NIBE Industrier AB (publ)

Ladies and gentlemen, welcome to the NEVA Q2 report. At our customer's request, this conference will be recorded. As a reminder, all participants will be in a listen-only mode. After the presentation, there will be an opportunity to ask questions via the telephone line. May I now hand you over to Eric Lindquist, CEO, and Hans Bachmann, CFO. Please go ahead.

Thank you very much. Good morning or good afternoon or good evening, wherever you are in the world. Hello, everyone. Hans here as well. Very nice to have you on board. And we're going to follow the usual procedure by going through numbers and a few comments. And then we have the M&A session. And today, as usual, we have another gathering with the TV set around noon. So we have just about an hour to go through all this. So if we just start with some general comments, And, of course, you read the headline. We believe it's a fairly strong first half year. And since climate solution is so dominating, we can say that within most market segments, it's been a very good growth. And also within the segments with an element that's related, it has been a very good growth. And, of course, on the stove side, it's very much the wood burning that's been showing the best growth since Pellets stoves has been hindered by tremendous price increases coming down on pellets, for instance. And to cope with the coming, as we see it, growth, we are engaged in a pretty massive investment program, both here in Sweden and elsewhere in the world. And it's also pleasing to note that after the pandemic and despite all the wars in the world, we've been able to increase the, accelerate the acquisition again, or the acquisition rate data. And the first six months here now, if we include some weeks into July, we've been able to sign four draw deadlines. And we're gonna come back to that. And Of course, it's been a growth, and it's also come along with a pretty healthy margin increase in operating margin. And the acquisition that we talked about, they are economically distributed. Of course, on the scope side, we had that acquisition that we made at the beginning of the year with Miles Industries. Again, in British Columbia, meaning now that we have three companies fairly close to one another, which is facilitating the traveling, because when we go there, it's one stop in Vancouver, and then you can visit all three companies. And then, of course, on the climate solution side, we have a fairly large acquisition in our world anyway, with the Climate for Life Group that we've been, of course, talking to for many years, and now finally there's an opportunity to bring the company on board. And then we have another company on the Stoke side, which is in Portugal, where we have not been acquiring any company in the past, and that's Alzheimer's, which we believe is going to give us a good platform for further growth into the pedestal business. And then finally, we acquired the Ceramics Island Limited in July on the element side, which is a consequence, you can say, of the electrification, where the LED lamps are fairly cold and you have to have something that's heating up the headlights. And that's interesting to see how the automotive is changing, not only the engines going electrical, but also all the equipment in the car is to be changed. If you have a quick look at the figures, you've seen them, the growth is considerable. And there again, I know through Hans that you've been requesting, you know, how much was the divestment of shoulders? And I think around three and a half percent. I think Hans is going to come back to that. So the growth that you see here is 27.6, should pass again then if the development order details some north of 30%. But the growth in operating margin is perhaps more interesting to look at. It doesn't look as dramatic here, but considering that we had one off event last year and during the first six months, and we've been very clear here when it comes to how that is described, saying that the growth, of course, 43.5%, but in reality it's like 50%, or just north of that, due to the runoff events during the first quarter, 118, the first six months, 118 million. And it's also the same thing with the operating margin, of course, 15.3 is, as I recall, is the highest ever they've had. And comparing that to the 13.6, of course, last year, doesn't seem problematic, but that is actually to be compared to 15%. if we exclude those one-off events. And we prefer, as we always do, you know, to talk, like, on the running year, like the six months and the nine months and so forth. But we also know that you out there are very interested in looking at the individual culture. And we are a bit stubborn there, always commenting on the full period. Because when you run a manufacturing business, that's how we reason. We reason over a rolling 12-month period typically with investments and so forth. So that's why we are sticking to that. Nevertheless, the cost is such, of course, again, that it has the growth of some 22.6%. And the margin, again, is quite substantial at 15.6%. And if you recall, it was like 15.3, so it's been an improvement there. And there again, we shouldn't compare the 15.6 with the 16.2, but rather 13.8 as of last year. So the figures are quite pleasing, but of course, again, climate solution is overshadowing some shortcomings in the other two, which we're going to come back