Hello. Good afternoon, and welcome back to our next presentation with Zumtobel Group as part of today's conference, the Austrian Select Conference. I'm happy to have with me, Eric Schmiedchen. He's Head of Investor Relations at Zumtobel, and he will walk us through the company's presentation, touching on key milestones, the current market strengths, and later on, he will also answer the questions you may have. Before we dive in, a quick housekeeping note. The conference is being recorded, and we will provide a video later on ResearchHub. For your questions, please use the chat box, and we will address them in the Q&A session in the second half of this presentation. With this, I will hand it over to you, Mr. Schmiedchen. The stage is yours.
Yeah. Thank you very much for the introduction. Also, warm welcome from my side, and for your interest in listen to the presentation, also in getting to know a little bit better the Zumtobel Group as a company, if you are not familiar with it. Just a few words to myself. I'm heading the IR department here with Zumtobel Group, and I'm with the company since five years. I want to start the presentation to give you a little bit of an overview, who we are, what we are doing, and where we are doing it, and then give you a couple of examples when it comes to our products and solutions. Of course, a little bit of a discussion about our current financial situation, which you also can see here already on the left-hand side.
The most important thing I would say is the current situation, and then also the way going forward in our industry and also how we are positioning ourselves, meaning the Zumtobel Group, going forward in the future. As you can see here on the slide, we are a EUR 1.1 billion sales company in lighting. We are making all the components which are needed in order to switch on and switch off a luminaire, for example, and then also selling the luminaires to our customers worldwide. This is what you are seeing here on the map, the majority of our sales is within Europe, so you can actually say that we, when it comes to our footprint production-wise, but also sales-wise, are a European company.
Of course, we have production capacity also in China when it comes to our Components segment, but everything else is located in Europe. Looking a little bit to the lighting market, what do we actually have? We have more or less three parts in lighting. We have the old, let's say, lamp and fluorescent tube business here on the left-hand side, which is more or less a dying business. For example, in Europe, selling fluorescent tubes is forbidden by EU law. This is just if you're having some in your storage or installed at your ceiling, you can run it until it's broken or gone, and then you have to replace it with LED. We are a 100% LED company, so we are doing not lamps of fluorescent tubes anymore, since already a couple of decades, I would say.
When it comes to the components we are using for our luminaires, as I said, we are in the components part with our brand, Tridonic. If we are targeting our customers, let's say our end customers, where we are then selling our luminaires with our components, we are dividing between the customer and professional part. Customers, it's like you and me when we are buying something for our flat, for our home, house, or then the more professional accounts like retail, food retailers, or also Volkswagen and so on. This is the kind of business segment we are in. When it comes to the professional illumination market, we are just in this segment and not targeting the end customer like you and me. Looking a little bit on our value chain, as I said, we have two segments within our company.
The one is the Component segment, where we do the modules, the drivers, so meaning switching on and off, dimming the light, and so on. All those components are then shared within the group. We having sales, 20% out of our Component segments are in-house, and 80% are going out to other different luminaire makers worldwide. Those components are then integrated into luminaires, where we're then selling in the luminaires and also out the luminaires with our two brands, Zumtobel and Thorn.
Where we try to make an edge and also to bring an added value to the table for our customers is with a new segment which we enlarged called Smart Building Solutions, where we are then adding, and I have a couple of examples with me for you to showcase where we bring really an edge to the table because the lighting market is very fragmented. We in Europe have more than 2,000 different luminaire makers, specialized, of course, some niche players as well. There are a lot of companies and you have to showcase how you can move the needle and also how you can showcase that you as a European player make really an edge, for example, also against Chinese competition.
I would now go a little bit into more detail for our two segments, just to give you a little bit more of an experience what we are really doing here and where you also can find our products and what are really meant. If you're having here as an example, a food retailer, let's call it Spar, Aldi, REWE or Lidl, which are all our customers in this kind of application. You are seeing always luminaires at the ceiling. For all of them, you need, of course, the drivers, the control systems and the LEDs, so that you can switch on and switch off the light if needed.
You can also, this is also what we are offering, sensors to the products we have or to the tracking system we are also selling for customers like food retailers, where we then, for example, can measure temperature or track the movement of people in the store. This kind of information we then can provide to the store owner, to the facility manager and so on, to all the people, which then can use the data in order to get more value out of the store. Of course, this is also applicable to other applications as well. You see office, but also for industry. Of course, we can also do it for outdoor.
