NIBE Industrier AB (publ)

Ladies and gentlemen, welcome to the NIBA Q1 report. Throughout the call, all participants will be in a listen-only mode, and afterwards, there will be a question-and-answer session. Today, I'm pleased to present Eric Lindquist, CEO, and Hans Bachmann, CFO. Please begin your meeting.

Good morning, everyone. Eric speaking here, and Hans, of course. Yeah, I'm right here. Good morning. And we're going to pursue, you know, the usual path, when we comment ourselves upon the report and then we allow for some questions which we will try to answer as expediently as possible then of course we have to go for other issues here no later than 12 so we don't like to be impolite but that's the time schedule we have today and we think that it's been a fairly strong start to the years we would say And most of the market segments that we deal with have shown a good growth. And we've also seen some improvements in the supply chain, which is very pleasing. But not necessarily all the way, but every week that's better than the previous one is, of course, pleasing to us. And again, it's primarily driven by the sustainability profile of our company and the three business areas we have. And of course, energy prices going up and down, that's also a worry to customers and also becoming more independent or totally independent of the gas and oil supply from the east that we all talk about. And of course, everything is around investments here now that we are into and trying to cope with the growth that's at hand. And the result is also coming around in a good way. It's overall a healthy margin. The acquisitions so far this year haven't been extraordinary. We've only had one acquisition. That's in Canada. And that happens to be in the same province where we have two other entities of legal nature. So from a practical point of view, It's very good to have them concentrated in one province when we travel there. And if we just have a quick look at the figures that you have in front of you. And of course, the growth has been like 33%. And the gross margin has recovered. And I think Ron's going to come back to that, which is very pleasing, of course. And there are a number of factors behind that. It's sales, naturally, where you always get a slightly better margin and then increased productivity. And also they were in better balance when it comes to our own prices and the prices we are paying to our sub-supplies. And the operating margin has taken a great leap from those 10.8 to 15.1. But in all fairness, like we also point out, last year we took a hit. when the invasion or the Russian aggression on Ukraine was a fact. Then we said, okay, let's write off everything as far as values are concerned over there. And that meant 140 million were written off or written down. That means that the margin operationally last year was 12.1. So it's still quite a bit of a jump, but it's more like a three percentage Bertrand de La Chapelle. Units rather than the five indicated. Bertrand de La Chapelle. The same thing with a net profit margin goes from 12 point 10.4 to 14.2 but in all fairness, you should have been from 11.7 to 14.2 if you we compare apples to apples. Bertrand de La Chapelle. And then we have the the graph or the graphs that are coming here, indicating that we are. on a on a pattern that we know since before, we still have some seasonality. But it's more a growth pattern, lesser seasonality than it was in the past. And we also see that the past 12 months, we are now approaching 44 billion in sales. So nothing really to comment more about that. And also on the profit after financial items, it's the same thing. The bars are following the usual pattern. And of course, the past 12 months have a healthy direction when it comes to the profit after interest. If we just have a quick look at the pie charts, have a typical look at the climate solutions, typically around 65, so it hasn't changed that much, an element around a quarter, and stoves like 10%. And because of the margin, of course, the climate solution, they represent some 75%, and the other two, 16 and 9, respectively. Geographically, of course, Europe has had a strong growth due to primarily the heat pump growth. In North America, it's now around 27. In Europe, of course, we include the Nordic countries also in Europe, but outside the Nordic countries, like 46, and the Nordic themselves, 23. And outside North