Renovations, fluorescent bans, and energy savings buoy Fagerhult outlook

Oct. 31, 2023
Third quarter sales held on, net profit edged up, and operating margins grew stronger, as did IoT groundwork. But the company pauses its horticulture business.

Quarterly profits edged up at Fagerhult Group as sales flattened, but CEO Bodil Sonesson gave a strong outlook linked to renovation activity, Europe’s fluorescent ban, and customer interest in energy savings. One area that won’t grow is horticulture, as the company paused that business.

The Habo, Sweden-based LED lighting outfit reported sales of 2.08 billion Swedish kronor (SEK; $186.6 million) for the third quarter ending Sept. 30, the same as the third quarter of 2022, although the number declined 4% when including currency effects and disposed businesses. The flat sales reflected a strong 2022 third quarter, which is when the company experienced a revenue boon from an easing supplying chain, Sonesson said.

Net profit edged up by a percentage point to SEK 158.9 million ($14.3 million) from SEK 156.9 ($14.1 million) in 2022’s third quarter. Sonesson attributed the increase to price rises and cost controls, which she said helped contribute to an 11.5% operating margin, “the highest Q3 operating margin for several years.”

She and chief financial officer Michael Wood saw continued healthy margins. That, combined with what they described as a lively market in renovations and retrofits — something they have been particularly keen on since at least early this year  — will help assure strong results in upcoming quarters, they said. Fluorescent bans to avoid hazardous mercury in Europe, the U.K., and certain U.S. states will feed that trend, as will a drive toward the energy savings that LEDs and connected smart controls provide, they noted.

“We see a very good activity level,” Sonesson said on a web call with financial analysts to discuss the third quarter results. “It’s a very healthy mix between our different segments and markets, both in public and private investment. We continue to see the renovation trend strengthen, and with that, a very high interest in smart lighting.

“As Michael said, there are many different opportunities. The ban on fluorescent lighting and the communication around it is, I would say, slowly starting to create an awareness in the market of the possibilities and what we can do to give our customers much more energy-efficient solutions.”

Sonesson noted that LED lighting on its own can cut lighting-related energy costs in an office building by 70% and that the inclusion of “smart” technology and controls, such as Fagerhult’s Organic Response sensors, can increase that to 90%. As LEDs Magazine reported last week, energy savings is the application that Fagerhult believes is the foundation purpose for smart lighting that will finally lead to much wider adoption of slow-to-catch-on “IoT lighting” applications such as space optimization and personalized lighting.

“I expect 2024 to be a continued good year of smart lighting,” Sonesson said. “Step by step, we see the market starting to understand.” LEDs will report further on Fagerhult and the IoT soon.

One area that is not thriving for Fagerhult is horticulture, so the company has decided to halt that business for the time being. But unlike other lighting companies that are struggling with the horticultural segment (lighting industry leader Signify mentioned it yet again last week), Fagerhult said that profits, not sales volume, has been the problem.

“High volume with low profitability, or zero profitability, is not something we wish to investigate,” chief financial officer Wood said on the call. “We will, however, investigate our future opportunities in horticulture and see if, in a different business model, we can extract value.”

Horticulture is not one of Fagerhult Group’s better-known operations. It resides within the company’s infrastructure business division, which is one of four divisions that together consist of 12 companies. At least one of the dozen, Schagen, Holland-based Veko, has been in the horticulture business.

LEDs Magazine has asked Fagerhult to elaborate on its tribulations and possible future plans in horticulture. We will report more information as we receive it.

For the second consecutive quarter, Fagerhult reported sales growth in three of its four divisions but not in its design-oriented Collection division, where sales fell by 7.5% to SEK 875.2 million from SEK 946.3 million in the third quarter a year ago. Fagerhult has now replaced the head of that division. Operating margins were relatively steady at 8.5% compared to last year’s 8.6%, but were the lowest of the four divisions by a wide amount. Collection consists of Italy's iGuzzini (including Montreal-based Sistemalux), Sweden's ateljé Lyktan, and Germany's LED Linear and WE-EF.

Sales in the Premium division nudged up 1.5% to SEK 729.4 million from SEK 718.6 million a year ago. Operating margins declined to 15.4% from 16%. Premium focuses on European customers and bespoke solutions via the Sweden-based Fagerhult and Germany-based LTS.

Professional division sales jumped by 11.3% to SEK 297.3 from SEK 267, as operating margins showed a huge recovery to 12.2% from 2.2% a year ago. Professional focuses on indoor lighting in local markets and includes Australia's Eagle, the U.K.'s Whitecroft, and Turkey's Arlight.

The Infrastructure division reported a sales increase of 8% to SEK 255.3 from SEK 236.4 a year ago. Operating margins improved to 14.8% from 14%. Infrastructure aims at robust environments and includes the brands Designplan, i-Valo, and Veko.

Fagerhult reported several new customer wins across the four divisions in the quarter. Some of them were: the Hinkley Point nuclear power station under construction in the U.K. for Whitecroft and I-Valo; the new arts and performance center at the University of Dallas for iGuzzini; Albert Dock in Liverpool, England also for iGuzzini; Western Sydney Airport in Australia for WE-EF; Fyrtornet, an 11-story wooden office building under construction in Malmo, Sweden; the offices of Yves St. Laurent and Dior in Paris for the Fagerhult brand; Gothenburg University’s art building, also for Fagerhult; and the retrofit of 550 LED post-top lanterns for Deutsche Bahn railway in Germany, for Designplan.

On the results call, CFO Wood said that Fagerhult has hired a new head of mergers and acquisitions. The move might suggest that the company is gearing up for an acquisition, which has, over the years, been a Fagerhult Group growth strategy.

MARK HALPER is a contributing editor for LEDs Magazine, and an energy, technology, and business journalist ([email protected]).

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About the Author

Mark Halper | Contributing Editor, LEDs Magazine, and Business/Energy/Technology Journalist

Mark Halper is a freelance business, technology, and science journalist who covers everything from media moguls to subatomic particles. Halper has written from locations around the world for TIME Magazine, Fortune, Forbes, the New York Times, the Financial Times, the Guardian, CBS, Wired, and many others. A US citizen living in Britain, he cut his journalism teeth cutting and pasting copy for an English-language daily newspaper in Mexico City. Halper has a BA in history from Cornell University.