Belimo Semiannual Report 2024

Improving momentum and sustained progress

Dear Shareholders,

In the first half of 2024, Belimo achieved net sales growth of 9.7% in local currencies versus the first half of 2023, supported by positive trends such as energy efficiency measures in existing buildings and the growth of data centers. In Swiss francs, net sales increased by 5.6% to CHF 473.5 million, supported by the return of volume growth, as well as further positive contributions from product mix and pricing. With that, the Company’s solid organic growth trajectory continues in 2024 despite ongoing economic challenges in several major countries and vertical markets.

The Group performed particularly well in the Americas region. Belimo continued to gain market share and leverage strategic high-growth sectors, while the region also provided a favorable business backdrop with robust economic performance and a strong construction environment. Belimo's sales in APAC also increased at an above-group-average rate, mainly driven by India, currently one of the world’s strongest heating, ventilation, and air-conditioning (HVAC) markets. Despite a persistently challenging market backdrop in several key countries within the EMEA region, such as Germany and the Nordics, Belimo increased its sales in the region thanks to strong performance in the contracting channel with control valves and the sensors and meters product lines. Belimo's strategic growth initiatives, including RetroFIT+ targeting the retrofit segment, contributed to Belimo's ability to outperform its markets.

Net Sales by Market Region

Regarding the Company’s business lines, all confirmed net sales growth. The ongoing market shift to electronic pressure independent solutions, where Belimo is the market leader, contributed to a robust 11.9% revenue growth in local currencies in the control valve category on a year-on-year (YoY) basis. Belimo's sales growth in Damper Actuators accelerated to 5.8%, an increase from 1.1% YoY recorded for the full year 2023. Meanwhile, sensors and meters continued to gain traction sustaining high momentum across all regions.

Net Sales by Business Line

Financials

Earnings before interest and taxes (EBIT) rose to CHF 93.0 million in the first half of 2024 (first half of 2023: CHF 84.7 million), resulting in an EBIT margin of 19.6% (first half of 2023: 18.9%), despite further investments to support the Company's future expansion. Belimo achieved a net income of CHF 77.2 million (first half of 2023: CHF 65.0 million) and earnings per share of CHF 6.28 (first half of 2023: CHF 5.29).

The Group generated a free cash flow of CHF 69.8 million (first half of 2023: CHF 79.6 million, which included a divestment of term deposits of CHF 25.0 million). Net liquidity at the end of June 2024 was at CHF 57.6 million (June 2023: CHF 48.0 million), and the equity ratio was 75.3%.

EMEA

Having grown its revenues by 9.3% in H1 2023 and, hence facing a strong base effect and a challenging construction environment in several of the countries and regions from which Belimo derives very significant share of its EMEA revenues ‒ Germany, Switzerland, Austria, and the Nordics ‒ Belimo showcased significant resilience in EMEA. This reflects the robustness of the Company's business model and its approach to growth. EMEA finished the first half of 2024 recording net sales of CHF 199.6 million, corresponding to an increase of 2.0% in local currencies (decrease of -1.1% in Swiss francs).

In Germany, the Company benefited from the RetroFIT+ initiative with its contracting business performing significantly better than the original equipment manufacturer (OEM) business. Regulatory changes and a high-interest rate environment led to a significant contraction of the demand for heat pumps and biomass boilers. Belimo holds a considerable market share in air control applications for biomass boilers.

Despite the construction markets in Norway and Sweden also being under pressure, Belimo achieved higher sales in both countries, thanks to market share gains with control valves and, hence, a positive product mix development. Additionally, Belimo's sales in Southern European markets such as Italy, France, and Spain showed favorable development.

From a vertical market perspective, data centers have reaffirmed their success across the EMEA region. In this market, Belimo plays a leading role in providing field devices that manage server environment temperatures and enhance energy efficiency.

Americas

In the Americas market region, Belimo registered net sales of CHF 219.2 million in the first half of 2024, corresponding to 17.6% growth in local currencies (13.3% in Swiss francs). Belimo remained strategically well-positioned to capitalize on the robust general economic upturn and a fundamentally supportive construction environment.