America and Europe, it's 4%. And that's mainly element, of course, that's represented there. If you just dive very quickly into climate solutions, strong growth, and of course, it's Like before, a lot of people would like to get away from gas and oil as quickly as possible. And we also have new attractive products that we have been able to present to the market. And there are also clear improvements in our supply chain, but not to the level where we would like it to be. But we hope from the promises we've been given and from our work with the alternative supply roads, we believe that during the second part of the year, we'll have a, if we can call it a more normal situation. Investments, of course, are ongoing to be able to cope with the coming growth. The growth right now, we're able to cope with, but the growth we anticipate to continue. So we feel that we are well in line with the market growth when the new facility is going to kick in. J. And the operating margin, of course, on climate solution has also increased due to the. J. The volume of naturally or the sales volume, we also been prepared or women able to have a better productivity, since raw material and components are coming in at a better flow not satisfactory, but still a bit better that has increased productivity. and also the price situation is more in balance. So we can see that it's a healthy growth, some 38%, and the operating margin is up naturally from 11 to 17 and a half, but in all fairness, again, there we have to add back the 114 to compare it operationally, and then it would have been like 13 last year, but still it's a substantial increase J. step in. J. In margin, the stove side is particularly the the board burning side that is expanding and for same reason this. J. On the climate solution, of course, people are not so willing to invest in in gas burning stoves and there's a shortage of wood pellets so that's a hindrance on the other main category of the world of stoves. J. We spend quite a bit on continue to spend quite a bit on the. J. On the r&d side when it comes to improving the emissions, we like to get rid of all the particles to. J. Have a totally clean combustion and we feel that we are now coming to or we are not launching anything on as far as part of the concern, but we are launching our concepts now, as you saw in the report. So we feel we are getting closer to the actual product launch. Also here, of course, we are in a very ambitious investment program. We're opening up a new factory in Britain in a month's time, for instance. And of course, we're also an ongoing investment here in . And here, for the same reason on the climate solution, better sales volume. We've been able to also increase productivity. a better price leverage than some 12 months ago has given us a a healthy growth but also an operating margin that is like a considerable improvement from 11.5 to 13.2 if we just dive into element very quickly we can say that here we have a market some market segments that are not the of course, self-prosperous, particularly when we talk about consumer goods segments, whereas on the sustainability side, there we have the opposite. So there we have sort of two worlds. And the semiconductor industry, as we explained in the fourth quarter, took an unexpected dive in the fourth quarter due to restrictions from the US to China. But we assume that will pick up. because everyone is striving now to build factories in America and even in Europe. Of course, we also invest quite ambitiously in this area, but due to the product mix, the margin has somewhat went south from 10.1 to 9.3. So I think that's very quickly, you know, the headline for the first quarter. And of course, I forgot to mention that this is a very special day here in Markary. We have our annual shareholders meeting, and we're going to have that meeting in one of our factories that has been erected for producing heat pumps. So we're just in the process of moving in equipment there. We kept one sort of, yeah, room, we can call it, or area uh we kept that open for this particular event so it's a it's like a really noble prize dinner or that's wonderfully set we can say weather isn't so cooperative here today it's a little bit grayish but we just pray that around fifth or 1700 today everything gonna be you know very very uh sunny again So thank you for that. I hand over the words or the microphone to you, Hans.

