Beijer Ref AB (publ)

Welcome to the BayerREF Q4 presentation for 2024. During the questions and answers session, participants are able to ask questions by dialing pound key five on their telephone keypad. Now I will hand the conference over to the CEO, Christopher Norby, and CFO, Joel Davidson. Please go ahead.

Hi everyone, welcome. Christopher Norby here together with Joel. So we'll do the normal presentation and then after open up for questions. I think with that we'll get straight into the presentation for the year in Q4. So maybe just highlighting some highlights from the full year. I think it was a good year. Probably not all the tailwinds in the market for 2024. But despite that, we grew 11% with 2% organic growth. So pretty stable year in most of our markets and a positive development together with our acquisitions. uh also of course as you follow bayron on a quarterly basis it's been a good trend on the organic side uh of course with a very good finish uh six percent organic growth here in uh q4 uh margins stable uh 11 growth in ebda uh very good cash flow uh for the year which also sets up the balance sheet and the position to continue our journey with a good acquisition here as we roll on to Also worth mentioning, of course, the EPS growth of 6%, but in Q3 and Q4, I believe we've been growing on average 16%. So a solid year. Model works well. Also five acquisitions integrated into the business. So all in all, I would say a very good year. So based on that, we'll move into what happened in the last quarter a little bit. We grew 15%, so I would say a very good finish to the year. Extremely happy with organic growth. We'll come back to that when we go through the segments and the product areas. Continue to have a good effect on the acquisitions, plus 8%. So all in all, a good mix between organic and acquisition here in Q4, so very happy and I would say proud of that development there. On the margin side, good growth of 12% of the EBITDA. So well connected with the total growth of the company with a margin of 9.2% in the fourth quarter, which is a solid margin, I would say, in the Q4. And I think it's worth mentioning also, I think most of you know it, You can see it on this slide that we have a seasonal business with the strength in Q2, Q3. And also the way we're acquiring more and more company on the HVAC segment in the US, there will be more seasonality with higher margins in Q2 and Q3 as that's when the business is very, very active. We did have a couple of negative effects in Q4 that's worth Highlighting, we had an FX effect with a strength in the US dollar against the euro in a very short time span. Joel will come back to that a little bit more. We do have a dilution. Also, that affects negative in there, as I said, on the acquisition side, which is always more in the Q4 and Q1 quarters. So if you adjust for that, it was a solid margin in same levels as last year. And it's a good margin for a fourth quarter in an offseason for Bayref. Cash flow good. It's always good in Q4 and should be good. That's the other side of seasonality. Of course, you're... reduce inventories and and you you collect all your payments um and despite this is uh that we've built inventory in the us that we'll come back to uh also a very good eps plus 17 so a fantastic drop through uh and i think we look forward to this also in 2025. We did acquire or close Cool4You here in the beginning of January. So a very nice addition to the business, the leading HVAC company in Hungary. So we'll start, we have started to work with it already and it'll be integrated from January 3rd. And then also finally a dividend increase of 8%, moving it to 1.46. So I would say the highlight, solid quarter with very good growth. Let's move on to the next slide. We also saw the growth here across the different product segment, I would say, with commercial industrial refrigeration growing 4%, the other OEM up at 8%, and then HVAC also solid at plus 8%. So all in all, we could see this across the board on there. So I mean, It's not any revolution here. It's evolution. It's a solid business with a very good quarter behind us to finish the year. If you go into just trying to paint a little bit of a picture per geographic segments, because that's part of how we measure and look at the business. Of course, EMEA, our largest segment and also our most complex segment going across over 20 countries. And you will always have a mix, but to try and explain the year and the quarter, I think in the year, all in all, it was a solid quarter with very good growth on the eastern side of Europe, stable in the Nordics and Central, and a weak market in Southern Europe, driven by France. That's a big market for us. But all in all, keeping margins stable during the year, in an okay year, but not a strong year, mostly related to Southern Europe, which is, of course, a big market for us. In the quarter of Q4, you had a pickup on sales, continued to be driven by Eastern Europe. What we've seen also over the last couple of quarters is a very much improving situation in South Africa for us, which is a fairly large market. and also a positive outlook for 2025 in that region. So, continue to do well in those segments, both from an acquisition and a general growth. Continue to have some challenges in the southern European part of the market. The OEM segment continues to have a stable growth, good annual growth. Also, the OEM will also fluctuate between quarters, most related to our projects. are shipped or not at the end of the quarter. But still a solid underlying performance there. Good growth on commercial and industrial refrigeration in the quarter. The majority of the negative strength in the US dollar was related to the EMEA region, mostly as we buy a lot of products priced in dollars into our European business from Asia. And when you get this fast movement and you all get into it, It's actually revaluation of your accounts payable that hits you on the P now. It is more of a one-off in there and we'll continue to work with this as we go forward. But