NIBE Industrier AB (publ)

Ladies and gentlemen, welcome to the NIBA Q4 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 lines. May I now hand you over to Eric Lindquist, CEO, and Hans Bachmann, CFO. Please go ahead.

Thank you. Good morning or good afternoon to all of you out there. Thank you for calling in.

Yeah, hello.

Hans here as well. And we're going to have the traditional setup here where we comment with a few slides to start with, and then you have a Q&A. So, looking at the first slide here, we, of course, have, as it says, a very good year, all in all, about the clear decline in the fourth quarter. And I'm sure that you're also going to have a number of questions regarding the restructuring program due to the start the start of the 24 that is weaker. But if we just comment about the year as such, of course, there's been large fluctuations in demand, and we all know why. We tried to explain that, the inventory adjustments in the whole distribution chain. And now when that is more or less solved, then of course, we see that there are too many heat pumps in the in the chain out there, which of course makes it very difficult to make any kind of a realistic forecast. And the higher interest rates, of course, they also make it difficult for families to buy new homes and invest, and also that dampens the whole consumption, we can say. Nevertheless, we've made five larger acquisitions, and they are strategic, of course, turn over some 3 billion crowns, So, all in all, that's fairly decent. We're coming back to the structuring program, of course, and we are sure you're also going to have a number of questions. Looking at the group, the full year, of course, for the $6.6 billion, that is the highest turnover revenue ever, and also coming out with the operating profit of very close to $7 billion. That is also the best result ever. And the operating margin is also, as we recall it, the best margin ever, if you look at the year as a whole. Looking at the full quarter, where we see that the expansion or the growth is coming to a standstill and the organic growth is not there anymore. We have acquired some 7%. So the turnover, we can say, is about the same as last year. And of course, the operating profit is coming down. and also coming down in the operating margin significantly. And that is, of course, now when we see the first part of this quarter, why we start to react. And that is also a slide that describes that more in the graphic way, where you see now that the Q3 and Q4, particular Q4 that's always the strongest one, that is more flat compared to Q3. And that is, of course, affecting the profit. And we can also see the curve up there that's getting a little bit of a downturn. And we're also going to come back to that in comments, how we look at that. And if we just look at the pie chart, as we typically do, pretty much the same climate solutions, about two-thirds, some 25, and so it's like 10%. That doesn't change much over the years. And when we look at the distribution of the profit, of course, that is, again, pretty much pronounced a climate solution, almost having some 80%, whereas elements and stoves have been hitting tougher times a little bit earlier. And if we then continue with the next slide, you won't dwell too much because we know that we are anxious to put some questions here. We also see that the... The North American pie is a bit over the 25% now, which is very good because Europe, particularly on the climate solution side, is weaker. And the Nordic countries, they represent just a little bit over the 21% or one-fifth, which is our home market, we always said. And if you just have a few comments about climate solutions, of course, it's a good performance but for a quarter again coming back to that that is of course weaker or a decline and then we start this uh restructuring program from a point where we feel that okay we don't like to have any uncertainties internally neither do we like to have any uncertainties out there we might as well start doing this sending clear signals uh what we're going to do and of course We have not deviated from our firm belief in the future, but sometimes things happen, and now there are a few things coinciding, and we just have to react. Otherwise, the investments, we have done them very orderly since 2020, and they are now soon to be completed. We mentioned that we've invested some $8 billion over the last years, and the target was some $10 billion, and they'll be completed, if not 100% this year, but at least the coming six or seven quarters. And of course, we've been striving very hard to launch the new products, particularly on the stove side, I'm sorry, on the natural refrigerant side, and that's now in existence. Now, the timelines have been moved forward So it's not that urgent, which is a little bit of a disappointment to us that we came to the market in a very orderly time, but they now postpone the first of January 25 and delay that with a couple of years. Nevertheless, the operating margin for the year as a whole, already mentioned that, that is the best ever. And yeah, again, operating profit for the climate solution, is, of course, on the healthy side with an operating margin of 17.8, which is considerably higher than the previous year. And if we just continue on the stove side, there we've seen a clear, should I say, good demand and growth in wood burning, where it's been much softer for pellet stove and gas stove. but also they are particularly for gas-fired products. And there we've had a very ambitious investment program, both for the production and such, but also for R&D. And now we have launched one generation of new products, and one to come this year. So those programs are also to be completed, or soon completed. And then, of course, we have had to adjust our organization due to the variations in demand, and that is affecting our operating profit and the operating margin, as we're going to see in the next slide, where we take a dive from the 551 to 533, although we have pretty healthy growth. I'm just going to come back to that. But it's mainly driven by acquisitions, and your operating margin is down a bit more than two percentage units there. And on the element side, of course, there we are following the whole economy. We can say, as we said so many times, we are pretty much in every individual business sector. And there we also have seen a slowdown in the second part of the year. And that is, of course, one of the reasons HVAC industry is weaker than before. And the consumer goods segment continues to be weak, but that started a little bit earlier. And that's typically the first segment that takes a dive when the interest rates are going up. And then the semiconductor industry, that's a different story because there we talk about trade restrictions in this particular degree in China and the U.S. So that is delaying the expansion there, but now we see new factors being erected all over in Europe and in North America, so that is just about to start going in the positive direction again. Industrial segment continues to be good, and one particular segment is electrification of vehicles. That is very interesting to us in a large market. And there again, we are ready for the expansion. We have invested, and that is also soon to be completed. But we've had to take some adjustment costs. That's why the operating margin and the operating profit is slightly lower than last year, as you see on the following slide. And there we take a dive from the 10 to the just south of 8 percentage units when it comes to the operating margin. And I think that's very quickly what I wanted to say according to the slide deck we had here. Hans, it's your time to shoot.

