Zumtobel Group AG (ZAG) Earnings Call Transcript & Summary

Good morning, ladies and gentlemen, and welcome to Zumtobel's conference call and the annual results for the financial year 2021/'22. With me on the call are Alfred Felder, our CEO; and Thomas Erath, our CFO. Alfred Felder will walk you through the highlights of the year, while Thomas Erath will discuss the financial performance. After the presentation, both gentlemen will be available to answer your questions. In case you have not a copy of the report and the presentation, you may find both documents for download on our web page. After the call, a playback of this conference call will be available on our web page as well. And with this, I hand over to Alfred.

Ladies and gentlemen, good morning, and thank you for joining us today for our financial year '21/'22 results. So despite the challenging environment where we are in and despite obviously the war in the Ukraine, what preoccupies us, we have been able to seamlessly follow on the positive trend of the past fiscal year. With the growth of revenues of 9.9%, we were clearly able to keep our promise of growth even more. We delivered here more than promised. Same on the EBIT with EUR 60.8 million compared to the EUR 43.4 million in previous year, even represent the best operating results for the last 5 financial years. And taking now all the economic challenges into account, we were able to achieve an EBIT margin of 5.3%, which is also above our guidance. And in view of the strong results, we want to share this success with our shareholders and therefore, recommending an increase of a dividend of EUR 0.35 for the last financial year '21/'22. And again, we are sticking to our communicated dividend policy. Obviously, if you look, and I brought this slide with you -- with me today, on the challenges what we have, you see here just a couple of examples. The copper, the steel, the aluminum, but also that the resins, what we have or the transportation, we are still in most of those on an upward trend. The slightly better news is that, for example, the copper is stalling in a little bit, but nevertheless, you see on this deal even until April '22. And also, the resin is still an upward trend. So we had to prepare also for the coming fiscal year for really a fast environment here to move forward in our businesses. Obviously, I say once this result would not have been possible with the dedication of our 5,800 employees, what we have in the company. Before I go into the overview and then Thomas into the details, I just would like to share with you, as usual, what we have accomplished with a few examples in the different businesses, one on Tridonic; and then we did 2 brands, as you have seen, where we have done now a clear separation and positioning on the brands. For example, on Tridonic, we have implemented a complete flexible dimming lighting solution in a museum in China, in the Imperial Examination Museum. And also, we have established a smart lighting office in the center of London as Tridonic is also migrating into the small solution type of selling connected lighting solutions both with Zumtobel as well as with the competitors of Zumtobel. On Thorn acquired international setup, one is a street illumination in charge of one of the UAE Emirate districts, what we have done, and the other one is an outside illumination in Madrid in the Plaza of España. And in the last one are two examples, obviously, the high end, the Guggenheim Museum, Bilbao, what we proudly completed last year with our high-end illumination solutions. And the other one with the Swiss Post, what was a combination of really already saving energy that was basically the 40% energy compared to the previous solution while enabling a much better quality of light into those examples. As I mentioned, two of our strategic pillars are: one, the sustainability; moving forward, the second one, the digitalization. In both, we made tremendous progress. Here is more or less the three pillars, what we are acting and driving forward. One is the climate neutrality. Our goal is to become climate neutral as a company by 2025. We are well on track with converting all European locations to renewable energy. Partner of choice was one example. Here, you see [ Swiss Post ] as one of the customers, but we are doing it with all our suppliers, with all our customers. And last but not least, we have more and more projects now designed and implemented with circular economy instead of inner economy on the right-hand side. Only one example. We have reached the gold status EcoVadis, targeting now the highest one, the platinum one. Then MSCI ratings, we have moved from A to AA. And we also partner here with VÖNIX just to illustrate that this is also recognized now from the outside world. Let me now switch to the overview of the results, what we have accomplished, moving our revenue by more than EUR 100 million from EUR 1.044 billion to EUR 1.148 billion. You see here the biggest growth comes from the Components segment with a double-digit growth up to EUR 363 million, but also on the luminaire segment, we have been growing by 6.4% to EUR 800 million, almost EUR 845 million. Same on the EBIT with a growth of EUR 43 million to EUR 60.8 million. The gross profit in the range of EUR 381 million. And the SG&A expenses slightly higher, EUR 320 million. Thomas will come to that because this is also, to a large extent, driven by much higher transportation costs so that especially outbound logistics. Net profit, EUR 45.8 million compared to EUR 45.6 million previously. That might sound the same, but Thomas will highlight it also in a moment. Last year, we had a very positive tax effect, a double-digit one as well as some short-line work, what we still had during the corona. So obviously, if you take this into account, it's in the range of EUR 18 million to EUR 20 million higher net profit compared to previous year. Strong operating cash flow of EUR 122 million. Solid balance sheet and especially proud that we have been able, again, to increase our equity ratio from 32.7% to 38.1%. And that you see on the next page, this is a slide, what we now expanded with the additional year. You have seen this from our Capital Markets Day presentation, how we turned around the company since '17/'18, with minus EUR 47 million. And you see that we have been able to continue despite the difficult environment to move forward EUR 122.7 million cash flow from operating results. The EBIT increased from EUR 43 million to EUR 60.8 million, and the net profit at EUR 45.3 million on the right-hand side, after two very bad years, '17/'18, '18/'19 with no dividend. We are moving along according to our dividend policy, and we are able to pay EUR 0.35 per share. And you see we gained from '17/'18 to '21/'22 more than 10 points in our equity. Thomas will share more details. Now handing it over to him for the details of the remarks.

