WindowMaster International A/S

CSE:WMA

Q2-2025 Earnings Call

[Philip Coombes]

Good afternoon, and welcome to today's presentation of WindowMaster's First Half 2025 results. Today, I'm joined by WindowMaster's CEO, Erik Boyter; and CFO, Steen Overgaard Sorensen. Together, they will present the results and answer questions in the Q&A at the end. My name is Philip Coombes and if you want to ask any questions in English or Danish, you can do so in the chatbox below the video here.

And with that said, I'll pass it over to Erik to begin the presentation.

[Erik Boyter, executive]

Yes. Thank you very much, Philip, and welcome to this presentation half of -- also from WindowMaster side. I will just do a small introduction, and then I will let the CFO Steen Sørensen do the financial presentation.

First of all, I would like to say that we, as a WindowMaster and management and company are -- we are not very satisfied, of course, with the half year result we sent out to the stock market yesterday. And there are reasons for this, but we are also confident in second half and also into what we see already into 2026.

To just highlight some of the main reasons for the lower turnover, lower order intake in the first half of this year. What we have seen is, especially on the residential building in the main -- most markets we are in, there has been a slowdown. And of course, this is a slowdown that was caused by higher interest rates, maybe 1, 2, 3 years ago, where we see the -- because we come in at the end of finishing these buildings. And this is especially in our product business, and there, we have seen lower, you could say, lower order intake in this area than we had last year, for example. That is materializing a little better going forward.

Second thing is that we have seen a significant delay decision in projects being executed on many -- for several reasons. And some are in the U.K. market, especially that we have seen a postponement due to some regulatory situation on security in buildings that is delaying for all the market, it's very well described in the Financial Times in articles there, that this has a delay. But also the geographical situation around has seen that there has been issues on the decision-making to go on making some of these projects.

But saying that, then we're also confident on the second half of this year historically, we do much better in the second half, and we expect it to be like that. Also, what we can see is into our opportunity pipeline, which is quite strong, and we keep on getting projects on board to make offers and so on. And we keep building on our pipeline on projects going forward to execute on. But of course, they have to materialize in orders and that's what we have seen that they are a bit delayed. But in that way, you can say we are disappointed about the first half, but we are looking optimistic about the future. So that's why we say this is a periodic dip, and we should be able to go back to levels from last year when we move on.

Thank you very much. I will leave -- I'll then pass to Steen. Thank you.

[Steen Sorensen, executive]

Thank you very much. I will start with this kind of a disclaimer on the forward-looking statements. We have -- we will touch on here in this presentation and jump into the kind of the overview on P&L and order intake. I'll wait a little bit on commenting on the order intake, but go more into the P&L. The revenue from the first half and as Erik already stated, we are kind of disappointed on the performance, however, there are some reasons as already explained. But there's also a reason that actually 2024 was a little bit of a special year and shown by the fact that we had a very, very strong first half of the year and a less strong second half, which is not what we normally see. If you go back into our financial numbers into '23, '22 and '21, you will see that we have a less strong first half and quite a strong second half, and that's already what we start to see indications of in here also in 2025. That said, it's not still good enough for our performance in the first half. Within the gross profit here, it might seem there are quite a decrease in the performance, but it's all linked to external costs. So it's not linked to the performance of the margins of the projects we run or the products. There, actually, we see an increase in that margin, but it's more on the external cost. And here, we have to remember that 2025 first half is what we call a [ bow ] year. So there's an exhibition held in Munich in January, which is every second year, and that what -- is what we held in 2025. And that is, yes, one-to-one explanation of why we see this dip in the gross profit.

So I think it's very important to say it has nothing to do to the overall performance of our margins in products and services. So just a note.

Yes, and EBITDA is a result of what is just explained. I mean turnover is everything for WindowMaster DKK 10 million equals immediately DKK 5 million roughly in EBITDA. That's the kind of the simple model we have. So it's worth to remember that everything we should focus on is on the top line.

