dormakaba Holding AG (DOKA) Earnings Call Transcript

Ladies and gentlemen, welcome to the dormakaba Full Year Investor and Analyst Conference and Media Call 2025-2026 and Live Webcast. I'm Mattel, the Chorus Call operator. [Operator Instructions] The conference is being recorded. [Operator Instructions] The conference must not be recorded for publication or broadcast. I would like to remind you that the conference call does include forward-looking statements, which are subject to risks and uncertainties. Listeners and readers are, therefore, strongly encouraged to refer to the disclaimer included in the presentation. You will now be joined into the conference room. [Presentation]

Good morning, everyone. Welcome to Dormakaba's Full Year '25/'26 Analyst Investor Webcast. Joining me today is our CFO, Rene Peter. Together, we will review our financial performance and the progress we have made over the past fiscal year. Thank you for joining us today. Let me begin with the key highlights and strategic developments of '25/'26. Rene will then take you through our financial performance in more detail. '25/'26 marks an important milestone for dormakaba. Not only we have delivered on what we promised, we are also proposing today steps to simplify the ownership structure of the group, another important milestone for the company. By aligning ownership and economic interest at the level of the listed holding company, the new structure will enhance transparency and comparability and is expected to strengthen dormakaba's capital markets profile over time to the benefit of all shareholders. This is a logical next step in our journey to reduce complexity and make dormakaba easier to understand, analyze and compare for investors. You will find more details about the transaction in the dedicated media release published today. Let's look at our results. Over the past 2 years, we have consistently delivered on our commitments. successfully executed our transformation strategy while strengthening the business improving profitability. This year, we achieved a record adjusted EBITDA margin of 16.1% while continuing to invest in future growth. At the same time, we delivered 3% organic growth, demonstrating that growth and margin expansion can go hand in hand. Strong cash generation and leverage ratio of 0.8x EBITDA further strengthened our financial flexibility. These results reflect the impact from simplifying the business, improving operational excellence and sharpening our commercial focus. With the transformation phase largely completed, our focus now shifts to accelerating profitable growth through vertical market expansion, the U.S. opportunity and targeted M&A. We look forward to sharing more about this next chapter at our Capital Markets Day on November 18 in London. '25/'26 marks 2 years of consistent delivery and strong execution. Through Shape for Growth, we generated more than CHF 235 million in savings and achieved a record 16.1% adjusted EBITDA margin. We simplified the business through divestments, the exit from Russia, portfolio streamlining and operational improvements. At the same time, we continue to invest in the future growth through vertical market expansion, our U.S. strategy and 13 targeted acquisitions. Two years of disciplined execution have transformed dormakaba into a more focused, profitable and growth-oriented company. We are now ready to enter the next phase, accelerating sustainable and profitable growth. With the transformation largely completed, we are increasingly focusing on accelerating growth through our vertical market strategy. During the year, we built a strong pipeline and secured several lighthouse wins across our priority verticals. For example, in aviation, we won projects with leading operators, including American Airlines in the U.S. with Dallas-Fort Worth Airport and major airports in Germany, Frankfurt, Munich and D sseldorf. In health care, we strengthened our position through projects such as a new Aker hospital in Norway and strategic partnerships with 