Well, thank you, Erik. And some more than a thousand shareholders will be visiting us this afternoon as well. So that's quite pleasing, being able to show also what we're building all around here before they head into the factory. Anyway, let me just take you through the business areas here quickly on a slightly more detailed level and then open up for the questions. Climate Solutions then has continued its very strong growth, you can say, from previous quarters, driven by the sustainability and also cost awareness amongst customers wanting to shift away from oil and gas. And with improvements in our supply chain, although we're not fully through there, this has had a good impact on the numbers. So as Erik mentioned, growth has been some close to 39%. Jone Peter Reistadler, A portion of that small one, you can say is acquired what's a little bit hidden in the numbers, there is the divestment portion of the shoulders part. Jone Peter Reistadler, So in the growth figure there, there is like five and a half percent of that portion of business leaving us, so to speak, but with such a good increase in sales that has a good impact on the. Jone Peter Reistadler, profitability as well, so gross margin has taken a jump there from 32 and a half up to 36.2. Jan-Willem Wasmann, Coming them from sales improve productivity and, of course, a portion of price as well. Jan-Willem Wasmann, And the operating margin has then landed in at the 17.5 from the 13 adjusted for the write off, we made last year so it's of course almost a doubling in the in absolute terms and, on top of that, we have also. continuously been investing in both increasing our manufacturing capacity, but also in R&D facilities and a new marketing center. In terms of geography split or geographical split of sales, the picture has slightly moved in favor of North America, you can say. Last year at this point in time, they made up some 19% of the chart and are now up to 22. So the Americas there, and North America in particular, of course, has shown a nice increase compared to last year. So the sustainability message is coming across also over there. If we head into stoves, Nibe Stoves has shown a very strong Q1. Those of you who have followed us for some time know that Q1 and Q2 typically have been the weaker quarters. But now, since some time back, wanting to shift away from oil and gas, the picture has changed where the stove product has moved from being a decorative item, so to speak, to a security product. So sales have increased there quite substantially as well, up some 39%. But of course, a good portion of that is the acquisition that Erik mentioned. But even if you take out that we have an organic growth, including a small portion of currency of some 17% or 17 and a half even. So sales have gone up from 900 to 1250. And also here we've seen a good improvement in the gross margin moving from 34.5% up to 38.3%. which then has had a good impact on the operating profit as well, taking a jump of almost 62%. And it's always pleasing to see, of course, when the growth and the profit exceeds that of the growth in sales. It means that we're doing something right, at least. And also here, just like in climate solutions, we have an ambitions investment program that's being carried out both in the forms of increasing capacity, but also in R&D of developing new and even better products. If we then move to the pie chart for the geographical distribution of sales, we also here have a strong increase in the North Americas, of course, and this is where the pie chart has really changed. It's up from 19% up to 29% following the acquisition, meaning that we have a more even spread of sales per geography than before between the Nordics, mainland Europe and North America. making the whole business area more balanced, you can say. Then heading into NIBE element. NIBE element has during Q1 seen somewhat varying demand, you could say. I mean, clearly the segments with a sustainability profile have continued to develop quite nicely and driven the whole business area. Whereas those with more consumer-oriented focus Jone Peter Reistadler, have experienced, you know, a varying demand and and weaker in some spots as well, and on top of that the the ban from the US on on exporting semiconductors has continuously had an impact, although we think that is more of a. Jone Peter Reistadler, One time effect in the sense that capacity will be needed to be built elsewhere, but it will of course take some time to achieve that. But all in all, the growth for Nibe Element was close to 22%, with only a small portion being acquired. Then this is our most global business area with a larger exposure also to North America. So here the currency impact has helped us slightly more than in the other business areas. But the majority of the growth comes from pure organic growth. but due to the product mix change you can say with semiconductor being reduced slightly we've seen a small shift in operating margin here going down then to 9.3 from the 10.1 in previous years but also here we're investing and keeping up a quite ambitious investment program this has been and continuously is our most J. global business area, you can say, and there have been no large shifts in the pie chart here nordics some 17% mainland Europe 38 and then North America being basically just as big and then with a portion of some 9% over in Asia. J. Then just quickly move on to the balance sheet there is nothing that really sticks out here it's. J. Stable and sound. The one part that perhaps sticks out a little bit is the non-financial current assets. And we will come back to that. It's our inventory that has continued to increase, which then also has had an impact, of course, on the cash flow a little. But whereas we during the post-pandemic period were increasing our inventory for the reason of getting hold of components, it's now more a matter of building finished goods inventory. which has traditionally been done by us during Q1 and Q2 for the sales coming after the summer break. If we look at the, we jump to the cash flow analysis, we've actually generated quite a healthy amount of cash, some 1.4 billion compared to 900 last year. But then The change in working capital for the reason I just mentioned has, of course, consumed a portion of that and then the ongoing investment programs that I also have mentioned. So there is a slight negative change in the operating cash flow, but we know where the money is, so to speak, and we are generating good cash from the underlying business. And this results, of course, in the number of key financial figures, and we don't need to go through each and every one of them. But if we look at some of them, I mean, we continuously keep a good portion of cash on the balance sheet, like 4.5 billion. The interest bearing liabilities have continuously decreased. The net debt to the DA is below one. And we have an equity assets ratio of well above 50. So I think we're ticking many of the boxes here for being in a position for further good growth. I think the next picture shows the working capital that I just mentioned. So it's of course high and higher than where we want it to be, but it's now much more a matter of building finished goods for the sales that we need to perform both now and after the summer. And on the last piece of paper or picture here, return on capital is coming closer to the 20 which we have and the return on equity to the 20 target that we have up from 14.2 and 15.6 respectively so it's a good development the net profit per share has basically been doubled since last year so again i think we're very well positioned for for further growth organically and through acquisitions Although there are, of course, always rooms for improvement. I'm sure there are going to be questions around this now. Things we have not told you about, so to speak. Would you like to add something, Erik? No, I think it's fine. We are ready for questions.