Just a comment on cash flow. I think we are -- we can illustrate and demonstrate here, we are on top of the working capital and also the overall cash flow from the business. We don't have any signs that we are sidetracking on that. And I think we can say we have an okay performance seen in the light of the top line. And with the expectations for the second half of this year, we actually believe we have a good performance on the net working capital.

So I'll jump to the order intake here on the graph here and just illustrating here -- that here you see the strong performance in the first half of 2024 with very high turnover -- or sorry, order intake and maybe a little bit of a slowdown in the second -- sorry, in the third and fourth quarter last year. That also is kind of the indication of a less high performance in 2025.

The curve here, you see, we actually anticipate that based on the numbers we already have in our books that will kind of level out or even increase in the third quarter. That's our expectation as we see it right now, as also indicated in the release from yesterday.

On turnover, that's kind of the history backwards. And again, here, the performance is not as expected. However, we already have numbers from July and also indication from August indicates that we are on the level where we should be compared to our guidance already communicated. So that there, we have confidence in that.

And then finally, yes, the result of we have just explained, the EBITDA and the EBIT, it's not where it should be, and of course, you could be worried, should we start cutting costs or do a lot of actions. But again, we have kind of ice in the stomach saying, we have seen these situation in the past also, it's something we saw actually in 2023, where it was important to maintain the overall resource level and fixed cost level because otherwise, we are not able to execute, on for example, here in the second half and also with the pipeline we see into 2026, then yes, we need those resources to be able to execute and that will then materialize in potentially a strong EBITDA. So that's kind of the model we have. And it's -- we are affected by external things like already mentioned by Erik, and that's just how the nature of our business. We have not been able to come up with a different model to execute in this market. And we still believe it's the right one we have.

And then, yes, finally here, the -- again the guidance we already communicated in mid or beginning of July, we maintain and keep and we have a good base for believing that. And just maybe a comment on how we have come to that. It's a little bit of a mix of looking into how did we perform in the second half of 2024, but also looking backwards into history and saying, how do we normally perform in the second half. And those numbers, that's what indicates this, and of course, we have matched that up against a pipeline. As already mentioned, that looks solid for being able to execute. And again, there are risks, things can be postponed, but with the knowledge we have available we are confident in this guidance. I believe that's it on the financials for now.

[Philip Coombes]

Perfect. Are we ready for the Q&A?

[Erik Boyter, executive]

Yes. I think we are, yes.

[Philip Coombes]

Okay. Great. Well, I can see we do have several questions that have come through along the way. So if I take the first one, which says, can you indicate the size of your opportunity pipeline compared to the current order book or compared to the same period last year?

[Erik Boyter, executive]

Yes, I can comment on that. If -- We have a pipeline, we have an active pipeline and we have about around 900-plus opportunities that we work on. And they have -- there are different levels of -- towards termination, but all of them is somewhere we have given offer and we may be in specs and so on, and that has not changed. That is actually higher than what we have seen in the past and we continue to get projects in.

What we can see is the time from when we get them to be -- from when we start working on them to win when we win them, that time is getting longer, yes. And that is also why we -- our business model, you can say, how we operate is also a lot of our fixed cost is actually dedicated not only for the sales for this year but for obtaining and getting projects for and being specified all over in projects in the future. So it's not really -- we're not seeing -- that's why it also gives us confidence on this, and the pipeline is still strong, and it's definitely not going down, but it's growing.

[Philip Coombes]

That's understood. And quickly on that delay, is that something structural that you see persisting over time? Or is this maybe more isolated to things specifically in the first half year? And do you see it sort of a more normalizing over time?

[Erik Boyter, executive]

No. This is especially unique for new build. But we have seen that the refurbishment projects that they come quicker because from the time we get them to be executing on, that time is lower. And this is where we have all the expectations about the new EU legislation about the renovation rate per year of public buildings that's going from 1% to 3% per year, that would have a great impact on our business. And that is being adopted by the EU, and now it's been also adopted around in each country. And many of the companies that we also collaborate with like [indiscernible] and VELUX and so on. They are expecting that this will actually make their business grow quite well. So that's something we're also waiting on to see.

[Philip Coombes]

That makes good sense. If I take the next question, which is about the guidance and says you can see EBITDA growth is supposed to be faster than the revenue growth in half 2 What is the driver behind that? Maybe -- yes, sorry, go on.