All right.

Thank you, Eric.

I'll continue with the same speed to open up for the questions in a little while. If we can continue with Climate Solutions slightly more on a detailed level. I mean, as Eric said, we phrased it in the press release as a good performance, but actually, Climate Solutions has had a great performance it's the best ever in terms of the highest sales highest profit and also margins sales for the full year were up by some 20.3 percent of which just below six were acquired but what we haven't specified in that table is that we also had minus 2.5 coming from divestments the portion from the the last portion of the shoulders group and while sales grew by some 20 per 20 plus percent profit was up by 29, very much due to a strong increase in the gross margin, thanks to the volume that came in, so to speak. But of course, in Q4, things slow down and very much as a result of the market, which has continued to decline due to the inventories that we see are out there. So in the quarter itself, the growth was minus 1.4%, meaning that the organic growth, including a slightly positive currency effect, actually were down by roughly 9%. And although cross-margin improved, the decline in volume overall has a negative impact, and we came in there on 15.9% in the quarter, which of course was down from the 19.3% of last year, but in a way is a strong quarter. If we look at the geographical split of sales, there haven't been very much changes to that picture. North America has picked up slightly, slightly, and overall we've seen a North America that has been a little bit stronger in general than Europe now during the latter part of the year. If we quickly move on to Niebestoes, that business area grew with some almost 19% in 2023. But of course, a large portion of that came from acquisitions. And as stated before, I mean, wood burning stoves in Europe has been fairly strong and performed well, whereas North America with gas and then pellets in general have been weaker. So we came in there at an operating margin of the 11.2 down from the 13.7. And in Q4, sales in total went up by 7%, but all of it and much more, so to speak, came from acquisitions, meaning that the organic sales, including a slight positive currency effect, were down by close to 7%. And with the weaker volume and the continued ambitions we have in R&D and so forth, the margin came in at 12.7% there. In terms of geographical split of sales, the North American pie piece there, or piece of the pie, has increased due to the acquisitions we've made, now representing almost a third up from basically a fourth of last year. Nib Element has basically shown the same pattern as in the business area mainly comes from the slowdown in semiconductors and lately then also the heat pump related HVAC business. And with these being reasonably high margin business for the business area, that has an impact on the result. And in addition to that, the consumer goods segment has seen some weaknesses. But as Eric pointed out, there are also very interesting opportunities within, for example, electric vehicles and other segments as well. As Eric pointed out, it's the segment where we are represented basically all over the world. Full year, we were up by some 9%. Organic, including currency, was up by 6.3%. But then due to this rapid change in product mix, the operating margin came down and we dropped down below 10% and came in just south of eight even. Q4 was rather flat and with this continued unfavorable product mix, so to speak, the operating margin came down there to just about 6%. And as you all know, we have a target there of staying at 10 or above over business cycle. In terms of the split of sales on a geographical point of view, so to speak, this is, again, the most global segment that we have where we're represented not only in very many segments, but also in very many geographies, which is a strength, of course, when one area is possibly weaker than another. A quick glance then just at the balance sheet and then cash flows and key figures here. The balance sheet what sticks out there and it was the same in our last Q report are the tangible assets and that means very much inventory. As you know, we have been sourcing a lot of components post the COVID period and during this year when things became so to speak, better for us. We've also been able to build finished goods inventory. But we're obviously working on bringing these down even more. They have come down slightly, but there is more to do. On the equity and liability side, it's possibly the long-term liabilities that stick out a bit, having come up from the 6.4 billion to the 16.9, very much related to the acquisition of a very important climate for life company in the Netherlands for us. And if we then jump over to the cash flow analysis, we've actually generated one of our highest cash flows ever as well there with the 6.5 billion. But obviously with the change in working capital where we have been building inventory and then also continued our very ambitious investment program, the operating cash flow has been basically And then on top of that, we have the acquisitions made during the year with the CFL Group in the Netherlands sticking out as the biggest one. A very quick glance on the key financials. I mean, working capital has come down slightly. But not enough, especially if you ask me as the CFO, we're continuously striving for bringing that down. So, of course, a little bit easier to set them down when the market within climate solutions currently has inventory in the system already. But overall, the key numbers are very fair, so to speak. Interest-bearing liabilities being at 70%, net debt WDA at two roughly, and an equity assets ratio of close to 45. But obviously, we are affected as well. Return on capital has come down slightly as well as the return on equity when things develop a bit slower, so to speak, during the last part of the year. But summarizing our key financial figures and the ones we really follow and have as our targets in the in the annual report and for our companies, we see here our development ever since we went public back in 1997, where we see the equity assets ratio, return on equity, operating margin, and net margin, which have developed quite favorably over time, step by step by step. And we've been through both one or the other challenges during these years. And by that, I think we leave open for questions or would you like to add something? No, that's perfect. You shoot out there. Please.

