Zumtobel Group AG (ZAG) Earnings Call Transcript & Summary

Ladies and gentlemen, welcome to the earnings call of Zumtobel Group on the Q4 and full year 2025 and 2026 numbers. I would like to welcome the company's CEO, Alfred Felder; CFO, Thomas Erath; and Head of Investor Relations, Dr. Eric Schmiedchen. The gentlemen will guide you through the figures in a moment, followed by a Q&A session for institutional investors and analysts via the audio line only. There will be time for questions from journalists and retail investors during today's Zumtobel Group roundtable approximately at 3:00 this afternoon. And with that, I hand over to you, Mr. Schmiedchen.

Thank you. Good morning, ladies and gentlemen, and a warm welcome from my side as well to our figures for the Q4 and full year 2025-'26 results. As said, with me on the call is Alfred Felder, our CEO; and Thomas Erath, our CFO. Alfred will walk you through the highlights of the quarter and the year, while Thomas 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.

Good morning, and welcome, ladies and gentlemen, and thank you for joining us today for this call. The financial year '25-'26 was again a challenging one for our business. The market conditions and the broader economic environment remains difficult and were further impacted by, as we all know, the geopolitical tensions around the globe. In Europe, however, we began to see early signs of the demand in the new construction, especially during the fourth quarter. And however, the recovery remains modest. With the ad hoc announcement in July -- on July 1, we already provided some preliminary information on our full year figures. But before we move into the strategy update and the financials, I would like to do, as usual, share with you a couple of highlights what were driving us over the last quarters, including also here, the first one, the Light & Building, where we, in the biggest light fair every 3 years, we have been showcasing with all the 3 brands, an impressive program also according to the feedback of the Zumtobel capabilities. We were able to meet numerous customers, especially a lot of new customers, important conversations and develop new partnerships. And one of this is the collaboration with Legrand. So that's our third partner in the building infrastructure next to ABB and Signify, which we announced. What you see here in the middle is the APO Bank, a typical refurbishment project where we really gained momentum where it was a renovation package versus the existing products with a lot of control know-how, what made us this as a success. PENNY on the right side is a test pilot. Typically, it's in Austria, where we have been doing a combination of high system efficiency, optimal glare control. So where here, the entire lighting solutions is designed to permanently minimize the energy consumption. A very iconic project I reported also one and it's now completed is this fish market in Sydney, where, again, the commitment on sustainability, the project minimizes the environmental impact through responsible construction practices and innovative energy solutions. And the roof here is an architectural feature that includes built-in luminaires to provide the special illumination after the sunset. We are very proud that we have been able to contribute here. And last but not least, a project, the American University in Cairo, Egypt, which was founded in 1919, one of the leading educational institutions in the Middle East. And here, 136 smart classrooms and 200 laboratories on a 7-kilometer campus in 12 building zones have been equipped. And here, Tridonic with a partner was establishing the network with 20 controllers, which precisely control and monitor 1,100 LED escape signs. For this project, Tridonic received the International DALI Award in 2026 in the Best Emergency Lighting integration category. Let me now give you an overview on our financial performance in the last fiscal year. Thomas, of course, will go and then into the details. We published the group figures in our ad hoc announcement on July 1. And compared with the same period of the previous year, the revenue declined by 5.2% from EUR 1.097 billion to EUR 1.040 billion. If you look at the segment level, the picture is as follows: Lighting segment at EUR 832 million, while the revenues of Components segment amounted to EUR 266 million. The adjusted group EBIT at EUR 42.4 million, which corresponds an adjusted EBIT margin of 4.1%. Our Lighting segment remained stable in a difficult market environment and further improved its profitability. The Components segment, however, was confronted with the ongoing weakness in construction as well as the increasing pressure, especially from the Far East competition. As explained in our ad hoc announcement, the net profit was significantly affected by considerably higher income taxes compared with the previous year. And here again, Thomas will explain this in more detail later on. And in view of the slightly positive net profit of only EUR 1 million for the entire financial year compared to EUR 15.5 million last year, we and the Management Board recommended to the Supervisory Board and subsequently, we also made this recommendation to the Annual General Meeting not to pay a dividend. It was not an easy decision, but taking all relevant factors into account, we believe it was the right one for us. Looking forward, our priorities are clear. Our operational excellence, a strategic focus and the profitable growth. And one of our central growth drivers is in the digital transformation of the buildings into energy-efficient, integrated and intelligent infrastructure. This is also, as I explained in one of the last calls, the main reason why we are having these cooperations with the building infrastructure providers such as Legrand, such as ABB and such as Siemens. In addition, legal regulations, stricter energy efficiency standards and the demand for database solutions are sustainably changing our customer requirements. And so we are continuously strengthening our position in this market with our intelligent lighting solutions. On this slide here, you see how we in the Zumtobel Group are responding to the structural changes in our market and how this strategy is already reflected in tangible customer solutions. The bigger picture, these 5 trends are reshaping our industry from -- moving from product to solutions, including the sustainability, including the connected and the data. And we're all witnessing this fundamental shift also from our customers who are more and more not asking products anymore, but complete solutions. So the key message is here, we are moving from products to integrated solutions. And this is not merely an observation, it's a direction which we are evolving our entire portfolio and the complete organization. And how does it look like in practice? Let me give you some examples. One is the value shift here in the data center sector. Data center, we started to be engaged 5 years ago, and now we are seeing and earning the fruits. Here, we have to deliver more than just the illumination, the lighting solution. We support our customers from the earliest planning stages with specialized lighting design, including solutions that are tailored to the thermally demanding environment of data halls. As you know, this data halls still with all the energy they use to cool this down are still having temperatures up to 40 degrees in there. Our portfolio covers here the entire family from the external areas and the data hall itself, to the technical rooms, the emergency lighting and the office spaces. For us, this is a high-margin, very fast-growing segment in which we are positioning ourselves as a system provider rather than a simple component supplier. In smart and connected, this