Good morning, ladies and gentlemen, welcome to Zumtobel Group's Conference Call on the results of the first half and the Second Quarter of Our 2022, 2023 Financial Year. With me on the call are Alfred Felder, our CEO, and Thomas Erath, our CFO. Alfred Felder will walk you through the highlights of the quarter by Thomas Erath will discuss the financial performance. After the presentation, both gentlemen will be available to answer your questions. In case you have not a copy of the report and the presentation, you may find both documents for download on our webpage. After the call, a playback of this conference call will be available on our webpage as well. With this, I hand over to Alfred.
Good morning, ladies and gentlemen. Thank you for joining us today for the half year results of the Zumtobel Group. Given the current economic environment, these half results clearly exceeded also our own expectations. As you could see from the 10 November announcement on the primary figures for the last half year, the Zumtobel Group has developed better than expected in the recent months. This is very positive from our end, and we provide more detail through Thomas in a second. Just on this page number three, I would like to highlight a couple of representative projects, what we did in Q2 to see and to show you how we are making progress with our strategy. First one was the Expo fair in Dubai, where we really created a wow effect among the visitors.
The lighting concept of the portals, what had to be carefully planned, and it's about 900 luminaire equipped with Tridonic drivers what illuminates this architecture. The second one is the Malinas Retail Park in Belgium. That's a park what went back a decade of planning and is considered the most sustainable park in Belgium. You see also here we were selected, also with our solutions, in following the International Dark-Sky Association fixture approval, and these illuminate luminaire help to protect the surrounding environment at night, and fewer lanterns were needed, thanks to the required spacing. The third project is a project in Denmark, the Christiansborg, Copenhagen. Also here, the client, together with him, we developed a sustainable lighting solution for the office complex in Copenhagen on these buildings.
Our high tier products create a good indoor climate as well as helping to save energy even prior the high, rising energy costs what we have right now. Last but not least, I mentioned it in a couple of previous calls, we are making progress in the new segment of stadium and sport arena illumination. We equipped the Mercedes-Benz Arena of the VfB Stuttgart in Germany. It's an additional example of a Bundesliga stadium where the club decided to modernize the lighting system and choose us as a partner. We will have this discussion moving forward, on the page four, you'll see here that due to the increased interest rates and the rising cost of construction materials, energy, the commercial construction is only expected to generate marginal growth.
We do see that the renovation business as an alternative, both also triggered by the fact that the European Union will ban some of the classic illuminations, especially the fluorescent tubes, by 1 September 2023. The customers are shifting their environment, their investments into refurbishment, and that means more energetic renovation of existing buildings. We are seeing a momentum here what might help us moving forward in the next quarters here. We have a close cooperation with our customers and partners who are developing the right concepts to save the energy to light, and we are helping here with our high efficient LED solutions. More or less the three pillars here, less energy consumption. The payback of an investment goes down to almost 10 to 12 months.
With the current energy costs, we are using our most sophisticated light control in addition to the high efficient LEDs, what helps another 20% of cost saving. Last but not least, obviously, with the LED, the customer gets a much better quality of light in the illumination of the spaces he wants to illuminate. With that, let me turn on slide five before I hand over to Thomas. We, as the Zumtobel Group, recorded a double-digit growth in revenue during the first six months. Revenues rose here, as you can see from slide number five, by 10.6% to EUR 628 million, and both segments improved their contribution.
One of the reasons for the success was that we were able to pass on higher prices to our customers, especially in the project business, which is not so easy, but also that we have a favorable FX environment, especially from Swiss franc, also from the dollar on a small amount, higher sales volume, and improved availability of components that contributed to this growth. In the first half of our financial year, we experienced a further rise in the prices for raw materials and energy, as well as higher personal costs, which were intensified by a higher U.S. dollar exchange rate, Thomas will come to that, which obviously is impacting the P&L heavily on the components level.
Nevertheless, we were able to significantly increase our EBIT from EUR 35 million to EUR 50.8 million for the first six months. Our net profit also improved significantly to almost EUR 34 million. With that, I will hand over to Thomas, who gives you a closer look into the development of our Q2 results.
Good morning, ladies and gentlemen. Let me start with the lighting segment on slide six. Revenues in the lighting segment rose by 13% to EUR 235 million, mainly as a result of price increases and positive foreign currencies effects. EBIT in the lighting segment more than doubled from EUR 11.1 million to EUR 24.9 million. The increase in revenue were offsetting material prices, energy prices, and transportation costs, as well as personnel expenses. As a result, our EBIT margin increased from 5.3% to 10.6%. Coming to slide seven. Let's move to the component segment. The component segment recorded an increase of 12.5% in revenues to EUR 93.9 million in the second quarter.