to in a little while here. Just looking at the typically dropped with the bars here coming up, and it seems like to be a healthy development over the last nine quarters. And if you look at the profit off the financial items, of course, there again, Q1 and Q2, 22, they stick out because Q1 is a little bit weaker than usual, and that is again burdened by the write-offs in russia there or yeah in russia because of the uh the closure of our operations and then q2 comes out a little bit better last year due to the um that is selling shoot the shares and in june of 232 million so looking at the typical pie chart time the solution is like two-thirds now the total sales element is a quarter and so is like 10 percent And due to the difference in margins, of course, the distribution of operating profit has been more pronounced for climate solution now, almost when it's like, you know, 80% and the other two 14 and 7% respectively. The pie chart describing the geographical distribution is slightly different because North America is coming up and having some 27% in the Nordic countries around the same in Europe, excluding the Nordic countries some 47%. So I don't think there's too much to be mentioned there. Thomas, you're using again, a few comments, don't go. And everything is driven by sustainability. And of course, that's why we invest as we do. New attractive products, everyone is talking about the new refrigerants and not only that, also a broader assortment within all three categories of heat pumps that we supply, and which is very significant for the improvements in our supply chain. That's been commented upon now the last seven or eight courses, and we see now clear signs of improvements, of course. And we will even predict now that during the second half of the year, we're going to come back to a more normal situation. Of course, I know that there's been a lot of, or we know there's been a lot of writings about the demand in the heat pump market in Europe. And we mainly believe that is depending on subsidies or support from different governments coming to an end and how should they structure the new ones. We are firmly believing that they will be in place during the later part of the year. And we also dare to mention that it's been such a chaotic increase in demand. And the worst thing that could happen in our industry when it comes to heat pumps would be 40 products coming out and not being serviced correctly. So although we don't necessarily like that the market has a slower pace, a summer slower pace, but I think at the same time for the customer, plus the customer point of view, we think that is almost necessary. And acquisition again, of course, the Climate for Life in Netherlands, it's a fairly large acquisition. It's last year, some 220 million euros. And that is, of course, an assortment that is sort of complimentary to our loan, the smaller buildings. And it's also... strengthening our market position, of course, not only where they are now, but also for us to be able to tag along and sell that assortment in other sales channels that we already have established outside Climate for Life's immediate sales channels. And the growth is healthy, as we say, in the 11th, to 15.9 almost, and then operating profit that is, of course, substantially higher from the 18.16 or really like 1.7 to exclude the runoff events. And then operating margin that is relatively high in our books, 18.2, and to be compared to 14.2 really a year ago. Again, it excludes that. Just a little bit of a a puzzle when you had those big runoff events in our own world, because sometimes you almost forget it. Of course, we had a decrease there and an increase there. That's why we try to be very clear on this. And of course, the second quarter can seem even better when it comes to margin, and Hans is going to come back to that and read by it here. Looking at the stoves, there we see that it's been a softer market for particularly wood pellets and also gas-fired products in Europe. That's a very small part. That's really Britain only. Whereas the man in North America, that is back on pre-pandemic levels. But wood is growing considerably in Europe. And again, demonstrating, we believe, that people are concerned about the the security and also the reliability on other energy sources. You can say one would like to have a backup product and then wood burning comes in. We continue to spend quite a bit on reducing the depositance because we know that it's a soft stock that we have. We have to come up with a solution there and We believe that being one of the market leaders is our duty to really pronounce that task and to come up with a solution that's good for the environment necessarily, but also causing or getting the customers comfort. Again, that's quite considerably and you've seen in the report that we just opened up a new factory in Britain. We're quite pleased to see that they don't only open up factories in so-called low-cost countries, but also start to invest or dare to invest in old industrialized countries like Britain, for instance, in this case. And operating profit has improved, but at the same time, the margin has remained at the same level. And there, of course, we've spent quite a bit in R&D and also... we had to take some costs when it comes to adjusting the organization in North America. And there again, the two acquisitions, so of course, so CYMA, that gives