So please shoot.

Thank you. Ladies and gentlemen, if you do have a question for our speakers, please press star 1 1 on your telephone keypad today. Once again, that is star 11 to register for any questions. And one moment, please, whilst we take the first question. And our first question comes from the line of Priyash Sia from HSBC. Your line is now open. Please go ahead.

Hi. Good morning, Jen. I have two questions. The first one is on the growth. So if I understood correctly, in the climate solution business, I think 5.5% is divestment. So if I do the math, then the organic growth is around 40%. And so previously, I think you said prices are up some 15% to 20%. So would it be fair to assume that the volume growth is close to 20% or above in climate solution?

Sorry, it was quite difficult to hear you through the system.

It was sort of echoing. Could you please repeat that question closer to your microphone or something?

Sure, sure. I'll try to be sure it's helpful. So it was around the climate solution business. Could you please tell us what was the growth number in Q1, excluding the price effect? Was it close to plus 20%?

Well, I mean, we don't necessarily disclose that. But as Horst mentioned, you know, the organic growth, has been, or the growth, if you deduct, you don't have to be so, should I say, analytical to know that currency, if you take the Swedish crown versus any other currency and put them in a bag, is like the difference of some 5 cents that we have gained. And then, of course, we've lost the sales of Schultes. And so then saying that, The growth has been like on a 40 or 39% level organically, even if you take away the price instrument, you know, it was a phenomenal growth, considering also that not everything is heat pumps in the climate solution business. So of course the heat pump sales is well above the 40% organically. And then of course we have water heaters and we have other products in there. but are not growing at the same rate. I don't think that we can be more detailed than that, since we also have our competitors listening in here, and we have to have some secrets for ourselves.

No, that's clear, Eric. Thank you very much. And the second one is on the heat pump development pipeline. You talk about R290 based heat pumps, which you launched last year as quite successful. So if you could give a little more flavor of how the development pipeline is looking like and how is the R290 kind of existing thing? What's the set of cells that is overall total heat pump sales?

how we are developing in the heat pump portfolio with R290.

No, okay. I mean, that's totally clear that all our exhaust air heat pumps and air-to-water heat pumps, they're already there with the R290. And we are in the process of also launching the water-to-water or ground-source ones, or geothermal ones. So we are, you know, very comfortable with that deadline as it looks now as December 25 or 2025. And we, of course, we demonstrated that during the show in Germany, like two months ago. So that's no secret where we are there. That doesn't mean that all the present model is going to leave instantly. They are just going to phase those out as the other products are being you know, introduced on every market. So I guess that's an attempt to answer your question.

Yeah, that's helpful. Thank you very much.

Thank you. Thank you.

Thank you. And one moment, please, once we take our next question. Our next question comes from the line of Carl Bockwist from ABG Sondal Collier. Please go ahead. Your line is open.

thank you and good day my first one is just on a comment that you made there Hans regarding the working capital situation I mean just receivables against payables that's nothing major it's a kind of net negative so main driver being inventories but on the comment you said there about finished products or semi-finished how should we think about this or how do you kind of plan for it ahead of this year given perhaps what you hear from suppliers in terms of demand etc is it that you're are you waiting for like one or two critical components and then they can be shipped out or when you're saying finished product how just just how finished are they so to say no i mean i gotta avoid to say it was a good question i should say we understand your question

all questions are relevant. When it comes to the issues we have with supplies, I dare to say that a year ago, we had at least 150 supplies that were sort of uncertain or being viewed very negatively. Today, we have less than 10, which is a tremendous achievement. Nevertheless, there are some crucial components, and we don't like to name anyone because of Jone Peter Reistadler, You know, being a little bit discreet here, but the promises we've been given are, of course, that they will be and we'll be right towards. Jone Peter Reistadler, But during the second half of this year they going to be up at speed to deliver at the rate which we think we should be be delivering at. Jone Peter Reistadler, And to build up inventory that, of course, there are some products that are not totally finished yet. that are missing one or two crucial parts. That's one of the things. We also have ready finished goods, which we haven't had in the past. It's been totally empty. And to be able to service a customer of two or five that are absolutely in desperate need for a heat pump of five or eight, we have to have some service inventory. I understand you're in a very desperate need of it. We can help you. And the third part being still being, you know, fairly flat fat, if I may use the word on the components still when those crucial components will arrive. Of course, we have a number of people already waiting here to start to assemble and then it might be too late to ask all the other suppliers to say, well, now we finally got that crucial component, could you possibly help us now? So it doesn't work like that. So we have to have an oversupply also of components and staff to be able to cater for those products coming in at some date, not necessarily knowing exactly the date, and then also producing those or making those ready-made products. It's a threefold really explanation. I hope you got that.

