Earnings call transcript: Charles River Labs beats Q4 2024 forecasts

Charles River Laboratories (CRL) reported its earnings for the fourth quarter of 2024, surpassing analysts’ expectations with an earnings per share (EPS) of $2.66 compared to the forecasted $2.54. The company also reported revenues of $1 billion, slightly above the anticipated $985.18 million. This positive performance resulted in a 5.09% pre-market increase in its stock price, reaching $162.25 from a previous close of $154.39. According to InvestingPro analysis, CRL is currently trading below its Fair Value, suggesting potential upside opportunity. The company maintains a "GOOD" overall financial health score, particularly strong in profitability metrics.

Key Takeaways

• Charles River Laboratories exceeded both EPS and revenue forecasts for Q4 2024.
• The stock saw a 5.09% increase in pre-market trading, reflecting strong investor sentiment.
• North American and Latin American markets showed notable revenue growth.
• The company launched several innovative products and expanded its operational capabilities.

Company Performance

Despite a challenging year, Charles River Laboratories managed to outperform expectations in the final quarter of 2024. The company reported a full-year revenue decline of 11% to $578.5 million, with EBITDA dropping by 23.6% to $104.9 million. The company’s last twelve months EBITDA stands at $898.2 million, with a gross profit margin of 34.76%. Strategic initiatives and market expansion efforts, particularly in North America and Latin America, contributed to the stronger-than-expected quarterly results. InvestingPro data reveals 11 analysts have revised their earnings downwards for the upcoming period, though net income is still expected to grow this year.

Financial Highlights

• Revenue: $1 billion (above forecast of $985.18 million)
• Earnings per share: $2.66 (above forecast of $2.54)
• Full-year 2024 revenues: $578.5 million (11% decline)
• EBITDA: $104.9 million (23.6% decline)
• EBITDA margin: 18.1% (down from 21.1% in 2023)

Earnings vs. Forecast

Charles River Laboratories reported an EPS of $2.66, surpassing the forecast of $2.54 by $0.12, marking a significant earnings beat. Revenue also exceeded expectations, reaching $1 billion compared to the forecasted $985.18 million, indicating robust performance in key markets.

Market Reaction

Following the earnings announcement, Charles River Laboratories’ stock price rose by 5.09% in pre-market trading, reflecting positive investor sentiment. The stock is currently trading within its 52-week range, suggesting potential for growth as the company continues to execute its strategic initiatives.

Outlook & Guidance

Looking ahead, Charles River Laboratories anticipates Q1 2025 revenues to be similar to Q1 2024, with an acceleration expected in Q2 2025. The company is targeting mid-single-digit growth and aims to return to a 19-20% EBITDA margin, focusing on expanding its presence in North America and pursuing mergers and acquisitions. With an EV/EBITDA ratio of 12.4x and a current ratio of 1.41, the company maintains solid operational metrics. Get deeper insights into CRL’s valuation and growth potential with a comprehensive Pro Research Report, available exclusively on InvestingPro, along with over 1,400 other top US stocks.

Executive Commentary

Francesco, the CFO, remarked, "2024 has been a challenging year of transition," highlighting the company’s efforts to navigate market challenges. He also noted, "We expect Q1 revenues to be close to those of the same period of 2024 with an acceleration in performance starting from the second quarter," indicating optimism for future growth.

Risks and Challenges

• Regional revenue declines in EMEA and APAC could impact future performance.
• The decline in EBITDA margin needs to be addressed to maintain profitability.
• Macroeconomic pressures and market saturation in certain regions may pose challenges.

Q&A

During the earnings call, analysts inquired about the company’s order intake and market recovery expectations. The positive signals in order intake and anticipated recovery in the EMEA refrigeration market were highlighted, along with ongoing cost efficiency measures and potential improvements in net working capital.