transformation is evident in the way buildings are optimized. Using sensor data, we help manage visitor flows, prevent overcrowding and create a data foundation for company-wide standards in the building environment, air quality and lighting. Our lichtMONITOR platform enables facility manager to monitor and control entire lighting installations centrally. The next page, when it comes to sustainability and well-being, we let our actions speak for themselves. Our continued inclusion of VÖNIX Index as well as -- this year, the EcoVadis Platinum rating, which places us among the top 1% of the companies assessed worldwide, provide independent recognition of our progress. Product-wise, here, you see an example of the Avenue luminaire, 68% recycled material, completely disassembly for repair and recycling, and 80% recyclability, and a guaranteed maintenance and repair upgrade availability through the entire life cycle. This is circular economy in action, not just as a commitment on paper. With these products, we are advancing sustainability in helping our customers meet their sustainability goal while creating new business model, especially a refurbishment after the first lifetime into a second lifetime and automatically moving from a pure product business into a solution business and potentially with a business model also in a light leasing model. Considering these key trends reflect the strategic logic underpinning our business, we are systematically evolving our business model here from really selling onetime the products towards a recurring higher-margin revenue stream generated through services, software and also data monetization. And at the same time, our focus on sustainable, long-lasting products and partnerships strengthen the customer loyalty and reinforces our competitive differentiation. On Slide 8, I would like to provide you an update where we stand with the achievements what we have announced a couple of quarters ago of our efficiency program. As we reported in recent quarters, we have already delivered substantial cost savings. And in total, we realized cost savings of around EUR 16 million for the entire '25-'26 financial year, with roughly EUR 6 million in associated restructuring costs. This then translates into a net impact of around EUR 10 million in the first year. And let me briefly explain once more the 3 levers. One is the lean organization where especially in the big departments being in sales, we have optimized the footprint, reducing hierarchical layers, and this will continue also in the other departments. Second one, streamlining the processes. This is a continuous effort. One example is in procurement, where we are reducing complexity and increasing automation. This will allow us now to lower spending, improve our transparency and manage our purchasing process more efficiently, and that is now going on in all aspects of our business. And thirdly, the establishment of the Shared Service Centers, two. In Serbia, we have 2 locations, one close to our factory or in our factory in Niš and one in Belgrade for more the international jobs who need international airport nearby and Portugal. And as previously communicated, here, our objective is to structurally improve our cost position over the next 4 years. And by the year 4, and that's here in the case, '28-'29, we are targeting annual cost savings of EUR 40 million to EUR 50 million and plan to match this level in the following years. Importantly, around 80% of these savings are expected to realize by year 3. Because currently, as you know, we are building this up. We are training the people. And once this is ready, we are transferring this knowledge from high-cost countries to our global business centers. Obviously, we are fully aware that these steps and measures are not always easy and that they also affect our employees. We take this responsibility very seriously and are supporting the transformation process as carefully and responsible as possible. And as just said, the further development of our business model also required a consistent adjustment of our organization. My colleague, Bernard Motzko, who has served as the Chief Operating Officer at the Zumtobel Group since 2018, will resign from the Management Board and retire by the end of September '26. Going forward, we will reduce the Management Board to 3 members and anchor operational responsibility within the existing business areas. My colleagues and I are convinced that the measures we have introduced and executed will strengthen our company in the future. In this way, we are addressing the current challenges in the market. Let me give you, before I hand over to Thomas, an update on our Components segment. As I mentioned earlier, this segment has now been under pressure for the third consecutive years. The revenue declined by 11% year-on-year basis and the adjusted EBIT fell to EUR 4.6 million. We have -- we take this development very seriously, and we have acted here on that. As reported over the past few quarters, we carefully evaluated potentially 3 options: selling off the segment, a joint venture with a partner, or a fundamental repositioning under our own steam. And we came to the conclusion that the market is currently not prepared to offer a price reflecting the true value of our business. We have also not found yet a joint venture partner so far with whom we think we can run the combined business and create additional value. So we have, therefore, chosen the third one -- our most value-creating path we are actively rebuilding the Components segment by itself. Our strategy follows here a clear 3-part approach: keep and stabilizing our core business, the OEM business consisting of LED drivers, sensors and LED modules, extend it in new markets and new applications, so remaining into the Lighting, develop also new business opportunities beyond the light. And that means the following: if we keep and stabilize the core, we are securing our existing core business by rigorously driving cost efficiency. Extending the core, we are pursuing new applications closely related to our existing business. And one concrete example is our RailSignia project, where together with a partner, we aim to refurbish existing signal system from halogen lamp to LED for rail networks with our solutions. And in parallel, we are strengthening our capabilities in and leveraging the control business. Developing new business opportunities beyond light, we are here identifying new business areas. As you know, one of the core competencies of Tridonic is power electronics. So we are perfect in converting AC to DC in thermal management and especially when it comes to miniaturization for high-end applications. You see here a couple of examples, renewable energy, the general high-power semiconductors, obviously, with data center, with artificial intelligence, energy and energy consumption is exploding. And everything what helps to make this transfer of energy more efficient is saving cost. And here, Tridonic with its competence plays a key role where we engage with data centers with power conversion here. And that is making interesting applications what go beyond the lighting. We're also addressing this transformation on the leadership level. The previous CEO of the Components segment has left the company and the successor will drive this strategy forward, as I just have outlined. We will keep you updated as this project has started a couple of weeks back and latest with the results presented in December. I'm very confident that this clear road map will put the Components segment on sound and future-proof footing with an increased volume and margins. And with that, I would now like to hand over to Thomas, who will take you through the quarter 4 and also the all 4 quarter results in detail.