Yes, that's clear. And my second question is on, I realize you don't disclose it per se, but is it possible for you to give any kind of comments on orders and what you hear from distributors, installers, et cetera, based on kind of the demand right now, I would guess that you're still working through a very strong backlog based on already placed orders.

Yeah. Well, I mean, the only thing we hear is in some countries, you know, waiting for further information as far as subsidies and things like that, whereas where the market has been, you know, living without or there's no change in the subsidy programs. I mean, it's, it's full speed as before. So, but of course, as you know, a year ago, there might have been or then, as always, a little bit of air in the backlog, when you can't deliver. We all like that, you know, we all remember how it was when people started to buy toilet paper when the pandemic came, not necessarily did we need all that toilet paper, but there was like a human phenomena. But to your question, we do not see any slackening in the demand for heat pumps. But of course, on the consumer side, on the element side, we see that, that people are concerned that we don't think that furnish is doing a great thing. We don't think that the whiteboard sector where we are involved, of course, we see that people avoid buying new fridges and stuff like that, unless they are broken down. new construction is going down means that also right good sector going to take a downturn along with that but on the other side the sustainability growth seems to sustain the weakness and the other sectors i see and

My final one is just on North America climate solutions. Still, you know, very, very strong growth there. Is it from any kind of particular segment?

No, we see both on the residential and on the commercial side. Of course, they come from a very, should I say, weak market or a small segment of the market where heat comes. But with this program, with this strange abbreviation IRA, we feel that the entrepreneurs have been given a very clear signal. This is going to be in now for a number of years, you can go. And that has really come across well, as we can interpret that. People are very interested in this, but of course, it's not to the point where We are in Europe because they have still a lot of gas and North America has a lot of gas and oil on their own. So it's less dramatic, but the, uh, the, the awareness of climate change, if you like to call it, or the need to get rid of or reduce the CO2, it's also there, but not so dramatically, of course, as it is in Europe where the whole continent Jan-Willem Wasmann, You know it's asked now to change by the authorities in Brussels, and we also see the brutality and in Ukraine, we just have to go to do something else, so that it's a it's a very positive development, but of course not so dramatic, as it is in Europe, I think that's the best way we can answer that.

Jan-Willem Wasmann, yeah understood that's all for me, thank you.

Thank you. And one moment, please, whilst we take the next question. And our next question comes from Phil Boller from Berenberg. Please go ahead. Your line is now open.

Hi. Good morning. Thanks for taking the questions. And congratulations on another strong set of numbers. I'd like to ask a slightly broader question, if I may, evolving competitive environment, specifically around climate solutions. I think we all understand that the market is increasingly attractive, so I'm curious to hear what you are seeing in terms of the behaviours of your competitors, both in terms of M&A bidding or lobbying or on list prices on the organic side. I guess I'm keen to just understand if we should expect to see any material market share changes in any key markets, and if not, Are you comfortable with the long-term margin resilience?

We understand the question, as we say. Yeah, of course, when the market is growing like it is, of course, that attracts a number of also new players and also results typically in mergers and acquisitions. Everyone wants to become stronger. So that's a very natural phenomenon in the market economy. And I think that's why the EU authority is so specific. We have to change the continent into more heat pump solutions. And of course, that's a very, very positive sign for a company that's been with heat pumps for more than 40 years. And we certainly have the ambition to even increase our share, but Most of the other companies, they might say the same thing. So of course, they're going to be a competitive race out there. But the market growth, as we see it, we think that the bigger players, they have a little bit of a, should I say, positive situation. Because if you start from scratch, of course, you're going to have to build a brand name and all that. So the well-established companies, we believe, will have a good start into this competitive future that we see. It is not like a year or two or three. We foresee easily 10 or 12 or 15 years when you're going to rebuild the continent like when you're doing. Because it's very important also to emphasize that everything has to be done with quality. Everything has to be done in a Otto Lehto- orderly way, otherwise the customer is going to be disappointed oh I went from gas to heat pump and it didn't work. Otto Lehto- So I think we all have a responsibility to carry out large or small whatever we installed to do it in an orderly way. Otto Lehto- And as far as mergers and acquisitions or acquisitions we are certain that that will also a quick and we saw a large one here with an American operator came in carry and they acquired fishman. I think there was a surprise to most of us who have been in the business for many years. But how that will turn out, I think that a number of companies are just going to continue as before. So what does this boil down to? I think that the companies out there, we're all trying to make money, but you have to do it in a rational way. And in the growing market, we don't foresee any, should I say, constraints or margins to anything. We feel that that's years ahead, possibly, but not when the market is growing like it is. I mean, I'm philosophizing. That's a long answer to your question, but I'm trying to respond.

