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Zumtobel Group AG
VSE:ZAG
Zumtobel Group AG
VSE:ZAG
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Earnings Call Transcript
Transcript
Other Earnings Calls
Good morning, everybody. This is Harald Albrecht, Head of Investor Relation. Thank you very much for dialing in into today's first three quarter earnings call. I trust you could retrieve our management presentation from the webpage. Today's call is hosted for the very first time by Mr. Alfred Felder, our new Chairman of Executive Board; and Karin Sonnenmoser, the CFO of Zumtobel Group. Alfred took over the function as acting CEO of the Executive Board in addition to his function as the Chief Sales Officer on the 1st of February, 2018. Some of you might already know Alfred from our last Capital Market Day, when he was successfully heading the Tridonic business. As always, Karin will start with a quick overview on the third quarter results, but then we would like to use a bit more time to let Alfred introduce himself to the capital market and give you a first big-picture overview on his thoughts and working agenda for the next few months. Afterwards, we will open the floor for Q&A. So that's for the introduction. We will now ask Karin to start with the financial part.
Thank you, Harald. Good morning, ladies and gentlemen, all good from my side. In order to take a bit more to our slide set, I will skip to the summary slide today and start directly with Slide 3, the Lighting Segment.
Like always, on the left-hand side, you see the revenue development by quarter, and on the right side, the adjusted EBIT development by quarter. The Lighting Segment is definitely the area of the biggest concern. The deterioration in the group's profitability during the first three quarters is for the most part attributable to the Lighting Segment where adjusted EBIT declined from EUR 46.4 million to EUR 14.0 million. So revenues in the third quarter declined by 7.9%. After an adjustment for negative foreign exchange effects, the decline was 5.5%. This decline is a combination of the general development of the professional lighting industry, which remains below our original expectation. Just to be clear on that point, the market demand in volume terms is basically stable in our key markets, but what we see is an intense price competition in the Lighting business. After an average price pressure of around 2% to 3% of the prior year quarters, we have noted in Q2 and Q3 an increasing price pressure of around 5% in average. Another reason for the decline and the development is one market, Great Britain. This market is challenging in both volume and price terms. The most important thing in markets for the Zumtobel Group, where we see a growing number of project performance and a lower pipeline for new projects versus prior year.
Q1 revenues declined by around 10%; Q2 revenues, by around 35%; and Q3 revenues, by 28%, which in total leads to a shortage of around EUR 35 million revenues from this single market in the reporting period versus the prior year in the Lighting Segment.
Furthermore, the internal operational issues are hindering us to fully exploit the existing market opportunities, especially in the area of logistics and on-time delivery. A lot of firefighting efforts went into these topics, and we can see small improvements in many areas, but it still requires a major joint effort to substantively overcome these issues. In contrast to this, a strong development was recorded by Zumtobel Group Services, which is allocated to the Lighting Segment. This business division, which bundles all project and software-oriented services under a single roof, recorded a year-over-year increase of 12.1% to EUR 137.8 million and generated 15.2% of group revenues in the first 9 months of the financial year 2017/2018.
On the right-hand side, you see the adjusted EBIT development. In the past, we have all learned how important the growth in the Lighting Segment is because of high leverage and the high fixed-cost structure, respectively. The contribution margin in the Lighting Segment is around 50%. That means that every additional euro on top line gives you around EUR 0.50 in the adjusted EBIT and the other way around. It goes without saying that the EUR 1.2 million adjusted EBIT in the current Q3 are disappointing. But keeping in mind that we have lost almost EUR 20 million revenues in Q3 versus prior year, we can also clearly see the positive effects of the implemented cost-saving measures to counteract the revenue declines.
So let's move to Slide 4, which shows you the development of the Components Segment. The revenues on the Components Segment fell by 7% in Q3; Forex adjusted, by minus 3.8%. The concentration on margin in an increasingly competitive environment, obviously, generates satisfactory earnings contributions but it also -- are combined by substantial revenue declines.
All of them in the Components Segment, U.K. is by far the biggest market and revenues declined in this markets by around 15% in the first 3 quarters. The pricing pressure remained with up to 10% high, but it is stable. On the adjusted EBIT level, the profitability level dropped in Q3 to 6.1%. This means that on the Components Segment, the lower contribution from revenues, the ongoing price pressure and the lower income from government grants could not be offset in the current quarter through a better mix, the successful implementation of cost-saving measures and the health of a weaker U.S. dollar.