Full transcript - Charles River Laboratories Intl (CRL) Q4 2024:

Conference Operator, Chorus Call: Good afternoon. This is the Chorus Call conference operator. Welcome and thank you for joining the Chorus twenty twenty four Full Year Results Conference Call. At this time, I would like to turn the conference over to Nicola Nalini, CEO of Carrera.

Please go ahead.

Francesco, CFO/Executive, Carrera: Good afternoon and thank you for joining our call for the presentation of the full year ’20 ’20 ’4 results. I’m starting from Page three with the main highlights from this period. As you know, after three years of annual growth exceeding 20%, twenty twenty four has proven to be a transition year due mainly to the decline in EPIMS and to a generalized destocking process. In spite of our revenue decline though, we managed to maintain a good profitability and especially strong cash generation easily supporting record investments especially in innovation. Now looking at the figures, revenues declined by 11 in 2024 to $578,500,000 or by 13.7% on an organic basis.

As expected in Q4, we had a significant improvement since the quarter was broadly in line with Q1 and Q2, but stronger than Q3 in spite of the usual seasonality where Q4 is normally the softest quarter of the year. In fact, the year on year performance of Q4 went from minus 15.3% of Q3 to minus 4.8% in Q4. During 2024, the revenue decline is almost entirely due to the poor performance of the EMEA region in particular for the sharp decline in heat pumps. This vertical declined by approximately 70% explaining by itself close to 10 percentage points of turnover decline. The weight of this vertical on total sales is now in the mid single digit range.

Also refrigeration was weak in EMEA during the entire year and everything was compounded with a massive destocking process that happened across almost all markets. EBITDA margin in the full year was 18.1% in continuity with the first nine months as the OpEx containment initiatives and a relatively stronger Q4 helped to offset the usually seasonally weaker profitability. We basically managed to maintain another quarter level in spite of the negative operating leverage, thanks to a number of savings that led to lower overhead expenses compared to 2023, even considering the perimeter change as well as growth profitability which is related to the positive trend in raw material costs and a positive mix. On the other end, we reached record levels of R and D expenses that are confirmed at the target of above 5%. Overall CapEx were also at the record level, but cash generation was very strong with a cash conversion of approximately 60% and a final net financial position of €50,000,000 This is after €44,000,000 for the acquisition of the residual 49% stake in CFM without which the NFP would have been close to zero.

The balance sheet of the group remains very strong with NFP over EBITDA approximately $500,000 but actually $200,000 if you exclude $31,600,000 related to the IFRS 16 accounting principle. And now on Page four, we can see some more figures. Revenues at $578,500,000 were down 11% from the 650,200,000.0 of 2024 with the decline of 88,500,000.0 in organic revenues. The positive contribution of $17,400,000 from the perimeter change and the small negative effect for $600,000 related to the foreign exchange. The perimeter change is mainly due to Kiona that grew by 15% in recurring revenues at fixed exchange rates.

EBITDA at 104,900,000 was down 23.6% from the $137,200,000 of 2023 or 18.1% of sales versus the 21.1% of 2023 entirely due to the negative operating leverage partly offset by higher gross profitability and the discretionary cost containment plan. The higher gross profitability again is due to a favorable trend in raw material costs and a positive mix. EBITDA margin was stable during the year, so we did not have the usual seasonal decline in Q4, thanks to the cost containment itself and thanks to a relatively stronger quarter. R and D expense was at a record level above 5% of sales and the contribution of Kiona was accretive with a profitability in excess of 20%. The profit in the period has been $62,600,000 down 11.7% from the $70,900,000 of 2023 entirely due to the operating performance while the tax rate at 20.7% is in line with the previous year.

As anticipated in 2024, we sustained record CapEx mainly in R and D and in the expansion of the Klingenburg plant in Poland to centralize and increase the efficiency of our mechanics production process. We invested in the period of $31,600,000 which is approximately 5.5 percent of sales up 15.3% from the $27,400,000 of 2023. Finally, we propose a dividend distribution of €0.165 per share corresponding to an breakdown by region and as we can see almost all the decline in revenues in 2024 comes from EMEA with a decline of 16.3% at fixed exchange rates. Q4 confirmed in general the trend of the previous quarter, but we started seeing a material improvement in the order intake and in the expectations, especially refrigeration. EMEA area as a whole was of course the most impacted in 2024 by the heat pump and the stocking trends and the comparables in 2023 were extremely challenging due to the backlog recovery during the entire year.