Yeah, it's very helpful. I guess, as a follow-up to that, it's quite hard to... rationalize sometimes when others are being irrational. Maybe they're not being irrational, but I guess the question is internally, are you changing in any way your own hurdles in terms of the payback period for M&A? And I'm asking as your M&A growth relative to history has moderated a little bit. So I'm wondering if that requires a competitive response because of potential irrational behaviors for your competitors, or perhaps they're just taking a longer term view in terms of the payback period.

I think we've explained this before. I don't know whether you've been following us, but to make a successful acquisition, it takes time. It's not something like we do in a quarter. And I think that our more regular pattern was up until the pandemic. And then for some reason, we were just able to close two or three prior to the pandemic that we had been talking to perhaps during 24 months. And now we've lost 24 months or some 30 months. So the acquisition rate that you've seen recently is not, I may call it normal, because we have not been able to visit until mid-22. And typically it takes longer for us to date, if I may call it, and do the proper analysis before we actually sign on the dotted line. So it's not that we are shying away from acquisitions at all. It's just that we like to do it as methodically and accurately as we've done it in the past, not just running into it and say, well, we haven't bought some companies now for some time. You'll see the same pattern in the future as in the past.

Very good. Thank you. And just one final quick one for me on stoves. It's a different topic, but obviously this is a business which has been doing incredibly well for a while. And as you say in your presentation, it's moved from being almost a nice-to-have product to a security one. And I take that as it is. I think it makes a lot of sense. I guess I'm wondering, given that we've had a couple of years of very strong lows, and I don't know whether or not the security issue is starting to moderate, but are you seeing any signs of demand softening here, or do we expect the kind of stove demand that we've seen more recently to continue for, let's say, another 12 months or so?

No, as we say, we see a slightly weaker demand on the gas, because I think that it's also natural that we people like to go for wood that is also, you know, in a way, depending on how you define it, more sustainable. And I think that people would have liked also to invest more in wood pellets had there been wood pellets around. So there's also a shortage of that that is partly driving the wood burning stoves demand. I think it would have been also a quite high growth rate on the wood pellet stove side had there been wood pellets at a decent price, but a shortage.

the prices were just ridiculous okay thank you very much thank you thank you and one moment please whilst we take the next question and our next question comes from the line of victor charleston from danske bank please go ahead your line is now open

Thank you very much, operator. I hope you can hear me loud and clear.

Absolutely. Yeah.

Super. So first, I would like to follow up on something that you mentioned during the call. You said that you're able to cope with current growth rates in your current structure, but you're obviously investing for the growth rates that you are anticipating going forward. So just follow up on this, and please correct me if I'm wrong, but you said that your health pump growth was, let's say, 40% in the quarter. So is that basically implying that you're able to grow 40% going forward and that you're even anticipating higher growth than that?

You took out your math book, didn't you? Well, yeah, we can cope with the growth. Then it's, of course, margin-wise. When you produce practically 24-7, of course, that's a relatively expensive way of producing. So we like to come back to the situation where you produce more ordinary shifts and not necessarily over weekends, because you cannot do that in the long run. And of course, they're leasing off now when we open up the factory here in Markaryd. already this course about producing during the second part of the year and then we foresee a another rate of direct labor but as you say i think that we have to be able to grow quite quickly in in the future to be able to cope with the demand and i think that the 40 growth is of course pretty substantial But you also have to remember that in that we also include the North American entities that are now coming from a lower level to be included there. But we also think that historically, we've been more used to coping year after year organically with some 25%. To grow 40% year after year, We have not experienced that in part, so we can't say that. But we said, well, we'll do our utmost to even conquer that. But we think that there might be other hindrances on the way there. I mean, also the whole industry has to be able to cope with this growth. And I shouldn't say that we hope for bottlenecks. We just know from history that organic growth of 40%, that's tough. But having experienced that, we have not had factories ready to expand. We've taken that, you know, out of the already existing premises, and we have leased the premises. Now, we are investing more orderly, suggesting that, okay, that should not be a hindrance for us. Then, of course, our supply is still going to be a question mark. not only ours, because they supply our colleagues as well. And they're going to be also an installation constraint, possibly. Can installers all over Europe all of a sudden do all this? We believe in their ability to change, but there's also a number of new installers that have to be educated and move into this. So yeah, we cannot promise. We can grow, we believe, like we've done now, but we are working or investing in a direction of being beyond the 25% organic growth, a very precise number. Well, I'd like to leave that out for a moment, but it's certainly something we would like to participate in. We've been waiting for this opportunity for some 20 years. and is certainly going to participate now. That's why you see those investments coming in.