Thank you. We will now begin our question and answer session. If you do have a question for the speaker, please dial star 11 on your telephone keypad to enter the queue. One moment for our first question, please.

Hello.

And our first question does come from the line of Carl Ragnarstam from Nordea. Please go ahead, your line is open.

Good morning, it's Carl here from Nordea. A few questions. Firstly, looking into the volume drop in climate solutions in the quarter, what portion would you say is distributors and installers taking down inventory and how much would you say is end market demand? And secondly on that as well, you mentioned in the report that you saw an acceleration during the quarter. Is it fair to assume that this was inventory driven or is it also a combination of end market demand getting a little bit worse?

Well, we believe it's a combination. Of course, the higher interest rate, that has an effect on new construction and people's readiness to buy any merchandise, but of course also heat pumps. But there is a clear, of course, signal also from the distribution chain that they are still overstocked. And that is, of course, damaging our output as well as all the other manufacturers. So that's a combination.

Okay. And that goes also with the acceleration, I guess, or during the quarter. Yeah. Okay I'm a bit also curious to know a bit more about your guidance for first half and full year 24 where stated it will be weaker. I mean it could give some light on what magnitude of weakness we're talking about in first half for instance. Would you say that it's a similar organic crop that's what we saw in during Q4 or that acceleration might continue a bit entering Q1? Yeah, how do you see that?

Well, I don't think that we can inform you so much more than is written in the report, but of course, as we try to say, as we try to have said so many times, our reports, they present to our best ability a story, a true story of where we are, where we are heading. And of course, when we talk about a weaker second half and possibly into 24 like half a year ago. That is, of course, something that is now moving ahead as we see with the week 24 to start. We don't have the crystal ball, I apologize, for the remainder of the year. And we feel it's appropriate to not promise there are going to be any dramatic improvement in the second half. I guess you should read it like that. We like to be prudent in our guidance, and that's as far as I think that we can explain that.

And if you look, I mean, we only have one and a half months here during the start of the year. Would you say that the situation is even tougher during the start of the year or that it might continue as you saw during December?

Well, how should we answer that? You know, if we walk into precise figures, I think we release more than we are able to. But we understand your question, Ragna, definitely. And I think that's just good guidance you can get from us. Because the picture is not totally clear to us either. It's very difficult to even ask distributors and installers where the inventories are. And I guess we're trying to give you the best guidance possible. But as far as percentages and stuff like that, we have to stay out of that. Again, from a fairness point of view to all our shareholders, because we don't like to release anything that's not written in the report. But we try to indicate to you now that the first two quarters will continue to be You know, as we said, even in the Q3 report. And I think that's a little bit clearer than we used to guide due to the difficulties that we had in the market. And when I say we, I think it's the whole industry. And to continue, it's a little bit of a surprise, I guess, to all of us that the demand out there has taken such a hit. as it has due to the higher interest rates and due to the gas prices going down again. And we also have a little bit of a sentence there or a sentence regarding the willingness to support our industry. And now we are not preaching for our own company, but it's a sort of a sustainability issue. Are we really heading in the right direction? or returning more to a gas-driven society again when prices are down. So that's a fundamental and very important issue. But I won't dwell too much more on that. That's very good.