Despite the U.S. dollar appreciation, higher material costs, and higher personnel expenses, EBIT increased to EUR 8.9 million. The EBIT margin improved only slightly to 9.4%. Slide six, slide eight shows the overall result of the group. We generated a 13% increase in revenues to EUR 314.1 million in the second quarter. The increase in selling prices, favorable FX environment, and higher sales volume more than offset the significant increases in material, energy, and personal costs, the strong U.S. dollar development, and the higher selling and administrative expenses. As a result, our EBIT more than doubled from EUR 14.9 million to EUR 31.7 million. The EBIT margin reached a double-digit 10.1%.
Let me now explain on slide nine the main building blocks of our EBIT development for the first half of our financial year. Let's start with the prior year EBIT of EUR 35 million. The above-mentioned increase in prices and favorable FX environment and higher revenues led to a positive effect of EUR 54.7 million. This positive effect was, however, partially offset by the higher costs and higher SG&A costs. As a result, our EBIT increased to EUR 50.8 million. Slide 10 provides you with information on our income statement. Let me focus on our financial result, which amounted to a negative EUR 7.5 million. The decrease in earnings attributable to associated companies and the impairment loss on associated results from Inventron again.
This negative effect was partially offset by lower interest expenses for pension obligations, as well as earning effects from FX exchange evaluations and valuation of hedges. In more detail, you can see it in our P&L in our half year report. After the deduction of income taxes, our net profit increased to EUR 33.7 million. As a consequence, earnings per share rose to EUR 0.78. Let's now move to slide 11, the cash flow development. Cash flow from operating results increased significantly year-on-year from EUR 63.2 million to EUR 78.3 million. Cash outflows from the changes in other operating positions amounted to minus EUR 18 million and resulted mainly from an increase in bonus and holiday allowance payments. Cash flow from operating activities increased to EUR 44.2 million in the first half, we have here.
Cash flow in, from investing activities totaled EUR 27 million compared to EUR 16.8 million. In addition to investments in property, plant, and equipment, this position includes cash outflows of EUR 9.6 million for capitalized development costs. As a result, free cash flow increased from EUR 6.7 million to EUR 17.2 million in the reporting period. Let me finish with slide 12 and have some comments on our balance sheet and our cash position. The balance sheet structure has remained nearly unchanged since the end of April. The equity ratio equaled 38.9%. Net debt amounted to EUR 106.1 million, and the debt coverage ratio is very healthy at 0.78. With this, I would like to hand back to Alfred again.
On slide 13, you see again the very long development of our quarter-on-quarter sales, you see that we have been able to grow the quarter two now by solid 13%. As you see, we are continuously delivering encouraging results with the Q2 of 13%. We deliver the next positive quarter. Reason for that, I mentioned at the beginning, we were able to pass on the prices to the customers, especially in the different project business, what we had. We also, as we discussed also during the last call. Also we had positive volume effect in addition to the price and the effects, exchange rates. If you look in page 14, you see again the different regions.
The DACH region had, again, a strong growth recorded in Switzerland and also in Germany. Revenues in Austria were slightly below last year. Although here I have to mention that last year we had a couple of very big projects to be completed, what we were not able to compensate the year up to now. The revenues were higher in almost all of the countries of the Northern and Western European region. Above all, Sweden reported the biggest increase compared to the previous year. Also here factor was that one, our key account customer, IKEA, was a very positive business development, what was a major factor here. Southern and Eastern Europe also reported moderate revenues growth, and the development in Italy was positive, but declines were recorded for example, in Hungary and slightly also in France.
Very nicely compared to last year, the regions of Asia-Pacific basically grow, here we had a positive contribution, especially from our major city there in Hong Kong, who offset a little bit the lower contribution from China, where we also were suffering due to the constant lockdowns in China. Substantial improvement in the very weak regions from last year in the Americas and MEA resulted primarily from the reversals of the below average development in the U.S. during Q1 and a good Q2 result. Clocking into that a total of EUR 700, 628 million. Now I'd like to conclude our presentation with a few words on our outlook. As we already communicated in our ad hoc release, we have adjusted our outlook for revenue growth and the EBIT margins for the 2022, 2023 financial year.