2 major U.S. health care systems. We are also seeing strong momentum in data centers with more than 35 project wins globally. We continue to execute our strategy with discipline and focus. During '25/'26, we completed 8 acquisitions, strengthened our portfolio, go-to-market and positions in key verticals. Airsphere is a good example of our approach. The acquisition adds software solutions for the automation of passenger processing, airport logistics and critical infrastructure security. It significantly strengthened our aviation offering and allow us to strengthen our position in the airport sector, not only in Europe, but also worldwide. Another example, a more recent acquisition of AZURE in the U.S. a company developing next-generation adaptable electronic access control hardware for U.S. commercial market. This acquisition strengthens our component strategy in the U.S. and accelerates innovation in access control. With a strong balance sheet and significant financial flexibility, we remain well positioned to continue pursuing target acquisition to enhance our offering, deepen our presence in key verticals and support profitable and sustainable growth. Let me now turn to the U.S., our most important strategic growth market. Over the past year, we have sharpened our strategy, strengthened our commercial focus and aligned resources behind the most attractive growth opportunities. We have strengthened our leadership team in the U.S. with the new appointment of Heather Torrey. We successfully enhanced our product offering, address important product gaps in the hardware with, for example, the launch of the BEST push exit device and expanded our access automation offering. We secured important project wins primarily in aviation and health care. We also completed our first U.S. acquisition with avant garde and AZURE, strengthening our capabilities in aviation and Access Solutions. As a result, following a softer first half, primarily due to weaker hospitality demand, the business regained momentum in the second half of the year and delivered in the second half 5.5% organic growth. Taken together, these initiatives are building momentum to accelerate growth in the years ahead. Three years ago, we launched a transformation to reshape dormakaba. Today, the results are visible across the business. We delivered cumulative savings of CHF 235 million and improved our adjusted EBITDA margin by 260 basis points. While the formal transformation program is completed, the journey does never stop. We remain focused on continuous improvements, further reducing complexity and driving operational excellence. Our commercial transformation starts generating first savings and together with door closure complexity reduction initiatives remains on track to deliver as planned by '27/'28. Throughout the transformation, we continue to invest in innovation and digital capabilities to strengthen our position in attractive growth verticals. Solutions such as Skyra, Lyazon and Argus are already supporting growth in critical infrastructure, multi-housing and aviation. For example, in critical infrastructure, Skyra extends intelligent access to remote and off-grid sites through remote credential management. In multi-housing, Lyazon, our open API platform, allows property technology partners to integrate dormakaba access into the ecosystem, creating a scalable distribution channel across residential portfolios. In aviation, our Argus gate, or eGates, support the expansion of the aviation vertical in North America and helped secure several significant customer projects. We also strengthened our core portfolio with solutions that enhance accessibility, convenience and compliance, including EasyAssist System, the BEST 5lb push exit device, the Apexx Strato and our keyless mobile credential ATM lock. Together, these innovations reinforce our competitiveness and support growth across our target verticals and markets. With that, Rene will now provide more details on our financial performance during year '25/'26. Rene?