And the final very quick one is of course saving. If you could help us on the ramp up of the cost savings, you said it. It will be full effect in 2025. Is it early 2025 you mean by that? And also if you could give the cost savings split by segment or perhaps geography as well.

Well, I mean, to start with, that's not something we're going to start doing in December. Of course, that will take a gradual breath of the organization as we negotiate and as we fulfill this. It's not something we can wait. We're going to do it as quickly as possible, but also as, you know, responsible as possible. That's what we say. And when we say that when we hit 25, of course, all costs should have been driven out of the organization, if I may use that word. So it'll be a gradual, you know, say, well, introduction of the program that you're going to see, and 25 will be, you know, totally clean from this.

Okay, very clear. Thank you so much. Thank you.

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

Hello, gentlemen. Thanks for taking my question. I wanted to come back to the Outlook comment here. My impression is that you're getting a bit more vocal about the difficulties you see in the industry. To what extent is this really a market that you're seeing that is becoming increasingly weak? Or to what extent is this you becoming more vocal about these things, meaning you've changed your communication to a certain extent, would you say?

Well, I think that perhaps we've been too conservative in our communication. We have not really been so. well-trained media-wise or communicating with you folks out there. Perhaps we've been too home-worn in a way, and we apologize for that. And we try to give you as good as possible guidance. And we are happy or pleased to know that you know that we are changing gradually a little bit. it's not so easy we have our habits and you know we've been invested for so many years and we try to despite particularly my age we try to be a little bit more modern without being extremely modern no thanks i i appreciate the difficulty in forward-looking commentary in general so i can understand uh so interesting to hear there um just coming back to um

your expectations on the weaker market there in 2024, and given where inventory levels are, how should you, or how do you expect this to sort of play out for climate solutions margins for 2024?

Yeah, well, I mean, isn't that fairly, of course, if the market continues to be weak, of course, no one can maintain decent margins without taking actions. And as before, you know, we are working always from a relatively decent level of profitability. That makes you safe when it comes to, or certain when it comes to analyzing things for a certain period, but when it now continues into the first part of this quarter, because then you say, well, realistically, this will not change. We have to do something about it. And we do it from a very solid platform. We don't like to wait until it's, you know, very obvious that we have to do things. I mean, the fourth quarter is not ideal, it's not pleasing to us, but from any outside, it's not like too bad if we shouldn't judge ourselves. And we think that's the neither way of reacting. You analyze things, you work from a profitability platform, and then you act. And that's exactly what we're going to do now.

Okay, so continue difficult margins, I guess, then.

Well, I mean, we, you know, I understand your question. Don't misinterpret this. But I mean, you also know that if, as you saw in quarter four, I mean, when the market or the revenue goes down, there's no company in the world can really continue to maintain the margin.

No, no, obviously. Yeah, it's just the context of your inventory levels. On the cost-cutting program, thanks for being vocal about that and explaining that. I'm just trying to understand. So 500 people are affected, and if the market sort of bounces back in 2025, will you rehire these 500 people, or are these structural costs that you're actually taking out?

No, they are structurally taken out. But, of course, if the market would bounce back another 30%, 40%, of course, there are I mean, we can't live with the same staff. But they ought to be taken out, assuming that we'll have no dramatic jump. But, of course, as we see it now, the heat pump market will continue to grow. But now we feel that we have to adjust because we were, you know, equipped, if I may call it, to a larger volume. We all thought that the industry thought that now we will rebuild Europe particularly in the ventures in North America with heat pumps. And, of course, you take on board people that are not. I mean, this is a very, very sensitive and difficult situation that we are. I mean, that's the last thing for me. I mean, I spent my whole life here. And to even suggest that we're going to reduce people. So emotional. But the professional part of the job is to do just this.

Yeah, I understand. It's not easy. I clearly understand that. And just to move forward in the questions on pricing, we haven't touched upon that topic yet. Are you seeing any changes there in the markets? Are you adjusting your prices? Are you seeing competitors doing anything on pricing, obviously for heat pumps specifically?

Yeah, well, I'm sure that there are, you know, movements out in the market in a limited way, but Our frank assessment so far isn't that we haven't seen any major downturn in pricing. But having said that, we all know that in some markets and some segments of the market, there are always going to be intents.

And how are you acting in this market? Or are you planning to act?

Well, we try to maintain our... product or our message to the market where we are producing products of a premium kind. And of course, if you like to buy products of a lesser sophistication, we also have an assortment of that kind, but we don't participate in the very low range of products. I guess that's your answer to that.