In APAC sales declined by 5.8% in the full year at fixed exchange rates also in this case with a significant improvement in Q4 which has been the strongest quarter of the year. We have very positive results in refrigeration, data centers and industrial mitigating in China the still weak macro scenario in the country. In North America, the strong momentum continued driven in particular by data centers with Q4 being the highest of the year at €28,000,000 Growth in the full year was 6.7% at fixed exchange rates and obviously also here we have to consider the very challenging comparison of 2023. With the backlog that in the case of America was recovered mainly in the second half, so these results have to be considered as very, very positive. North America has now reached 18% of total group sales as we can see from the pie on the left.

Latin America had also very good results with a growth of 19.8% at fixed exchange rates, particularly concentrated in Brazil, while the rest of the region had mixed results. To the right, we see the breakdown by sector. HVAC had a decline of 13.1 in 2024 net of the foreign exchange with a slight improvement in Q4 due to the strong momentum of data centers in The U. S. On the other hand, EMEA was stable quarter on quarter, but with an improvement visible in the order intake.

In refrigeration weather declined by 3.9% at fixed exchange rates with the continuity of the trend in Q4, in particular a stagnant market in EMEA and a strong trend in America with a focus on natural refrigerants and energy efficiency. In EMEA in Q4 also here there’s an improvement of the order intake even leave the stage to Nicola for the items below the EBITDA on Page six.

Nicola, CEO, Carrera: Thank you, Francisco. Slide number six details the group results from the EBITDA to the net profit. The increase of D and A cost is related to the purchase price allocation of Kiona for Euro 470,000.00 and the residual part to the relevant CapEx activities of the last few years. The decrease of financial charges is mainly related to the interest rate reduction to the lower level of financial liabilities and the different comparison base since the second half of twenty twenty three was impacted by the bridge loan of 180,000,000 related to the acquisition of Kiona. This line is also impacted by relevant figurative interest of accounting effect such as put and call options, earn out liabilities and IFRS 16 liabilities.

The net financial charges paid to banks and other institutions decreased from 4,800,000.0 of 2023 to $3,300,000 of the present year. The ForEx gain is mainly linked to the effect of the Kionas put and call option expressed in NOK. The capital gains refers to the difference between the estimated fair value and the actual account amount for the put and call option of CFM and the different fair value of Kiona and Sembar. The result of company consolidated with the equity method include the evaluation of Ripostka, a company owned by Alphaco focused on sourcing activities. The tax rate of the period was 20.7% in line with the level of last year.

The group net profit in 2024 was equal to $62,600,000 compared to $70,900,000 of 2023. Slide number seven shows the net financial position evolution of fiscal year ’20 ’20 ’4. The cash conversion of 2024 was around 60% including a record level of CapEx equal to $31,600,000 The period was impacted by M and A activities for $44,200,000 and the group paid a dividend for around $21,300,000 Net working capital improved in the last part of 2024 due to typical seasonal effect and a good management in all the main components. Taking out the accounting effect of IFRS 16, the net financial position is equal to $18,700,000 I’ll leave Francesco to go on with the presentation.

Francesco, CFO/Executive, Carrera: Thank you, Nicola. Now we are on Page eight and I would like to take the updates and examples of our continuous innovation in different areas. We’ve already mentioned in previous conferences the breakthrough coming from the software side with Stone on the edge and with Kionna on the cloud, but of course we strive for maintaining our competitive edge also in the hardware and service side. In electronics, for example, we introduced in 2024 the new generation of our control platform for refrigeration, specifically the controllers that drive cabinets in food retail, the MPX Pro. There are many innovations in this new range that is powered by stone and so gets all the extremely powerful features of this system.