That's clear. And maybe as a good follow-up then, because it sounds like you're obviously investing for profitable growth. Maybe on the margin profile in climate solutions, I guess I'm just trying to understand how much is perhaps in a temporary short-term lag effect and how much is structural. And you mentioned three factors that was driving the margin. It was efficiency gains, volume leverage, and also price cost. Is it fair to say that those three were quite, what should I say, equally drivers for the margin?

Yeah, of course, when we get products in, I mean, we are, I dare to say, very rational. But then, of course, I mean, the Jan Bogaert, they're always going to be some kind of. Jan Bogaert, Competition naturally and I don't think that we can promise to just increase margin every every quarter. Jan Bogaert, That you've seen a healthy margin, you know climate solution, a quarter after quarter and year after year some year we went down a little bit, but I think we have established ourselves around a. in healthy margin more like if you look at on a 12 month rolling basis rather than than being taking one exceptional quarter because you also have to remember that this quarter of course last year we also had a growth because that was the then everything really started but we will have to remember that these quarters have been sort of extraordinary although we don't we are not satisfied but of course last year we grow with some 29%, and now we grow with 38% or 39%, even 44% if you exclude the shortest. Those figures are extraordinary. And that is, of course, from a base that was relatively low. Now, of course, when you are at the level where we are now, 40% means something totally different. So we also have to have respect for the math in itself. Bertram Steininger, For the denominator and denominator, and so we of course never developed our company in the direction of. Bertram Steininger, Growing for just growth and not making money, then it's it's use is meaningless, we always try to make a decent margin and that's where we came to the stock market about never be below 10 and I think we've been there once in 26 years so you've seen earlier. a fairly steady development and fairly good, if I may say so ourselves, and we kept our promises. And we're going to be out there and we're going to hustle and we're going to do our damnedest, excuse my language, to participate and grow.

That's clear. And maybe just a final one. I hope it's okay. But Q1 is the smallest Smallest quarter, obviously. But looking at gross margins, I think you in Q4 mentioned that looking historically in the period, let's say 2016, 2017, you had a gross margin of, let's say, 35%. You're now at 33.5%. So just maybe some commentary. I guess you're up to speed with price versus raw materials. But efficiency-wise, do we still have some way to go on the gross margin?

Yeah, of course. I mean, you know, if we get, as I said before, if we get products and can produce orderly, then we have a very nice running machine, but we are not there. But I, you know, we don't like to over promise either. But you can imagine when you always have stop and go, stop and go, and you have all the staffing, it's not only that you have stop and go, you have all the staffing. Because all the factories, we have more than necessary operators to be able to cope with the situation where new components are coming in that we've been lacking. And then those extraordinary staffing is going to produce what we missed yesterday. But the ordinary staff, they're going to produce what's already planned for today. And that is a heck of a situation for us And also to motivate people because they say, well, okay, now I have to wait four hours and then a new component crucial one arrives. And then everyone has to work like crazy, perhaps even work overtime and say, well, I didn't work in the morning. Why do I have to work two more hours now in the afternoon? And no one's going to make a productivity hit out of that. So of course, when we get components, then we're going to be more efficient without question. But we also assume that we are not the only company in this segment that is suffering. Sometimes it's almost like me being the only one suffering. I would be surprised if we've been penalized more than anyone else in the industry. We assume that our suppliers are fair. It's like we are fair to our customers. We cannot put priority on anyone. We know that our customers are not satisfied. We know that they are angered sometimes that we cannot deliver. But we say, well, we cannot favor anyone in front of the other. And we just believe that our competitors are treated in the same fashion. So they are not up at their full speed, up at their full efficiency, we would assume. I mean, we don't have daily control and not even yearly control because And that's why we are a little bit, shouldn't say secretive, but not so open with everything, because we are about the only company being listed. We get out margins and ambitions and everything. And most of our colleagues, you know, but for the Italian company now, Ariston, they are not so open with their information. All right.