Thank you, Alfred. Good morning, ladies and gentlemen. Let me start with the Lighting segment. Q4 revenues in the Lighting segment amounted to EUR 213.7 million and were 0.8% above the previous year. Positive volume contributions were recorded in the Americas and MEA region, along with positive growth in the Netherlands and Switzerland. France, Germany, Italy and the U.K. recorded lower volumes as well as a couple of other countries having price pressure in the market. Adjusted EBIT in the Lighting segment increased from EUR 11.4 million to EUR 13.7 million. Our adjusted EBIT margin increased to 6.4%. Lower material costs and a decline in personnel expenses also contributed to the higher result. Slide 11 shows the Components segment. Revenues in the Components segment declined 8.8% to EUR 66.4 million in the fourth quarter. The difficult economical and geopolitical environment led to declining sales and also still some price pressure. Adjusted EBIT in the Components segment totaled EUR 0.4 million negative in the fourth quarter. The adjusted EBIT margin stood at minus 0.7% Lower material costs and lower personnel expenses were unable to offset the decline in revenues. Slide 12 shows Q4 results for the group. Revenues in the fourth quarter declined by 1.4% to EUR 265.4 million as a result of the decline in the Components segment. Adjusted EBIT margin increased -- adjusted EBIT increased to EUR 10.2 million, compared with EUR 6 million in the fourth quarter of last year. Adjusted EBIT margin amounted to 3.9%. Overall, lower material costs and lower personnel expenses more than offset the negative impact from declining volumes. Slide 13. Looking at the adjusted EBIT bridge, we start with prior year's result of EUR 46.9 million. The negative revenue impact totaled EUR 44 million with the decline primarily caused by price pressure, volume reductions and to a lesser extent, FX. Looking at our COGS, lower material costs and lower personnel expenses had a positive impact of EUR 32.4 million. SG&A made a positive contribution to results, mainly due to lower personnel expenses. As a result, adjusted EBIT decreased to EUR 42.4 million. Slide 14 provides you with information on our income statement. As I mentioned, our adjusted EBIT stood at EUR 42.4 million. Special effects were negative at EUR 19.3 million. They include restructuring costs mainly in connection with our efficiency program and the closure of U.S. production site in Highland. For individual claims, minus EUR 1.4 million were recorded in the Components segment and minus EUR 0.6 million in the Lighting segment. In addition, the special effects recognized in the Components segment reported in the second quarter include impairment of goodwill, which was EUR 2 million, impairment losses to capitalized development projects, EUR 3.2 million. And on the positive side, an investment premium received from the Portuguese government of EUR 1.4 million. After the deduction of these special effects, our EBIT totaled EUR 23.1 million. Our financial results amounted to minus EUR 12.4 million and net financing costs amounted to minus EUR 9.8 million. Other financial income and expenses totaled minus EUR 2.5 million and included the interest expense for pension obligations, FX and hedging valuation. Profit before tax totaled EUR 10.7 million versus EUR 16.1 million last year. Income taxes amounted to minus EUR 9.7 million, compared to minus EUR 0.6 million. The year-on-year increase in income taxes resulted primarily from value adjustment to deferred tax assets in the U.S., U.K. and Austria as well as some nonrecurring effects. As a consequence, net profit fell to minus EUR 1 million. Earnings per share equaled EUR 0.03 per share. Let's move to the next slide, the cash flow statement. Cash flow from operating results fell year-on-year from EUR 86.4 million to EUR 82.6 million, mainly due the decline in sales. The change in other operating items amounted to minus EUR 26.7 million and resulted mainly from the reduction of provisions for pensions and termination benefits and the reduction of restructuring and bonus provision. Cash flow from operating activities stood at EUR 61.8 million versus EUR 72.3 million in the last year. Cash flow from investing activities amounted to minus EUR 45.7 million in the reporting period. As a result, free cash flow equaled EUR 16.2 million versus EUR 19.6 million the year before. Cash flow from financing activities amounted to minus EUR 6.9 million versus minus EUR 37.9 million the year before. The change compared to prior year is primarily related to the increased utilization of the loan from the European Investment Bank and the reduced dividend distribution. Let me finish with Slide 16 and some comments on our balance sheet. The balance sheet structure remains stable. The equity ratio increased to 43%. Net debt grew in comparison with the last year-end close to EUR 128.5 million. Debt coverage ratio is at 1.56. And with this, I hand back to Alfred.