It’s of course fully compatible with all leading natural refrigerants including propane and it has additional sensors embedded so that it’s possible to get more physical data points from the cabinet to run more powerful algorithms in the controller itself or at the store system level with our local supervisor boss or at the cloud level. In mechanics, specifically in heat recovery systems after the launch of bBlue, which has a new surface material for the plates of the heat exchanger to make water usage in data centers more efficient, we introduced the groundbreaking innovation in indirect evaporative cooling, which is the B Series, a range of heat recovery systems in PVC. This is the first on the market and ensures much higher durability and longevity against corrosion vis a vis traditional materials making the V series vastly superior for harsh industrial applications and data centers. In sensors, as a joint development between our two sensor companies, Arion and Semba, we just launched an infrared propane gas leakage sensor, the Mini GLD. It’s specifically designed to support a transition to natural refrigerants like propane that being flammable has of course to be checked for leakages.

This new sensor delivers exceptional accuracy and safety since its infrared design makes it immune to poisoning effects. It’s also calibrating and has redundant microprocessors for unparalleled reliability. This is the first product of our new mini architecture sensor platform that will be fully modular and will support different sensing elements for various applications in HVAC and refrigeration. In services, we just launched in Europe an initiative called Total Store, where in addition to our comprehensive control system for food retail on the refrigeration as well as HVAC sites, we will add digital services and also consultancy to provide performance and energy optimizations. This will be obviously supported by AI for example with the new automatic rule engine for alarms currently under development in Kionna that we already mentioned in our last call.

On Page nine, I also take the opportunity to briefly mention our new multi year sustainability plan. As you know sustainability has always been one of the main driving forces of our activities and the last plan, the 2024 allowed us to achieve many successes that we are very proud of and has been consistently integrated with the industrial business plan. In this page, we can see several examples of results from the last plan and goals for the next 2528 plan. I would just like to mention in terms of results the approval of Carah’s near term decarbonization targets by SBTI and the goal of implementing a ten year greenhouse gases reduction plan to cut scope one and two emissions within 02/1933. I’d also like to mention that our quarter in Italy has just obtained the gender equality certification as we firmly believe that increasing our gender equality will lead among many other things to a more innovative organization in the future.

And now finally on Page 10 for the closing remarks, 2024 has been a challenging year of transition with contingent but very steep trends like the heat pump decline and destocking the tough comparison with the backlog recovery of 2023. Visibility and volatility have been through the roof throughout the year, but all the secular drivers underlying current growth for the future remain untouched. Despite the negative operating leverage, we maintained a solid 18.1% profitability, thanks to discretionary cost containment and gross profitability improvements that also offset the typical Q4 seasonal decline in profitability. We also had a strong cash generation, easily supporting record investment levels, particularly strengthening the foundations for our long term growth. In fact, we introduced a number of cutting edge products and initiatives in all our technology domains and we also just launched our new multi year sustainability plan to execute our sustainable growth.

Needless to say, the current macroeconomic landscape remains challenging and volatile with geopolitical tensions and limited visibility. In our markets, the EMEA region shows significant signs of recovery, especially in refrigeration. The APAC region presents a mixed outlook with solid developments expected in data centers and industrial, while North And Latin America remain positive. To conclude, since the beginning of the year, we’ve been observing a significant improvement in the order intake. That obviously takes some time to materialize into actual results also due to the supply chain ramp up.

So we expect Q1 revenues to be close to those of the same period of 2024 with an acceleration in performance starting from the second quarter. This is due to a recovery in EMEA, especially refrigeration and in APAC where the launch of new locally developed inverters is giving us very interesting opportunities for HVAC. At the same time, we confirm the solid expectations for North America driven in particular by data centers and

Conference Operator, Chorus Call: The first question is from Christian Hinterhacker from Goldman Sachs. Please go ahead.