Good morning, ladies and gentlemen. Also from my side, a very warm welcome. And let me start with the lighting brands. Q4 revenues in the Lighting segment increased by 1.4% for the -- versus previous quarter and totaled EUR 220 million. This slight increase has mainly 2 reasons. First, we had a very strong Q4 last year. And second, we had a very strong Q3 this year. As you can see, the EBIT margin is quite low, with 2.9%. But I have also to say that we had to record EUR 4.2 million higher one-off items than last year by EUR 2 million, we had to increase the extended warranty provision; and EUR 2.2 million, we had to increase the provision for our old warranty case. Year-on-year, we were able to increase our revenue within the Lighting segment by 6.4% from EUR 794 million to EUR 845 million. Although we were able to increase our sales and selling prices, higher material and transportation costs negatively impacted our Q4. The reported EBIT in the Lighting segment decreased from EUR 8.7 million to EUR 6.3 million. The EBIT margin, as I said before, was at 2.9%. Nevertheless, as I said, we also had one-offs in the last quarter. Looking at the EBIT margin development for the financial year '21/'22 in comparison with the sales development. You can see the impact of the increase in raw materials and transportation costs also in our bottom line. Nevertheless, we were able to increase the EBIT in the Lighting segment from EUR 33 million to EUR 45 million. So our EBIT margin in total increased from 4.2% to 5.3% as well. Coming to the Components segment. The Components segment recorded an increase of 16% in revenues, so very strong to EUR 97 million in the fourth quarter. This positive development was a result of the high order book, reflecting the good customer demand, and we also got more semiconductors than expected, resulting in higher outputs of production. Although we were able to increase our sales and even our selling prices, also here higher material and transportation costs as well as higher personnel expenses impacted our Q4. So the EBIT of the Components segment decreased from EUR 11.7 million to EUR 8.8 million in the fourth quarter. As a result, the EBIT margin, although will be pretty high, declined from very strong 14% in the prior year to 9%. Looking at the full year-on-year comparison, we were able to increase the EBIT of the Components segment from EUR 25 million to EUR 36.4 million. As a consequence, the EBIT margin increased from 8.2% to a very pleasant 10%. Here, our higher turnover more than offset the negative impact from higher material and transportation costs and also from higher personnel costs due to the suspension of short-term work subsidies. Going to Slide 12 to our group results. Altogether, we generated a 5.8% quarter-on-quarter increase of revenues to EUR 301.7 million in the fourth quarter. Clearly, more than we had expected end of Q3. This positive development throughout the year resulted in the reported increase in revenue on an annual basis of EUR 1.148 billion and represents a 9.9% increase. Looking at the profitability. The higher sales volume as well as the increase in selling price could not offset a sharp increase in material and transportation cost fully as well as higher selling and admin costs. As a result, the EBIT of the quarter declined to EUR 8.5 million, while the EBIT margin was at 2.8%. Also