The positive activity trend was broad-based across most of the verticals in which Belimo is active. Demand in the data center market remained robust, propelling sales in the contracting and OEM channels. The reshoring trend persisted, and the Company benefited from further investments in large-scale projects within the semiconductor and electric vehicle industry. Belimo's traditional verticals, such as governmental buildings, schools, universities, and hospitals, also performed well. Demand in office buildings remained subdued, despite indications of a potential revival ahead driven by the need to repurpose unused floor space.

Asia Pacific

The Asia Pacific market region reported CHF 54.7 million in sales in the first half of 2024, corresponding to an increase of 9.9% in local currencies (3.0% in Swiss francs).

After two years of low investments and reduced project budgets, the Chinese market showed early signs of recovery. Belimo's business developed positively again in the first half of 2024. The Company's focus on high-growth verticals such as data centers, electronics, and semiconductors manufacturing, as well as energy storage applications contributed to the solid performance.

Belimo maintained its high growth rate in India from 2023 into the first half of 2024. Data centers, hospitals, pharmaceutical buildings, and commercial spaces, including offices, remained the most attractive vertical markets for the Company. Additionally, infrastructure projects such as airport and subway network expansions also provided favorable support. Customer brand awareness grew significantly due to participation in technical seminars and events held at the India headquarters in Mumbai, known as Belimo CESIM^® House. This facility has received the prestigious American Society of Heating, Refrigerating and Air-Conditioning Engineers (ASHRAE) Technology Award for Industrial Facilities and is rated "Platinum" by the Indian Green Building Council.

In East Asia, the new construction market remained relatively stable, despite high building material costs resulting from the devaluation of local currencies against USD hampering momentum in some of the countries. Retrofit opportunities are becoming an increasingly important business driver for the region, due to rising energy costs and stricter regulations to save energy in buildings.

Strategy Execution and Innovation Update

The Group’s long-term growth strategy consists of the following six initiatives aimed at increasing customer value and advancing solution leadership.

During the period under review, the RetroFIT+ initiative significantly bolstered Belimo's business, particularly within the contracting channel. Belimo achieved a key milestone at the end of the reporting period with the launch of the RetroFIT+ Assessment Tool, available to Belimo Sales and RetroFIT+ partners as of June 2024. This tool evaluates the energy savings potential of existing buildings based on the ISO 52120 standard. It provides key performance indicators such as CO₂ reduction, energy savings, monetary savings, and return on investment estimates, all while significantly reducing assessment time. Belimo continues to invest in this initiative by strengthening its team of RetroFIT+ application consultants and industry partners.

Under the Grow Asia Pacific initiative, the Company continued to expand its market presence in China, and in India, by increasing its sales and marketing resources. Belimo remains focused on growing selected vertical markets and increasing its application engineering expertise to respond to market requirements in an agile manner. The renovation and expansion of Belimo's Shanghai location has progressed according to plan. In addition to more than doubling the customization capacity, the project aims to transform the building into a sustainable lighthouse project targeting the China Three Star and LEED Platinum certifications. Like the initiative in India, this project will enable training classes and events at the China headquarters, further increasing brand awareness.

Belimo's Digital Customer Experience initiative made excellent progress with the new global CRM system, which is now fully operational. The Company's website, www.belimo.com, has been further developed to ensure that company, product, and application information can be found quickly. The fully integrated web shop has been well received by customers, with sales transactions via e-commerce on the rise. To best support design engineers with CAD or BIM data, Belimo provides a comprehensive data library for its products. Recently, Belimo was awarded the "Top Data Multiplier" by CADENAS, a leading software company in the field of CAD/BIM, for providing the highest quality of data regarding structure, content, and reusability.

The Damper Actuator and Control Valves initiative made significant progress towards the first product launches planned for 2025 on Belimo's new modular product platform. In addition, a key project within the fire and smoke damper actuator range reached another milestone, enhancing the functionality and communication capabilities of Belimo's fire and smoke devices. The launch of Belimo's JR butterfly control valve in the period under review was another cornerstone in building a market-leading product line for high-flow applications. The continuing market shift towards pressure-independent solutions has supported solid growth for Belimo's energy valve. Demand for control valves has also been boosted by the rapid growth of data centers dedicated to AI computing, which require high-performance chips. These chips require significantly more power, resulting in higher cooling loads. In addition to air cooling systems, liquid cooling is also required. In liquid cooling applications, control valves are used to ensure dynamic load balancing and improve energy efficiency.