Christian Hinterhacker, Analyst, Goldman Sachs: Yes. Good afternoon, everyone, and thanks for the opportunity to ask questions. I wanted to start on the comments about the significantly positive trend in orders at the beginning of twenty twenty five. You touched on that a little bit in the closing remarks, but I wonder if this is concentrated by end market. And I guess curious as to why it’s likely to take months to benefit P and L.

Is that suggested that you’ve been running a bit lean on inventories?

Francesco, CFO/Executive, Carrera: Thanks, Christian for the question. So basically, we actually started having a significant improvement in the order intake, especially since the beginning of the year. And of course, yes, the supply chain was quite lean after what happened in 2024 and it takes at least a few weeks to ramp it up. The let’s say the turnover itself as from what we are seeing in this moment is improving during Q1, but especially we will have the first materialization, materialization from what we expect in Q2. We have also to consider that in Q1 twenty twenty four, especially at the beginning of Q1 twenty twenty four, we had still some residual backlog of heat pumps.

And so there was especially at the very beginning in the very beginning of this year, there’s still some, let’s say, challenging comparison, which is basically going away now. So basically the point is that it takes a few weeks for the supply chain to adapt to a higher regime of order intake. And that’s why basically it’s, let’s say, turnover is improving during Q1, but especially we see the materialization in Q2. As far as the verticals are concerned, I briefly touched to that we’re seeing an improvement in EMEA, especially refrigeration. So now it’s becoming really tangible, the restart of refrigeration in EMEA and that’s probably the biggest change.

Plus we have, let’s say, very quite good expectations for APAC for Q2. Q1 last year in APAC was very, very strong for some specific reasons. So while on the other end, Q2 in APAC will see a significant improvement in performance from what we are seeing also because we’re having these new projects for the inverters that we developed locally in China and

Conference Operator, Chorus Call: that we are launching in the

Francesco, CFO/Executive, Carrera: market in this moment. As far as America is concerned, expectations that the results let’s say and the expectations that we have been seeing in 2024, so quite solid expectations in especially data centers, but also from the introduction of variable speed compressors.

Christian Hinterhacker, Analyst, Goldman Sachs: Thank you. And just moving to margins, obviously, you have the unusually strong margin for the fourth quarter, which usually sees a seasonal step down and you’ve obviously saved some costs. I’m just curious how we think about the evolution of the cost lines as we move through 2025?

Nicola, CEO, Carrera: Okay. We expected some evolution of cost that will be pretty much in line with this year with some relevant investment in R and D cost and quality cost, but that is pretty much in line with the evolution of this year.

Francesco, CFO/Executive, Carrera: Quality cost meaning improvement quality improvement project service.

Christian Hinterhacker, Analyst, Goldman Sachs: Yes. Yes, makes sense. And then finally interesting to read your 2028 sustainability reports in that you talk about major investments in plant infrastructure as you move away from non renewable energy sources. If I look at consensus, there’s about EUR 92,000,000 of cumulative CapEx over the next three years, roughly EUR 30,000,000 a year. Does that figure need to be higher to account for these investments or is it inclusive of the existing CapEx framework?

Francesco, CFO/Executive, Carrera: No, no, Kristin, it’s included in the existing CapEx goal. So around 5% of sales, everything is included.

Alessandro Tortora, Analyst, Mediobanca: Thank you, Francesca.

Conference Operator, Chorus Call: The next question is from Nicolas Torera of Kepler. Please go ahead.

Nicolas Torera, Analyst, Kepler: Good afternoon. Thanks for taking my two questions. First one is on the outlook. If you maybe can comment about your expectations for what concerns HVAC commercial and HVAC industrial ex data center. I was wondering if also in this space you are looking some looking to some early signals of recovery or if it’s still too early.

Second question, again on cost, in particular on cost of materials, probably 2024, the weight of cost of material on revenues was the lowest in many years. So what was behind this? And do you think that maintaining, if I’m not wrong, a 41% weight on sales could be something sustainable into the future? Thank you.