here, taking into account onetime effects on the Lighting side. Looking at the full year development, our EBIT increased from EUR 43.4 million to EUR 60.8 million, and our EBIT margin in total increased from 4.2% to 5.3%. Let me now explain the main building blocks of our EBIT development for the full year '21/'22. Let's start with the prior year EBIT at EUR 43.4 million. The group's absolute gross profit increased by EUR 46.5 million based on an increase of around EUR 104 million in revenues compared to the previously. As mentioned already, our gross profit was negatively influenced by sharp rise in material and transportation costs. Nevertheless, the increased activity helped a lot to increase the gross profit. Positive results -- positive effects resulted from a decline in depreciation and amortization and lower warranty costs. Development costs rose by EUR 1.3 million to EUR 45.6 million. The increase in selling and admin expenses had a negative effect in our EBIT, above all, due to the absence of shorter-time work, higher transportation and packaging costs as well as increase travel activities. Our effect -- other effects were at EUR 2.9 million on the negative side. And as we do not disclose restructuring and especially tax anymore, we killed the bridge, last year restructuring costs are shown as positive deviation this year. So our reported EBIT was, as I said before, at EUR 60.8 million for the financial year. Coming to our income statement. Financial results amounted to minus EUR 13.2 million, which is roughly EUR 4 million below the previous year. After the deduction of income taxes, our net profit amounted to EUR 45.8 million. This result is just a little bit higher than last year. As Alfred explained, we had a big onetime effect in taxes last year, which we did not report this year. Last, the net profit is comparable to last year. And we have earnings per share of EUR 1.06, which is exactly the same result as last year. And as Alfred also said, we will also increase our dividend for the last. Going to the cash flow, we are very happy that the cash flow from operating results increased from EUR 115.7 million to EUR 122.7 million. On the negative side, we had to increase our working capital, which increased from EUR 152.5 million to EUR 211 million. And here, especially the inventory necessities to the well-known supply chain problems across [ divisions ]. Cash outflows from the change in other operating positions totaled minus EUR 5.5 million, and the cash outflows primarily resulted from the user restructuring provisions. Consequently, cash flow from operating activities declined to EUR 57.6 million for the full year. Cash flow from investing activities was almost flat compared to the last year and totaled minus EUR 41.7 million. As a result, the free cash flow only amounted to EUR 16 million. Going to Slide 15. We are very proud that we have a very solid balance sheet. If we have a net debt coverage ratio of 0.8% and that our net debt is at the level of EUR 95 million. And both numbers are well in line with our covenants if you also include the equity ratio, which increased from EUR 32.7 million -- 32.7% to 38.1%. In summary, this strong balance sheet protects our liquidity position in the difficult times we are facing and gives us more than enough headroom going forward. And with this, I would like to hand back to Alfred.