When we are then looking a little bit abroad, we see here that we have an indoor example for a food retailer where we're also selling our products, as I said, indoor and outdoor. Besides retail, we are selling pretty much in the industry. All the car manufacturers like Volkswagen, BMW, Mercedes are our customers, but also the supply chain which is related to that are our customer. Also here, data centers for Microsoft, for Amazon warehouses. Those are some examples we have here, office and education, health and care. These are the four pillars in our indoor segment. Outdoor, it's pretty much roads and tunnels, urban areas where we have also city beautification, with different topics we are addressing here. Of course also facade illumination in the part of architecture.
What is rather new in our portfolio is sports and arenas, where we are then providing to not just soccer or football clubs, also tennis, golf, and so on, illumination for the sports areas, and arenas, but also surrounding parts in the stadium, in the facilities, then also parking lots and so on. I just want to drop some other examples we did in the past that you get a little bit of an overview what we are actually doing or where we are selling our products to. Here we have an example of Volvo Trucks. Here you see our luminaires at the ceiling where we are providing then the light for manufacturing. We have a shopping mall. We have then also offices. As I said, this is The New York Times office in New York. In Frankfurt, we did the FOUR towers.
Also here what you can see, so this part is actually like we call it a waterfall. These are luminaires. Also here when it comes to being more design, more technical. These projects we are running, we are able to also kick off, where we then also have not that much competitors who can really then running some kind of a big project when we are selling thousands of luminaires and also having some kind of installations like this. Also, we were quite proud that we had or could play at least a little part when it comes to rebuild Notre Dame in Paris, but also metro station here in Hungary, in Budapest, and also city illumination in Sarajevo. Or when it comes to sports illumination here in the U.K. for the Sunderland A.F.C.
What we also did and here we are very proud of, four out of seven areas, arenas and stadiums which were related to the games last February, we could illuminate. Here just those examples given where we also could showcase our edge, where we can really bring value to the table and also then to our customers as well. This was just for me a quick introduction on what we are doing, what kind of segments we have, and a little bit of a project example so that you can get a little bit more familiar with the things we are doing here at Zumtobel Group. As you can imagine, and also from the pictures you saw, as a lighting company, we are pretty much related to the construction sector.
I guess you are familiar with the fact that since I would say three years, the construction sector is pretty hard under pressure. We are, and this is also reflected in the numbers. We have a kind of strange financial year. We start 1st of May and running until the end of April. We are in the last final days of our financial year. We published our Q3 results in March. This is how it looks like for the nine months. Just let me show you a little bit the picture we see on a quarterly basis, and also here you can see how we performed last year.
Here you can see actually the impact we see, and we are also then anticipating for us is that with the slowdown or with higher interest rates, the slowdown in construction is then also hitting us. It hit us, as you can see here. The whole industry, actually, in fact, were hit by this development. Therefore, we have a guidance out that we will and this is then now the third consecutive year in a row, that we will face a decline in top line and also having, of course, pressure on our bottom line as well. This is the situation where we are currently in. Now I hope I can give you a little bit more color and a little bit more optimism going forward, how we actually see the current market situation currently, but also going forward.
This data is coming from EUROCONSTRUCT, not from us, it's from EUROCONSTRUCT. They are then checking in the new build and renovation market where we are both part of. We are not just doing new build, of course, we are doing also renovation. Here you see that actually 2022, 2023 and 2024 and also 2025, we were hit by this development. Since we are late in the cycle, so in 2022, we profited still from the upward trend we saw in the years before, and then we were hit in 2023 and 2024 and 2025 by the decline, especially in new build. What you can see here is that going forward, both new build and renovation is expected to start again with a little bit more optimistic view.
If we are seeing, and this is also then reflected in our numbers, if we are having a momentum in the industry when construction market and sector is picking up, then also we are profiting from that. Until this is then really materializing also in our books, we also see the first, let's say, light at the end of the tunnel, so to speak. Nevertheless, what we also had to do is to look at our costs. How can we position ourselves cost-wise that if the market is coming back and starting again, growing again, that we are well positioned on the one hand cost-wise in order to get then also the projects into our books. We announced last year that we will kick off a cost savings program where we will take out costs over four years.