Thank you, Till. And also from my side, a warm welcome to our financial year 2025/26 Analyst and Investor Conference. As Till said, 2025/26 marks an important milestone for dormakaba, and I'm very pleased to tell you more about our financial performance. Financial year 2025/26 was another year of consistent delivery with 3% organic growth, record profitability and continued value creation for shareholders. We achieved an adjusted EBITDA margin of 16.1%, the highest ever in dormakaba's history. We continue to deploy capital efficiency, delivering a return on capital employed of 31.0%. Cash generation remained strong. Our adjusted operating cash flow margin reached 12.5%, again, an improvement year-on-year. Also, our balance sheet remained healthy with net debt broadly at the level of last year. Net sales reached CHF 2,792.4 million, delivering an organic growth of 3%, in line with our guidance. Growth was driven by strong pricing of plus 2.6% and the volume growth of plus 0.4%. This demonstrates resilient demand in a challenging economic environment, supported by disciplined commercial execution. As expected, the stronger Swiss franc weighed on reported sales, reducing them by minus 4.9%. Net impact from mergers acquisition amounted to minus CHF 17 million. Positive contribution from our acquisitions was offset by the discontinuation of our Russian operation. Importantly, organic growth accelerated in the second half year to 4%, demonstrating improving momentum across the business. We entered the new fiscal year with higher volume and a strong order book. This provides a solid foundation for the continued growth. Both business segments contributed positively to the growth and margin expansion. Access Solutions, our largest segment, delivered organic growth of 3.1% and expanded its adjusted EBITDA margin by 100 basis points to 16.7%. Performance was driven by strong pricing discipline of plus 2.6%. Growth was broad-based and accelerated through the year. Let me focus on some key markets. North America achieved organic net sales growth of plus 3.3%. Momentum improved significantly in the second half year with sales growth of plus 5.5%, driven by portfolio enhancement, hospitality recovery and major wins in aviation. Switzerland again demonstrated the strength of our complete offering, growing 4.8% through market share gains and strong demand in health care, critical infrastructure and services. Germany outperformed the market with 3.4% growth led by data centers, health care, aviation, banking and marine. This confirms our strong position in segments where security, reliability and compliance are critical. U.K. and Ireland declined by minus 2%, mainly due to the completion of major hospitality projects. Rest of the World reported good volume-driven growth in North, South and Eastern Europe as well as South Asia. Sales declined in China and Southeast Asia. Our second segment, Key & Wall Solutions and OEM delivered organic growth of plus 2.2% and another record adjusted EBITDA margin of 21.2%. While the segment faced a challenging first half year due to weaker OEM business and delayed movable wall projects in North America, improving market demand combined with diligent project execution drove a strong recovery, resulting in an organic growth of plus 5.6% in the second half year. Adjusted EBITDA increased to CHF 449 million, driving our adjusted EBITDA margin to a record 16.1%, an improvement of 60 basis points year-on-year. This marks our third consecutive year of margin expansion, demonstrating the consistent execution of our transformation program. Excluding currency translation and M&A impact, adjusted EBITDA improved by CHF 33 million as price and efficiency gains exceeded inflation, resulting in a positive price over cost of CHF 31.6 million. The quality of this year's performance is reflected in a broad-based improvement across the profit and loss statement. Let's start first with the gross margin. We delivered a 20 basis points improvement year-on-year, driven by the continued benefit of our transformation program and pricing discipline. This was partially offset by lower factory utilization as a result of our inventory reduction program and product mix. At the same time, functional expenses decreased by a further 20 basis points, reflecting our ongoing focus on cost discipline and organizational efficiency. Items affecting comparability at the EBITDA level amounted to CHF 53.3 million. This increase primarily reflects costs related to the closure of our Russian operation and increased merger acquisition activities, while the prior year benefited from onetime gains on real estate disposals. Adjusted operating cash flow increased to CHF 349.6 million, resulting in an adjusted operating cash flow margin of 12.5%, up 80 basis points year-on-year. The improvement was driven by inventory optimization initiatives, enhanced payment terms and significantly lower tax payments. Our financial profile continued to strengthen during the year, supported by strong profitability and disciplined capital allocation. Despite completing 8 acquisitions during financial year 2025/26 and higher capital expenditures, net debt remained broadly stable at CHF 358.1 million. As a result, our leverage ratio remained at the low 0.8x net debt to adjusted EBITDA. A major milestone during the year was the assignment of a BBB investment-grade rating by Standard & Poor's Global Ratings with a stable outlook. This rating reflects the progress we have made in strengthening the business, improving profitability and cash generation and maintaining a healthy balance sheet. Taken together, this achievement underscore the quality of our earnings, the resilience of our cash flows and our ability to execute our strategy from a position of financial strength. We continued to deploy capital efficiently, delivering a return on capital employed of 31.0%, up 40 basis points year-on-year. The improvement was driven by higher adjusted EBIT and disciplined management of our capital base. Importantly, return on capital employed remained well above our commitment to sustainably maintain returns above 30%. For the financial year 2025/26, the Board of Directors proposes a dividend of CHF 0.95 per share at the AGM in October. This represents an increase of 3.3% over the previous year. Additionally, I'm very pleased to announce that we will adopt IFRS accounting standards, including an early adoption of IFRS 18's new disclosure requirements as our primary accounting framework effective financial year 2026/27. Restated IFRS financials for the financial year 2025/26 are available in the financial section of our annual report. The restated values are also the base for our financial year 2026/27 financial targets. Our first results under IFRS will be published for the first 6 months of financial year '26/'27. Sustainability remains a core part of how we operate responsibly, safely and for the long term. We have reduced our injury rate by 40%. We have cut our CO2 emission by 26% over the last 6 years, and we have reduced landfill waste by 74% in the last 5 years. This progress we continue to make are recognized by rating agencies and public. Among others, dormakaba has been named as one of the European climate leaders by Financial Times and Statista for the second consecutive year. Furthermore, dormakaba has been ranked among the top 4% of more than 22,000 companies by CDP for its disclosure of environmental data. With this, I would like to hand back to Till.