Conference Operator, Chorus Call: Your microphone is probably on mute.

Francesco, CFO/Executive, Carrera: Yeah, no, sorry, sorry, yes. Thanks, Nicolas, for the question. So as far as HVAC, commercial and industrial are concerned, speaking especially about EMEA, because I think that’s what you’re referring to. That’s a little bit more unclear especially in commercial. Industrial, industrial we are quite optimistic apart for the side of industrial related to automotive, but commercial is a little bit more uncertain.

We are optimistic and confident for a number of reasons that the market will continue to improve, But we have a little bit less visibility. The stronger visibility we have in this moment is for a significant restart of refrigeration in EMEA. Overall though, there is a generalized also in HVAC improvement that we are starting to see in EMEA. So it’s not only refrigeration, it’s also in HVAC, but the situation is a little bit more unclear and more volatile. As far as the raw material costs are concerned, let’s say that we do expect to continue adding additional improvements in electronics.

On the other hand, for the mechanical part, of course, even if we are investing, especially in Poland for improving the efficiency of the process as far as the materials are concerned, of course, that’s more difficult to forecast because it depends on the material the metal price, on the duties and so on. So tariffs notwithstanding more or less overall we can say that we expect to maintain this level of incidence of raw materials on prices.

Nicolas Torera, Analyst, Kepler: Thank you. Maybe a quick follow-up. When you talk about just to frame a little bit better what you are saying. When you talk about significant improvement on refrigeration, if we are to quantify this means double digit rebound, mid single digit rebound, which is the range we should think of?

Francesco, CFO/Executive, Carrera: It’s difficult to quantify at this stage, Nicolas, because it’s true that the order portfolio is slightly longer due to the supply chain ramp up, but it’s not so long. Let’s say, it’s material. So it’s a material rebound.

Nicolas Torera, Analyst, Kepler: Got it.

Conference Operator, Chorus Call: The next question is from Alessandro Tortora of Mediobanca. Please go ahead.

Alessandro Tortora, Analyst, Mediobanca: Yes. Hi. Good afternoon to everybody. I have three, twofour questions, but they are brief, if I may. So the first one, Francesco, if you can comment also let’s say a little bit, I heard your comment on the regional performance, but considering, let’s say, your comments on EMEA, but also North America and the APAC, Can you give us also a kind of sense if you see for instance North America accelerating okay in the year 2025 considering clearly the greater exposure to data center application?

And secondly, if you believe that making the sum of all the application in EMEA, you see basically EMEA, let’s say, returning to a decent okay level of growth? And lastly, considering the comment you made on China for APAC, do you expect basically APAC to return on the positive in positive territory this year? That’s the first Thanks.

Francesco, CFO/Executive, Carrera: Okay. Thank you. Thank you, Alessandro. So it’s definitely too early to provide a quantitative indication for the full year. So I can give you some qualitative indications on the trend.

So America remains very positive. And so yes, the results should be pretty good this year. We have to consider the last year result the growth was very good, but we had very tough comparison in 2023, which to some extent should normalize in 2024. So let’s say this could help, but we have very solid expectations. And again, please consider the evolution of the for example, invertorization, which is very important.

Having said that, of course, it depends on then we cannot forecast what could happen with geopolitical induced recession, stuff like that, we cannot know. But looking at the current market conditions, this is what we expect. Then in EMEA, we do expect, yes, we are optimistic about return to growth. So let’s say you said the decent growth depends, but what you mean by decent, but let’s say yes.