Thank you, Thomas. Before turning into our outlook, let me briefly reflect on the latest sector development based on the Euroconstruct data what we received in June. On 2026, the forecast downgrade from Euroconstruct was expected. So the data confirms what we already anticipated in that sense, no surprises to us. For 2027, however, the picture looks much more encouraging. The forecast is stable compared to the last November. So they are always publishing this data in November than in June. And it steadily reflects growing confidence that obviously, the conflict, especially this one in Middle East is moving towards an end. But once that optimization sets in, we expect it will support construction activities across our market. The key headline for today is that the sector is coming out of the recession and the numbers confirm it. The cycle has turned finally. With the recovery, we expect new build growth will take the lead from 2027 onwards, outpacing the renovation for the first time in several years. But however, the renovation remains a structural pillar, particularly in non-residential construction. Why is this the case? Because environmental requirements have made it nonoptimal. Building owners are not renovating because conditions are favorable. They are renovating because regulations requires it. And that makes this segment resilient, and it will stay that way. So to sum up, 2026 is anticipated and communicated, '27 will bring stabilization and recovery. New build will lead the growth and renovation will remain anchored by energy transition, meaning the direction is gradually improving even if the pace of the recovery remains moderate. With this, our strategic priorities remain unchanged. We are focusing on capturing renovation opportunities on one side and positioning the Zumtobel Group to benefit from the anticipated return in non-residential construction. And as the lighting industry typically lags behind the construction side, we are expecting that any sustained market recovery will translate into an increased demand for our solution within a certain time delay. This brings me now to the outlook for this fiscal year. The overall market environment remains challenged. However, as mentioned in the previous slide, construction activity is expected to pick up. With the measures what we have taken on the efficiency program and we continue to take, we have set a clear course to position our company for sustainable growth and continued innovation. With a focused strategy and decisive execution, we are now responding to the ongoing shifts in our market and creating the foundation for a resilient performance in the years ahead. On margins, we expect an adjusted EBIT margin of 3% to 5% for the year. And let me here be transparent about what's pulling in each direction. On a positive side, our efficiency program continues to deliver. The contributions are real. They are measurable and they will support the margin improvement going forward. But on the other side, we are facing headwinds we cannot ignore. We see already higher raw material prices, also partly higher prices for semiconductors a sustained price pressure in the market and rising wage costs. And this is not short term nor is it requires active management. As we outlined earlier, 2026 remains a transition year. The recovery is confirmed, but it's still early. We expect the margin tailwinds from our efficiency work will strengthen as we move into 2027 when new build momentum picks up. Planned CapEx for the year amounts to approximately EUR 50 million. And with that, we are closing our presentation, and Thomas and myself are now ready to take your questions. Thank you for listening.