it's worth mentioning because it did have a fairly large negative impact in Q4. Another part that's more structural is the heat pumps. We've seen price pressure in Eastern Europe here in the fourth quarter. We expect that to continue in Q1. And then we're pretty comfortable that this will tail off for us. So we'll highlight that for Q4 and Q1. And then we feel good about that. It won't be having a negative effect as we move into the rest of 2025. But also worth mentioning here, a good quarter on sales on heat pumps. We did have an active Q4 and expect that in Q1 as well. But of course, it's still less than 10% of HVAC sales in EMEA. So it's not a big part of our business. uh we did uh continue an integration gia group that required this summer and look forward to their summer season and as you said cool for you uh it's the same thing and i think that's part as we talk with seasonality as we can continue to have this company they are having seasonality focusing on very high activities in q2 and q3 while q4 and q1 is more muted so all in all a solid quarter in in the mail then moving over to aipac I would say an excellent performance in Q4, both on the growth side and also on the margin side. APAC, of course, have their high season on seasonality in Q4 and Q1. It's hot in Australia, New Zealand and those markets. So it's a different measuring stick, I would say, versus the US and EMEA who's in off-season in Q4 and Q1. So we're very happy to see a good start to the season in APAC, especially driven by Australia. We do have a very good business model there and a strong market position through all the acquisition we've done over the years. And now we also can see happily the margin expanding. moving up towards thresholds that we set on a minimum 10%. They did reach 9.8 here in 24 with a good finish to the quarter. So we do see good trends here, especially in Australia, and have a good market position. Asia is a little bit mixed in their good underlying business-less projects right now. I think worth calling out that we did receive our first CO2-based project in South Korea, an acquisition we did about a little more than a year ago. So very happy for that and see how we can continue building that. And we did also see expansion on the margin related to good volume growth and also continue to drive more and more spare parts and integrated solution in Australia, working with the model that we successfully have in the US. So a good finish to the year from a very good year in the APEC region. Then moving over to North America. Another very active year. As you can see, sales growth of 32% and EBITDA growth of 26%. So as you know, we continue to be very active in the market and we expect that to continue into 2025 and moving forward. So good finish to the year also on the activity level, especially on the commercial side of the business and light commercial. So a lot of projects active in Q4, driving the volume. On the day-to-day business, it's a little bit harder to judge. It's off-season, so most of the work you do in the southern part of the US is maintenance and service. And also when you move up to the northern parts of the u.s like the acquisition we did in young supply q q4 especially in an into q1 the seasonality activity levels are always much lower because you it's so cold you don't really do any maintenance and service work and that's why they have more seasonality as you move into Q2 and Q3. And that's when you roll into the margin side of the business, you get quite a big dilution here in Q4 and Q1 from the acquisition side and less in Q2 and Q3. So that was a big impact on the margin. The other part is that last year we did a very good year end rebates because we bought a lot of inventory. So we have started to prune it Here in 24, and let's see how it plays out in 25, but underlying margin in the US very good. The heritage platform continued to do extremely well on the margin side. And of course we expect this to continue. In general, other worth mentioning, you know, we continue to open and develop branches. We have two, three more coming in here in Q1 and Q2. We are active on the private label side. We'll start coming into the portfolio in Q2. And in general, positive. I'm sure the big question, you know, we're moving into this year on the A12 transition. We expect that to start coming into Q3 and Q4. We have a good inventory position in general. So it's been a nice year and a good finish the year in the US. And of course, worth mentioning, we are going to be active on the acquisition side here again in 2025 for sure in the US. So that was a little bit on the business in the fourth quarter. Then on the sales side, you've seen this slide before. Nice trend. Again, 15% growth, 6% organic. So I think it's a very strong development here as we move through the year. And of course, the history is extremely good. On the margin side, you see it's been a solid year with good margins across the year, which gives us a similar level as last year. And then on the fourth quarter, it's still a solid 9.2% in the quarter. And then dilution from acquisitions and some currency bring it down compared to last year. So all in all, in good shape on the margin side. Danny, if you summarize it, the EBITDA grew 12% and 11% of the year. So within our financial targets, and I would say a good year in a market where we didn't get a lot of tailwinds, but I think also proves the strength of the business model that in a year like 2024, we'll continue to deliver the type of growth numbers. And of course, it also relates to being a very consolidator in our industry and good underlying trends in the business. And then finally from me, we'll summarize this fourth quarter with You know, pretty good numbers. I still think it's really good numbers, but 15% sales growth, organic of six, EBITDA growth of 12. And then I think also very good finish to the year on the EPS growing 17%. And so I think we're in a very good position to get into the 2025. Look forward to this year. And on that last note, I'll hand over to Joakim.