Based on the positive development of the first half, we are now expecting a revenue growth between 4%-8% and an EBIT margin from 4%-6% for the entire financial year. However, this outlook is made, and therefore, so we have the bandwidth, very challenging market environment. Recent events in China have shown, and under the assumption that we will continue to see sufficient gas supply in Europe, at the end, a steady rise of energy prices, no further deterioration and availability of input products, and no, hopefully, further escalation in the Ukraine. What we are seeing, and I mentioned this at the beginning, is that we have only a marginal growth in commercial construction.
We have received the latest survey on EUROCONSTRUCT, what foresees really a very moderate and partly shrinking development of the new construction based on the increase of interest rates and the rising cost of construction materials and energy. However, we are carefully optimistic. There's a unexplained, an alternative. The commercial customers are shifting their investments into refurbishment. We are now working very closely with all our customers and partners to develop the right concepts to save energy by installing, using highly efficient lighting solutions, including the control. We do see already a clear revenue potential in this area.
On the CapEx, the spending is estimated to be around EUR 70 million for the 2022, 2023 remains unchanged as we are still moving full speed ahead with our digitalization offensive, as well as launching and investing into key new lighting solution products. At this point, I would like to mention that our mid-term CapEx guidance is still intact. This means we are expecting an average annual CapEx of around EUR 55 million up to 2024/ 2025. With that, I would like to come to an end of our presentation. Thank you very much for listening. Now Thomas and I will be happy to take your questions. Thank you.
Ladies and gentlemen, at this time, we will begin the question and answer session. Anyone who wishes to ask a question may press star followed by one. If you wish to remove yourself from the question queue, you may press star followed by two. Anyone who has a question may press star followed by one at this time. One moment for the first question, please. We have the first question from Marcus Remmers from RBI. Your question, please.
Yeah. Good morning, gents. First question relates to the topic of energy savings and how you can capitalize. I mean, you gave a bit of a, say, flavor, but can you provide a bit more granularity? I mean, are there any markets where you make a special effort? Anything you can tell us about kind of the hit rate and how this, the order intake has developed? A bit more granularity on kind of your success on this, on this topic.
Yes. Thank you, Marcus, for your question. This is Alfred again. Yes. Obviously, as you know, we do have in our DACH territory, especially where we have relatively high market shares in Austria and in Switzerland, a very solid customer base where we have started key initiatives in each of those two countries, for example, to approach the customers, telling them what they would save, as we know what kind of light they have, if they would use and they switch now into, let me see, an LED solution. We offer basically two options. The easy one is refurbishment kits, where we more or less only change the old, let me say, luminaire type with an LED solution or a complete replacement of the entire fixture.
Refurbishment kits on one side and new installation on the other side. We have a very clear calculation of, and tools, where we can show the customers how much he can save and based on the current energy prices, how short the payback time will be. That's valid for all our key products, what we have and looking at the customer base. Our key account customers in the retail, they have already switched, more from, new build to refurbishment. The total amount of shops with new LED solutions, are remaining constant, but it has been shifting from less new builds and more refurbishments. I for example, one example, or AB is another example how we do that. We have started this in the DACH territory.
We have a lot of customers who are already engaged in that one. It's too early to disclose the results because that's the middle of the progress, and we are currently launching this offensive also in all the other European countries. The same goes with Tridonic. They are having an offensive in approaching the customers and their luminaire makers with solutions to replace conventional ballasts and lengths with LED modules and with LED drivers.
Okay. Okay. Would you say that this is something where momentum is kind of strongly building up?
We believe so. We do see we are a little bit here in this, let me say it in German, Fahrwasser of.
Yeah.
Let me say the new energy. We are seeing also from our distribution partners that people are heavily investing into heat pumps, they are heavily investing into solar panels, they are heavily investing into new equipment to save energy. With light, we are in that regime knowing that light is only roughly, let me say, between 12% and 15% of our of the total energy consumption. For big consumers, that's quite a significant amount. We are seeing here the momentum.
Okay. Very clear. Next question relates to the kind of your perception of the construction industry. I mean, okay, slow down, I guess, is now common sense, especially residential, but also other pockets. I mean, is there anything from past cycles that you think is applicable to the current development in a sense, how long it will take until you feel waning demand because of lower construction activity? Anything you can maybe prepare yourself?
Yeah. Typical, Markus, in the construction industry, in the commercial buildings, it's, let me say the shortest period is from projection and planning, into the time when light needs to be installed. It's a time frame of two years. Typically, it's two-four years. Here obviously we do see, and the EUROCONSTRUCT numbers indicate this also, that the amount of new builds has been going down quite significantly. Obviously, we would feel this earliest, could say, towards the end of 2024 out of today's perspective. On the other hand, there is still commercial buildings under construction, but have not come to a stop. The major constructions are moving on, and the buildings will be completed.
