one side, the material price increase; and on the other side, also the shortage, and Bernard, who is closer to that, is perfect to answer this question.

Let me answer this in the following way. We have, like all other competitors and other industries, also to fight against these shortages across the different material groups, especially chip prices and availability is also hurting us. Up to now, we are capable to manage it through. We are developing alternative solutions if certain technologies are not available in the market. Sometimes, it takes time, 1, 2, 3 months to get it, to have the solution in place and a stable process again. We are working very collaborative with our supplier base across the world, increasing our inventories to be prepared for the growth to come and can manage the current situation in a very well manner.

The next question, I would say, is also for Alfred. "Zumtobel expects to grow between 4% and 5% on average to '24/'25. One of the drivers is COVID catch-up. Is it fair to assume that full year 2021 revenue adjusted to the COVID impact would be the full year '19/'20 revenue, implying a CAGR, corrected for COVID impact, would be between 2.5% and 4%?"

Well, this is now a question what I think it's difficult to answer because we had COVID, whether we are now extrapolating what would it have been prior to COVID. But if we just look at the euro construct data prior to COVID, the growth was in the range, yes, between 2% and 3%. So obviously, with COVID now and the prediction at least 4% growth, we would have been above the '19/'20 revenue with a 2% to 3% growth because we are only growing by 4% now.

Coming to the next question also for Alfred. "Why is Zumtobel penciled in the same growth rate for Component and Lighting segment? One would have expected a higher growth rate at the Components segment since it has a much higher exposure to growth markets."

That is a very good question, and you're absolutely right. But obviously, growth market, as I have highlighted, are in regions like in the Asian markets, in the Eastern European markets. And obviously, we are not the first one there, so we need to take market share away from them even if, Thomas rightly said, we believe that the price erosion after, let me say, the easing of the tough allocation will not get back to that level what we had. But I think in that market, if we want to buy market share, we have to do something on the price. And therefore, we most likely will sell much more pieces, but the revenue is then in the range what we anticipate between 4% and 5%, similar to the lighting brands who is mainly concentrating on the European market.

And with this, I would close the first chat question round, and I would like to hand over now to [ Stuart ] that also the ones who want to ask a question via audio have the chance to join the queue and also ask their question live here in Dornbirn. I hand over to you, [ Stuart ].

Thank you, Eric. Ladies and gentlemen, at this time, we will continue with more web phone questions. [Operator Instructions] There are no audio questions at this time, and I would like to hand over to Eric for more of your written questions. Please go ahead.

Yes. Thank you very much, [ Stuart ]. So of course, you are more than happy to join also the queue via audio. But in the meantime, we continue with our written questions. And the next question is regarding EBIT margin in the Components segment again. "What do you believe a normalized EBIT margin to be for your Components business longer term?" This is something for Alfred.

Thomas can answer this question.

Okay.

Well, the EBIT margin also for our Components segment will be in the target range of what we presented before, between 6% and 8%.

Good. Then coming back to the LED markets. The next question, "How large do you think is the potential for refurbishment in your core markets? How much of the installed capacity is already LED?"

Well, obviously, it depends on -- also on the markets we are talking. Typically, the majority is still a conventional technology in there. And typically, in core markets is still less than 50% what is already converted into LED, and that is pretty much the same for indoor and on outdoor. And especially, what I said, with the aim of the CO2-neutrality goals, what also our customers have, we expect that there will be a larger portion for this conventional refurbished in the next couple of years with LED technology.

Okay. Another question also for Alfred. "You explained the lighting market and your position in it. Why are you not targeting the consumer part as well?"

Yes. We are looking into that when we talk about consumer, especially the high-end applications, simply because our applications are changing. If you look at a very expensive central city locations when former time, more or less office buildings have been built, nowadays, with home office regulations, it might change that this is a combination between high-end lots or hotels and offices. And obviously, we, as a turnkey provider of lighting solutions, would like to take care of the entire building when it comes to lighting, and then this is also an application what we are considering moving forward into the future.

Now we have a question for Bernard regarding our carbon-zero target. "Your target is to achieve carbon zero by 2025. Could you please explain how you want to achieve this?"

Yes, of course. As I explained already during the presentation, we have clear plans how to reduce the carbon emissions in the upcoming years. The downsizing of the emissions is planned currently with 64% compared to the last year to achieve these, and all these measures behind are detailed out with investments in some technologies and investments in photovoltaics and sourcing for Scope 2 of green energy overall. During the next 3.5 years from now, we have to rethink all our production processes, for sure, with new technologies which are consuming less energy. And these are also clear targets for the products, which we are going to launch in the upcoming years. So therefore, based on the secular design rules, we have also energy consumption and process discussions how to produce, how to design the products. And not everything is detailed out until '24/'25, but already 60 -- more than 60% are clear how to get this. The rest, we will find the right solutions by product design and technology changes.