[Erik Boyter, executive]

Steen, would you...

[Steen Sorensen, executive]

Yes. I think I already touched a little bit on it. It is simply the model we have. So the higher turnover, we do expect in the second half will drill down into a better profit. So there's nothing special. I mean there are no actions needed to drive this performance. It's more, yes, the nature of our setup we do have.

[Philip Coombes]

That makes good sense. Yes, the operating leverage really coming back into play when the revenue returns.

[Erik Boyter, executive]

Maybe Phil, just to comment on this because if you look at our business, then about around 20% of our business is actually service work, and that continues to be strong. So that's a good base in our turnover. But we are seeing more business coming along. And historically, many projects are finished in the second half of the year. And there comes a time when projects have to be finished and they work towards the end of the year. And that's actually also what we saw last year, that was why we also could adjust our guidance a couple of times at the end because we were terminating projects that -- where everybody wanted them to be, to actually finish before the end of the year.

[Philip Coombes]

That's great. That makes good sense. And staying on the guidance, we have a question from someone in the audience that asks why not guide lower at the start of the year based on these reduced visibility and things. I think more generally, a comment on what you could see at the start of the year? How that's changed and maybe how that's impacted guidance along the way?

[Erik Boyter, executive]

If I have to comment on this then -- or say something, then I did already comment on this about the residential side with a bit more slowish. And that's also been a tendency that things that have been postponed and that we couldn't see when we were -- when we did our budget for 2025.

[Philip Coombes]

That's great. I'm sure that's answered the question. The next one is about the -- you mentioned in the half 1 results that you see an improving sentiment in July and August. Is this generally an improving sentiment or something deeper? I think you've already mentioned it multiple times, but maybe just to give a direct answer.

[Steen Sorensen, executive]

Yes, we do see that improvement. I mean, for now, orders and turnover are running as indicated here. So that's what we strongly believe in, yes.

[Philip Coombes]

Perfect. If I can ask a little bit more about the individual markets. You mentioned that there are some unique challenges in the U.K. relating to building regulations. We've also seen turbulence in the U.S. from the tariff uncertainties in Q2. Maybe you could add some context and detail to how you're seeing things in the different markets, Europe U.K., U.S.A. more generally?

[Erik Boyter, executive]

Yes. Maybe I should do that, Steen. But just a comment on the U.K. market. And I think we all remember the greenfield fire and that has had a lot of political effects afterwards. And some of this is about approvals, building approvals to go ahead with finishing buildings, especially also when you talk about safety and so on. And this was implemented by the U.K. government. And currently, that has been -- there's a big delay in approvals now that you didn't use to -- have to do for buildings in the U.K. It's very well described if you -- in Financial Times, there have been several articles about U.K. construction and we also hit by the same. But I think in the U.K., when we see our order intake, there we will close the gap to the budget looking ahead this year because it looks a bit -- it looks promising on some of the projects that we're going to be getting on -- especially on -- in the education market there. So that is the U.K. market. But in general, we have seen a bit slowish on the German market. I think everybody is seeing the same but it's again the same pattern we see around Europe. Germany is expecting to improve a lot over the next couple of years because of public spending. So that is also something that will impact our business going forward.

You're asking about -- now we're going over to this subject about the U.S. and you're asking about tariffs, Philip. And we're not really seeing -- we don't really see the tariff as a showstopper for our development into a -- in the U.S. market. Our -- of course, our model is that we have a subsidiary we sell to in the U.S. And we sell -- send our products directly from our factory in Germany, and they are deemed as being European. So they get the 15% tariff. There are some unique things about steel and aluminum, but that we don't -- that is not the main thing on our products, but it's 15%. But when we start translating that into the market, how much is it? Then you say, what hit us is, of course, on the turnover we have in the market today, but we are expecting to grow a lot more. So everything we grow maybe grown with a lower margin but we still have good margins in the U.S. market when we sell in both U.S. and Canada. And we don't really see it as a showstopper. There is a little bit of a cost on it and we also have to remember there was something there before also, so it's not 15% totally. But if you look at it, how much it's impact us, it's -- we're talking about maybe 5%, 5% to 7% on our margin. But as we are a business that want to grow a lot more, it's not taken from us, it's -- we can only do better in the market. So I -- it doesn't really have an impact, that much impact on us. And also, we are -- there's no U.S. manufacturers of what we do. So everything comes from Europe, and we do it in different ways, and our model with a subsidiary that sells on and does things with the product in the U.S. is a good model for us. It covers us and it takes more risk out of our business.

