NIBE Industrier AB (publ)

Ladies and gentlemen, welcome to the NIBA Q3 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 phone lines. May I now hand you over to Eric Lindquist, CEO. Please go ahead.

Oh, thank you. Good morning, everyone out there. And of course, next to me here is Mr. Bachmann, the CFO as always. So we're going to guide you through the report. And Marie-Claire, of course, the sun is always shining here, so it's a gorgeous day. I hope you are sharing that kind of weather in the rest part of the world. Very quickly, we're going to go through the figures and some comments. And at the end, we thought it would be appropriate also to show some of the investments that we talk so highly about, just picture-wise and a few comments. I mean, the headline is already presented with continued good sales and earnings performance as we judge it. We know that not everyone would possibly suggest that that would be so good, but that's how it is. Demand has been fairly good, but varying during the period. And very pleasing is, of course, that the labor performance is back on track. There's been a long haul for all of us. in this industry and I think in most industries and really in reality. And of course, the obstacle here is higher interest rates and we all know the reasons behind those, but that naturally has a slowing effect. And on top of that, we have some political, if you call it indecisiveness, where they don't really fulfill their promises when it comes to motivating people to continue to invest in a sustainable way. And investments, of course, very ambitious, and we're going to come back to those, at least presenting them to you picture-wise. We've also been able to acquire four companies during the first nine months, which is more an indication that we are back on track after the pandemic. Just a very quick look at the overall figures. Of course, we typically talk about the whole period, because that's how we forecast. We forecast for the year. We know that every quarter is important, but that's not how you build an industry successfully. You don't build an industry one to three or four quarters. In our case, it's taken us 70 years, more than 70 years here in Maricarid, and we have companies on board that have been in existence for more than 100 years. And I would say that's a formidable team that we have gathered J. During those years, and we are so proud to present the growth and also grow a gross margin that is. J. Better than the previous period and also an operating margin that is fairly substantial at least in our world. J. And you see some remarks there because last year last period in 2022 we had some. J. incomes and some and. the divestment, you know, that took us a little bit offside when it comes to figures to be compared. If we just look at the the quote itself, we've had a growth of a little bit slower than the previous period with some 15% of the gross margin, which is a good thing is of course that's kept up and the operating margin is also better than the previous period last year. And If we then dive into the diagram that we always look at, we can see that we continue to grow, and the Q3 is a little bit of a difference. You can say a difference would be slightly higher than the previous quarter. That's an indication that the interest rate hikes particularly have taken their toll, but nevertheless, It's a continuous growth and almost approaching the 48 billion, as you see there. Also on the operating profit side and profit after financial items, it's a healthy development, but we also see, of course, that the interest rates are hitting us a little bit more now and the interest rates are tripled from what they were like only beginning of the year, particularly during the whole 22. But that's something we just have to sustain. We have to live with that. We have to conquer all sorts of challenges. So that's just a chart showing where we are and how we manage the different circumstances in the market. The distribution of sales there, the climate solution is having a slightly higher piece than normal because of its development element, the usual 25 and so it's just under nine. Jone Peter Reistadler, And of course the operating profit is even more pronounced in favor of climate solution, where we almost approaching at 80% versus the other to represent like you know 20% will be better together. Jone Peter Reistadler, And distribution of sales, we noticed that. Jone Peter Reistadler, North America is pretty prosperous at the moment. particularly for climate solution and also for element in some instances, but particularly for climate solutions. And if you just go into the climate solution itself, we comment, of course, in summary that we've had a good growth and productivity has increased because now we receive material on a more normal level. And that means that our customers will also get products more orderly. But at the same time, there is a common market development in many countries. And we've described that. It's been an over delivery performance, perhaps, during some months. And we all know that. And the interest rates, of course, they hit the market, particularly in the housing. But we can continue, of course, to invest because we believe so strongly in the future for heat pumps. And we're going to come back to that in a few minutes here. And we have also launched a number of very attractive products during the nine months here, particularly on the natural refrigerant side, but also on the performance side, which we mentioned before, where our water-to-water ground source heat pumps are now exceeding clearly this seasonal COP of six, which means that we are, you know, step-by-step approaching our target of being close to the LED lamp. We don't expect any Nobel prizes, as we've said before, but we think they're going to be very, very difficult for politicians or for customers to deny the product range with that efficiency if we now believe in Solving the climate issues that are so apparent and becoming more and more apparent. So those are mainly the reasons to the better volume and also the increased productivity. Of course, the productivity has been hacking. That's a wrong word