Let's move on with the Zumtobel Group's development on Slide 5. Here, see the combined results of the Components Segment and the Lighting Segment. I think there is not much more to add expect -- except the fact that we have released in Q3 around EUR 3 million of our bonus provision. Perhaps, as a reminder, the remuneration for all entries eligible for bonuses has been based, among others, on the total shareholder return of Zumtobel Group AG compared with a total shareholder return of specific comparable companies, the peer group. The above-average positive development of the share price of the Zumtobel Group AG in relation to this peer group would result in a higher addition to the provision for remuneration bonuses and reduce operating earnings in the respective financial year. In contrast, the above-average negative development of the share price of Zumtobel Group AG would have a positive effect on operating earnings in the respective financial year. The total shareholder return for a particular financial year is calculated after the end of the fourth quarter. Nevertheless, the pro performance of the Zumtobel Group share made it necessary that we released already EUR 3 million from this provision. In case the share price remains at the current level, another release of around EUR 3 million would follow in Q4.
On Slide 6, you see the bridge of the group EBIT. Let's start with the prior year's adjusted EBIT for the first 3 quarters of EUR 62 million. The absolute gross profit before R&D of the group declined by EUR 49.9 million. The majority of the shortfall comes from the Lighting Segment; that's almost EUR 40 million. The decline is a combination of substantially lower volumes and aggressive price competition as well as the increase in the warranty provision, which we have done in Q2 in the Lighting Segment.
The R&D expenses decreased by EUR 7.4 million, which is a result of the efficiency gains through our group-wide bundling of R&D capacities and the streamlining of the manufacturing landscape. The cost-reduction measures implemented during the year were also reflected in a reduction of EUR 4.8 million in the selling expenses, in spite of any salary increases required by collective agreements. The administrative expenses were stable at EUR 38.2 million. Other operating results, excluding special FX, declined to EUR 4.2 million. In the prior year, you have seen EUR 8.1 million due to a lower license income from the LED business and a reduction in government grants. This brings us all together to an adjusted EBIT of EUR 20.5 million for the reporting period.
So that's all from my side so far. We put numerous financial [ slides ] into the backup section of this presentation. So if you have any questions, I'm very happy to do a deep dive in the Q&A session. Thank you for your attention. May I now hand over to Alfred Felder? Alfred, please go ahead.
Thank you, Karin. So good morning, everybody. I'm delighted to be here for the first time, and we thought that it would be great that I tell you a little bit about myself and you should have one page in my bio included. So basically, what you see, I have -- I have been trained with some electrical engineering and have a degree from the University of Vienna in Austria. And I started my career at that time with the Siemens central labs in Munich, in the semiconductor department. But at that time was still owned by Siemens, what later became an Infineon Technologies at the beginning of this century. Main aim here was to develop, but that was also my first touch with light, lasers, detectors and integrated circuits for optical fiber transmission systems for very high data rates, up to 40 gigabit per second. And that was basically one of the highlights at Siemens. So I became the attention of the Siemens board member to the CPO, who basically said, well, I would like you to do something different and he offered me a job in this department in Japan. What basically a -- was an interface office between Siemens and all the big companies in Japan at that time, developing cooperations between the companies. What I did until from 1995 to 2000, coming back then as a department head of the so-called ceramic department, but was within the development department of Siemens, so responsible for developing technical solutions for a variety of businesses. And that was my first touch with OSRAM, at that time, still part of Siemens, because we were developing conversion for blue LEDs to make white LEDs. That was the beginning of the LED. So it basically -- my migration from a semiconductor-trained engineer into a lighting, and that was extremely dynamic. I was then hired by Opto Semiconductors for a job in the U.S., developing OLET for 2 applications: one was displays, the small passive matrix displays for cell phones, and the other one was OLED for lighting. And you can imagine that was in 2003 and still right now OLED technology is in -- almost in its infancy when it comes to lighting. That was a joint venture with a startup company called Unix Technology, where we developed these panels. Unfortunately, that did not materialize in the results what the company expected, and as a result, we had to close these activities in the U.S. and transfer it back to Germany. It was also in line with a management-level change on the board within OSRAM.