Yes. Thank you very much, Mr. Felder and Mr. Erath. Ladies and gentlemen, we are now opening the audio Q&A session for analysts and institutional investors. [Operator Instructions] We start with Mr. Steiner. Mr. Steiner, you should be able to unmute yourself and place your question, please.

Patrick Steiner, ODDO BHF. I would have two questions from my side. First of all, could you maybe share your thoughts with us on your data center business revenue share in terms of group revenue, expected growth rates for the next few years and maybe give us some margin corridors. As you've mentioned, this is a profitable high-margin business. That was the first one. And the second one is, could you also give us some more information on potential restructuring one-offs baked into your 3% to 5% adjusted EBIT margin guidance for this year?

All right. Thank you for the question. I will take the first one. So with the data center, we are basically having meanwhile, a very broad customer base. So Microsoft, Amazon and all these big guys are our customers. We have a double-digit million revenue here with the data centers and participating in the exponential growth. So we are expecting, especially across Europe, but also into the Middle East, India, more momentum. The products that are going in are the high-end products, especially the trunking systems, for example, our TECTON II, the flagship product, what we just launched a year ago is one of this. And here, we are in the margin range between 45% and 55%. And the second one on the restructuring, Thomas will answer.

With regard to the restructuring cost, we are not in a position to disclose how many restructuring costs we have factored in as this is subject to discussions with the workers' council and different plans. That's why we want to show our operative performance and not only EBIT numbers. But during the year, this will be clearer what we can do and what we can't do.

Thank you, Mr. Steiner for your question. And I am waiting for participants raising their hands. Mr. Marschallinger, you should be able to speak now and place your question if you unmute yourself.

Can you hear me?