Lindab International AB (publ) (LIAB) Earnings Call Transcript

Welcome to the Lindab Group Q3 presentation for 2026. [Operator Instructions] Now I will hand the conference over to the President and CEO, Ola Ringdahl; and CFO, Lars Ynner. Please go ahead.

Hello, and welcome to this presentation of Lindab Group's report for the third quarter. I'm Ola Ringdahl, President and CEO of Lindab Group. And next to me, I have our CFO, Lars Ynner. We will begin by presenting the results for the quarter and then move over to our focus areas and an outlook. Following the presentation, there will be a Q&A session. Let's begin with some highlights from the third quarter. Both business areas delivered organic growth in the quarter. This was driven by the Nordic region primarily. The operating margin continued to be affected by higher costs However, compared to the second quarter of this year, we could see a clear margin improvement. Price adjustments to compensate for higher input costs are ongoing and contributed to strengthen the gross margins in the quarter. Our acquisition journey continued, and we added the Irish ventilation distributor, CVS, -- and in October, the Italian smoke control company, Aernova to the group. With this introduction, let's now take a closer look at our sales development. Sales in comparable units increased by 2% for the group. For business area Ventilation Systems, net sales increased by 1%. The ventilation sales development continued to differ between geographies. In the Nordics, organic growth was 6%, mainly driven by Sweden, where organic growth was 13% in the quarter. In Western Europe, sales was down by 1%, which is a smaller decline than in previous quarters. In Central Europe, sales increased by 8%, mainly driven by strong development in Poland and in the Czech Republic. Business Area Profile Systems showed organic growth for the second quarter in a row. Sales in July, however, was quite weak, but we did see an increasing momentum in August and into September. Let's now move over to operating profit. After a profitability decline in the second quarter, primarily caused by the geopolitical situation and increasing energy prices. Profitability recovered in the third quarter. The adjusted operating margin for the group reached 8.7%, up from 6.6% in the second quarter but below the 9.7% we delivered in the third quarter of 2025. Both business areas delivered a margin uplift compared to the second quarter. Ventilation Systems showed a healthy operating margin of 9.9%. Profile Systems has stabilized and delivered an operating margin of 6.2%. Profitability for Profile Systems was poor in July due to the low sales, but the profitability in both August and September was on a healthy level. Looking at the different markets, we saw a positive development in the Nordics, while profitability was lower in Western European countries like Germany, France and the Netherlands. Price increases have, to a large extent, compensated for higher raw material costs and contributed to a stronger gross margin during the quarter. Now I hand over to our CFO, Lars Ynner, who will go through the cash flow situation.

Thank you, Ola. Lindab Group delivered cash flow from operating activities of SEK 235 million in the third quarter compared with SEK 335 million last year. The decrease reflected lower operating profit and a higher negative impact from changes in working capital. Net debt remained broadly stable at SEK 4,459 million. Our target for net debt to EBITDA to remain below 3X at the end of the third quarter, the ratio was 2.8 compared with 2.7 last year. The financial net debt-to-EBITDA ratio was 2.4 compared with 2.1 last year. The increase was mainly due to lower EBITDA. Ola back to you.

Thank you, Lars. Let's now look at some recent developments in Lindab Group and some examples of how we are developing our business with a focus on profitable growth. The geopolitical situation has substantially increased the cost of energy, transportation and raw materials since March of 2026. Our ambition has been to fully offset the higher costs through price increases. And during the third quarter, we have, to a large extent, managed to compensate for these higher costs and improved our gross margin. . To further strengthen the operating margin, we need both continued price adjustments and also a reduction of our cost base. We are, therefore, taking measures to improve efficiency across the group and reduce our fixed costs. Now let's have a look at the gradual improvements we are seeing in Profile Systems. For Profile Systems, organic growth in the business area was up by 4% in the third quarter after a positive 5% increase in the second quarter. The focus on the Scandinavian markets support the growth, and we see positive macroeconomic indicators ahead. Project sales have started to increase but from a low level. This is partly a result of active pricing in the Swedish market. We have achieved good operational stability. One important example is that the sandwich panel factory in Sweden now is back at normal production capacity after the challenging factory relocation initiated 2 years ago. Altogether, Profile Systems is in a stronger position today than 6 months ago and the increasing profitability is a clear top priority for us. We move on to acquisitions. Since 2020, we have made more than 30 acquisitions, and we have strengthened our position in the European ventilation markets. In July, we completed a bolt-on acquisition of the ventilation distributor, CVS, in Ireland, where we have a very successful team and a good market position. And last week, we completed the acquisition of Aernova in Italy. Nova specializes in smoke control solutions for ventilation systems. The Fire & Smoke segment is showing good growth, and our plan is to expand the Aernova business beyond Italy, together with a former owner who remains Managing Director of the business. Looking ahead, we see several interesting growth opportunities for Lindab, and I would like to mention some of them. A stronger focus on energy efficiency is supporting the Lindab Group going forward. Billings account for up to 40% of the energy consumption in Europe and energy prices are high and very high at the moment. Improving the energy efficiency of buildings will be an increasing priority in Europe and Lindab is very well positioned to benefit from this trend in the coming years. Another growth area is advanced technical ventilation where we are seeing solid growth in, for example, intelligent room ventilation solutions as well as fire safety systems. An increased focus on technical sales will make our business less cyclical with a greater share coming from renovation and upgrades rather than from new construction. We also see good growth opportunities in certain customer segments such as data centers, but also in defense-related projects and other areas. Going forward, we will continue to also make further bolt-on acquisitions of well-run ventilation companies while maintaining good financial discipline. Now let's move to the market outlook. After a challenging period in the European construction market, we expect a gradual recovery. we see positive signs in the Nordic countries with the improvement most visible in Sweden. In Western Europe, the market situation in some countries is less positive and Germany, in particular, continues to show weak development, and we expect this to continue into 2027. For the European ventilation market, in total, our assessment is that there will be modest growth in 2027. For Profile Systems, which is now fully focused on the Scandinavian markets, we expect a moderate improvement in the underlying market in 2027. In the medium to long term, we have a positive market outlook. Our ventilation systems provide energy savings for buildings and help to create a healthy indoor climate. When construction activity recovers, Lindab Group is well invested to handle higher production volumes. With that, I conclude this presentation. Lars and I are now ready to take your questions.