To answer your question, obviously, if this new construction will last for a longer period, what obviously is difficult to imagine because there's a strong need of building, then we would see this would have an impact towards end of 2024, 2025 of our business.
Right. Okay. Sorry. One question relates to pricing. I mean, which has been heavily supporting, obviously. I mean, I think you had kind of transportation surcharges applied to your pricing now with transportation costs going down. Again, I mean, how sticky are they? And in general, I mean, several cost items have come down markedly, at least from the inter year peak. How is your perception of your pricing power? And maybe also going into calendar year 2023, what can you tell us about your pricing policy?
Yeah. If you mentioned the transportation surcharge, this was mainly applied on the components level because we have a significant amount of drivers coming and shipped from China. Obviously, you're right. The transport costs for container have come down and the surcharge most likely will be either completely reduced. On the other hand, customers are fully aware that other inbox input factors will rise. The biggest driving force will be from next calendar year onwards, the substantial wage increases, what we are expecting in our market. All in all, we believe that we can maintain the current price structure. Also, given the fact that we are not out of the allocation of certain semiconductor components, which means not all products are available.
Obviously, if allocation comes to an end, but out of today is not foreseeable, given the fact that we have still the boom on the e-car and the e-mobility, especially on a couple of key components, and more products are available, then the price pressure might come back here. The outlook, what we have at least into the first two, potentially three quarters of the next calendar year will be that the prices, what we have out in the market can be maintained, potentially also be slightly increased once the wages go up.
Right. That would also, apply to the luminaires, not only to components.
Absolutely, as you know, we had this discussion on the luminaire side. The projects, what we are quoting today are already taking this into account.
Yeah.
We are expecting higher input factors. Once those projects are ready to be shipped, let me say, if you win a project today and we ship it in September, the price is the price of today, even if the price goes down. We were suffering a little bit in the past because we had old projects with old price commitments, and we had to sell at lower prices despite the fact that the costs were rising. I think that will help us this time in a positive way.
Okay, very clear. Final question, more of a bookkeeping one. When I look at the reconciliation, line in the segment reporting, the EBIT was just minus EUR 2 million. That's quite below the run rate, of, yeah, the past couple of quarters. Was there anything behind that or just a, I don't know, fluctuation with no particular reason?
No. Currently the main effect is that, inter-company, profitability is significantly lower than last year. There is a delay in pricing from the component segment to the lighting segment.
Okay. Thanks. Thanks. I'll get back in the line.
Thank you. Thank you, Markus.
The next question comes from Patrick Steiner, from Kepler Cheuvreux. Your question please.
Good morning, gentlemen. Congratulations on the strong results. My question would be about your current EBIT margin guidance, which seems a bit conservative if you look at the results of the first 2 quarters. Can you therefore give us some information about what you expect to see in terms of demand and cost? I mean, you've talked about pricing already, but what would you see within the next couple of quarters that leads you to that margin assumption?
That is very true. As you know, we have been very conservative in our guidance over the last couple of years, the last two or three years. I have also to say, you know, there are so many uncertainties. Of course, our run rate, as you can see now, is much better than what we guide. Nevertheless, there is a significant amount of uncertainty in the whole remaining year. We also saw some strong declines in order intakes in September, which leveled out now in November and December. It's improving compared to last year, at least on the lighting segment. In the component segment, we have a very strong order book.
Nevertheless, there are factors like the U.S. dollar, which significantly impacts the profitability of the component segment and also energy prices. We are currently on the spot market and the fluctuations there are also significantly. In one day, you can have 50% or 70% increase of prices. We want to guide very conservatively, and we want to promise what we think we can really deliver.
Okay, perfect. Thank you very much. You don't really see a significant worsening of the current run rate, but you're just probably more conservative in some kind of wait and see position at the moment. Is this right?
As said, you know, we see some clouds in our order intake, but no storm currently.
Okay, perfect. Thank you very much.
Ladies and gentlemen, as a reminder, if you wish to ask a question, please press star followed by one. We have a question from Mr. Michael Marschallinger, excuse me, from SD Gruppe. Your question, please.
Good morning, gentlemen. Just one question from my side, on the EBIT bridge on page nine. How big of a driven was the FX effect? Can you give us a number here?