All right, thank you very much, Christopher. And good morning, everyone. I will jump straight to our EBIT of 756 million, which is up 13% compared to last year. Below EBIT, we start to see some upside from central banks continuing to lower interest rates and our financial net in the quarter of 130 million is down 23 million sequentially from Q3, attributable to lower base rates on a financing portfolio. On the tax side, we recorded tax expense in the quarter of 169 million, which is representing an effective tax rate of 27%. It is some improvement versus last year, and as you see, the effective tax rate in Q4 is slightly higher than that we have in the higher earnings quarters. All in all, resulting in a net profit of 457 million, which is 16% up compared to last year. So if we're just moving over to the EPS, that is translating, as Christopher mentioned, to an EPS growth of 70% in the quarter. And if you look at it for the full year, adjusting for items affecting comparability and the same number of shares, EPS for the year is up 6%. Moving over to cash flow, we continue to deliver a strong operational cash flow in Q4, 1.3 billion, supported by a strong operating result and the release of networking capital of approximately 500 million. The networking capital release was primarily driven by continued effort to reduce our inventory and then seasonally low AR. inventory levels in the quarter were reduced despite the extra buildup of inventory in the US that we mentioned already last quarter and it's related to the change to H2L refrigerants. On the next slide, you see that we have generated a positive operating cash flow throughout the year. And in total for the year, it amounts to 3.5 billion, which is 1 billion ahead of last year. And it's clearly supported by a higher EBITDA and also more tightly managed networking capital. So all in all, we're very happy about the cash flow that we're generating for the full year. Finally, moving over to net debt and leverage. I mean, the effects of our strong operating cash flow is clearly visible in our balance sheet, where we, despite another active M&A year, enter 2025 here with a very strong balance sheet. Our leverage ratio measured as net debt versus EBITDA, excluding pension and leasing liabilities, has now declined to 1.8 from 2.0 here in Q3. And we closed the year at basically the same level as last year. Net debt increased by 1.3 billion during the year related to the five acquisitions that we have closed. And also worth mentioning there, for those of you who have looked into our balance sheet, we had an unusually high cash position at the year end of 3 billion, but it was in anticipation of closing the Cool4U transaction the first days of January here. So by that, I will hand back over to Christopher.

Thank you all. So wrapping up 2024, you've seen this in the beginning, a solid year with good acquisition growth, good total growth, good trend on the organic side. Very happy how that is developing. Good balance sheet despite all the acquisition we've done for the year. Cash flow is good. Companies are good. Yeah, it's a good Good year and a very good base to continue our growth journey at IRP25 and going forward. So then try and summarize a little bit the fourth quarter. Of course, especially proud of the organic growth across the board. If you look at the regions in the quarter, APEC are on the right trend on margin side. Business model continues to develop well. Stable year in EMEA with some also really good acquisitions setting up for 2025. Good activities on the OEM side, SM3, Gunf Energy. And also positive on the HVAC side, how it's been improving quarter by quarter with stable margins. Of course, really looking forward and into the, especially as we ramp up to Q2 and Q3 in the business. And then the US, I mean, an amazing continued development. They're 30% plus growth again on top of a very active 2023 structure is coming in place. The original platform heritage is performing excellent. Good people across the board, happy with the acquisitions. And also an interesting year as we transition into ATL, but underlying very good business and opportunities moving forward. So a real nice opportunity for us. Summarize EPS 17%. Hard to complain on that one. Growth in dividend and a good cash position as we move into 2025. And also wrapping up the final comments, nothing really changed for 2025. We're in good trends. You have transitioning here in in EMEA moving forward in the next two, three years. You have the US coming online more and more this year. APEC continues to develop well. The business model is strong and good initiatives. So we look forward to 25 and then wrapping up a strong finish to the year. So I think with that, we'll open up for any questions. Thank you very much for listening.

If you wish to ask a question, please dial pound key five on your telephone keypad to enter the queue. If you wish to withdraw your question, please dial pound key six on your telephone keypad. The next question comes from Gustav Schwerin from Handelsbanken. Please go ahead.

Yes, hello. Thank you very much. I have two. Starting on the growth side, You're posting the largest organic growth in two years. It's a bit tricky, though, given the comps, of course, but also to understand what has happened to underlying demand given the season here. So when we look at this sequentially, where do you think underlying markets have moved across the regions? Because it's especially interesting for Europe. And then also related to that, when we look at the HVAC shipment data, in the US for October, November? I mean, obviously a stocking effect there, but is there also an element of demand improving? Yeah, I'll start there.