[Operator Instructions] The next question comes from [ Anna Lagerlaf ] from DNB Carnegie.

So my first question is on the price increases. Have they been received difference in the different markets, for example, has it been easier to balance margins and volumes in Nordics that are performing a bit better?

Anna, thank you for the question. Yes, Europe consists of many countries, many markets with their particular trades. And it is -- it's different how long it takes to get the price increases through. the contract in the Middle East, when that started late February, we urgently announced price increases we saw what was coming. . Typically, it takes a few months to get full impact. And we have struggled in some countries where price competition is really fierce, Typically, price competition is really strong when demand and say, market activity is low. One example is Germany, as we have pointed out a few times where price competition is pretty fierce. But all in all, I think we did -- we made small progress in the second quarter to get an impact from the price increases. But in the third quarter, I think we have seen that we have managed to lift prices, not completely the same in every country, but in total, I would say, on an acceptable level. We are not done, though. We still need to get the average prices up a bit further to be able to continue to strengthen the margins.

Okay. Very clear. And -- just how should we think about the price effect year-over-year in sales in the quarter? Is this like 1%? Or is it a bit more?

We don't -- we are not that specific in talking about that. But of course, we indicate in the material here and what we have presented that cost inflation on, say, raw materials and transport is between 5% and 15%. So in order to protect margins and protect the gross margins, we need to increase prices by a 1% is not enough. And that is what we are aiming for.

Okay. And on the improved pump business, that you note in the quarter. Are there any like specific segments that have been doing a bit better? Or is it more broad-based?

Particularly the project business that we refer to is that we mentioned when we described the sales development primarily in Profile Systems, and there, it is quite a variety of types of buildings. But I would say public investments in Sweden is 1 driver. Also some good project developments in the Norwegian market. So both in Sweden and Norway, we have seen the average -- say the average order size has increased quite a lot during the past 6 to 12 months gradually. Then we have a specific thing that is also influencing the number of projects that -- or the size of the projects. And that is the fact that the sandwich panel factory is now fully up to speed, and those products often go into rather large projects. So it means that the share of sales that comes from larger projects is increasing. It should be said that, that part typically has slightly lower gross margins as well. So that is part of the reason where the profitability in Profile Systems is not, say, lifting or taking off when we have organic growth. The 2 reasons. One is a higher content of projects. The other reason is what I referred to in my presentation, the fact that the month of July was a pretty tough month with low construction activity. August and September looking clearly better though.

And that sort of acceleration in activity, has that did that continue into the beginning of Q4. we have nothing indicating that the good momentum that we saw in August and September from profile systems that, that would suddenly end in October, we should remember that it is -- Profile Systems is a rather seasonal business. So up until early November, it's typically high season, but then from mid-November until March, they go into low season due to weather but I don't have any information that there would be any sudden set back from the first of October, particularly. I think we had good sales momentum in August throughout until the end of September. So I would suppose that, that there's a good chance that, that can continue.

[Operator Instructions] The next question comes from Anna Lagerlaf from DNB Carnegie.

It's me again. So -- could you give some Yes. So maybe if we can get into a bit more detail on the cost savings that you are talking about because you have been, as you said, you have been focusing quite a lot for some time now on looking with the cost base. In what way are you maybe accelerating that banking? And is it more related to ventilation than it has been previously? Just if you can elaborate a bit.

I think we -- after a long period with low growth or even negative growth. We have had to work on our cost base pretty constantly during the past 4 years. And 1 important factor to be able to generate a healthy operating margin is that we are able to strengthen our gross margins. through efficiency, through smart pricing, et cetera, et cetera. Now when we have -- now we have had to, say, devote the effect of the price increases to cover transportation and raw material costs and not to cover the general cost inflation in our fixed cost base then we need to more specifically, at the moment, address our fixed cost base so that the money generated a gross profits can cover the costs and leave a good profit a good operating or healthy operating profit after all these effects. So we see that the costs have grown faster, I would say, our fixed cost base has grown faster than our top line sales during 2026. And this needs to be corrected. So that is why we are having some extra focus on cost reduction activities at the moment. We don't foresee that, that will lead to any onetime effects or any structural cost that we will take, but we do it as a part of the running business.