Then in the final stage, so EUR 40 million-EUR 50 million, we will reduce our cost position, which makes us then more attractive when we are then approaching and getting into contact with new customers and also offers. Also we have to see that the market is shifting. We are not seeing that it's just coming to the luminaire itself. We see that more and more customers are looking for connected lighting, for IoT, for AI. The sustainability part is really important and also wellbeing and the environment. All those topics are influencing us as key trends in the lighting industry and as a lighting or as a luminaire manufacturer. Also of course, key investment trends we are seeing in the industry and also the programs on a governmental level like Germany is influencing us heavily.
Defense infrastructure, Germany, I mentioned policy driven here also EU helps us, to be honest once more and all those things will impact us and we see as lighting or luminaire manufacturer that we are shifting from just selling the luminaire as it is. We, as I said at the beginning, we have to put something else to the table because we will not be, at the end of the day, the cheapest when it comes to costs. We have to really showcase where our expertise is and where we bring the added value for the customer on the table. This is how we see the market will develop, and that's why we are heading towards really showcasing our expertise and our products really impacting this kind of trend we are seeing.
The next couple of slides I will actually show you are just some examples where you can see where we can move the needle. Having an old installation, switching to a newest product, you can immediately save energy consumption, which then also materializes in costs in different applications with different types and this is just the database we have in our books with the customers we have. We know what we sold them, we know what the current products are, and then we can calculate what really is the added value for our customers. We're also seeing, as I said, we are going more and more in the direction of smart cities. We can connect the luminaires outdoor, but also indoor with each other. We can track movement, as I said at the beginning, in the food retail stores and in office.
We can measure air quality and bring here really with our software an added value to the table, getting a more wellbeing, getting more data, and getting also a better wellbeing for everyone. This is where we can move the needle. Also when it comes to security, all the emergency signs, they are more or less fixed in the case of an emergency. If there's a fire, current signs, they will not switch. Ours, what we have in our portfolio, they can. They are not guide you in the wrong direction. They will guide you in the right direction that you can move and escape safely. We, as Zumtobel, we see, as I said, we are moving from just selling the luminaire. We are selling the luminaire with an added value to our customers in those areas of application you are seeing here.
As a European player, we are available for our customers. This is like we want to position ourselves going forward. We do know that the last three years were difficult, but going forward, we anticipate, and this is also what the current market data is showing, that the construction industry will pick up momentum, maybe slowly, but surely. Then with a little bit of a delay, since we are late cycle, we will also then benefit from us with new products and with the cost-saving program initiated, as I explained it to you. We will then also win projects and then starting off again with our sales and also then the bottom line contribution.
Because one slide I want to show you is that if we have a certain top line growth, we are then also generating a nice EBIT for the company and at the end of the day, also for our investors as well. With this, I think I'm in the 20 minutes of presentation. I hope that I was not too fast in the presentation, not jumping from one slide to the other. I hope this was okay, and I am now ready to take your questions.
It has been a really nice presentation and just saying, I really like the slide where you showed the emergency light, which is guiding you in the right direction. The right direction is what we are looking for. We have received a couple of questions already. Some are big picture, some are more detailed on margin development. First of all, I'd like to start with the underlying trends. You've mentioned already that the construction industry is an important end market for you. Beyond the current weak construction cycle, what are the key structural drivers that can sustainably grow revenues over the next years?
When we are looking at our business, and when we are looking at construction, there I have to say, and here I'm very honest, without the construction sector picking up momentum, so really new buildings getting built, it's very tough. In the past, we had a proportion of 60% new build and 40% refurbishment, and this changed. We have now 60% refurbishment and 40% new build, but this gap in new build, we cannot offset with our refurbishment projects. As I said here, the European Union is helping due to regulation, at least for us, they are helping. The gap we are seeing when it comes to new build, we cannot offset with refurbishment projects. What we really need, as I said and showed with the last slide, to get up our sales is really that the construction sector's picking up momentum.
Mm.
Besides this, it's getting hard, not just for us, for all of us. If you're looking in the industry, it's the same for not just Zumtobel, it's also for our peers as well.
An application is the Smart Building Solution, and how do you monetize the shift towards Smart Building Solutions and software? What margin profile should we expect versus the traditional lighting business?