So you're used to this slide already. And here, you can see that we are continuously delivering encouraging results with Q4 sales 5.8% above the previous year. We were able to deliver the fifth positive quarter in a row from starting the Q1 of last, last fiscal year. And as you know, last year's first, second and third quarter were negatively affected by the impact of COVID-19. And since then, we have been seeing a very positive development. However, as mentioned already, the shortage of semiconductors for our mid- and high-end drivers continues to cause considerable uncertainty. We are not always able to deliver as much and especially as far as our clients requested. And therefore, the higher material prices in the transportation costs also negatively impacts this development on the top line. But at least the limited availability we saw in the second quarter was all successfully managed in quarter 3 and quarter 4. And after all, we have already worked specifically on the recent month to reduce the dependence on certain individual suppliers for ICs, working it around, but I have to admit, some we had to do the work around 2 times because after we have done it, again, we run into difficulties with certain supplies. On Page 17, you see the development by the regions. The DACH region, the large market of the Zumtobel Group, rose by 4.2% to EUR 362 million. And this increase was lower than the other regions because the growth generated by Switzerland and Austria in the previous year despite the COVID-19 crisis. Obviously, in effect also that those countries managed a little bit better the COVID situation than others. The revenues in the Northern and Western Europe regions were 13.3% higher at EUR 292 million, where Great Britain recorded a substantial improvement in revenues after the sharp drop caused by the crisis of COVID-19. The other countries in the Northern and Western Europe region remained only slightly below the previous year. Revenue in the Southern and Eastern Europe rose by 16.8% to EUR 312 million, supported particularly by strong growth in France, Spain Italy. And here, we saw a strong catch-up effect after the crisis. A little bit behind is the Asia & Pacific -- or sorry, Asia & Pacific also in the growth mode, of course, 13.6% to EUR 123 million, especially in China and in Hong Kong, where obviously, until now, we did not have the COVID impact the rest of the world, that what I wanted to say is that includes MEA, Americas, so South America and North America fell 8% to EUR 60 million. And the strongest decline was in Middle East especially in Qatar and the UAE. As you know, Qatar is now hosting the soccer championship and more or less, it's almost a complete stop of a lot of construction during the last. Coming to the end of the presentations, I would share with you the outlook and the guidance, what we would like to give for the coming fiscal year. We are still, as I mentioned at the beginning, confronted with the massive increase of prices on raw materials, availability of chips that will not ease at least not until the end of calendar year '22. In addition, the highest inflation led to higher conclusions of wages and salary increases, what we have to take into account. And therefore, we see, in view of the financial year '22/'23, an increase in growth between 3% and 6% with a stronger part in the first half and an EBIT margin of 4% to 5%. Our guidance on CapEx spending is around EUR 70 million for '22/'23, an increase compared to the previous years, mainly due to the planned investments in various new product solutions in digitalization projects, such as the digital factories and the rollout of the new [ CRM 2 ] for our luminaire division. At this point, however, I would like to mention that we keep the mid-term CapEx planning, which we guided in the Capital Markets Day, to be in the middle EUR 55 million until the '24/'25. But we believe that we need to continue to invest to drive our innovation and to drive our digitalization projects forward. That brings me to the end of our presentation. And now Thomas and myself will be happy to take your questions. Thank you very much for listening.