[Philip Coombes]

[ That was a ] very detailed explanation. And we have another question here asking about the potential development of the U.S., but I think I was really clear and that it's still, plans [ are ] for it to be a growth market for WindowMaster moving forward. So yes, thank you for that answer.

[Erik Boyter, executive]

Maybe Phil, maybe I should also just add to this one here that I think when you talk about U.S., my experience is also you have to build it properly. and you have to have a little bit of patience on the U.S. market, but it will give you a good development if you do it cleverly. And I think we are doing every it cleverly. And it's, of course, a very -- it's one of our big investments. It's going to North America and not to Asia and so on, yes. So we expect that will grow even in the environment we see currently. We expect the U.S. economy to become even better and stronger over time. I'm not really a concentrator of who is in the White House because we can do whatever -- whoever in the White House house, we will do okay. So that's how we look at it.

[Philip Coombes]

That's great. Thank you Erik. And the last question I have here from the audience is about the warrant program. There was an announcement about the warrants. Maybe you could -- just a few words on the warrant program, the rationale and yes, generally about the recent warrant program, so people can understand.

[Erik Boyter, executive]

Yes. Maybe it's up to me to do it. And yes, we made a program, a warrant program, and we've done over several times. And we did one some years back in '23 when the share was around DKK 6. And both Steen and I have taken the opportunity to use our warrants currently. I personally -- I feel it was a great way to get some shares into the business. And of course, I'm also injecting a little bit of cash into WindowMaster in this way. So that's why I did utilize my warrants. It's part of our package and why should we not use it. And I don't think I can see the question about that, of course, the share was DKK 10.40. DKK 10.42, that was our IPO. I think that this is a comment and we are buying it at [ DKK 6.01 ]. And this is a part of the package in the way it's done in many companies. And I don't think I should have waited. I had the opportunity, and it's about taking the opportunity. And personally, I will keep them.

[Philip Coombes]

Thank you for the answer. And we're almost through the questions. I think while we're just on cash, we can talk quickly on the balance sheet, and we saw cash has come down and gearing has gone up slightly as a result of the weaker cash flow in the first half. You addressed this in the report, but maybe you could comment a little on expectations for cash flow, for leverage and then maybe also on the prospect of a potential dividend at the end of the year based on current guidance.

[Steen Sorensen, executive]

I think I can give a little bit on the cash flow, but I think Erik can comment on the dividend potential. But also remembering gearing is also now including bank loans for our facility in Herford in Germany, so which we purchased in second half last year. So that is now part of the -- so it moved from being a lease obligation until a bank loan. So that increases a little bit the gearing but normally, what we see in our performance when turnover is as is -- actually performing good in our working capital because everything we do that is working capital. Investments, we can manage, it a go by go or stop go, stop thing, but it's the working capital. And there, we are in, I would say, in a very strong -- we have good control over that. So in all in all, I expect a stronger cash flow in the second half as we have normally seen that nothing that indicates differently.

[Erik Boyter, executive]

And I promise just to give input on dividends. I don't think -- we have no decisions on dividend paid out next year on the accounts of 2025. We have taken no decision and how it's looking at the moment, I think our -- we are more concentrating our -- on the operations and getting back and delivering on the second half of the year.

[Philip Coombes]

That's great. I can see we're through all of the questions now. So I'd like to say thank you to the audience for joining us, and thank you to Erik and Steen for the presentation. We look forward to following the second half and catch-up after, yes, the first half.

So thank you both. Thank you to those who have viewed, and we will see you again soon.

[Erik Boyter, executive]

Thank you.