Thanks. And then maybe a question for Hans. I noticed that eliminations here in Q4 was positive on the EBIT. What's the reason behind that?

That's the same thing we do every year when we run through the contingent liabilities for additional purchase prices. Because that's when we get the budget, the three-year plan, and we need to adjust the liability that we've set aside. And sometimes we have to set more aside. Sometimes we have to release a little. And the net effect this year, following the market development, you can say, was a net effect of a release.

Okay, that's it for me. Thank you so much. Thank you.

Thank you. And one moment whilst we take our next question. And our next question comes from the line of Carl Bockwist from ABG Sundor Collier. Please go ahead. Your line is open.

Thank you and good morning. Most questions I have already been asked, but if I may, at the start of 2023, you did provide some details on the organic growth of your heat pump business. What was the organic figure now in the fourth quarter?

The organic trigger for the, I think, are you asking for the organic growth of heat pumps in Q4?

Yes, yes, sorry, exactly.

Okay, well, I mean... I want to have to return to that picture that you had there, Hans.

Well, I mean, in Q4, we had an organic growth in total for climate solutions. It was a contraction of the organic side. Currency of minus 9.3. I think I mentioned that.

Yeah, no, it was more about both in Q1 and Q2 you explicitly said that the heat pump part grew organically by I think it was 40 in Q1 and then a bit above 30 in Q2. And then I was just curious if it would be possible to say what the heat pump business, how that developed organically now in Q4.

I don't think we recall giving that number explicitly, but...

maybe you're right if you've taken notes on that but that's not typically we talk about the specific segments okay all right understood then just on on the the one of cost there in that you will book in q1 i was just curious if you could give some details on which costs you you called alignment cost and so on in q4 now that we are worth highlighting or if any magnitude would be possible to give.

We didn't have any one-offs in that sense in Q4. The one thing that might stick out is the one that Douglas just asked the question about, and that is on group level where we do the yearly adjustment for the continued liabilities for the additional purchase prices. Apart from that, there are not been any specific one-offs in either of the business areas or on group level for that matter either. It's just these yearly adjustments that we make.

Okay, understood. Yeah, so no, it was more about the commentary when you aligned capacity and so on, if there was any particular cost that we might not see in Q1 or Q2. So if I understand it correctly, it's more about an ongoing business.

decisions that are taken within stoves I think Eric mentioned that we have within our North American businesses made adjustments to meet the new demand they're following the gas prices haven't come up and demand has declined but that's more in the ordinary course of business adjusting and also on the element side an element absolutely okay understood my final one is just on a bit touching on Douglas question there but

Have you also seen any kind of campaign efforts or by extension lower prices in the premium segment among your competitors or within the industry?

Not to our knowledge, no. I have to say to our knowledge. Otherwise, I mean, we'll... bring that about if that would be a major thing if something would happen in the market well of course we can be although we try to be a little bit more transparent and guiding you know we we are not we're at a point now where we're going to try to explain everything at every every quarter but a little bit more open we hope understood that's all from me thank you thank you

Thank you. And one moment whilst we open the line for our next question, please. Okay. And our next question comes from Victor Charleston from Danske Bank. Please go ahead. Your line is open.

Yes. Thank you, operator. And hiya, Erik and Hans. Thank you for taking my question. So basically I would like to delve a bit into your comments. I do fully understand that it's difficult to make any forecasts in this market, but you do say that your assessment is that the performance in the first half will be weaker, of course, and then possibly for the full year. Also, and I'm just trying to understand what that really means, because I guess just for the sake of proving my point, if we say that organic growth in the first half here is minus 10%, and then you say that it's possible for the full year that it's weaker than 2023, I guess that suggests that we turn to growth in the second half. Is that how we should read that comment, if you do understand my question?

Yeah, I tell you, when you try to write such a sentence, as I'm sure you fully understand, you know that if you don't write anything, you're going to say, okay, what is going to happen in the second half of the year? Why don't you comment that? And now when we say possibly, that is a way of guiding again. don't have the miracle tool or miraculous tool to say that as of July 1st, now when we assume that the two first quarters are going to be very, you know, to a point quite weak, and then everything's going to jump to the better. I mean, that's also unrealistic to say. So I guess it's a cautious comment. We're all waiting for improvements. I mean, we are ready. That's what the whole statement is. We are ready for the growth. But now we see this, and we just say, well, something's going to happen. Help us out there, politicians, when it comes to reducing interest rates and also when it comes to the willingness to assist this industry, not only us, but the industry, the heat pump industry. We need some help against lower energy prices that continues to pollute the world with CO2. That's the whole issue.