anymore, I guess. But it's been stumbling when we haven't had the deliveries from our suppliers. But that's much better now. And just looking at the quote itself, of course, I'm sorry, you know, climate solution. I skipped one picture. The business area itself is, yeah, 18 and a half operating margin is, in our books, pretty strong. And that is, of course, a reflection of the gross margin being on a healthy level. And jumping into stoves, we see that it's a switch here that's why we talk about you know varying demands and wood burning that is really strong here in europe but softer for gas fire products and pellet stoves pellet stoves is of course more a mediterranean phenomena where it's been a shortage of pellet stoves and when they are available they're very very expensive and the gas fire products have more in britain their gas prices have been a hindrance for the growth there. In North America, more back to the demand before the pandemic, but also there that it's softer, particularly on the gas fired side. We continue to invest. And we also give you a little bit of a hint when it comes to the new programs coming about. Already this year, we have, of course, launched a product range now more on the electronically controlled side, and also when you can control it with your smartphone. And next year, we believe that we're going to launch now the solution for the lower particle emission one. So everyone buying a stove could be more secure that you don't harm the environment. The operating margin has taken, yeah, it's taken a hit. due to particularly the variation in demands and we've had to sort of modify our staffing depending on that market situation. On the element side, we see that there's also very, very varying, perhaps I jumped a little bit too quickly from stoves, but the margin, as you saw, was down from 12 to 10 and a half. And of course, although we are very quick to react, it takes some months before you are back on the same operating margin track again. On the element side, of course, it's very varying with consumer goods taking a hit many, many quarters back and also the semiconductor industry, but there's more due to trade restrictions, whereas the sustainability side has prevailed pretty good so far. We also invest quite heavily. And that's typically when you talk about or when we talk about the world going electrical, like the automotive industry or the truck industry going for totally different solutions. And that's why we have to broaden our presence footage-wise in a number of factories. No operating margin. And that's, of course, due to the variations in the demand product mix wise. And we try to adapt as quickly as possible. But it takes its toll also here, where you go down below 10%, which is very pleasing. But we do that in a very firm way. We do not stall any R&D costs. We just continue. We continue. J. investments, because we are so convinced that we are on the right track. J. And elements otherwise yeah I think that's all it's going to come back to have some more to more detail the figures when it comes to gross margin is stuff like that. J. So I think that perhaps i'm just about ready there and then off the horses comments, I think that we are going to. Jone Peter Reistadler, Go quickly through the go through quickly the investments and since i'm now spending like 12 minutes, depending on how many minutes you're going to spend homes. Jone Peter Reistadler, And the presentation of investments, I think we're going to allow you to put questions until noon or slightly longer depending on where we sit because we also have two other sessions here before one o'clock. So thank you for listening. Hans, I'll hand over to you here.

All right. Thank you, Erik. Yeah, I'll try to be quick, although we will do some deep dive, so to speak, into some of the numbers. If we come back here to climate solutions then, I mean, as Erik said, we've overall had a very strong growth for the first nine months where sales have increased by some 5.4 billion sec or close to 30%. And out of this growth, the majority has been driven by a very good demand for our sustainable products in Europe, but also in North America, which has picked up nicely. And of course, the growth was then topped off a little bit by a portion of both price and currency in there. And as a matter of fact, the growth has actually been slightly better because we have this portion of the divestment of Schultes in there, which is a negative three point And it's, by the way, 2.3 for the group for the first nine months. There is no effect in the third quarter. So thanks to this increase in volume, the gross margin has increased substantially, you can say, coming up from 32.9 to 36.6%, with an operating profit growing by more than 50%, and actually it's slightly above 60% due to the one-offs that Erik mentioned before. At the same time, we have seen deliveries returning to a more normal level, and we've also seen this calmer development in several countries as a result of both increased interest rates and the discussions on subsidies in some countries. And this calmer development and the return to normal delivery levels, you can say, is slightly visible here in Q3, where the growth came in at slightly above 17% without the acquisition included. And then again, no further negative effect from the divestment of the former Schultes business. But nevertheless, both gross margin and operating margin have increased versus last year. So we came in here at a gross margin of 37.1 percentage units, up from 33.1, and with a very healthy operating margin there, close to 19%. And on top of that, we have continued with our ambitious R&D and investment programs. In terms of split per geography, there have not been So much movement, North America has gained a percentage unit compared to last year. A slight sign showing that they have developed nicely. Moving on to stoves, sales grew by 23.8% in total, but of course a good portion of that was acquired growth, leaving some six. for the organic growth with portion, again, of currency in there, of course. Demand for wood in Europe has been good, whereas the demand for gas, especially in North America, has been rather