CEO's greetings

The year 2023 challenged us in many ways. We saw high inflation and high interest rates which lead to a decline in consumer confidence and a decrease in deliveries for heating and cooling projects. Neither of our core segments, residential renovation and new build, showed signs of improvement during the year. Most of our core markets remained weak although partial recoveries were seen in some regions. Our markets in Poland and Italy picked up towards the end of the year although a downturn in the Nordics impacted our net sales. So although adjusted EBITDA remained solid, our net sales were EUR 743.2 million (904.1), which was a decrease of 18 per cent.

Purmo Group responded to market headwinds with strong margin management actions
Despite severe market headwinds, we were able to combat the challenges that our markets presented. The whole team of Purmo Group demonstrated strength and resilience by focusing on margin management actions. This resulted in a significant uplift in our adjusted EBITDA margin for 2023, which improved to 12.4 per cent from 10.3 per cent in the previous year. Purmo Group’s adjusted EBITDA reached EUR 92.3 million and remained at the same

level compared to last year, which was EUR 92.9 million. We are very proud of this achievement and sincerely want to thank our people for their hard work during the year. During 2023, the Climate Products & Systems division achieved growth in earnings: the adjusted EBITDA increased by 10 per cent to EUR 78.5 million (71.7), and the adjusted EBITDA margin improved to 13.3 per cent (9.9). This was an outstanding outcome in a year when the radiator volumes declined by 20 per cent and net sales for the division fell by 18 per cent.

Our Climate Solutions division sells integrated solutions directly to installers through the Group’s Emmeti business in South Europe, Thermotech business in the Nordics and Merriott business in the United Kingdom and Ireland. In Italy, markets normalised after the governmental incentive programme, which had boosted our heat pump sales in the previous year. This led to a decline in demand which impacted our net sales while in the Nordics, the heavy downturn continued through the year. As a result, the division’s net sales decreased by 18 per cent. The adjusted EBITDA decreased by 21 per cent to EUR 23.7 million (29.9). However, the adjusted EBITDA margin was 15.6 per cent, close to the previous year’s 16.3 per cent.

Solution selling gained traction in Brazil and France
In 2023, we continued with determination in our strategy execution. In solutions selling, we started a collaboration with a partner in Austria and launched a heat pump radiator offering for our central European customers. This was a response to the energy renovation trend in Europe, in which radiators need to be upgraded to capture full energy savings in conjunction with heat pump installations. In fact, this trend is expected to drive the demand for radiators by 5.6 per cent annually during 2022–2030 based on an independent third-party analysis in 2024.

In Italy, we completed many energy renovations and helped our residential segment’s customers to significantly improve their energy efficiency. An excellent example is our customer in Rolo, Italy, whose building’s energy class was lifted from F to A2. This was possible by replacing the gas-condensing boiler with our Mirai heat pump and installing solar panels as well as our well-received energy control system, FEBOS. We also completed various underfloor heating and piping projects through our Thermotech business in the Nordics. During 2023, our solution businesses in Brazil and France demonstrated good growth as a result of our decision to expand our solution offering to these markets.

New control systems and positive customer feedback
We were very proud to launch two new, exciting smart products during the year: Unisensa PLUS App and iQ control system, which deliver the heating and cooling monitoring requirements of our customers. During the year, the feedback from our customers remained positive: they especially appreciate our ability to deliver prefabricated systems which save time for installers. In addition, they value the high quality and quick deliveries of our solutions.

Strategy acceleration programme performed above targets
Our strategy acceleration programme, Accelerate PG, performed above targets during the year. Implemented adjusted EBITDA run-rate improvements at the end of the year amounted to EUR 30.1 million and was above the EUR 25.0 million target for 2023. The programme also realised a cumulative net working capital improvement of EUR 20.6 million. As part of the programme, on 28 November 2023, we announced the completion of the consultation process concerning the discontinuation of our radiator production plant in Zonhoven, Belgium. After the review period, on 10 January 2024, we also announced that we had entered into consultation regarding our intention to relocate production from the plant in Hull, United Kingdom.

Purmo Group recognised for sustainability and diversity
We were happy to see that our sustainability strategy also progressed well in 2023. We made an agreement with H2 Green Steel for the forthcoming supply of 140,000 tonnes of green steel during 2026–2033. In addition, we submitted our Science Based targets for validation, which is expected in 2024. We are especially proud that the annual survey in which our customers were asked ‘How likely is it that you would recommend the Purmo brand to a friend or colleague as a leader in sustainable indoor climate comfort?’ improved from +8 to +21. Furthermore, we made sustainable improvements to our product packaging and were recognized in the Nordic Business Diversity Index with 7th ranking among mid-cap companies in the Nasdaq Helsinki category.

A year to remember
The year 2023 can be summarised with several positive achievements for Purmo Group: stable earnings, business resilience, and good progress in our solutions sales, strategy acceleration programme and sustainability. Purmo Group’s business is well supported by a green transition in the mid to long-term. The need for radiator upgrades in conjunction with heat pump installations across Europe is also driving the demand for our heating and cooling products. We want to thank our customers, shareholders, partners and, most importantly, our people for another great journey together during this year. Let us make the year 2024 something to remember.

John Peter Leesi
CEO, Purmo Group Plc

This CEO’s review was published in Purmo Group Plc’s Annual report 2023 on 19th of March 2024.