Alessandro Tortora, Analyst, Mediobanca: Let’s say mid mid mid

Speaker 6: mid mid mid mid mid mid mid mid mid mid mid mid mid mid mid mid mid mid mid mid mid mid mid mid mid mid mid mid mid mid mid mid mid mid mid mid mid mid mid mid mid mid mid mid mid mid mid mid mid mid mid mid mid mid mid mid mid mid mid mid mid mid mid mid mid mid mid mid mid mid mid mid mid mid mid mid mid

Francesco, CFO/Executive, Carrera: mid mid mid mid

Nicola, CEO, Carrera: mid mid mid mid mid mid

Francesco, CFO/Executive, Carrera: mid mid mid mid mid

Conference Operator, Chorus Call: mid mid mid mid

Alessandro Tortora, Analyst, Mediobanca: mid mid mid mid mid mid mid mid mid mid mid mid mid

Francesco, CFO/Executive, Carrera: mid mid mid and APAC likewise. We have good expectations for an improvement during the year. Yes. In APAC, in APAC probably yes, again the comparison in Q1 is quite difficult but the rest of the year should be definitely better.

Alessandro Tortora, Analyst, Mediobanca: Okay, okay. Thanks. Then the second question is, you mentioned initially the cost efficiency measure the company put in place, not also to deseasonalize a little bit the profitability last year. If we need to think about also the historical corridor, okay, you had in terms of EBITDA margin in the past years and also let’s say these are return to growth in the coming quarters. Do you believe this year the company can come back let’s say to the normal quarter which is at least let’s say the 19% EBITDA margin?

Francesco, CFO/Executive, Carrera: Well, that’s still our target, of course, related to our usual path of organic growth. So assuming growth assuming high single digit growth, the results should be 19% to 20% profitability that remains our target and expectation for the midterm. This is not the guidance for 02/1935. It’s our midterm general expectation. So high single digit growth, 19% to 20% profitability will convert that at this stage.

Alessandro Tortora, Analyst, Mediobanca: Okay, thanks. Then let’s say the third question is, let’s say some major moving parts for the cash flow generation or the cash conversion in 2025 if we need to think about the CapEx on sales close to, let’s say, around 5% also in 2025, but also in the net working capital, which kind of assumption, okay, we need to think about also for the net working capital sales? Thanks.

Nicola, CEO, Carrera: In terms of net working capital, I expect stability with the end of the year. I’m talking about the end of what we are expecting of 2025. And there could be some improvement maybe on the inventory level instead of the other relevant matters, it will be pretty much stable with this year.

Alessandro Tortora, Analyst, Mediobanca: Okay, thanks. And then the last question is on, let’s say, the M and A strategy. You briefly, let’s say, commented the Kionna performance, okay, last year. I think that probably not first of all, if you can share a little bit also your feeling on 2025 performance, okay, expected for Kionna, if you’re assuming some kind of acceleration? And then beyond Kionna, considering the current environment, not yet also, let’s say, by region, where do you see, let’s say, interesting opportunities for Karel in terms of possible, let’s say, M and A targets?

Do you still believe North America is a top priority for you or maybe considering also these other term to growth for EMEA, maybe you also see some opportunities in our region? Thanks.

Francesco, CFO/Executive, Carrera: Okay. So, Fiona, basically in 2024 as we mentioned at 15% recurring revenue growth, which is a little bit behind the initial expectation. But I mean considering how challenging 2024 was in Europe, we consider that quite satisfactory results. For let’s say our expectation for 2025 is for an improvement of this performance. And likewise for example also Semba had very solid result and a very solid profitability, accretive profitability.

In terms of strategy, we have we now have a pretty solid balance sheet. So we are let’s say we have quite a significant firepower. And so we are increasingly active. We maintain the focus on North America, but of course we don’t exclude Europe because there could be some interesting technological or market opportunity. So the proposal is still North America, but we can we do not exclude other regions especially Europe.

Alessandro Tortora, Analyst, Mediobanca: Okay. Thanks. Thanks for the answer.

Conference Operator, Chorus Call: The next question is from Alessandro Ceccini of Equita. Please go ahead.

Alessandro Ceccini, Analyst, Equita: Hello, everybody, and thank you for taking my questions. The first one actually is on cash generation in 2025. During your last call, you were, I mean, expecting net working capital on sales to be below 20% from 22%, twenty three % of this year 2024. So if you can elaborate a little bit more on these. And secondly, maybe also on the cash flow, I didn’t catch about the CapEx because this year CapEx were significant.