Yeah, both are hard questions to answer. And maybe, of course, that's why you asked them as well on the clarity of the world and where we're going. I think a little bit like this, I always say, let's remember, we're talking here in Q4 and Q1. But of course, even if there are smaller quarters, they are important as well. They're not insignificant, right? And if you look across the board, I think in general, you know, you have the sequential improvement, how much is comps, how much is the business improving. I think in general, what we see and what I usually say that, you know, the business has been stable across the board with a slight positive trend. And you can see that, of course, in the numbers. walking into 2025 I'm more positive than I walked into 2024 uh and and that's based also what we see in the market and and what we're hearing but it's early days right uh in that trend so if you try and break it down a little bit on on the business in in general you you would expect uh commercial refrigeration to to grow the two three four percent depending on on the quarters and comps. So there's nothing sticking out there. The OEM business should be plus 10%. It's been there for a while. We'll continue to drive that. So then you look into the HVAC side. It has been a stable market with improving trends, right? We're seeing good trends in Australia, which is a big market for us in the middle of the high season. And we're pretty sure in that region that we're taking market share because we're by far outpacing the growth in the margins. I don't think it's a booming market, but I think it's okay. But with our model, we're driving growth and that's affecting a good trend in APAC. And we expect that to continue here as we move through their Q1. If you try and bring Europe together, I think it's been clear across the year and also the finish to the year that through the acquisition and models we built up in Eastern Europe, we're doing very well and taking market share in that part of the world. Central and Nordics is stable, and then Southern Europe has been weak. And I haven't seen any big trend shifts for that in Q4, but in general, a better market than last year in Q4. So it's more that the market in Q4 this year is better than last year than any sequential big movements. And as we move in now to Q1, it's more of a continue with that and then ramping up here for The Q2 and Q3, of course, the upside for us as we move in May and in 2025 is getting some tailwinds in Southern Europe because it is a big market for us. And if we can see some improvements there. that will go a long way of driving organic growth in general. And then moving over to the US, I agree, and I know you guys are smart enough to understand the OEM shipment data is very much skewed, so it's hard to use it as a reference point. We, as everyone else, have bought everything we can for inventory on technology to support the first couple quarters this year. I think it's hard to make any judgment on the OEM side. I would guess that every OEM has sold out all the equipment they could make until the end of the year for that, and as you transition now into the 812s. But in general, where we saw the biggest shift in Q4 versus last in the US was on the project business and light commercial, family housing, larger projects, that's been active in Q4 and moving into Q1 as well. the underlying day-to-day demand is is is pretty stable and it's more looking into us moving there to q2 q3 and see how that develops but you know try and summarize pretty short question with a long answer uh is somewhere around yeah it's an improvement versus q4 last year all right thanks for that adam uh

Secondly, on the EMEA margin, I understand the negative effect of USD purchasing is probably something like 40-50 bps year-over-year. When we think about this going into 2025, the USD hasn't really sold off versus the Euro since Q4, rather the opposite. Is there an effect that we should bear in mind for Q1 and onwards, or with the hand of the price, you know, how is this going to play out? It's a big move now.

Yeah, so this is Joel. I think we need to separate. I mean, a little bit, if you look at currency fluctuations, it's obviously a normal part of our business. And over time, we manage it through price adjustments. It is, however, different when you get rapid movements like we saw here in Q4 with the dollar appreciating 6-7% against the euro over a short period of time. And what's happened in that timeframe is that you get the time difference and exchange rate movements between when you receive the goods and when you pay them. You need to adjust. You don't adjust the inventory for that. You actually adjust the accounts payable. So that flows through the P&L immediately. So those types of effects you only see with short term movements. And they go up and down, of course. But the longer time differences in exchange rates, we're obviously, as always, working with price to adjust

So I get summarized and you'll, you'll probably have more question. No, we don't expect these, this type of things. I think it's a pretty extreme movement and then longer term movement. If the dollar goes up or you were down, we, we of course compensate by adjusting pricing in the market, uh, uh, in there, but this is more accounting booking three accounts.

Okay. Perfect. Thank you.

The next question comes from Adela Dashian from Jefferies. Please go ahead.

Thank you and good morning, gentlemen. I'm actually going to go back to the organic growth question earlier. Maybe you could provide us with some colour on, I know it's still early days, but Your assumptions for growth in the North American market in 2025, it does seem like it will be more back and loaded with the A2L transition, but still in Q4, the trends look fine and good. So how do you see that progressing and what really are the upsides to the current organic growth that you're experiencing with this regulatory change?

