NIBE Industrier AB (publ)

Ladies and gentlemen, welcome to the Nibel Q1 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.

Good morning, everyone. Thank you for calling in. Good morning. Good morning. It's a wonderful setting here in Markary today. The first quarter report always coincides with the annual shareholders meeting. There are some 1,150 people on their way in here today. I must say that we are proud when we see our facilities the way they are now. I hope that you all could be here and have a little bit of a view on what we have accomplished here in Markary today. And the nature is, of course, as beautiful as it possibly can be. It's almost like when you quit school and you went there with a bouquet of the lily of the valley or some lilacs. A typical setting for a graduation day. Having said that, welcome once again to listen in to our presentation in the Q1. We are pleased to be a bit clearer perhaps about the forecast and the future. We know that it's been difficult for us to present everything in the past, what's happening out in the market there, particularly on the heat pump side. And of course, it's a weak start to the year, unusually weak, we're right. And it's been difficult to really analyze the inventory adjustments in the distribution chain particularly in Europe, of course, on the heat pump side. And we feel that we have a slightly better idea about that now. And it's been a fairly dramatic decrease in pump production output, almost cut in half the first quarter. And the difficulty there is, of course, that the statistic provided from each country is not on the level where you sell to the end customer, but rather on the production level. So the entities, they report what they have shipped out and invoiced. And then, of course, it has been an absorption of too many products out there after, if we may call it the hype, 22 and a great departure, 23 even. And now that has to be digested and for the manufacturers to come back. Not only that, of course, we've seen a dramatic increase And when I say dramatic increase in interest rates, of course, that's from a level that was perhaps artificially low, but still the increase was quite sufficient. And that has also raised question marks, of course, around customers' willingness to invest. And one very certain sign is, of course, that the new construction is down in almost all countries because people react with the uncertainty, with a level as such, of interest rate, but also where it's heading. And it's pleasing now to see that, at least in Sweden, they started to decrease even a few weeks ago, or just a week ago, and that's the same idea as we understand it or interpret it in the rest of Europe. And then, of course, on the other side, we shouldn't complain too much about the politicians, but we must say that there is a little bit of an indecisiveness regarding phase out of fossil fuels. But I think that's why we are here in business. We have to counteract and we have to attack, but that is also important to know for you out there that if we're now going to leave the fossil fuel, that should also be something that we all strive for, not necessarily only the producers of heat pumps. There have been some trade barriers, and now we talk more about the element group where it's been a cumbersome situation for particularly the producers of equipment, or components, rather, for the semiconductor industry. And it seems like the new factories going up now in North America and also in Europe, they will sort of bridge over the come of some time where we see that industry start to lift towards the end of the year. And, of course, we initiated this action program, as we call it, that was announced three months ago, It's cumbersome and painful, you know, when you've been growing as we have for many, many years. It's difficult to comprehend even for us to start with that, okay, now we have a little bit of a headwind. Now we have to do something. And coming from a very, very strong 23, actually the strongest year ever, and a few months later, we're right in the middle of this action program. That is now, of course, taking place, and we are practically, through that as far as people being redundant. It's very sad, but there are just a few agreements still to be signed. I would say 95% is through there. But then we also feel now that through interviews and through research that there will be improvements in the second half of the year. And we didn't really have that clear vision only three months ago. And we see now that in most cases, the inventory levels are diminishing. And that, of course, will bring back the industry, not only us, but the industry as such on the heat pump side to a more normal level, if you call it. We are perhaps not known for showing statistics. We definitely don't talk about our colleagues that are clearing. But we thought it would be appropriate just for educational or fairness purposes to show this picture. illustrating deliveries from the heat pump producers in Q1. And that is, of course, a situation where we are sitting right now with a quarter that is going down between 40% and 50%, and that's very dramatic compared to where we've been in the past. And that is, of course, also a sign that something has happened in the market that's not only linked to the immediate demand at the customer level, but there's been, for the second time now, a congestion, if I may call it, too many products in inventories of installers and distributors. So, of course, the revenue is down dramatically, and sometimes you always have to pinch yourself when you see the figures being down 18.5% on revenue, and operating profit is down so much, and the operating margin is split in three. But at the same time, we also feel encouraged internally that we were bold enough to take the decision. It's always difficult. We hate to see our working friends leave the company. But when you're in the middle of it and when you're on your way out of it, then you feel that we have a better opportunity. a suit that's better fitting us than when we entered into this constrained period. And the result you've read, I shouldn't dwell too much about that. We already noticed that it's down heavily, of course, with minus 18%, and that's even helped by the acquisitions, as you see. So it's been a difficult quarter for us. And to come up with an operating profit of that magnitude is something we hope will leave behind us and also the operating margin. And we can only refer to the years where we've been passing through similar passages in the past, in 92, 93, and 2007. And we've been through similar processes. Every 15 years, we hope that this will not occur again. that frequently or more frequently than that. But we went through that severe bank crisis without losing any money in 92, 93. And we also went through the Lehman Brothers crisis, slightly below 10% margin, whereas 92, 93, we were down to five. But they were totally different companies. So, of course, the bar chart here illustrates itself. It's not going up right now, but that's something we eventually will change, of course. And the same thing on the profit of the financial items. I mean, no one likes to see that curve, and that triggers the fighting instinct in all of us that we're going to bring that back, because we still believe that we are positioned in a market that is very, very buoyant, just giving it... a quarter, and then to show that this curve is going to change direction. If we just have a few comments upon that, really, I mean, that's where you've seen the most dramatic adjustments in inventory, and we believe that we are going another quarter, that we're a quarter way in now, and we feel that now we are on the way out of that. But that doesn't mean that everything will be peachy keen just because of that. But we believe that the high interest rates that we've seen during the first quarter will help now when we have rumors and even some key indications from the National Bank, or X Bank, whatever you call it in English. And that's a good indication because that is something that people react to. We all react to that. That's a positive sign. Possibly we can do some investments and we can maneuver a little bit more freely when interest rates are going down. It's been tough now for some time. Something that is the compass on forest, that is the price differences between gas and electricity when it comes to kilowatt hour prices. So that's something that we really urge the political side to be more fair on that side, being a little bit more decisive. Okay, let's go now. We have to... We have to change this. Action program, of course, that might be a shortcoming in our report. We apologize for that, and we think we're going to be more precise. How is that divided? It should have been a report. I think that we should put that on the web later on today where we present it in a fair fashion. So that's something we're going to report to you here during this presentation. Again, action program, well in progress, sadly enough, but that's how it is. And there'll be improvements, we feel, in the second year. Not that everything's going to turn, you know, 100% July 1st, but progressively in the right direction. And here we are, operating margin, type on seven, might not be That's severe if we hadn't had 17 and a half a year ago. Then it's very, very severe. And if we just have a quick look at the stoves, because they've also had some stocking issues in the distribution chain, but to a lesser degree. And it's the same pattern there that we couldn't deliver, or the industry couldn't deliver. I take this as a group, the producers. And of course, there's been a cumbersome time where the installers or our outlets, they have bought too much equipment and that's now being sold out. And just as with climate solution, interest rates, of course, they hurt the willingness to buy stoves or to invest in homes where you then will install stoves. So it's pretty much the same, gotta say, pattern within stoves. And of course, action programs, They are underway in all the different business areas, although climate solution, of course, will have the biggest one. And, yeah, the profit and margin is down to 60. That's cut in half. That is, of course, suggesting that it's bad or weak, but it's not as dramatic as it was in the climate solution. Bad enough that the operating profit is going down and the operating margin is cut in half. but that's also an illustration that it's quite, it's a little bit different, I should say, than it is on the climate solutions side. And then coming to elements, there we've had a decent development in several segments of the business. But of course, being exposed to the HVAC era has been burdensome for elements. And that's not only supplying internally, but also supplying the whole industry not only on the heat pump side, but also on the convector side, on the heater side, and so forth. So that's the major drawback. The semiconductor market hasn't been that buoyant, but there we also see now a recovery during the second half of the year, and I referred to that earlier. Automotive and rail develop in a positive way, and as we said before, action program is initiated there as well. but percentage-wise to a lesser degree, of course, than climate solutions. And they are also, for reasons already mentioned, we are on the right track, we believe, for the second half of the year. And, of course, the program that is meant to come in full effect during 2025, and, of course, there will also be some effects naturally already during this year, So Element, as we see here, they go from 9.3 to 5.1 in operating margin, and that is suggesting that they have parts of that business that is fairly buoyant, as we said now for the second time. And that distribution of sales, yeah, that's pretty much as before. Climate Solutions is slightly lower than before. And on the next pie chart, you'd see that it maintains the 61%. Typically, when the margin is up, they would have a larger portion of that pie chart when it comes to operating profit. Internationally, of course, and that means that North America has grown up to 30%. If I recall it correctly, it was like 26 or 27 before the year 23. up to 2023. And now, of course, the North American market is more stable. And that's an illustration also that it's good to be distributed more evenly, not only in Europe, but also in North America. And to some degree, that is primarily element, which is also present quite heavily in Asia. And I think Was that my last slide? I believe so. I tell you, I hand over to Hans, and now he is going to shoot. Thank you.