Thank you, Rene, for the detailed financials. Having delivered on our transformation commitments and created a stronger, more business, we are ready for the growth chapter. Supported by solid business fundamentals, a healthy order book, our guidance for the next year under IFRS is as follows: organic net sales growth above 3%, operating profit margin expansion above 11%, equivalent of a margin expansion by more than 100 basis points. On operating cash flow margin in the range to 10.5% to 11.5%. Now handing back to the operator and happy to take your questions together with Rene. Thank you.

[Operator Instructions] The first question comes from the line of George Featherstone from Barclays.

Just the first question I have would be on the market trends that you're seeing. You obviously saw a clear acceleration or an inflection rather in the second half of your fiscal year across the business. I just wondered if this has continued so far in the first half of the fiscal year? And perhaps could you give us some color on the order book growth that you have given previously? And then specifically in Europe, at least one of your peers has identified a significant boost to organic growth from the NIS 2 regulation. So I just wondered if this can be a tailwind to demand for dormakaba in the near future? That would be the first question.

Thanks for the question. I think the market, we had seen a softer first half. We had seen acceleration in the second half, also in a very strong fourth quarter. The order book is very good. Rene can give some details on the order book. I think what we have seen is that we had a good start in the new year. And if you look at the overall performance last year, we had been strong performance in the DACH regions, which you can see like Switzerland and Germany, Austria. This continues. We will see some tailwinds from regulation. That's right. So I think that's benefiting the companies who have maybe a bigger footprint. I think that should be supportive. And then clearly, the focus for us is to look at the U.S. where we have, over the last 2 years already invest into further products and closing our product gaps. So I think it's for us focus on the leading position in Europe, benefiting from regulations, seeing a continuous good development in Europe, same time, investing into more product and try to get momentum in the U.S. to close the gap to #1 and #2 in the U.S. On the order backlog, on the book?

On the order book, actually, what we have seen is a very good development towards the end of the year. When we look at the overall order book, it's about on a high single-digit growth higher than prior year, mainly driven by our core markets, in particular North America, Switzerland, Germany as well as Australia. The order book is strong on Access Solutions and slightly lower on KWO.

Okay. That's really useful color. And then just a couple of other things. On the pricing outlook you have for this fiscal year, can you kind of help us understand what's implied in your organic growth guidance? And then also just within the sort of mix as we're going through time, have you had any tariff-related refunds that have kind of been coming through the P&L or anywhere else, that would be super helpful, too.

So maybe on the pricing first, as mentioned, we are guiding above 3% organic growth. We expect about 2/3 to come from pricing effect. So that's roughly 2% to 2.5% and roughly 1% to 1.5% or around 1% from volume growth. Regarding the refund, yes, we applied for tax refunds. We have seen quite significant burden due to the tariffs over the last year. We have applied for refund. And so far, we have received in the lower mid-single-digit million amount of refunds in 2025/26.

Okay. And just on that tariff point, what's your plan to do with that money? Are you going to give that back to customers? Or will you retain it? What will you do with your pricing that you've taken for tariffs?

I think it's important to highlight that dormakaba was subject to multiple different U.S. trade tariffs, such as tariffs on steel, aluminum, copper of 50%. We also had the country-specific reciprocal tariffs, which created direct cost, but also indirect costs because we have seen particular businesses out of India struggling due to the 50% tariffs. And we also have seen quite significant disturbance in our way how we operate because of change in supply chain processes internal but also externally. So therefore, we consider that the refund rather than as a cost reduction on our side and something we have actually charged to our customers.

Next question comes from the line of Patrick Rafaisz from UBS.

My first question would be still with the guidance. On the previous answer, can you just clarify a bit also the semester outlook? Is it more back-end loaded in terms of price contribution or front-end loaded? I would have imagined H1 will have a bigger price component. And can you also reconcile your operating profit guidance, the margin guidance with the old framework to understand how this progression evolves? And how much of the margin improvement is actually attributable to a reduction in IACs?

Thanks a lot, Patrick, for your question. And I would like to take this question. As I mentioned, the year financial year '25/'26 is the last year where we are reporting on the Swiss GAAP FER. We will change our reporting scheme to IFRS effective '26/'27. And therefore, you also find in our financial report a section where we provide a detailed bridge from Swiss GAAP FER to IFRS. Please also note that we early adopt IFRS 18 new disclosure requirements, which has particular impact on the classification of some expenses between financial and operational expenses as well as in the cash flow statement between operating and financing cash flow. Furthermore, and I think this is extremely important, as Till already mentioned, we completed our transformation program. Our focus is to manage the full P&L and to consider all costs related to our asset base. And therefore, we will stop to guide on adjusted figures, neither on the P&L side nor on the adjusted operating -- on the cash flow statement side. So therefore, once you start to consider and reconcile our financial guidance, please consider that this guidance are on reported and not anymore on adjusted figure. Now based on the restatement we did, our financial year '25/'26 result on the IFRS is 10% on operating profit and 11.5% on our operating cash flow margin, again, not adjusted reported. We are guiding therefore 100 basis points, at least 100 basis points improvement on our operating profit margin for the year '26/'27 and 10.5% to 11.5% on adjusted operating cash flow margin -- sorry, on operating cash flow margin. Here it is important that we already included exit taxation we expect in this financial year as we are now centralizing our IP rights and also ensuring that our intangible assets are fully aligned with our operating model because over the last 2 years, we moved decision-making function to Switzerland. So therefore, if I would exclude this exit taxation on IP rights, we would be actually in the range of 11.5% to 12.5% operating cash flow margin on the IFRS. Now regarding the timing, whether it's back end or the front-end loaded, I just would like to highlight that we will start giving you a trading update the first time for Q1 at 28th of October this financial year.

