Purmo announced this week the closure of a factory in Belgium, which is a step towards achieving the EUR 40 million impact of its efficiency program during H1'24. The program launched more than a year ago has progressed faster than expected, and this year Purmo has also been able to defend its earnings level through other measures. The efficiency program will also significantly support next year's results. We explore these impacts in more detail in this comment. Purmo's EUR 40 million efficiency program has progressed better than expected In October 2022, following the market downturn, Purmo announced the Accelerate PG (APG) efficiency program, with an initial target of an annual EBITDA impact of EUR 35 million by the end of 2024. The program has progressed better than planned and the company had already achieved annual savings of more than EUR 20 million by the end of Q3'23. As a result, the target was revised and now the aim is to achieve annual savings of EUR 40 million already by the end of H1'24. As you can see in the figure below, most of the savings on procurement, pricing and overheads have already been realized. In contrast, the savings related to the production network that are generally important are still almost entirely unrealized. The company announced this week that it has concluded negotiations on the closure of a factory in Belgium, which will take place by the end of Q1'24. We believe this measure will account for the majority of the production-related savings and will thus take Purmo a big step towards the EUR 40 million savings target already during H1. The targeted growth impact of EUR 4 million may be challenging to achieve in the current market environment, but we believe that in other areas the targets can even be exceeded. Earnings likely to be flat this year despite sharp fall in revenue Purmo's revenue has fallen sharply this year, mainly due to lower volumes. We forecast full-year revenue to decline by around EUR 150 million compared to 2022. Calculated at the gross margin rate of 2022, this means a loss of gross margin of around EUR 35 million. Since Purmo has its own production, falling volumes will actually have an even greater negative impact due to the leverage effect of fixed costs, unless they can be reduced at the same pace as falling production volumes. In view of this, Purmo has been able to improve its efficiency surprisingly well, as after 9 months its adjusted EBITDA was only EUR 5 million below last year and we expect the full-year adjusted EBITDA to land at last year's level, in line with the company's guidance. This is partly supported by a rather weak comparison period in Q4. The above-mentioned efficiency program will have an impact of about EUR 15 million on the full-year result, so in addition to this we estimate that Purmo will be able to improve its result by about EUR 20 million through other measures. We believe that this is at least due to adjustment measures taken in addition to the efficiency program in response to weak demand (e.g. reduction of production staff) and temporary support from falling raw material costs. The efficiency program will also significantly support next year's results As the efficiency program progresses, it will support next year's result by around EUR 20 million compared to this year. Purmo has already commented that it expects the market to continue to decline slightly next year and we forecast a decline in revenue of around EUR 40 million for the company, which means a loss of gross margin of around EUR 10 million. The impact of the efficiency program is therefore greater than the loss of gross margin that we estimate. However, we expect only a small earnings improvement of EUR 3 million next year, as we expect pricing relative to raw material costs to have a slightly negative impact on earnings, and we also expect Purmo to use some of the savings to invest in growth, as it has said. However, it is noteworthy that this year Purmo has clearly improved its results more than the impact of the efficiency program, while next year we expect the overall improvement in results to be less than the impact of the efficiency program.

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