Yeah, so try and answer that the best I can. I would say, if you look at the ending of the year in the US, it's a more positive sentiment than we ended in 2023. uh big shifts in in in the driver of growth here towards the end of the year and also beginning of this year is if you if you break down our business there is a lot around commercial and projects that's been low for the last couple of years so we see that as positive of course and expect that to be continue good here in q1 in there so that's what we're seeing more activity uh on that level so in general a little bit more positive mindset uh in the us but we still need to move in here to q2 and q3 and see the daily business renovation and and housing market and those trends starts picking up a little bit and it's too early to to tell around that driver, because that would be the final tipping point, excluding the A2L. And then as you transition into the A2L, there'll be more a Q3, Q4 transition into that. And the tailwind there is of course more related to a price increase there of anything from 7% to 10% on that type of product. There's a lot of things happening. in the U.S. this year. But I think if you take the short term view right now, you see more activity in the commercial market, the light commercial market, the U.S. for us in general. And then let's see how the housing market and the business plays out. Of course, on top of that, we are opening branches. We're expanding refrigeration, also expanding light commercial to some of the acquisitions that we made and etc. We're also doing our own thing to drive growth. And he looks very promising on that side as well. So yeah, hopefully that answers some of your questions.

Yeah, I think it does. Going back to the 70% on the price increases. Like how much should we expect that to be you know, the OEMs get the major part of the cake and then what's left for the distributors and the middle hands? How have you budgeted for that?

I haven't budgeted for it, but there's not going to be any difference on price increases in the market versus the OEM. Absolutely not. We always pass on that price increase.

Got it. And then maybe sticking to the topic of North America and margins. I understand the seasonal fluctuations here with the recent acquisitions, but it seems like your commercial activities will remain pretty on the high end still in 2025. So do you see any room for margin improvement? And if so, will that come entirely from

you know uh added price added volumes or or is there anything else in your business model that could drive already now in coming quarters more efficiency games and so on yeah i think in general i would answer it so it's a little bit try and just put some color on on on on the dilution side of uh of the acquisition we made so far they all they all have a low margin but also Young Supply is a pretty big acquisition for us based up in Michigan. You really don't do maintenance and service work in Q4 and Q1 because it's too cold. You do it in Alabama and Tennessee because it's too hot to do it in the summertime. So that's why an acquisition that margin picks up a lot in Q2 and Q3 with less dilution. And that's why you see these effects in Q4 and Q1. But we are working with the models and the acquisition. We do expect to continue to improve margins there. So in general, in the US, as I said, underlying, we would probably have better margins than we report because we are investing a lot, building new branches, bringing in private label, adding in the organization. So in general, I would probably be more related to we should improve margins of the acquisition and stay stable overall as we're going to continue to invest and drive the business at the good margins. Of course, if you get some of the A2Ls, let's see what that plays out. But of course, we'll get good leverage on the cost with those type of products. But I think that should be more a, let's see how that plays out towards the end of the year in 2026. So in general, I would say let's continue and drive growth and keep the margins stable at a good level.

All right. Makes sense. I think that's all for me for now. Thanks. I'll get back in the queue.

Thank you.

The next question comes from Vivek Midha from Citi. Please go ahead.

Thank you very much, everyone, and good morning. I have two questions, if I may. Firstly, a follow-up on private label and the rollout of Sinclair into APAC in the US. So you highlighted that you expect to launch private label in Q2 in North America. So on APAC, what is the timeline and how is this progressing? And then more broadly, where do you think you can take private label sales by the end of 2026 for these two regions? Thank you.

Yeah, on APEC, I'll answer you in this way. It's not going to be playing out in big numbers. It's a long term journey in the APEC region. It's smaller numbers. We're actually starting in Southeast Asia. We have a good coverage already in our biggest markets on the OEM side. still debating the strategy around a solution on there so apac is it's a strategic uh journey on that side with especially southeast asia so so it's it's a case where we turn on and continue to drive it but that's going to take some years and and i would say also some some direction on on how we want to play in that region, because if you really want to make a big impact on that journey, you need to go into Australia and New Zealand. And we have not decided to do that yet for other reasons. If you move into the US, I would say it's too early for us to judge, you know, where it's going to be 26 and 27. So maybe we were planning to have a capital markets day in November, we'll come back to that we can clarify a little bit more the journey. I think the key for us now is to build it up. We have you know, the the products on its way. We're setting up the structure to do it, of course, getting support, how we've done it in Europe. And we're also setting out the customer journey. There's no ambition to cannibalize anything here. It's a new customer group where we can be competitive, especially on the light commercial side. We can drive that much more active with a good product. I will be on purpose fairly vague because I also think it's fair. Let's get this up and running in the US. And as we see it develop, we'll be a little bit clearer to the market. But I mean, it is a very interesting solution for us in the US to go after a completely new market segment where we haven't been active before. But let us be vague right now and come back as it's more up and running and then we can be a little bit clearer on the direction of it.