After that I then applied for a job and was taken to move into the sales, selling LEDs in Asia. Asia was at that time a fast-growing market. It is still a fast-growing market, but it was not the case for the LED division within OSRAM Opto Semiconductors. It was basically fluctuating around EUR 80 million, EUR 90 million revenue for the whole continent and the plan was to change that. And we changed the whole organization, though, with some more customer-focused selling principal with OEMs. Then we developed markets like Japan, India and Australia. And we were able, between 2006 and 2010, to grow this business from roughly EUR 80 million to EUR 450 million. Based on that, we -- I took over the global responsibility of the entire sales for the LED division, which was at that time roughly EUR 1 billion. As you know, it is a fast-growing market. OSRAM Opta Semiconductors are now approaching already EUR 2 billion business. And then there was another major restructuring within the OSRAM business what led, at the end, to the tap out of [ development ] business where I was asked to take over the responsibility for the global sales of the biggest division within OSRAM was the general illumination, about EUR 3.5 billion revenue at that time. Then I was approached by a recruiter asking me whether I would be interested to [ take on ] responsibility for Tridonic. And that was also the time after almost 10 years with my family in Asia, took them back and have the family smell a little bit the European soil again and the culture. And we decided to come back, and I took over in November 2012 the helm of Tridonic. We had also been going through a major restructuring at that time. That was the time where the conventional business shrank; we had more than 10%. We still had magnetic ballasts in there. We closed the factories, we closed the business and focused full on LED. And we were able to change the ratio of between LED business and Classic business, what was in 2012, roughly 15% LED to now close to 85% or even approaching 90%. And obviously, you have seen this in our calls that was an extremely steep ramp up, both in general as well as in profitability. And then we see it's [indiscernible] but it's very natural in semiconductor type of businesses, the saturation coming in, and LEDs, approaching a 200 lumen per watt efficiency. And basically entering then into the commoditization, what affected that we had a steep price erosion but is still continuing. We can discuss a little bit what we think how long this will go. But basically ending up in declining revenues still on a reasonable good cost position, but you saw also in the numbers what Karin presents. But on the other hand, we are selling much more volumes, so the volume grow in the Tridonic is still growing significantly high double-digit and expense highs in 30% in certain products to take aways. So in 2016, then after a concession period to my successor, transferred Tridonic and took over a board member or as a COO for until now into 2018 in February with the main mission to come up with a global footprint mainly for the lighting brands. What's obviously also has become into pressure, cost-wise we still have 5% effect was in expensive territories. With respect to some of them, we sold the factory what we have in France and we worked on a footprint for a low cost location in Eastern Europe where we then ended up and decided to go to Serbia. As Harald mentioned it already, effective February, so there are a little bit more than 5 weeks. I have now a dual role. On one side, the CSO, and on one side, the acting Chairman of the Board. I'm very happy also that we have a new member on board with Mr. [ Mascow Olis ], a key expert in the operational topics, who basically will now continue to drive the operations footprint and execute what we have planned. So I'm very excited to be able to contribute to getting Zumtobel Group back on track. I think we have a lot of interesting challenges that's generally the lighting industry has because I believe that this price pressure what Karin mentioned will not end after a couple of quarters. And still, it's a typical effect what I was used to live with in my 15 years in semiconductor experience where you have this fluctuation and the constant erosion of prices. And I think we have a great setup also to move on and be able to compete here with the rest of our -- in our companies in our markets.