So million if we include also leasing rental fees. So if you can elaborate a little bit more on these for 2025. And my second question is, instead on you were referring that you expect some growth in the first quarter. So it’s growing, maybe not big growth, but it’s growing. It’s correct my interpretation in thermostat.

My final question, it’s about the data center. If you can share, I mean, which kind of grow you saw in 2024 and which are the projects, which are the feeling that you have for next year? Thank you.

Francesco, CFO/Executive, Carrera: Sorry, I’ll start from these last two questions then I leave it to Nicola for the questions on the cash flow and the CapEx. So actually our expectation for Q1 is for a flattish Q1 compared to Q1 twenty twenty four, which is in any case an improvement year on year because we would go from minus 15 in Q3 to minus 4.8 in Q4 to more or less around zero in Q1. So it will be a year on year, let’s say, in improvement. But as I said, we do expect the Q1, a flattish Q1 compared to Q1 last year, while we do expect an acceleration in Q2. Concerning data centers, we’re having very important projects especially in North America quite let’s say we have some very important customers playing in data center cooling there.

Some of them are specialized and they have very, very important growth prospects. They have fully booked order pipeline. We’re working a lot on liquid cooling, that’s the fastest growing part, but of course it’s across the board. So that’s and as I mentioned, we are also, let’s say creating, we’re in the process of creating a competent center specifically for data centers, which will be based initially we thought to base it mainly in The U. S.

Now Now we’re thinking to base it in The U. S, but also in China because also in China there is significant investments going on and we are seeing quite good results in data centers also in China like for chillers for example, so for CDUs, the distribution units for liquid cooling. So we’re seeing good results and strong investments also in China. So probably this competence center will have a double, let’s say double lag, one in the competence center, one in The U. S.

And one in China. And from an organizational standpoint, that’s the main project. Of course, we are talking to customers, exploring the market, exploring the path to market to see if it’s possible to have a stronger exposure to the end users. Semba is getting very good results from data centers. They have a range of sensors which are specifically suited to data centers, they’re growing a lot.

They have some access to end users in data centers and they are, let’s say, we are trying to leverage on those relationships also for the rest of the range of Carell.

Nicola, CEO, Carrera: With reference to the net working capital, to go below the trade working capital below 20% could be our let’s say midterm goal and I think that it’s something that we can reach. On the other hand, you have to take in session that this year we were grounded 22% and considering that we had a good December result in terms of sales that we had higher level of account receivables. On the other hand, compared to last year, compared to if you take in consideration our let’s say in credit the quality is very high, we are at minimum level of overdue compared to what was in the past. If we incur that there is even space to improve as I told you in the inventory. It is a choice that we can do during the year, but it depends even where we see the opportunity.

In this moment, we have no pressure from because we have a stronger financial position and we will decide if invest on the inventory in order to fulfill the requirements from the customer or to work on the working capital. And so if on 2025 we can project something in line this year, but in the midterm we can think about even an improvement on this. In terms of CapEx, we always gave guidance and we are confirming this to have 5% of the CapEx without taking session the lease effect around the 5% and we are confirming this amount including as it was said before even the ESG investment on this.

Conference Operator, Chorus Call: Okay.

Francesco, CFO/Executive, Carrera: Yes, this year it was largely about 5%, five point five % approximately, but we all let’s say it’s around 5% of course.

Nicola, CEO, Carrera: It depends even in the date when you complete some investment. So it’s not something that is CapEx by definition, you know, flotation on

Francesco, CFO/Executive, Carrera: quarterly basis.

Alessandro Ceccini, Analyst, Equita: Okay. Thank you.

Conference Operator, Chorus Call: Management, there are no more questions registered at this time.

Francesco, CFO/Executive, Carrera: Okay. Thank you so much for your attention and for your questions and looking forward to speaking with you again for the presentation of Q1 twenty twenty five results. Good afternoon.

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