The FX effect was exactly EUR 10.6 million.
Sorry. How big?
EUR 10.6 million.
10.6. This means stripping that FX effect out, you could fully cover this cost inflation. Okay. Thank you.
Well, I can also tell you, I mean, the selling price increased of 6.8% or EUR 38 million.
Okay. Got it. Thank you.
The next question is from Roland Könen, from Value Holdings. Your question, please.
Yes. Good morning from my side. Thanks for taking my questions. Also from my side, congrats to your good results. First question goes to the associates line, where you're talking about the Inventron impairment. Could you elaborate a bit more on this company? How big is the rest risk? I see in the balance sheet a remaining number of EUR 1.5 million, could you please elaborate more on this company? The second question would be on some words from your outlook. Where you're talking about acceleration maybe in the consolidating of the lighting industry. Could you elaborate a bit more on that? Where is the position of Zumtobel there? Is it more active?
Do you think about M&A in the next future, or do you think, Zumtobel would be maybe, more on the passive side, in this consolidation? Thanks a lot.
Well, Inventron is a quite small investment we have in Switzerland. It was previously a partner for the lighting brands in designing luminaires and making small batches of luminaires. This was acquired five or six years ago. It's as said, a very small company. Unfortunately, most of the management left with this company. It's a company with about 35 to 40 employees, then you are in significant trouble, you know. It's not that there are processes like in a big company where it does not matter as much as when you lose some key people, but here it was significant, and we have a very cautious view on this company.
We adjusted the value of the investment according to the future outlook of earnings of the company. We are putting a lot of effort into this company, more management attention than you would like to have for a company with EUR 8 million - EUR 9 million in turnover. We do whatever we can, and we are quite confident that we can turn around this company. It might take some time that is really improving and coming to the levels which were there five or six years ago.
Maybe in addition what Thomas said, Inventron in combination, with the setup what we have in Switzerland, which is one of our strongest countries, both in profitability as well as in top line. It's a combination where the high-end construction requires very often next to the standard products, a fast solution of tailor-made products, and that's why we have this investment in Inventron. Obviously, as Thomas said, we are building up the management team right now, and we believe that will take a while, but we also believe that we will be able to turn this around. The second question maybe I can answer. Yes, absolutely right on the consolidation.
You will see if you study the industry is that neither corona nor now, let me say the fact that we have extremely high input factors on cost has resulted in a major insolvency chain of weak companies. We do see that the market is becoming more active, and as we announced back in our capital markets day, end of 2021, we are active and currently planning to look into the different possibilities. I would like to say that obviously, as we as a Zumtobel Group have been going through restructuring, it's not our intention to basically buy out of an insolvency situation companies.
We are more looking into, A, healthy companies with solid balance sheet or also what help us to increase market share in weaker countries or companies who are basically driving innovation on new technologies. That's what we are doing. If we are able to continue like we do right now, then you will also see that we are becoming more active here.
Great, many thanks. Maybe a third question on your energy bill as you're talking about that you are now buying on the spot market. Could you give us a comparison to your energy bill in the first half of 2022, 2023 against the prior year, and what is your expectation for the full year and the next year?
Give me a second. Well, for gas and electricity, we expect this year to pay EUR 8 million more than last year. We are hedged in some countries like Serbia, Germany, and we are protected by the government in the U.K., which implemented a price break for electricity and gas. In Austria, we are going with the day-to-day market, the spot market, and we are not hedging currently for next year. Hedging levels are roughly about 35 cents per kilowatt hour for next year. We expect that in spring next year we will get more favorable hedging rates than currently.
Maybe in addition, we are dependent, but not that much dependent on gas, because gas we need only for our process heat, let me say, for the paint shop and for the heating of our building. The impact of the gas is there, but not as big as Thomas mentioned on the electricity.
Great. Many, many thanks and all the best and have a nice Christmas season.
Thank you so much.
Thank you.
Same to you too.
Thank you.
There are no further questions at this time, and I would like to turn back to Alfred Felder for closing comments.
Yeah. Thank you very much, ladies and gentlemen, for joining us today. Thank you very much for the interesting questions. With that, we are coming to an end of the Q2 results. As said already, we are carefully optimistic despite the different environments that we will be able to manage also the second half with the bandwidth of the guidance what we gave. If we continue to be like that, then it's more on the upper end than on the lower end of this guidance. With that, thank you so much for listening. Have a great year-end Christmas break ahead, and talk to you then again in March I think when we have the Q3 results. Thank you.