Yes, with that, I would basically move on. Obviously, you understand, and I hope you understand that after 5 weeks, I will not be able to present you a crystal clear new strategy. But more or less what we're planning to do, and if you go into our Page #8, into the next phases, I have defined 3 major pillars where we build our future on. The first and most important one will be to regain the trust by realigning the Zumtobel Group strategy, which is the successful DNA of our history. And that means we are gaining the trust of our customers, we're gaining the trust for our Capital Market and also, last but not least, also to our employees. We want, and there's a whole management draw a clear line under this internal strategy, what was discussed before in last couple of months, and really refocus on that where we are good in: product innovations, solution innovations and customer focus. And yes, it's always nice to say, put the client first, but obviously you can imagine that for certain applications where we have been in, that was not always the case over the last couple of months where we had a lot of internal, let me say, mismatch and the other thing is the key to get back here and do it proactively so that we are getting back on track. We will also have to foster in the group by cooperation and unlock our employees' motivation. We have a fantastic team on board. And basically, we need to hit the ground with all these talents and drive our company forward. And then we have to basically kick-start and we did this already in a couple of weeks to address the current internal operational challenges. It was mentioned, I think, in a couple of calls before on delivery topics, on quality topics partly, but also to initiate that our sales engine again, fires on all cylinders, moving from a three-cylinder engine to a six-cylinder engine, so that we are moving forward. The topic #2, and that's also here an extreme important one, we need to get back to a midsized company management team, which means we are currently working intensively with a very, very tight and a state of agenda on setting up a leaner organization with higher accountability and more focus. Which automatically will mean that we are having much less direct reports to the board and decentralizing the responsibilities and also the accountabilities. We will basically also evaluate the existing structures and processes as well as the market, the whole product and brand portfolio. And we will take board decisions, stick with them, implement them and execute them. I said to the team, no excuses, no surprises. If we have done this, that also means that we will evaluate and to [ rigidly ] boost through the threshold structural cost, which might end up -- it will end up with some additional restructuring, in what will come in, in this fiscal year. [ Plan is then, ] that this core team will work on a new strategy [ augment ] for the entire group based on the 3 pillars what we have: the Components pillars business, the luminaire business, and that what Karin mentioned but it's nicely growing, this whole service system integration business, and we plan to be ready by that for June 2018.
Looking on Page #9, at the outlook, I think it was mentioned already, the federal development in the professional Lighting industry remains below our expectations, and to be very honest, there are not a lot of signs for recovery in the near future. We have, starting with the components, a huge price pressure on our competent level where also talking to different market leaders will continue over the next quarters. We will also see it in different markets differently. Germany, for example, is a market where also we see more price pressure coming in from the Lumina business. We're having our biggest single market, Great Britain, with a fluctuation on currency as well as with a decline of the market. It was a market decline now going beyond the 10%, I think something like 13%, 14%. And we're not seeing that this professional lighting at least until the Brexit. Yes, discussions are going on, it's really regain. I think it was also mentioned, we have implemented already the significant cost measures in Q2 and also in Q3, and we're seeing first [ results ]. This is then in addition to that restructuring what we are planning over the next couple of months. And the adjusted of revenue and earnings guidance for the full year 2017, 2018. What we have balanced on January 24 is still valid. The management board now expects a result between EUR 15 million and EUR 25 million and a decline of roughly 8% of revenues for the entire fiscal year. So the previous forecast called for an adjusted EBIT for EUR 50 million to EUR 60 million and to decrease for roughly 5%. As I mentioned already, there is potential additional restructuring cost in quarter 4, what is, obviously, as a consequence of the ongoing strategic review and the restructure what we do in the management setup.
Very good. So let's now open the Q&A session, please.
[Operator Instructions] And the first question is from the line of Lucie Carrier with Morgan Stanley.
Good morning, gentlemen, good morning, Karin. I have 3 questions. The first one is, I have the sense that you're guiding us for more restructuring going forward. I'm curious you, kind of, now if you could give us a bit more information on that considering that you've had already significant restructuring at the companies over the last few years. So is that still going to target the footprint? Or which type of restructuring are we talking about here? So that's question #1. Question #2 was around your market position. When we compare you with some of your competitors, it seems that your results especially in terms of top line results are definitely more negative than what we see across the board. So I was wondering if you could comment around kind of market share dynamics? And maybe kind of if you lost any share, do you think this is regainable? Or how do you end to regain it? And then question #3. You've mentioned some review of portfolio, refocusing on the DNA of the company. Could you give us maybe a bit more color on what is really the DNA of the company and whether indeed you are kind of foreseeing maybe some potential disposal?
Good morning, Lucie. So I will start with your first question regarding the restructuring costs. We guided around EUR 10 million in the past, but we expect for the rest of this financial year, it's around EUR 50 million in general for the fiscal year. And this additional restructuring costs are based mainly on a restructuring in [indiscernible] Region, which we have a closer look. I mean, the U.K. market is definitely one in which we will have a closer look, how and if we should restructure there. And the other point of the restructuring cost is based on the changes in the management structure, which was mentioned by Alfred before.
