Release Date: February 25, 2025
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Strong organic net sales growth of 5.1% in the first half of 2024-'25, supported by all core countries.
- EBITDA margin improved to 15.2%, up 60 basis points year on year, marking the fifth consecutive semester of margin improvements.
- Successful completion of three divestments, optimizing the company's go-to-market strategy and maintaining market presence.
- Significant progress in the transformation program, contributing CHF31 million in savings in the first half of the financial year.
- Strong performance in key markets such as Germany, with a 10% growth, and consistent delivery across all regions.
Negative Points
- Impact of geopolitical tensions and potential US tariffs on steel and aluminum could affect raw material costs and pricing strategies.
- Duplication of workforce effects due to ongoing transformation efforts, impacting margins by 70 to 80 basis points in the Access Solutions business.
- Free cash flow margin slightly declined by 40 basis points to 3.6%, impacted by higher net working capital.
- Challenges in maintaining price increases due to market conditions, with a focus shifting towards productivity and efficiency improvements.
- Complexity reduction efforts are still in the early stages, requiring further time and resources to streamline product offerings and operations.
Q & A Highlights
Q: What are your thoughts on the impact of US tariffs on steel and aluminum, and how do you plan to react regarding your selling prices?
A: Till Reuter, CEO, explained that the company has already relocated some business from China to America due to geopolitical volatility. Dormakaba's business is largely local, with over 85% of products sold in America being produced locally. The impact of tariffs is being analyzed, and the company is considering pricing adjustments to mitigate effects. The local production footprint provides some autonomy, and the company is assessing how to pass costs to consumers while maintaining competitiveness.
Q: There seems to be a widening gap in organic growth performance between core and non-core countries. Can you explain this and whether it will persist?
A: René Peter, CFO, noted that dormakaba's strategy focuses on core markets, which are expected to outperform. The rest of the world markets grew by approximately 2.6%, with some regions like Southeast Asia and the Middle East Africa experiencing lower project volumes. However, markets like Austria, France, and Southern Europe are performing positively.
Q: Can you provide more details on the phaseout of margin dilution due to workforce duplication?
A: René Peter, CFO, stated that the impact on the Access Solution business is about 70 to 80 basis points. These costs are investments into future savings, including work shadowing and transferring operations to cost-effective countries. The benefits of the shared service center cost reduction program are expected in the next 6 to 12 months, with full run-rate benefits anticipated by 2025-2026.
Q: How do you see the free cash flow unfolding for the full year, given the first-half deterioration?
A: René Peter, CFO, explained that the first half typically has weaker cash flow due to personal-related cash outflows and annual maintenance contracts billed in January. The second half is expected to have stronger cash flow, similar to the previous year, despite restructuring expenses.
Q: Regarding your transformation program, where do you see the most upside in terms of benchmarking against best-in-class?
A: Till Reuter, CEO, mentioned that the transformation program started as a cost program with CHF170 million, with CHF115 million delivered so far. The focus is now on efficiency, reducing complexity in products, software, and operations. The company is in the middle of the transformation, with significant work still needed on complexity reduction.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