Fully understood. Thank you very much. And my second question is just a follow up on your comments around heat pumps. Clearly, it's a minor part of the business, but just interested to understand the nature and the magnitude of that pricing pressure you saw in Eastern European heat pumps. And what reasons are why you believe this will fade after the first quarter? Thank you.

Yeah, so I think that it's nothing we debated even to mention this. It's trying to tell a fuller picture, maybe being more transparent in it. As you said, it is a smaller part of our business. And it's a little bit the way the seasonality works. And now we're talking the EMEA side. Here in Q4 and Q1, we expect 10% of HVAC sales to be heat pumps. And then as you move into Q2 and Q3, it drops below 5%. And it's not a relevant thing to talk about in the scheme of things. And especially we've seen as we've built up inventories and all the acquisitions we made in Eastern Europe, It's a very competitive market there as everybody is sitting on excess inventories on there. So we want to play in this market. We still make money on the product. We're balancing out inventories. And I think we're in a pretty good position as we move through the first quarter and into the rest of the year to decide a little bit more how we want to play in this market. But we don't expect to see any margin dilution issues in the May after we're done with Q1.

Thank you very much.

The next question comes from Carl Ragnarstam from Nordea. Please go ahead.

Hi, it's Carl here from Nordea. A few questions here as well. On the inventory buildup in the US, I guess moving into first half 2025 here, I guess the market share dynamics might be impacted I guess on the 410 availability so how do you think that you stand with your inventory of the sort of 410 products versus some peers or I guess you're more equipped than the mom and pop shops I guess but how do you view that the market share potential gain we're in a fantastic position unbelievably good so we will know

Now, you know, the interesting, I know we get into side effects here, but prior, when we checked around with all the competition, everybody was saying they're not going to buy anything. And then everybody bought as much as they could. So I guess it was a play of cards there in this journey here. But we got allocated the percentage that we wanted from our main suppliers. So, I mean, we're happy on being an APC. Are we better and worse than others? I think as you're right, you have some smaller competitors that has not had the cash flow possibilities to build this up. And to be honest, you talk to the smaller ones, they've been kind of pissed off because they didn't get priority in this journey as well. But I think as we compete and compare, we'll be in a similar position. So there might be some upsides on smaller ones not having the product portfolio. But I think in general, I don't see... What I don't know is if somebody completely decided a different strategy. Then we'll find out on it, right? I think it's public knowledge that... Dyking went to A12s pretty aggressively already quarter two ago, and that has not been a perfect solution. in that journey so there's been opportunity on market share it's not a main competitor where we play so but a little bit at least so I think we can only answer that we're in a good position for this on there and I think it's also maybe worth answering as we move in in Q2 Q3 on our private label that's going to be A2L products very well priced so that's also a nice tool to have in the full box as we move into that segment with very competitive products as well.

That's very clear, thank you. And staying on your main supplier Reem in the US here, Paloma Reem is trying to acquire Fujitsu General. What is your main comments on the possibilities for you there, because they are big air-to-air players, right?

Yeah, I think it's a good question, it's one of those questions If you are long-term, because this is only a long-term answer, because I think it's going to take some time, but just to understand our relationship, of course, with Reem and Paloma, is that they formed us before they closed the acquisition, which I think just shows how we're working together. And of course, they want to talk to us, especially Fujitsu in the US. We do have good opportunities on the non-ducted to work together. We do have a global rebate agreement together with them. We work with Fujitsu quite a lot in Australia, etc. So for us, if you take a long-term hat, I don't think it's going to change the next six months as they need to close it first. But I can only see positive for us because we have opportunities to further expand our business together with Fujitsu. And now we have access to to the decision makers in a very good relationship. So I think it's good for us.

Okay, thank you. And on the OEM segment, you showed quite healthy organic growth in the quarter. But as you mentioned, below your ambition of plus 10%, it could be volatile between the quarters, as we know. How do you look at the project deliveries in the quarter? Was it unusually low? What do you hear from the grocery store side where they've been struggling with food inflation and rates? So do you see a better investment pace from them entering 25 and also approaching, of course, at some point the end of the regulations, right?

Yeah, I think in general I don't really have a... a comment on it. It's a pretty solid year. We always say shipment between quarters will shift around if it's plus 8, plus 15, plus 12. In general, it should be growing over 10% per year. And maybe worth mentioning is what we do see is, and I think I talked about this in Q4, is that the market that's been a headwind the last couple of years has been food retail. uh limited investment people holding back despite you know regulation and having a tougher time and i said that we saw at least coding activities picking up and and orders also picking up now in that segment so it is a following a positive trend quotes and orders into the food rate retail so my guess would be that you'll start seeing an improved investment cycle in retail in 2025. I don't want to jinx it, but it looks like that trend is going to be a positive trend for 2025.