On the...
Sorry, Karin, the reception today on the call is not very good or at least from my side. So you said, you expect to have further initiatives at the head office and then what was the 2 other points, please?
Further restructuring in the [indiscernible] region.
Sorry, in which region?
Well, we'll look at each region, but it is probably in the U.K., Nordic and in the D/A/CH region.
Sonnenmoser, this is Alfred. On your question number two, market position, you're right. Compared to our key competitors, we have been falling behind. We have been losing market share. And I don't want to be, again, vocal on the U.K., yes, that was the -- that is the currency exchange and also some market shrinkage, but pretty much a fact that in all the other markets, we have partly lost and that main issue is the internal topics what we have. I mentioned this already, the operational topics, starting from the sales engine and ending with the operational performance and getting the products out properly on time, on delivery. And basically, that's what I mentioned in my first pillar, that's the key and most important measures what we're taking right now to fix that. We have allocated additional resources for the most critical processes. So that we are gaining momentum soon and puts us in a position back to get into these markets.
And the question number three is on the portfolio. We have done a deep analysis on our portfolio and similar to that what Karin said, the restructuring in sales region has to do, are we doing business in all sales regions in a way that we're gaining, not only market share, but also profit? We are evaluating that and seeing what consequences this had? The same is on the portfolio itself. We have and had partly overlapping portfolios. We had a lot of complexity in certain product ranges. And with the new structure what we have, we are now working on platforms and we are taking this complexity out. We're in a good way, but it's still a lot of work to do. So basically that means, we will end up with a much leaner, more well-positioned portfolio regarding brands Zumtobel and Thorn, especially on the indoor side.
Alfred, if I can have, maybe, a follow-up on the market positioning. So -- and I appreciate you've lost share versus competitors. Would you say that they are more, kind of, regional competitors, kind of, country-by-country to whom you've lost share or we -- simply speaking that you lost share versus the big European competitors, the big global competitors, if I may say?
Well, I think, it's both. I think, you have the numbers, what Philips has presented and what Fagerhult presented, partly local, partly, let me say, Pan-European competitors, that they have friends and representatives in the countries and partly also some -- for localized companies. Obviously, in Germany, TRILUX is extremely price and risk aggressive in these markets to protecting their sockets and that's also something where partly, we could not follow.
[Operator Instructions] And the next question is from the line of Michael Marschallinger with Erste Group Bank.
Good morning, I have 2 questions, if I may. The first one, Mr. Felder, what's your view on the ZGS business, do you intend for expand the business in this area or concentrate more on the traditional luminaires business? So it is first and the second one would be on the high goodwill, which is currently at around EUR 190 million given the current market -- the current weak market environment, as you described, I mean, this was EUR 40,000 impairment trigger. So what if you own this, is it possible we're going to see an impairment in the fourth quarter here?
Well, second question is for Karin. Let me -- I'll try to answer the first question at Zumtobel Group Services. Very general, we have seen it in Components and we have seen it now in luminaires, a pure product business alone will not lead its -- the way forward. We will have to enter and we do enter into services, into system integration. We see already how nicely this develops. Definitely, the Zumtobel Group Services is the third and most important pillar moving forward. Just what we need to do is, I think, to find a proper balance between pure product innovations both on Components and on luminaire level, simply because those 2 core businesses are financing the future service business where we need to invest and we want to stayed invest, and then on other hand, really see how this develops. What I was trying to say in my personal CV, is I had the luck to be able to participate in a lot of emerging technologies, one was on the high-speed transmission systems, what was basically developed 1995 to '99 and become mature in 2010. One is OLED, what we developed in 2003 and still not mature. And I think, when it comes to the services and all the applications what we think we need to very carefully look when it is really coming, not to be too early, not to be too late, and how do we move forward? So to answer your question completely, yes, ZGS is a key pillar and will be a key pillar moving forward in the entire strategy of the Zumtobel Group, but on the other hand, we need to focus also on products and products innovation because that is still the majority of our business today.
Okay, Michael, regarding your question towards goodwill, I mean, we're highly committed to keep the goodwill and that we do -- we will not have an impairment, but actually we will discuss that and prove this with the auditors at the end of April. And after this, I mean, we know more, but again, we're highly committed to keep the goodwill on this level.