[Operator Instructions] First question is from the line of Michael Marschallinger from Erste Group.

I have three and would like to do them one by one. The first one on the guidance. You guide for revenue increased 3% to 6%. Can you be a bit more specific on geographies and segments, what expect here? And is this top line increase driven more by volumes or by higher pricing?

Yes. Thank you for your question. The -- as I said, we gave the bandwidth in geographies. We believe that we will be able to grow quite significantly again in the DACH region. We do see a slowing down in those regions that have been growing extremely fast, like the U.K. and like France. I think it's a little bit of a lower level. And then we are planning to grow -- to come back with the business, especially in weaker regions like the Middle East and the Americas. The second question, what you have, we believe it's a mix between price increase and volume. And looking at the last month, what we have the bigger growth is coming from the price increase as we are now consequently pushing for higher prices in the market and a little bit less on the volume increase.

Okay, understood. And then the second question on the EBIT guidance. You expect top line to grow, especially, as I said, in the -- your margin's strong at DACH region, but you still expect EBIT to decline year-on-year. You mentioned here also salary increases. Maybe could you give us more color on the cost and wage inflation you're seeing at the moment and how much of that you can pass on?

Well, as I said, prices are still going up, and we are in delay of passing through our input prices, which we face to our customers. And input prices from wages are increasing more and more. In Austria, from 1st of May, we had 3.8%, and we -- sorry, 4.8% and we expected 3%. So we are a little bit cautious on EBIT guidance. Depending on the way forward, it could go better, but it could go also worse. So we want to have a cautious guidance regarding EBIT margin development.

Okay. Understood. And my last question, could you maybe give us -- share with us that the contribution from your plant in Niš you had in the last financial year in terms of revenue and EBIT?

That's a difficult one as we don't measure by -- measure it by plant, but by product group. But I can tell you Niš as a positive development and the activity level increased significantly over the last years. The production output, which we measure at cost, is -- was in the last year, EUR 51 million at the Components segment compared to EUR 43 million, and in the Lighting segment, EUR 53 million compared to the previous year of EUR 29 million. So Niš has a positive effect on our EBIT, of course. Nevertheless, I have also to say that wage increases in Serbia are also at 8% compare -- of course, coming from a lower level compared to the 4.8% in Austria. So there -- also there you have increased costs. But on the other hand, I have also to say, especially over the last 2 weeks, we see also a decline in input prices, especially on steel, copper. Energy, of course, is on a -- remains on a very high level. But if price -- if these input prices are coming down, this was, would also be, of course, a no-brainer, very helpful to our profitability.

Okay. So if prices continue to decline, you would be more in the direction of the 5% EBIT.

Exactly.

Just one additional comment here. Obviously, only since January, we saw a dramatic rise of energy prices. In addition, what Thomas mentioned that we have 1/3 of our employees in Austria, and we have a rather high, let me say, closure of the wages of the 4.8%. So all in all, it's around 5% compared to the 3% what we had originally planned in our budget.

And maybe one last comment. Especially in the third quarter because of the Ukraine war, we saw in -- trend of input prices going up even far higher dynamic than in the previous 3 quarters. Nevertheless, the good thing is it's slower -- it's slowing down and going down right now.

[Operator Instructions] The next question is from the line of Markus Remis from Raiffeisen Bank International.

Congrats on the figures. First question relates to the availability of semiconductors. If you could shed some light on your perception of the procurement of semiconductors. Did you get any indications? I mean, recently, one of the other OEM indicated that the situation is kind of relaxing. Is that an observation you would share?

Yes. Absolutely, Markus. Thank you for the question. So what we see at the moment, it's still a little bit hand-to-mouth principle for certain ICs. The problem is we have 48 types of different ICs and, obviously, most of them are included into one driver. So [indiscernible] we cannot produce, so to speak. But what we are seeing over the last month that it's getting a little bit, a little bit more reliable. But in the constant dialogue with our purchasing department and partly also the management is involved with our key suppliers, it will remain tight, as I said at the beginning, at least until the calendar year '22. And after that, it looks like that is easing out a little bit starting from the beginning of the calendar year '23, which obviously would help us, at least in the last quarters moving forward into the next fiscal year.

All right. That's clear. Then on the topic of M&A, which you have kind of put forward as a strategic pillar, anything you can share with us? I mean where do you stand in the process? Are targets coming on, on the market?

Well, we have received various teasers on some also very interesting companies owned by private equity. But if you compare the multiples they are asking at the moment, these multiples are far away from what we see on the stock exchange. So I think there are interesting opportunities outside. The prices they asked for, I think, nobody will pay them. And if they come also to the conclusion that the company is not producing gold, then we are really in appetite to acquire some of those companies. But at the moment, we see no reason why we should buy at such prices.

Markus, in addition, that what Thomas said. There is, of course, in line with our strategy that we said that we are moving into potential targets, what will add market share in countries where we are weaker or it would add technology, what -- we are anyhow pursuing these targets are extremely interesting, and we are evaluating, as Thomas said. But currently, it's a little bit, in German, you say, [Foreign Language], we don't believe like this. And I believe once they get back under the -- at a solid ground, that they see what they are worth, then obviously, we are very interested to pursue, and we are constantly monitoring this now.