Okay, that's very clear. Thank you so much. Thank you.

The next question comes from Dan Johansen from SEB. Please go ahead.

Hi. Thank you for taking my questions. I have two more here. Maybe starting a bit on the U.S. I know there's been a lot of discussions on this topic already, but I'll phrase it another way, maybe with a new presidency. There are a lot of discussions about a lot of different things, of course, including potential tariffs. How does that change the dynamics in the market, the competitive situation? Does it at all? And also how it's influencing your plans when you're building your U.S. platform. I guess it's early stage still, but some initial thoughts on this topic would be interesting to hear. Thank you.

Yeah, so supposedly I was in an interview with Deo this morning, and I made a statement, you know, four years for us is a very short time, so we don't care. I'm just kidding a little bit. No, but if you look at the administration now and our business, I mean, I was on a call with our US management team and they were actually yesterday in Washington meeting the Republican senators and the government on what's happening in the market. My statement in general is that we're working with the majority of our products is products that's critical and needed for your day-to-day life in the US. So we don't see any legislation or changes that will change our business model. If you look at the thing happening this year on the A2L, that will not change. It's already a legislated law. So that will happen. The OEMs have stopped making it. The OEMs are also positive moving in this direction. So the A12 transition, what happens in this year, the normal product we sell and all that. So the boring answer is, if you look at that part of the business, I think the most critical for us, to be honest, is more a U.S. national trend. thing that we want you know activity on the housing market not building houses but buying and selling existing housing renovation and that type of market that's of course also a little bit related to the interest rate so those are more indirect components that will affect our business but in general we're pretty positive that we're going through a couple of down years in in that area and things will start picking up even with this uh government so no no don't don't see anything that would change that i know i sometimes maybe answer that question as well get questions on tariffs uh on there and what happens if there is tariff and maybe just to To set it in perspective for our business, we work in the U.S. with U.S.-based suppliers. I mean, it's anything from Ream, Carrier, Train, Lenox, Dyking. A lot of the residential equipment that we work with and every OEM in the U.S. has manufacturing in Mexico, a mix of U.S. and Mexico. And if there is a tariff on the product, prices will go up immediately. And our guys, you know, now I'm taking the American hat on, they would love it. It'll be a very nice P&L development for us on there. And of course, in there I think long term is that the right thing don't know but from a business point of view we don't see anything changing our business model in the US with this type of government.

Okay thank you for that answer maybe it's finishing with one more specific question on I've seen the report you continue to expand the production area towards 5,000 square meter. And just to get a feeling on how far can that take you? I mean, the development there has been fantastic. Can you double say it's now or do you need further expansion if this positive development continues in Finagy? And maybe same question on Frid, how are you there in terms of production and delivery capacity as of now?

Yeah, no, I mean, I don't know if you call it that, but I need more. expansion infinity down the road for sure so we're more looking at now we're expanding in here as we can and then we're looking down the road to to significantly expand it in you know not in 25 or 26 but probably 27 28. so this will support and help us step by step in that journey but there will be a bigger expansion in infinity coming in in the long term sm frigo is good We expanded 5,000 square meters last year. We can continue and double the capacity there. We're adding another shift and the new area is built for the CO2 based heat pumps that we just launched here in Q4. So there's a lot of interesting activities there, but there we do have ability to ramp up on people and shifts while in Fenergy it will be long term in my view a bigger expansion similar to the SM Frigo we did in 2021 so good thank you for that good challenges to have

Yeah, yeah, I guess it's a positive thing. Yeah, I think that was all from my side right now. Thank you so much. Thank you.

The next question comes from Carl Bockvist from ABG Sundell Collier. Please go ahead.

Thank you. Good morning. My first question is on this M&A dilution from acquiring these companies. Historically, you talked about integrating them and being able to extract synergies fairly quickly. So this dilutive effect from the currently acquired companies, how fast do you think we can see this headwind on margins diminish?

Yeah, I think it's already slightly improving. I think as we get a short time horizon here now in Q4 and Q4 and Q1, there's still better performance in the acquisition in the US in Q4 than the Q4 we bought them. But their seasonality is higher, as I explained before, and that's why you saw a much less dilution in Q3 and Q2. So they are improving already, but the seasonality will be there in a Q form Q1 because the activity levels and repair maintenance is so much lower as I explained in the ice cold weather in Michigan. You do, as they explain, band-aid repairment in the wintertime and then you come back in the summertime. So I would say that you will step by step reduce the dilution over the next 24 months in this acquisition, but we'll continue to do more. But they will and are improving step by step in the business.