Yeah, but I'm sorry if I'm a bit slow here. But do you understand how I interpret the comment that you make? And I fully see that it's difficult to make any forecast and you don't have a crystal ball, etc. But it does implicitly mean that you're rather saying that the second half perhaps does not fully compensate for the first half rather than you're saying that the second half will be as weak as the first half. I'm just trying to understand what you're clearly saying.

You're elegant in your questions, Victor, but I think that, you know, I like the arm wrestling with you.

So, but I think that's all for the answers, right, regarding the second ball, if I don't hurt anyone by saying that. No, okay, okay. No, I see it.

And then secondly, and perhaps difficult to judge from just one quarter, but if I read it correctly, it seems that your European volumes in climate solutions is down 25% organically in Q4, which actually is much better performance than if we compare with the overall industry at, let's say, minus 50%. So I guess the philosophical question is, are you feeling that you can gain back market share in this sort of market that you perhaps lost during the component shortage period? Is that a trend that you're seeing?

Well, I think that question is reoccurring. I think we should come back to the slide where we present the fourth quarter so we don't have any disannouncement. If you just have patience to wait a second there.

Yeah, of course, of course.

I think that might be clarifying to to all of you out there. There we have. That's the one. There we have the fourth quarter. And we say that the growth has been minus four. And as Hans suggested, it's acquired as eight. So that takes us to, yeah, we're all mathematically just south of 10. And I don't understand why you say that it's been like 25. This is the situation that the growth has helped us, of course, or the acquired company, particularly Climate for Life, has helped us. But the gross margin remains at a healthy level, which is very important. And that's why we say, well, it's not the gross margin that causes this. It's the overhead that's too big because we were planning for another turnover. And I don't know where you... Isn't that picture clarifying your previous question as well?

No, but in the report you also give sales per geography. So in Europe, for example, you did 3.8 billion in sales in climate in Q4. And then, of course, you have some acquisitions and you have some currency in that. So year-over-year effect in Europe in climate solutions implies not 25% down, U.S., for example, is growing 10%. I'm more curious of the geographical development.

Okay. So that's how you calculate somehow. Well, I see the graphs. Okay. Okay.

Yeah, I don't mean to push in any way. I'm just curious about North America, obviously, continues to grow in climate solutions, not surprisingly given the times there. But in Europe, you perform quite well, at least versus my expectations and what the industry is saying overall in Q4. So I guess that's where I'm coming from, so to speak.

But I think it's a fair statement to make that we have regained some market share now when we've been able to deliver again. We were in a squeeze there, not being able to get products out the door for a while.

That is true, but we don't like to pat ourselves too much on the shoulders because we are right in the starting gear now to improve results. And of course, it's always a race for better market chance. And it's been so painful during 22 and particularly when we couldn't deliver. And that's, of course, another reason why we're also trying to explain that the Q4, as you compared last year, was extraordinarily strong, as you see, with a 42% growth versus the previous quarter, like 21, which wasn't a bad quarter either. But, you know, the operating margin last year was like 19.3%. in that quarter and that is suggesting of course that they were coming out products to the market that had not been delivered previously and so it also that's also the case q1 and q2 23 that's why it's a bit difficult to compare the market this year okay that's a long dwelling there are many more people away i hope we answered you victor and i hope we are still good friends yeah absolutely absolutely i'll step back thanks a lot

Thank you. Thank you.

Thank you. And one moment please whilst we take our next question. And our next question comes from the line of Axel Stasser from Morgan Stanley. Please go ahead. Your line is open.

Hi. Good morning, everyone. I had a couple of questions, if I may. On pricing, you mentioned that some segments face pricing pressure. Could you maybe please elaborate on the specific markets, and in these specific markets where you see some competitors, for example, cutting their prices, how much Nibiru has actually cut their prices? And then a follow-up question on this one is, do you expect some countries, additional countries, in the next coming months, for example, where you could see some distributors putting pressure on your pricing strategies?

Well, the first question, I think the answer from my side or from our side was that we haven't seen any major pricing issues. But what I said was that, of course, we don't know everything, and I'm sure that in certain market segments in certain countries, there could be price fighting. But what I also said was that we work in the premium segment, and, of course, why do you have the premium product? Well, that is to have a decent price or a good price for that one. But if a customer would be more interested in a product of a lower specification, of course, we also have that. But we do not participate in a very low range of heat pumps. That's what I said. And as far as the forecasting for what's going to happen in Q1 and Q2, that's impossible to forecast for us.