Okay. And just one follow-up question maybe. I didn't understand your -- the restructuring cost. You said, EUR 15 million for the full year, is this correct?
Yes, EUR 15 million, yes.
And the next question is from the line of William Mackie with Kepler Cheuvreux.
I hope you can hear me. Couple of questions, please. First of all, Karin, can you please remind us of the covenants that are outstanding with your banking lines with regard to equity and also net debt-to-EBITDA covenants and when they're tested, please? Secondly, Alfred, sorry to go back to the U.K., I'm sure, it has been in the spotlight when you were a COO as well as your new position, but to be blunt, Fagerhult reported 6.5% underline growth in the U.K. market last year to December and did not talk about organic declines in the fourth quarter of their year, your last quarter, not this third quarter. So can you at least try to share your interpretation of why, if we just stick with the U.K., there is such a sharp divergence in the reported results of some of your clear competitors in comparison to your own results? Does it simply fall down to the difference between outdoor versus indoor lighting or is it something fundamentally different with regard to the product innovation or content or price or some other way, in which you're approaching the market? Those are the first 2, please.
Hello, William, this is Karin. Regarding the financial covenants, we have 2 of them in the actual thin loan and the one is the equity ratio, which has to be at least 25%. And the net debt to rolling 12 months' EBITDA of EUR 3.5 million at maximum.
Perfect, thank you.
Gabriel, great to hear you, again. I remember my time with you in Tridonic, you're always asking the right questions and I'm trying to give you the right answers. So let me try again. U.K., in U.K., absolutely right, Fagerhult, as this example was growing, if we look into our effort, then again, we need to differentiate a little bit. If we look into our 3 channels, the trade channel, the specification channel, and let me say, the end user and also the outdoor public lighting, we are having 2 channel issues. We had it on the outdoor side. The U.K. market has been fastly developing into a market where you have to offer 20 years warranty. And in that market, we are playing. We are a significant player with our brand Thorn, but we had -- for certain applications, we did extend the range of warranty, not the right portfolio. And we had basically to, yes, withdrawal from certain projects is simply not viable and, let me speak, to redo part of our portfolio to be fit for this purpose. That took us a while and here we lost a little bit of share -- of gain. On the spec business, that's a second one, where we lost. And here I think, that's a combination of the internal issues what we had partly also with the organization, with the people, but partly also, as we had, let me say, a couple of issues where we are not able to deliver. Not an excuse, but as you might know, we had this huge elephant on the order of Wilko with EUR 26 million, obviously, if you take this out, it doesn't look great, but it does not look as bad as it is. But the fact is, compared to Fagerhult, we have a couple of homegrown issues, one is spec channel, one is the outdoor public lighting channel where we, I think, are getting back on track right now, both on portfolio as well as on the setup, but it's still a long way to go.
Can I then come back to the other question of price pressure? It's difficult to fully interpret your comments when they are top-down across the group, but I think, you've hinted in 1 or 2 places. But can you elaborate, where you are seeing the most price pressure? Is it simply some of the behavior of your privately-owned competitor in Germany? Or are you seeing it in a number of markets? Particularly, I wonder whether you are seeing it in some of your real home markets for Zumtobel such as Austria, where historically, you have achieved price premiums associated with your close relationships with architects and the specification of your top-end product. But I have observed on some places that competition there has become more intense and that architects are less differentiating about their selection of suppliers, which could also lead to price pressure in your core market. So can you just throw some more color around where you're seeing that price pressure most pronounced or least pronounced?
Let me start with the least one, as I have some people insights over the last couple of days and weeks. I think in Austria, we are very well positioned and the price erosion what we see is not worrying up me too much. We're still basically having this intensive relationship with the lighting planners and with the architects. Price pressure is more intense in Germany, especially in our industrial segment where TRILUX is one of our big competitors as well as Philips. And then I think, we have a general momentum what also leads a little bit to that what we have in U.K. that weight over the last 18 months an extreme erosion on the Components level. This is now also entering for, let me say, standard application and standard product into the luminaire segment, where Zumtobel is still extremely well positioned, is in the high-end, there are more architecture driven setup. But where with the pressure is increasing on price is where customer is not really looking at the brands, he needs the functionality, he needs the reliability, and he needs the warranty and the light output obviously, and here the numbers of competitors emerging are coming up with solutions what are very competitive. What I think and that will -- what we need to evaluate over the next couple of weeks is that I need to resharpen the positioning of both Zumtobel and Thorn with a revised portfolio in the different segments what we are playing. I also could imagine that in some markets, we were partly responsible for the price erosion because we were pulling down Zumtobel to a level where normally Thorn plays. And this we need to evaluate, this I will analyze and then we will see how we can fine-tune and sharpen this.