Understood and then on the inventory situation we've talked about it earlier here but I mean if we exclude the A2L build up which is of course a strategic decision here ahead of a market change but if we exclude the A2L products how is the kind of balance between those let's call it legacy products and A2L because Usually we do see a quite significant reduction quarter on quarter in inventories in Q4 versus Q3.

Yeah, so if you look at the inventory, I mean, we are down in the quarter compared to Q3 with approximately 300 million, then including the build up of A2Ls or the build up in the US, which is a few hundred million. The difference is, I think we have proceeded, progressed as normal on the inventory levels. And you should also bear in mind that we, last year at the same time, we came in from even higher inventory levels. So I think we have continued to manage it down in a good way in the quarter here.

Sorry Joel, could you just clarify the 300 reduction if we just look at reported figures the inventory level was quite stable but do you say that excluding A2L it would have been down 300? Did I hear you correctly?

No, it's down 300 million organically and the A2L is roughly up 300 million and then in the balance sheet you have FX movements and so on which is the explanation that you can't do the math perfectly that you tried to do. So cash flow wise, which is the relevant metric here, inventory levels organically is down 300 million, including that we bought roughly 300 million more of inventory in the US related to the A2L change.

Understood. Thanks for clarifying that. And my final one, Kristoffer, we talked a little bit about growth in North America, but could you give some indication of the organic growth in the region, considering that we are seeing a kind of pickup on the shipment side, of course. And I understand it's, as we talked about, it's difficult to make a direct comparison.

So zero to 100%? No. But we are debating. Everybody on the call here now to start Disclosing that as we start the new year and Q1 and go forward too, because it is becoming more and more relevant for you and for our owners and everyone else in there. But I would describe it in this way that if you look at the 6%, the US was above 6%. So the US was positive to the growth journey. So high single digits in the US for the end of the quarter.

Understood. Thank you.

The next question comes from Emil Zar from Danske Bank. Please go ahead.

Hi. Thank you very much. I'm just curious if you could potentially quantify the FX effect or give us just some more color on it. As you already mentioned with the USD stronger and also then if you could give some detailed information about your contracts if their price clause within them and specifically any conditions that might lead to price adjustment in regards to FX. Thank you.

All right, so in EMEA, as I tried to address this before here, but the actual impact in the quarter is roughly half of the drop, expanding half of the drop in the EMEA margin. uh on there so uh and i mean in terms of uh price adjustments it's it's i mean you you manage this in in different ways i mean obviously for some flows we're selling and you continue to sell in in dollars some flows you have shorter time projects and so on where you are very fast in adjusting prices and then on part of the business obviously you wait and see because you don't want to change your prices up and down every month here so but if that's the normal course of business and obviously we are doing as always our best to defend our margin and working with price increases practically So from that perspective, there is nothing different to how we are operating normally. It's just that the effects through rapid change just moves through the P&L in a different manner. As you don't book it in inventory, you revalue the accounts payable, so you get an immediate effect.

And I think just to add, because this for me is a lot of an accounting thing and I don't like accounting things. But anyway, real life is, of course, when this happens, we also negotiate with our suppliers in Asia with getting better pricing and other rebates to manage this because this will be more of a US dollar profit in an Asian country. So it's an accounting. We need to call it out because it's there. It's for real this quarter. But if you turn around, if you have a long term raise of the dollar that we see now, we need to compensate that with either price increases in the market, better prices from our suppliers, or both. And we've been doing that for many years.

Thank you very much. Thank you.

As a reminder, if you wish to ask a question, please dial pound key five on your telephone keypad. The next question comes from Bawin Thakkar from Bloomberg Intelligence. Please go ahead.

Hi, thank you for squeezing me in. I just had one question about pricing development in 2025 that we expect. You said, like, heat pumps may face, like, a temporary decline through 1Q, but what outside of that? How do you see pricing development outside heat pumps, especially in HVAC excluding North America?

Now, we see on the HVAC side, you know, of course, you're already in the season in the APAC region. We'll move in in the season here in maya in starting in april may the normal journey is pricing adjustments coming into to march and april on there i think we see a fairly stable pricing develop in general we have some pricing initiatives on our side of the area but from from a supplier point of view I would adjust the comment as stable across the board. So hopefully we have some upside because we feel in some areas we have some pricing power that we could leverage in that area. But in general, a stable pricing environment, if you exclude the US.

Thank you.

That's it. Thank you.

There are no more questions at this time. So I hand the conference back to the speakers for any closing comments.

Thanks as always for listening. Thanks for good discussion and questions. And hopefully we could give you a good picture, maybe to wrap up last couple of words. Good finish to the year, good trends. So yeah, it looks interesting here moving into 25. I'm sure we'll be seeing and hearing from most of you in this year. But in general, I think a solid 24 and a good finish. So with that, thank you all for being online.