Yes. Yes. Presumably prudent to wait a bit. Maybe there's some -- one or the other bargains maybe emerging going forward.

Yes. And obviously, just to conclude that on maybe your question. Of course, we are also seeing that after COVID and with the tough environment, that some of the smaller competitors on our end are struggling. But obviously, as we mentioned, these are not targets. So as we have been in restructuring for many years, and we have no interest to add something where we again have to start restructure, we are interested in healthy companies.

Yes. Very clear. Generally, on the pricing side, I mean, you said, okay, maybe one of the other input factories kind of stabilizing at elevated levels. Others are still rising. But I mean, the indication you gave that the bigger part of the top line growth would be pricing related, what's the -- where would be the point where you consider the introduction of further high extent in that regard? Do you still see kind of competitors moving in the same way? Do you consider price discipline high? And when would be maybe a window for a further increase?

Well, it's currently already behind in the middle of this window. Obviously, what we said if I only compare the cost but our overall as from January until now, that it is going so fast that our -- we are, in that sense, not able so fast to react in the market, especially on our luminaire segment, in increasing the prices. For the new projects, we are doing constantly, more or less, we need to look into the stock price as partly when we call projects. So that's going on anyhow. On the components level a little bit better. And I think currently, still allocation and availability of products is the key. What -- who is able to deliver wins the business, and the price, the cost is of second priority. Obviously, if this comes through the end of the calendar year, the allocation is coming slowly down. We need to manage this very, very carefully. But I believe price increases until, let me say, autumn, late autumn time frame is the key to drive the business.

Okay. And the top line guidance, did you cancel in only price increases that have already been introduced? Or is there already kind of the -- I mean, you said, okay, on new projects, there is a kind of a...

No. No, no. That is a combination of both. As I said, obviously, in certain regions, we have been weak where we did trigger already a lot of efforts on new projects in what are now in the pipeline. So that's why we see the visibility, what is clearly then a volume growth. But in this certain area, it's predominantly a price -- it's a price growth. And it's a combination of both in the different countries where we are operating. I mentioned at the beginning, we have a historically high order book. So obviously, it never happened before that we had on both the components and as well as in the luminaire this high order book, what we have to work out. But obviously, with the situation of the war, a little bit the expected slowdown momentum in certain countries, especially in Eastern Europe, we have taken this all into account in our guidance. Currently, obviously, we are able to grow above that simply because of our order book if we are able to ship it.

And maybe one comment. We had a very good start into the new financial year. But there, we are really happy about the development. But nevertheless, the future is really not foreseeable. And we also experience that a lot of projects are getting delayed in the construction industry because people do not want to pay steel prices, which are 40% higher than some months ago. It's very difficult to say how much volume growth we get.

Yes. Yes. Okay. All right. Final question, maybe a bit of bookkeeping and eventually not straightforward. But in terms of the tax rate, in the P&L, that has been all over the place in recent years. Anything you can guide us for, for '22/'23 under normal circumstance, so to say?

Normal circumstances, I would say it's around 20%. But please keep in mind, we are sitting on a lot of tax losses carryforwards in Austria. That's why we have one of the lowest tax rates of the companies on the Austrian Stock Exchange. And it's always difficult to foresee the impact of deferred taxes. If it's going good, we appreciate our deferred tax assets. And if it goes the other way around, we have to write off some of our deferred tax assets. Despite we have a very low capitalized quote of our deferred tax assets. So as a rule of thumb, I would say the better our results are, the lower our tax rate is, which is really weird, but it is like that.

[Operator Instructions] There are no further questions at this time. And I would now like to turn the conference over to Alfred Felder for closing comments. Please go ahead.

Ladies and gentlemen, thank you so much for listening. Thank you very much for your interesting questions. With this, I would like to conclude our call today. As said, I think we can look back to a very successful year despite the circumstances we are in, and the outlook looks also positive despite the situation is not changing really radically. Thank you very much, and have a great day.