The next question is regarding the pricing environment. "Can we get some color on the pricing environment? You said you think price deflation should slow significantly. Why is this the case? Are you achieving positive pricing at the moment?"

Maybe I can start, and then Thomas can help me on that one. Obviously, now we have, again, a very different situation than it was before the corona crisis. We are now in the middle of a heavy allocation situation with raw materials partly growing and costing double-digit more with allocation on certain chip components. And obviously, this price is what we have to pay. We need to also transpire to the market to stay competitive in the market. And that's what also our other competitors are doing in a similar manner. Obviously, following the end of allocations in the past, there will be a reverse of that one. But we believe that the price erosion, what we had especially in the Components segment after '16/'17, what was very steep, was mainly caused by the saturation of the LED technology, which is now done, and we are more or less following the typical semiconductor cycles with a much smaller price erosion. And that, I think, will then be the bandwidth what we have to deal with. Maybe, Thomas, you can add to that what I said.

Yes.

It depends, obviously, also on the market, it depends obviously also on how the industry develops. Do we see a consolidation in the industry? Are we still having this fragmented approach like we have it nowadays in Europe?

I mean transportation or freight costs doubled or tripled in Europe due to certain effects, but we pay 6x the price for a container from China to Europe. This goes into your product price. And then you have, on the Lighting segment, price increases between 5% and 7% of the material and, on the Components segment, above 10% of the material. And these price increases, nobody can keep for himself. He has to pass it on to his customer. In the Components segment, we are faster in passing these pricing changes to our customers, and in the Lighting segment, we are following. The issue is here, we have long-term contracts with our key customer, and it takes some more time. You can't -- not within 2 or 3 months increase the prices, but after the contract is closed and a new negotiation has started with regards the volume of the contract.

Okay. Now I would like to ask [ Stuart ] if there are someone in the queue for an audio question so that we do a break with the chat questions and coming back to the audio queue. [ Stuart ]?

Eric, currently, there are no audio questions on the call.

Okay. So we are going then back to the written questions again. The next question is regarding the current environments. "Are you seeing consolidation picking up in the current environment?"

Well, I think here we have to distinguish between. the Components business and the Lighting business. Obviously, in the Components business, we see quite some transactions taking place. You might have seen, obviously, that the U.S. business of the Osram components went to Acuity. We also saw that, for example, Panasonic diversified from its components business, which, in Europe, affected [indiscernible], which was former Panasonic, and it was, in the U.S., universal lighting, but also had 80% components what went into private equity. Obviously, now the interesting question will be what will happen to Osram in Eurasia, how it is called, so Europe and Asia. And we see already some consolidation and some move here. On the luminaire segment, the market is much more fragmented with a lot of smaller companies in the market. Some of them are coming for sales, partly also, I assume, as they have been suffering very hard from the COVID and maybe even now from the allocation and the purchasing power what they might not have to fulfill their needs on their customers. And then obviously, there is a lot of momentum going on in the new technologies in IoT-based space sensor technologies what is going on. But the big, let me say, consolidation on the lighting market and the luminaire market is currently not seen, at least not in Europe.

Okay. Coming to the next question, "Zumtobel states it has an acquisition capacity of EUR 200 million to EUR 300 million. This could add approximately 20% to group sales. To take it at par with Zumtobel, so at 100%, it implies a valuation of between EUR 1 billion and EUR 1.5 billion. This is 2 to 3x Zumtobel's valuation. Why is there such an imbalance? Will the takeover multiples be 2x to 3x higher than Zumtobel's own? Otherwise, would an investment in Zumtobel's [ share buybacks ] make the financial year much more attractive."

So Thomas, [indiscernible]?

Good. So it could also be that the turnover is higher for the acquisition capacity we have, of course, but there are also more profitable companies on the market. And you can be sure that we diligently look at our targets and will not pay anything above fair market value for the company. And I also said share buyback is also a possibility. If we don't find the right target, what shall we do with the excess money If we can't do an acquisition? We will also think of increasing our dividends and buy back some shares of our shareholders.

And regarding this question, there was a follow-up question? Do you really think about a share buyback program in the near future?"

Well, we have to discuss this with the Supervisory Board, and we need also to have the necessary cash flows for this. Our prime target is to grow our business and not to buy back shares. We want to grow Zumtobel. We want to go back on track into a growth mode, and we want to do this also with acquisitions. But markets are quite erratic. Private equity companies are paying very high multiples. If we don't find the right target, what shall we do with the money? Give it to -- back to the shareholders.