Within its Sensors and Meters initiative, Belimo is on track to achieve all the milestones planned for this year as the product category continues to gain sales momentum. As with the Damper Actuators and Control Valves Business Lines, the first sensor product line as part of the new modular product platform is in the final stages for a market launch in 2025. Other development projects for gas sensors and thermal energy meters are also progressing according to plan. Belimo has expanded its range of comfort, energy, and safety sensors achieving significant market share gains, with sensors and meters growing at a CAGR of 35% in local currencies in recent years. One notable success was launching a new range of room sensors and operating units, which won prestigious awards for design and innovation.

Belimo made significant progress with its Digital Ecosystem initiative throughout the entire product portfolio. The continuously advancing platform enhances its devices with value-adding functionalities through intelligent on-board software, facilitates seamless device integration, and improves workflow efficiencies through a consistent user experience. Belimo’s Digital Ecosystem partnerships play a crucial role in its customers' end-to-end value creation. Belimo already onboarded more than twenty Building Automation Control Systems (BACS) and Buildings IoT (BIoT) partners.

Outlook

Belimo is optimistic that demand across all three regions will continue to develop positively throughout the second half of 2024. Despite subdued demand for new buildings in some regions, the Company's strategic initiatives focused on refurbishing existing buildings and tapping into the growing market segment of data centers have proven successful. These initiatives are supporting robust demand and driving positive outcomes.

Based on the strong sales performance in the first half of the year, Belimo is raising its full-year outlook. Previously set at the lower end of its long-term growth corridor, the Company now expects sales revenue growth in local currencies (LC) to exceed this range slightly and to come above the long-term average growth rate of 9% LC. Belimo delivered 9% LC average organic sales growth for the last 20 years (2003-2023) as well as for the last five years (2018-2023).

With a sequentially easing comparable base in the year's second half, year-over- year revenue growth is expected to accelerate in the second half of 2024. In absolute terms, the Group expects almost similar sales results for both halves of 2024.

This continued solid revenue development in the second half-year of 2024 is likely to partially offset some of the Company’s sequentially increasing investments into growth initiatives. As experienced in previous years, movements in USD foreign exchange rates may impact Belimo's sales and its EBIT margin.

In the EMEA market region, the Company believes that the worst impact from the slow construction market may be subsiding in most of its countries, except for Germany. Regardless of the new build situation, Belimo is confident that the retrofit market will continue providing countercyclical protection. With payback periods typically below two years, the economic argument is strong for retrofitting existing buildings with greater energy-efficiency Building Automation and Controls Systems (BACS). As a result, Belimo's backlog of retrofit projects continues to increase.

In the Americas market region, Belimo anticipates a similar sales development in the second half of 2024, as observed in the first half of the year, provided there are no major changes in the region’s economic dynamics. Demand related to data centers is expected to grow further and the reshoring trend remains an important driver for the business. In addition, increasing challenges and strains on the electricity grid in the US is acting as additional impulse to upgrade buildings with smarter and more energy-efficient BACS. Lastly, under-occupied office spaces could provide another pocket of demand for renovation and repurposing projects in the future.

In the Asia Pacific market region, the Group anticipates a slight acceleration in sales toward the end of the year. In China, sales are expected to remain stable. Meanwhile, the sales trend in India points to a further strong performance in 2024. The country is revamping its Energy Conservation Sustainable Building Code (ECSBC), which should encourage higher building standards. The continued government support for green technologies and energy-efficient HVAC systems will likely increase market share across all verticals. The outlook for the other countries in the market region is also largely positive. High cooling demand, digitalization, a focus on sustainable development with energy efficiency, and indoor air quality remain important regional drivers.

Belimo remains a market leader in energy-efficient HVAC field devices, with strong growth prospects. Urbanization, energy efficiency, and improved indoor air quality drive demand for Belimo's products, supporting growth beyond GDP rates. The Group will continue its long-term strategy by investing in strategic initiatives and capacity expansion. This growth strategy, underpinned by Belimo's values and actively managed Company culture, leads to highly engaged employees, fostering high customer loyalty.

On behalf of the Board of Directors and the Executive Committee of Belimo, we would like to thank all our esteemed stakeholders for the ongoing trust in us and your contribution to the success of Belimo.

BELIMO Holding AG