Okay. So you are not, I would say, afraid for now from all these players cutting their prices, right?

Well, afraid, you know, you shouldn't be in business if you're afraid. Everyone has to be, of course, observant. And we are very cautious whatever happens in the market. And until recently, it's been the shortage of components that's been hindering us. And we firmly believe that we have a strong position in the market. And when you say about fear, I mean, anxiety and fear doesn't take you anywhere. That's our standpoint.

Okay. Okay, very clear. Thanks. My second question was about your flexibility in terms of costs and how you feel you can protect your margins. So you announced this cost-cutting plan. Would you be ready to get more your cost base if you think volumes are way weaker than expected going into 2024? I try basically to understand how much room you guys have here to protect your masks, basically.

Well, I don't think that we can dwell more on that. We all respect, Axel. I think that, you know, the guidance we've given you and whatever, you know, shock absorbers we have, I think that's something that we have to keep to ourselves. Now we give a clear. message to the market. We're going to take the cost down from what we judge in the markets. And we have to take it from there. And I think that that's where we have to stop when it comes to answering your question. Okay?

Okay. Thank you very much. Can I ask a last question about your leverage? So leverage is now two times. And you announced you wanted to do some further acquisitions in 2024. So I want just to ask, what is your sound leverage level according to you? Is it 2.5? Is it slightly more? What is your objective, your aim here?

I mean, Hans should answer that. You know, during some heavier or larger acquisitions, we've been up to between 3.5 and 3.8. And then we work it down very quickly. And I guess you are more appropriate to answer that question, Hans, but during the larger acquisitions in the last 10, 12 years, we typically take it down in six to eight quarters down to 11. Of course, where we are now at two, we are fairly comfortable with that. And of course, when we are down to one, then you wonder, do we acquire enough? So it's been a little bit of a standstill when the acquisitions Pandemic hit us, but of course, that's typically something we are looking for every, not every hour of the day, but all the time. Also, I guess.

If I just may add just a little, I mean, we never want to jeopardize an EBIT anyway, of course, but we have deliberately not set a target or a route for that matter, because we want to have the flexibility if something interesting comes about. And as Eric mentioned, we've been up to about three and a half and just below four. at some certain points. But if you look back at us over a 15-year period, we've been at an average of 2.2, roughly, despite all the acquisitions made. And 2.5, you can say, is, of course, a level given that we have bonds on the market.

That's roughly the answer. Thank you very much.

Thank you. And one moment, please, whilst we take our next question. And our next question comes from the line of Priyash Sia from HSBC. Please go ahead. Your line is now open.

Hi. Good morning. I have a couple of questions. To start with, Eric, you talked about in the guidance about first half and second half. Sorry, I'm coming back again there. It was not clear whether you were talking about FOSTA being weaker on an organic basis because you had quite a few acquisitions in the second half. So I just wanted to check that one, if you could help us understand whether your comments were related to organic or it's all the overall business.

Yeah, well, I apologize, but could you repeat the question? You want to have a guidance on which period?

Well, so you talk about 2024, first half being weaker and could be for the full year. When you make that comment, is it on an organic basis or it's on an including scope effect? I'm asking this because second half of last year had a significant scope impact.

Yeah. Well, I should answer that. I don't know whether I fully still comprehended the question. As I said before, I think when it comes to guiding as good as you possibly can, we've been trying to guide like six months and sometimes a little bit more. And now when we are in the middle of February, we felt it was decent to suggest that there's no guarantee that the second half, or at least the first quarter of that half here, wouldn't be affected. But that's not, of course, a forecast. That's more a cautiousness. That's my answer to that, but it is correct or I don't know whether I understood the question correctly.

Okay, that's fine. And the second one is on the subsidies which are all being announced. We had the Germany one being sorted out. Do you see any signs of that subsidy schemes being kind of now giving you a higher volume or at least sequential volume improvement? Anything you see in the market which would suggest that things have changed?

Well, Germany is one of the countries we don't have to inform explicitly about that. I think Germany is holding up fairly decently. But, of course, the program that we thought or the industry thought would have come about was more generous presented last summer. And it's more that the gas being banned as of, you know, already this year and was thought to be banned 25, that is to be allowed, as it looks now, for another year. three years until 27. I think that's the most, it's a hindrance to all of us, to the industry, rather than the subsidies, because that gives, in tougher times, of course, people take, in many cases, the easy way out, and they continue to install a gas-burning boiler. Okay?