As you can imagine, when we are talking about all, let's say, the fancy stuff. When we are talking about smart, about connecting, also a wellbeing, tracking things, selling software, so to speak, or like I showed it here. These are for us enablers. Customers are not just looking any more further to just having the cheapest installation in place. Some of them they do, I have to admit. We will not, as I said, being the cheapest out there. Chinese competitors, they are in the market. This is no question. Here we have to differentiate, and our differentiator are the values and services we're bringing as an add-on to the table. They are an enabler that we can sell our luminaires.
Coming to the margin question, of course, services, software, controls, when luminaires are talking to each other, and also if you want to have these kind of services, as you can see when you want to do a light control or also monitoring, reporting and so on, here you need a little bit of a more sophisticated control set up also in the luminaires. This is then helping us margin-wise, and this will also help going forward increase margins. At the end of the day, we will earn our money, most of it, also in the next couple of years with our luminaires. The enabler are the added values I just described, but the majority of sales is then coming from the luminaires, where we see if the cost-saving program is really being executed, the market is picking up momentum.
We can for sure reach EBIT margins of 7%-8%, and then everything, what we can put on top out of software, out of services and so on. Here, we can really move the needle and increase the group margins even further, because in software and services and in, let's say, add-ons we can sell to the customers. Here, we are operating with much higher margins than we are just doing with our luminaires. I hope this answered the question. If not, just give a follow-up, please.
Yeah, I think it did. The margin, we've talked about EBIT margin right now. There's also a gross margin question. Which part of the portfolio gives the best gross margin resilience today? Is it lighting solutions, components, or software and systems?
What we're seeing currently, we have difficulties in our components business. We hear, and you see it in the chart I have in the back, looking just very quick at segment levels or in components. You're seeing here we are hit pretty much, and margin-wise, we are rather at the lower end. On the other hand, lighting is helping much. Here, Lighting segment, we currently can generate higher margins. If you have a look at our share, let's say we do EUR 1.1 billion. I would say so EUR 880 million is coming from the lighting, and the rest is coming from the Components segment. Within lighting, the majority is, or 3/4 is indoor and 1/4 is outdoor. In indoor, the industry and the retail, arts and culture.
We here also have the Decathlon, Louis Vuitton, H&M and so on are included here. They are then driving here the sales, let's say. Then outdoor, it's a little bit more complicated. The smallest business is sports and arenas, but very nice margins, and also sales, and also growing sales. When you are talking about tunnels, roads, open areas and architecture here, you are working together with local governments and so on, and there it's pretty tough to generate growth and high margins.
Thanks for this explanation and the insights. You've mentioned kind of a restructuring cost savings. A question is regarding this topic then, how much of the turnaround is under your control, and how much still depends on the European construction market simply improving?
This is totally in our control, right? When we are talking about this cost savings program, this is everything what we have in our hands. Here we are looking into different kinds of functions. We are shifting people, we are using AI and so on in order to streamline processes, getting quicker, getting better, also using AI to get more contracts, to get more offers. I have a picture also here. Really checking with AI when a tender is out to really hit it everywhere in Europe where we then also can approach it. Do a pricing based also on, let's say, offers we did in the past, and then also train our people that they can negotiate contracts even better. This is something where we have in our hands, and we have to show that we can execute this.
When it comes to the pickup in construction sector, this is something where we just can wait and see. What you have also to understand when we are looking at the, let's say, construction market as a whole, and then thinking about when I'm doing a project, just 4%-5% of the whole project volume for construction is dedicated to lighting. Here we are playing rather a smaller part when it comes to the whole construction thing. Nevertheless, this is something where we have to see that this market is picking up momentum. From our side, what we see in Europe, 50% of the infrastructure is old, meaning it needs to be new build or to refurbish. Here we see our potential, but we also know that some kind of construction work is sometimes a little bit slow or slower.
Let's put it like this. Again, we see the need for new construction or for refurbishment. We also see the key investment drivers in the market in Europe. For us, it's just a matter of time when this market picks up momentum again. Because from our point of view and also what we are seeing is that for us, no questions asked, that here is a necessity to do something in very different ways where we can then also sell our products.
Thank you for being here today. Actually, we are running out of time, and the next presentation of Marinomed has started already. We provided the link in the chat box, so everyone who wants to join, and I hope so you will, can jump directly into the next meeting. To you, Mr. Schmiedchen, many thanks for the insight and the really interesting presentation you provided today. We hope to see you sometime again.
Thank you very much for the interest, and feel free to reach out in case of any further questions.
Many thanks.