us a platform for the coming, we believe, pellet stove expansion, the continued pellet stove expansion, and also the Mines Industries in Canada, Again, reinforcing our market position, not only in Canada, but particularly in the U.S. Well, those figures, they speak for themselves. Of course, the operating profit is up considerably, but the operating margin is on the same level as I explained just recently. On the element side, there we have been able now to become less dependent on the biotech sector, but still, when that is really coming down, of course, that is hindering us. What we did not expect in this segment, and that happened already before last year, was when America, or the president and his administration, put restrictions on the export to China within the semiconductor industry. I think that's the most dominating negative factor that we've had and we've been able to compensate for that white goods going down but coupling that with the semiconductor softer market that's been hitting our of course margins as you as you've seen but nevertheless that is to come back and because now factors are shooting up elsewhere in the world but of course they're going to be a little while before they're up and running and before they are to be equipped with machinery where we are taking on supplies for those machinery manufacturers. But across the acquisitions, as I said earlier, we have Ceramics Ireland that's coming on board, and that's, again, a company directed to the electrification part of the world, where particularly the automotive industry is not serviced by this company, when the old combustion engine is not vivid anymore and we need heating and things and headlights, as I said before. And there you see the results, slightly weaker than the last year, and of course the operating margin has taken a hit when we had those two segments going down and getting softer for us. And looking at the, did I say, the rest in more detail, I think I hand over as we typically do here to Hans. And after that, we come back trying to answer your questions that you have after this presentation. Please, Hans. All right, thank you, Eric. Yeah, I'll try to be quick here, although we'll do some deep diving, in a way, into the numbers. Just one more comment on the group. And for the second quarter, the divested portion there of sales amounted to 3.4% for those of you asking for that number, since we're also punishing ourselves, including that in the growth rate. So I think it's fair to state that, of course, as well. And jumping into climate solutions, I mean, Within Climate Solutions, we grew by these 32.7% in total, of which 4.2 was acquired. But then the divested portion and all of it falls into this business area was 5.5%. And that is, of course, the surface washing machine business. So that leaves an organic growth, including currency, of some 33.9%, making us land there then at almost 15.9 billion up from 11.95. And as Eric mentioned, the drivers have been and continuously are the shift towards more sustainable heating solutions in both residential and commercial buildings. And with this better volume that we have been able to achieve, thanks to a less strange supply chain situation, you can say, I mean, that has a good impact on our numbers. So the gross margin has improved by some 3.4 percentage units, and the operating profit has increased from 1.8 to 2.9. But if we do the comparison there, apples to apples, the increase has, of course, been even better. Not the 59.2 that you see, but rather 70%, or slightly above that, landing in basically an all-time high margin of 18.2%. And this at the same time as we continue to invest quite heavily in our facilities for further expansion. If we jump into the second quarter, sales grew by some 27.6%, of which a portion there of 4.9 was acquired and 5.2, minus 5.2, of course, was the divested part, leaving an organic growth including some currency of 27.1%. And in the same way as with the first half year numbers, this has resulted in improved gross margin and, of course, substantially better operating profit than previous year. The increase has not been the 27.7 that you see there, but rather 58.2 if you then again compare apples with apples, reaching an operating margin of almost 19%. In terms of geographical distribution and sales, it's very much the same picture as before. Europe has grown a little bit more, but it's basically the same figure. Jumping into stoves, here we grew by 35%, but of course a lot of that came from the acquisitions of Mines Industries and Pacific Energy over in the British Columbia that Eric mentioned. Without those, the growth, including some currency, was 14%, and with an improved gross margin. And then with an operating profit jumping up from 198 to 266, being an improvement there of some 34.6%, allowing us to maintain the same margin as last year. And this despite the fact that it's the wood part that has been growing and where gas has been the more challenging part, especially in North America. And that's really what we see in the second quarter as well, the impact there on the North American business. I mean, we did grow sales by some 10 plus percent if you exclude the acquisitions, and we maintained a reasonable gross margin. But with an impact there from the companies over in Canada, we had an effect on the operating margin there. So there's been a shift in product mix, you