The next question is, "Please break down the target of 4% to 5% top line CAGR into volume and price mix effects. You mentioned that price erosion might not recur shorter term, given prior cost inflation. But how about once cost inflation subsidies (sic) [ subsides ]? Price pressure has been constantly impacting you in recent years."

Well, if I may start, and then Thomas can help me. Obviously, the price erosion is, as I said, on the components level not expected that high, what we can gain with efficiency measures, what we have. I think we have been able to share with you that especially our low-cost factories in Tridonic has 2, one in the Asian territory and one in Niš. We are able to compensate that. I would not focus that much on the current price situation. We believe that this will ease out maybe at a higher level, and it's even good for us because then the market anyhow will adjust to this new price levels. And therefore, I think we will see it as a less pressure on the components level. And typically, if this starts at the components level, it also -- it makes the life easier on the luminaire level.

The next question is regarding the German market. "What is your plan to increase sales and market share in Germany? And when will we see first results?" Maybe this is also something for you, Alfred.

Yes. As I mentioned at the beginning, part of the Fit for '25, we have also done a deep dive in each of the single countries where we operate. Germany is by far the biggest lighting market in Europe. And you're right, we have a relatively low market share there. Therefore, we paid a special attention on that. We have now repositioned the whole setup, and we have identified a lot of applications where special with our redefined brand Zumtobel will go into because Germany is a market that has both the high-end Zumtobel businesses as well as a strong concentration of wholesale, where we see quite some significant progress on Thorn and especially on THORNeco. And we are also investing into Germany in going into the outdoor where we see a huge potential. We expect the first results already by the end of this fiscal year in the right direction but more then in the years to come. But please also take into account Germany is one of those countries where we have the highest density of competitors and also partly larger competitors, not only small, family-owned, regional-based luminaire manufacturers.

Then I will once again reach out to [ Stuart ] in order to check if there is an audio question in the queue. Otherwise, we would then go on with the written questions, [ Stuart }?

[Operator Instructions] Currently, there are no live audio questions.

Good. Thank you very much, [ Stuart ]. So we will continue with the written questions. The next question is, I think, something for Bernard. "What is associated -- what is the associated cost to the planned site reduction to 10 from 13? Any indications on the phasing? Production will be relocated to other sites, presumably."

This is already done in the last 3 years and incorporated in our financial numbers. So therefore, the details about all these activities, it does not make to talk about what happens 2, 3 years ago. Some restructuring costs, you saw in the P&L in the last years related to such kind of changes. Forward-looking, we have a good setup with valuable production sites for the business, and therefore, no demand to restructure with the closure of a site forward-looking.

Maybe to add to this, I mentioned it in one of the slides. So all in all, between '18 and '20, we basically have reduced the fixed cost base between EUR 60 million and EUR 70 million. And that obviously includes also the relocation of products to low-cost areas. Thomas was mentioning it that we have already the majority of our blue color worker in low-cost countries and factories. And therefore, this is incorporated in that EUR 60 million to EUR 70 million fixed cost and, as Bernard mentioned, the restructuring costs, you will see in the P&L from '18 to '20.

So then we have a final written question, and I would assume that there is currently also no audio queue, therefore, and this is actually also, let's say, a good, final question to Alfred. "At which price level do you see the fair value of Zumtobel shares regarding the given midterm outlook?"

Well, here, we count on the very professional guidance also from the analysts. But obviously, from all the discussions, what we have is that we are undervalued now simply because we believe that we have done more than our homework. In the next quarters, we will be able to show that we are going in the growth direction, Thomas mentioned it, that we are measuring now not the EBIT adjusted, the real EBIT. So obviously, any small adjustment we have to pay out of our operational EBIT. And therefore, I believe that we -- a fair share value should be in -- quite significantly higher than it is right now.

So this, as I said, was our last question. I hope that we could answer all of your questions. If you still have questions, please reach out to us, and we are trying to also answer your questions after our Capital Markets Day. Once again, I want to remind you that you will find all the presentations you saw today by all 3 Board members, will be available on our website after the Capital Markets Day. And also, a replay of our Capital Markets Day will be available on our website as well. And with this, I would like to hand over to our CEO, Alfred Felder, for the closing remarks.

Yes. Once again, in the name of my colleagues, I would -- thank you very much once again for listening to us, for all the interesting questions. I hope that we're able to give you some insights where we are right now. I think it's something where we believe that we can grow on it. We have done our homework. We have a cost position that is very competitive. We have an outlook in the operational footprint, what basically is a perfect combination between automation and low-cost countries between flexibility and volume, same on the components as well as on the luminaire side. We are continuing to invest and drive innovation, and I think we will be the company who drives innovation in Europe and who is a reliable partner for our customers moving forward to 2025 and beyond. So with that, thank you very much for your time, and have a good and great afternoon today. Thank you.