I have got 2 more and then I will leave you alone. First one, can you provide an update on how you're recovering the situation with the logistics around the supply chain for your customers. I know, there were some efforts to outsource, which became complicated when it came to execution and we've had these discussions, I think, in the last quarter. Where are we with that? And then also, maybe you shared some personal impressions here about the CapEx program, particularly in Serbia and others. Do you see yourselves continuing with that at the current pace? Or can you see yourself making some adjustments to the direction of the CapEx program on new facilities and the pace, at which you are allocating that capital for that project?
Okay. Well, I guess, you have discussed this. The logistic is a complex topic, but more or less is a result on the efforts what we have done as a company in centralizing the structures, which is the right way in centralizing the operations and centralizing the logistics between the different brands. And we have done a couple of, what we call, yes, operational mistakes. What we have done right now is the following: first of all, we have allocated additional resources in this critical, let me say, interfaces. Currently our 2 distribution centers, 1 is in Holland and 1 is in Germany, are working at a very nice -- over the last couple of months, very nice on-time delivery, that's the logistics [indiscernible]. We're still having, with the backlog what we have on the outdoor public lighting, for example, some of the products we had to stop because we had to change some material, we had to change some coating, where we have -- we are working on a backlog what results in a lower OTD. And we are also, in countries, optimizing the last mile, where partly, this is done by private forwarders to do it. All in all, mechanisms approach is what will keep us busy, I guess, for the next 24 months, where we have to completely restructure from the front-end forecasting and sales until the end of providing the right materials as one unit. But the quick fixes, I think, we will see already results in the next couple of months, the rest will take a little bit longer.
On your second question. I don't know, if this was mentioned in previous calls, but we do also have the plan in Serbia to produce components from Tridonic and also luminaires. What we're planning to do right now is that we are accelerating the move of components what we currently produce in China for Europe into Serbia that will happen, yes, in the second half of this year. We're still on track with everything what goes in the direction of construction. So Tridonic will be first, simply because Tridonic has the biggest price pressure on the components, and we believe, that will continue for the next couple of quarters, followed then by the luminaires, where we have selective products what have very a high direct labor content moving into Serbia. So on a sequence, we will start with Serbia and a little bit delayed on the luminaire side, and obviously, with the plans what we have, I hope that by quarter 2 next fiscal year, the volume will increase again so that we have a better balance between the factory locations. But to answer your question, yes, we keep on our plan to move on Serbia. In terms of CapEx, of course, we will optimize that depending on what time frame we move what. But with the additional parameter of having now Tridonic in there, I'm very confident that we can manage it even if it's a little bit of a slower ramp-up compared to our original plan based on our production volume at the moment.
Next question is from the line of Markus Remis with RCB.
2 questions left from my side. Firstly, regarding France. If you could provide us an update there regarding your sales development and how that compares to the market and to the peers? And also some outlook on when you think you can stabilize the situation there? And then secondly, regarding the dividend, I mean, given that you will end up the year with a net loss, do you consider the omission of the dividend or how should we think about that?
Yes, France, let me say, we have been struggling a lot in France in repositioning the business. The good news is in quarter 3, we have been able to stop the bleeding and we are flat in France with a couple of highlights on certain applications. It will be a challenging market all in all. But what we see, especially also on the outdoor and also now with the new government in place, some sign of life that we will be able not only to stabilize this business but trying to get back in a slight and slow growth mode. It remains challenging in France. We are doing great business in the trade and then the outdoor business, still building up the specification business with the new team.