can say, leading them to an increase in operating margin in absolute terms, but not in terms of operating margin. But also here we have continued with a very ambitious R&D program, and especially on the particle side that Eric mentioned. The geographical distribution of sales had as a consequence of this shifted a little. The North American activities, well, including the acquisitions have of course increased, If you were to exclude those, it's the European business that has increased slightly. And this also as a result of the product becoming a complementary heating source to other heating systems in the house, rather than being this decorative product, you can say that it has been before. We quickly then move ahead to need element within the element business. Sales grew by some 16% and a small portion there was acquired. Main drivers, as Eric mentioned, have been segments with a sustainability profile, whereas then the consumer goods business and especially the semiconductor business has suffered and the latter especially due to political decisions in North America. In summary, sales came up from 5.1 billion to almost six. Cost margin was slightly weakened since the semiconductor business especially is a good profit business for us, you can say. And we came in there with a margin of just below 9%. We have, as you all know, a target to be at least about And in the second quarter, this was also pronounced. You can say that the effect of not having the semiconductor business on board as usual had an effect there leading to a slightly lower operating margin compared to previous years. But it's also fair to say that we consider the semiconductor business or the weakening temporary thing that it's going to come back, but it takes, of course, time to adjust to political decisions. Yeah, I think we move ahead to open up for the questions eventually. But just a few more slides first, of course. Niba Element is our most global business and there have been no major shifts there in terms of the sales per geography. A quick look at the balance sheet. Again, this is more a consequence of our ongoing business than any other major changes. When Climate for Life comes on board now and some of the other acquisitions, that will of course have an effect on the balance sheet. The one item that sticks out here are the non-financial current assets. and that equals very much inventory, and I will address that in a minute when talking about the working capital. On the liabilities and equity side, the equity part especially is increasing due to the profits that we are achieving, leaving us with a very stable balance sheet. A quick look at the cash flow analysis. We have been able to increase our operating cash flow by some 30 plus percent. And there's still a negative impact from the change in working capital, but it's much less than last year. And of course, this is a consequence of us now being able to get more components involved and manufacture products and get them out the door. But we are also during the first half year, and especially in Q2, building inventory for the sales that are to come now after the summer break. And as you see, we're also continuously investing in our current operations. And there we have several activities ongoing as have been mentioned before. A few key financial figures. I mean, we don't need to address the investments again. I just mentioned them, but we have a good portion of cash sitting in our books. The interest-bearing liabilities to equity have decreased. Net debt to NPA have remained stable. And we've been able to increase our equity assets ratio even more. But then just quickly looking at the working capital, I mean, it has come down, as you can see. If we exclude the cash and bank part, it's come down from 23.1 to 22.3% of the balance sheet. uh which is a move in the right direction it's of course still very high and we are looking at reducing that even further of course but now we have been able to build inventory in a different way for sales that are to come and now we still need to of course be better in this during the pandemic or post pandemic period we were sourcing intensely to just be able to deliver because that was a major hindrance. And I believe that was not just for us as a company, but for many companies. So all in all, on the key financial figures, they have been improving and are reasonably healthy, you can say. A return on capital employed, that's now at 18%. A return on equity, that is close to 18% and coming close to our target of 20. An improvement in net profit per share, and of course also the equity per share, which I think leaves us with a very healthy balance sheet for further growth and whatever challenges there may be also in terms of shifting to other refrigerants and so forth. I think we have the financial strength here to take the next steps. I'll stop by that. Unless you want to add something, Eric? I think that you've covered it, perhaps too lengthy. Nevertheless, now we have... I'll try to be quick so we can add some... Q&A. Yeah, all right. Thank you all. All right. We are ready.

Thank you. If you do have a question for the speakers, please press star 11 on your telephone keypad. If you wish to cancel your question, it's again star 11. One moment please for the next, for the first question. The first question comes from the line of Kyle Bockwist from ABG Sundar Korye. Please go ahead.