Very helpful. And then the second question would be regarding the agreement and the transaction around simplifying the shareholder structure. There was a roughly CHF 30 million payment included in this agreement to the family. Can you elaborate a bit what this is in relation to?

We are going to -- every meeting with investors, with -- in the research was related to operational performance, which was the third part of today's presentation. And the second part was always like dormakaba is still complicated. And you have to explain the structure, the corporate governance. And therefore, I think as many of you know, we're working on the structure for some time, and we have now reached an agreement together with both shareholders, the German shareholders, Swiss shareholders to come up with this proposal for the AGM. I think, first of all, it's very important that both shareholders, the German shareholders and the Swiss shareholders are fully supportive of the structure. are fully supportive to further commit to dormakaba, which is very important that is so. The former Dorma owners and the former Kaba shareholders are both totally aligned with what we are doing and are staying very committed to dormakaba. On the structure, if you're going to propose, clearly, it's something where today, you have the 47.5% minorities. There will be a capital contribution and the capital contribution will have a share component and a cash component. And therefore, in the end, you will have a shareholding, which is in the range of 52% approximately for the German shareholders. And the cash-related payment is something which is relevant for potential tax impact in Germany. And in the end, everything will be also justified by a fairness opinion, which we are prepared to show at the EGM in October.

We now have a question from the line...

Patrick, one comment which is important. I think it's the 52% in the end as shareholding, but also important, it comes to the contribution. So in the end, we will contribute the today's minority into the holding company, and that will generate CHF 2 billion of capital reserves. And we can, in the future, distribute dividends out of the capital reserve, which are tax-free for Swiss shareholders. So the CHF 2 billion will be ready for some time. So we have some potential to distribute dividends for the next years, very efficient for Swiss shareholders.

We now have a question from the line of [ Vitushan Vijayakumar ] from Baader Europe.

So just 2 on my side. So for the organic growth, it was a good organic growth in second half. So including a clear volume recovery, you highlighted a strong order backlog or order book. So what would be the main factors that are preventing you from guiding more confidently above the current above 3% level. So do you see any uncertainties based on some verticals or -- and also if you can give a bit of color about the order backlog that you gave, but I think I missed it. So if you can just give me some color on that one as well, please.

Let me start and maybe Rene can jump in. And I think we told you in the previous question that we have a good order book. So it means like give us confidence for the year. However, you still have to look about the volatile environment. I think what we want to do, we want to have resilient growth. We see that inflation is more sticky. We will see maybe until the end of the year, still higher inflation. We see geopolitics still being, I call it, not being foreseeable. So I think it's more like that we are very confident to deliver up to 3%. We are early in the year. As Rene mentioned, we're going to give also like quarterly updates on the growth. And I think it's more like let's start the year, giving guidance that we want to be above 3%. Our midterm guidance is between the 3% to 5%. But seeing the environment, seeing the volatility around us, I think let's start with 3% and then maybe we can adjust on the go if we see that even there's more tailwind than today.

And the second question was about the data center vertical. So if I'm not mistaken, you were projecting for roughly 2% of sales in full year '26/'27 during your conference in the first half. So does it still stand? Or do you see any evolutions? And also in which ways? It seems like AI CapEx is beating consensus expectations. So the current CapEx for data center should be logically higher than what it was during your first half presentation. So I was just curious about the evolution of that vertical and your point of view on the underlying trends and if it did change something.

I think -- first of all, I think it is important you all have an invitation to our Capital Markets Day in November, where we can give more details on verticals, on focus areas. Data center is, as we all know, driven by AI, by compute power, one of the areas we focus on. With the TANlock acquisition, we have an end-to-end solution in the end from the entry point to the rack to have one seamless access solution. We have seen many project wins in the U.S. and also in Europe and Middle East that we're going to continue. We are not depending on any single vertical, which is also important. But we see it like that we continue to grow year-on-year and would give you more guidance in November where we can go on what is solution, how we differentiate. So what is where is our offering better, who are the partners, clearly, the hyperscalers in the U.S., but also then the asset companies behind it. So I think it's something we see continued growth, accelerating growth. We have a good solution, and we give you more guidance on the number in November.

The next question comes from the line of [ Martin Husler ] from [ Zurcher Kantonalbank ].

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