Markus Remis, this is Harald speaking. Regarding the dividend, you know, we have this dividend policy to distribute 30% or to 50% of the recurrent net income to our shareholders. In the past, we normally always, at least, adhere to this policy and I think, we will continue to do so. Looking at the numbers, we see most likely a negative net income for the full financial year. So this will be a discussion, which will be held together with the Supervisory Board at the end of the day based on the final results. But yes, it's, I would say, from today's perspective, rather unlikely that there will be a dividend, but I cannot preempt, so to say, the decision of the Supervisory Board from today.
And the next question is from the line of Andreas Willi with JPMorgan.
I've got 1 question on how we should think about next year. I'm not asking you for financial guidance, but more to better understand the base level for this year that we start off? Obviously, if we take the midpoint, you guided to the EUR 20 million of operating EBIT. You mentioned earlier, you had some extra costs, maybe, for logistics, but also previously said that you have done some pretty aggressive discretionary cost cuts this year in order to basically stabilize the bottom line given the pressure on the top line. You mentioned the EUR 6 million benefit this year from -- in the second half, from the bonus. How should we think about what's the true underlying operating performance for this year, as a base, as we think about potential developments for next year? And the second question, you mentioned the 3 pillars earlier that are basically the foundation for the group around Components systems and the product business. How do you see the benefits between these parts going forward in a changed lighting industry? And how do you look at the arbitrage between doing quite a lot of development in-house around technology, around systems, around lighting control versus buying components of that technology and systems in the market to maybe benefit from scale a bit more? And then just to clarify the line cut out on the answer earlier, at least for me, on the covenant on the equity side, if you could just repeat that, please?
Let me, Andreas, maybe start with that one what you mentioned last on the 3 pillars, on the Components, luminaire business and system and solutions. Obviously, we will need a couple of weeks and months to figure this out completely, but my view is the following on that one: the Components business will continue to be a commoditized business where economy of scale will play an important role, and we need to clearly analyze that whether we would like to keep this in the future or not, embedded into the whole system. On the other hand, the components innovations are driven by the development what we are currently doing in our company of sensors and controls, which will automatically go into innovative product and system solutions. And we need to evaluate whether this is a key differentiator for our company or this one can also be bought outside and we will -- that will also be part of our strategy development. And at the end of the day, we need to see how a new Zumtobel Group will look like moving forward in -- under these circumstances to become a player in this connected lighting industry. And we will see in -- after these developments or after this strategy development cycle, how the group will look like, but please keep as a couple of weeks and months to develop this, as I said, that is the plan to have it in June.
Well, Andrea's, regarding next year or based of this year -- well, it's a very tricky one, I mean, starting from the midpoint of EUR 20 million, I would hope that we're not going to have another bonus provision in the magnitude [ EUR 8 million ] in the next financial year, although, I do hope that we will have another bonus provision in the next financial year, obviously. But other than that, growth will be instrumental and pricing pressure is still something we will look at very carefully. But it's really -- sorry, we hope we can give it in the guidance when we do the annual results. Obviously looking at the next financial year, what I can already most likely say that the Q1 last year where we had almost EUR 18 million or EUR 19 million EBIT, of course, it's amounted to climb and we're not going probably to beat that one that's based on the current trend, it's quite obvious. But then when we enter the Q2, Q3, Q4, we hope that the base is a totally different one that we think can restart our path to -- for improvements. But unfortunately, there's not much more to say at that point of time.
On the equity ratio for the covenants, you said something 35%, but what was that exactly?
In equity ratio, is we have a covenant in the banks financing to syndicated loans that we are not allowed to give below the 25% equity. Which looking at today's equity ratio of EUR 32 million, looks very comfortable, but of course, keeping in mind that there will be a goodwill impairment testing at the end of April. The results we cannot preempt, but committed to keep that goodwill, again, no issue. But looking at, so to say, EUR 320 million equity, and so to say, we are not allowed to be below the EUR 250 million on one hand and having a goodwill of almost EUR 200 million shows you how quickly that could change, so to say. So that is something we have a careful [ look at it ] in the next couple of weeks, but then we are very much committed to keep the goodwill [indiscernible].
No further questions at this time. I hand back to Alfred Felder, for closing comments.
Well, then I would like to take the opportunity to thank you for your questions, for your comments. I hope we could give you the proper answer, obviously, with the uncertainty also in the markets and the company. Thank you very much for listening, and have a great day. Thank you.