Yeah, no. Yeah, no, I said, but you know, well, well done during the circumstances and exciting to follow you in the coming quarters. Thank you. Thank you so much. I'll step back.

Thank you. And one moment, please, whilst we take our last question. And our final question comes from the line of Douglas Lindahl from D&B Markets. Please go ahead. The line is open.

Hello. Thanks for taking my question. I wanted to come back to the sub-supply topic. And I realize, Erik, you wanted to be a bit secretive here. But is it possible to share some sort of insight on what components you're missing specifically? Because I know that fans was something you missed historically. And from my understanding, fan manufacturing capacity has been built out quite a lot. Also, semiconductors should have improved quite a lot. So just if you can comment a bit on that would be interesting.

Well, as we say, you know, I think it's a gentleman's agreement or a lady's agreement that you do not sort of name or bad mouth anyone. But it's a correct observation that fans, being a problem in the past, they are in that group. or the manufacturers on that group where we say they have built up their capacity satisfyingly. And on the semiconductor side, we are not saying that we've returned to the price level where we'd like to be. But due to our own ability or abilities to reprogram semiconductors, that's not the major issue as far as availability is concerned. But as far as price is still a concern. But we never, very seldom, stand still because of lack of semiconductors. But prices have not returned to where they were before. So it's still a hit to the margin. I don't think that we got it well on those suppliers, again, not, you know, being up at speed. I think that would be an outer question. That's not our style. But as I said before, if you were sitting here and reading our papers, you'll find less than 10 companies that are causing us a problem now.

Okay, that's interesting. And on pricing, how are you thinking now going forward in 2023 for climate solutions? Are you in a position that you will continue to raise prices, you think, or will you stay at these levels?

I mean, our idea has never been to increase prices, you know, more than necessary. In the past, I think, if you've been listening in, you've heard that we, on the contrary, have been very cautious, saying, well, we try to absorb some of the costs ourselves. But the last six or seven quarters prior to today, and to a lesser degree, of course, quarter one this year, We've been so brutally hit by price increase ourselves. There's no way that we could have absorbed that ourselves without increasing our own prices. And on top of that, as I tried to explain earlier here, having so erratic supply chain, that has hurt our productivity on top of that. We are not after price increases just for the sake of it, to say now we're going to increase our margin. Our philosophy is really to be as efficient as possible ourselves and still try to absorb some of the costs on our behalf here. And of course, if we are not able to do all that, then we might have to increase, but that's not our style. It's been extraordinary. we've been able that we have been forced to increase the prices like we've done you know the the last year or so so we're not aiming for that because we follow the market i mean we can't be a solitude we are all solid here we are like any other company exposed to you know price increases or price decreases but we just hope that we are out of going to be out of this terrible crazy inflation act where everyone takes a chance to dig in a little bit that doesn't correspond to our philosophy at all but I guess you're still I mean the climate solution margins are very very strong record strong right so I guess yeah of course when you expand like we do I mean you don't need to say a new managing director starting in myself even if you sell 40% more of course that is know typically a very good example and you have so many individuals that can still cater for you know the the same or not so much more volume so of course that means that your gross margin improves that's the whole business you know to to grow and then your overhead becomes lesser that's pretty pretty clear natural

Yeah, that's obvious, of course. But historically, the operational average hasn't been as strong, which was sort of why I did that.

No, that's true. And neither has the market been so buoyant, and neither has the growth been so quick. As we said before, we've had growth of some 25% over some years, but not to this degree. Yeah. Super strong. Thank you so much. You sounded disappointed in your voice there. No, no, no.

Not at all. No, thank you. That's excellent. Thank you for your answer. Thank you. Thank you.

All right. I believe that we have to rush to another meeting here now, if we are not impolite.

Thank you. As there are no more questions registered, I'll hand back to our speakers for their closing comments.

Okay. All right, so again, thank you for calling in and listening to us. Of course, we don't answer every question fully, although we could, but that's a little bit of our edge to keep some of the information to ourselves. We appreciate always these discussions and that keeps us on our toes. So thank you very much. Thank you.

This now concludes our conference call. Thank you all for attending. You may now disconnect your lines.