Understood. And probably last one on M&A. There are quite a few possibly family businesses running, which are kind of both boiler as well as heat pumps. So given the market scenario, do you see enough opportunities out there, given Nivea's size, you'd be probably interested to consolidate the market, which would help in the long run. Do you kind of see any interesting targets there?

Yeah, I would be... It would be foolish to say that we don't see any good targets or decent targets. We really do that, but I think there we have to stop the guidance, because the answer to the question is yes, we do that. And I've always done. Yeah.

Always look at that part of the DNA setup.

Understood. Anyway, good luck with it. Thank you. Thank you.

Thank you. And one moment, whilst we take our next question, please. And our next question comes from the line of Martin Tumorlin from Sverige Radio. Please go ahead to your line. It's now open.

Okay. Hello. It's Per Buleus here from Swedish Radio, not Martin. First of all, can I take two questions in Swedish?

Absolutely.

Yes, we will do that. Yes, Erik. That's what I want to talk to Per Buleus about here. First and foremost, if these 500 that are being wasted are what we are most interested in, what do they do and what does this mean?

Yes, it is as you know that we do not even have time to discuss this. This will affect the entire Climate Solution in Europe, but it is mainly the Climate Solution, even on the element and stove side. But since the Climate Solution is so big and we are Vi ser att efterfrågan är som den är så kommer ju huvuddelen att vara där. Och det är klart att det är många anställda ute i Europa. Och det kommer att påverka även den svenska bemanningen. Men innan vi ger oss in i den förhandlingen så är det ju unfair att säga så här många var det där och så här många var det där. Det kommer att bli publicerat i takt med att vi förhandlar med de beröras personalorganisationer. Well, they're going to have to do that.

Oh, but you're going to have to make a good perspective, so-called heavy.

Can you say I'm not going to make a good order, but I'm going to have to make a good offer, but I'm going to make a good offer, but I'm going to make a good offer, but I'm going to make a good offer, but I'm going to make a good offer, but I'm going to make a good offer, but I'm going to make a good offer, but I'm going to make a good offer, but I'm going to make a good offer, but I'm going to make a good offer, but I'm going to make a good offer, but I'm going to make a good offer, but I'm going to Men det är lika mycket som man har en väldig respekt för människor, så är det också mitt ansvar att se till att man kommer ut med ett resultat som är vettigt. Det är därför vi skriver också i presskommunikationen här att nu ska vi inleda förhandlingar, vi ska behandla människor på det bästa möjliga sättet, men marka det ju då Sverige är ingen fredagson, tyvärr.

En liten sista fråga. Det är ett halvår sedan jag intervjuade dig och då skulle ni anställa ytterligare 500 i Markeryd. Har de anställts och om de har anställts, kan de då påverkas av detta?

Ja, det är många som kom in som då naturligtvis kommer att vara på den listan också. Det är ju helt riktigt, som du har sagt tidigare, att vi hade en annan förväntan när vi var vid halvårsskiftet. and had a lot of pressure upwards. And then it goes like this on the market. Of course, it's heavy. But at the same time, I think it's important to have respect for the employees and not say that now I'm negotiating with someone on the radio with all respect for the radio or TV for that part. It has to be as correct as possible. I don't want to avoid the question at all. You will get answers to these questions after we have And one moment, please, while we take our next question.

And our next question comes from the line of Carl Dienberg from Carnegie. Please go ahead. Your line is open.

Thank you very much. Thank you, Jat-Erik and Hans, for taking the question. Just one from the one follow-up considering the time here. And I wanted to ask you, Hans, with regard to the net financial development here in Q4, up a little bit here to 214, and I think you were at 181 in Q3. So I just wanted to ask, is this here in Q4 sort of, you know, pure financial costs? Is it a justifiable level going forward? Because I think you had maybe a few one-offs, you know, in Q3 related to the bond issuance when you did the acquisitions of Climate for Life. That's my question. Thank you.

Yeah, no, I mean, there's nothing special in this in a way. I mean, it's a result of the financing that we've done following the acquisition of the Climate for Life business. And, of course, increasing interest rates that have come step by step over the year. Yeah, it's – that could be, or there is a portion of currency in there as well, but that's not a major part.

Okay, okay. Very well.

Thank you. Well, we have now been talking about – 65 minutes, and we've come to the end here because we have other interviews to be taken care of. So we hope that we have now started an era with a little bit of a more open attitude to the future, but as said, it's a little bit of an old fox that is trying to change, and I'm not including Hans in this because he's a young guy. and we appreciate the questions and we had all the best intentions to answer them and now we're going to go out and work again thank you for calling thank you ladies and gentlemen this now concludes our conference thank you all for attending you may now disconnect your lines