weak. But with that being said, we have been able to increase the gross margin also within the stoves business area, coming in at close to 37.7%. up from the 35.7 of of last year but due to our continuous investments in both marketing and r d and some adaptations that we have been making in north america the operating margin has come in slightly lower there at 10.6 as opposed to the 12.1 in the quarter itself growth came in at Jone Peter Reistadler, 5.2%. Jone Peter Reistadler, Which is fully you know related to the acquisitions that that we've made, meaning that there was a negative growth as such in the quarter very much related again to the gas product, so to speak, in North America. Jone Peter Reistadler, And this has been in turn impacted the gross and operating margin which have then come down slightly. In terms of split of sales per geography, North America has obviously picked up due to the acquisitions we've made. A year ago, they were at 23% of the cake and now up to 28%. And movements within the other areas have been very small or more a consequence of the add-ons in North America. If we then move on to NIBA elements, sales for the first nine months they came in at 8.9 billion up some more than 900 million compared to last year or close to 12 percent growth out of this a small portion was acquired 3.2 leaving some eight and a half you can say for organic growth of course supported by currency and some price in there But in this area, we have for some time seen a decline in demand for consumer-related goods. And also with the North American or US ban rather on semiconductors to China, that's also had an impact, which we however believe is more of a temporary impact and something that will pick up again. But at this moment, it is affecting us. And that's why you see a gross margin that has come down slightly from 22.7 to 20.9. And an operating margin there, which is 8.5%, where we strive for being at 10, of course. In the quarter as such, all of the growth, you can say, came in at acquisitions. Of course, meaning that the pure organic growth was negative. And this shift again in product mix that I just mentioned has an impact on the gross margin and the operating margin. So we came in there at 235 million in operating profit down from the 324 landing and operating margin of 8%. But then of course it is a business which is selling to OEMs. So overall, in comparison to the other business areas, It does have a slightly lower margin. In terms of sales per geography, there has been a shift in a way where North America and the others portion, which mainly is Asia, they have decreased by some 3% of units each. Whereas then the Nordic countries and Europe have gained three each. It's again, as we've mentioned many times, our most global business area. If we then leave the business areas and just move on to the group's balance sheet and cash flow statement and financial figures, we've had some movements here. The balance sheet has, of course, grown quite substantially, you can say, mostly as a result of us bringing these four acquisitions on board, where Climate for Life in the Netherlands is the by far largest one. And that has, of course, increased our intangible assets after bringing it on board according to the PPA that we've done. And as a consequence, also the tangible assets have grown from seven and a half to 10.8. But there's also a portion of growing the inventory there. And what we've done now is to build inventory for finished goods, which we have actually not been able to do before. that as a consequence of now being able to deliver again. So it's partly planned, although we're not fully pleased with the level and we'll touch upon that in a second again. On the liability side, it's mainly the long-term liabilities, interest bearing ones that have increased as a pure consequence of these acquisitions coming on board. But those of you who have followed us over the years have also seen that we have had an ability to amortize those reasonably well in the coming quarters. Then just quickly looking at the cash flow statement, we've had a very strong cash flow from the operating activities as a consequence of the first nine months good performance. We've increased those by some 1.25 billion SEC coming in just about five. J. Up from the 3.8 but then the change in working capital has consumed a good portion of that and that is again the the inventory that I mentioned. J. And then we've continued to invest in our operations increasing that from close to 1.3 to almost 2.3 but Eric will soon show you what that has led to quite some nice investments, I dare to say. Jone Peter Reistadler, few words on the key financial figures. Jone Peter Reistadler, yeah investments, obviously they have increased substantially as a consequence of. Jone Peter Reistadler, Both the investments we make here in factories and r&d centers but also coming from the acquisitions. Jone Peter Reistadler, And since they are communicating vessels we the interest bearing liabilities in relation to equity has taken a jump from some 41% up to 70. And the net debt to EBITDA has almost doubled from 1.1 to 2. And the equity assets ratio is now at around 44% down from just about 50, but well above our target of 30. So finally, you can also say that we've gotten to use the strong balance sheet that we've had. Yeah, looking at the working capital, it is now 25% of sales, which obviously is not where we want to be. It is a consequence of having sourced, of course, a lot of components during the period post the pandemic, where it was very difficult to get products on board. And also, as I mentioned before, the fact that we have been building finished goods inventory, which we have not been able to do before. But we're, of course, working on bringing this down to our more traditional levels. And all in all, I think the last key financial figures have developed nicely. Return on capital employed slightly stronger than last year. Return on equity close to 18% and getting closer to our target of 20. And then an increased net profit per share and also equity per share. And by that, before we start the Q&A session, I think you're eager to show some pictures, Eric.