Thank you, Eric. All right, so I will take you through the next part of the presentation, hopefully without repeating myself too much, but still giving you some more color on the business areas, and then, of course, the balance sheet, cash flow, key figures, and the action program as such, and then to leave room for you all to put some questions in. If we then look again at climate solutions, I mean, Q1 is for the reasons mentioned before. And it's a little bit of a perfect storm now, you can say, going downwards as it was going upwards in the other direction not too long ago. So all of these factors now coinciding, giving us this, for us, very poor development. They are contracting thereby, since the acquisition there has helped us with some 7%, And with such a quick drop in sales, it's hard to counteract on the profit side. So the gross margin is down from the 36.3 to the 31.2. And the operating profit has, of course, taken hit as well, since the SG&A costs are too high, if you like, for which reason we are running the action program.

And then we come in at the 5.7 operating margin.

If we look at the split of sales per geography, I mean, what happens in climate solutions very much colors the group. And what Eric just mentioned is that North America has gained this year, having a more stable business in general, but also a more precise and long-term subsidy scheme, you can say, when it comes to sustainability. At least that's part of the reason. So North America is now 26%. It was 22%. last year, so that has gained nicely. Of course, then on behalf of Europe, including the Nordics. Within stoves, I mean, after two consecutive strong periods, if you like, we're now facing, of course, some challenges here as well. I mean, first we had the period where post-COVID, where people, or during COVID even, where people spent a lot of time at home and they began to renovate their homes. which had a very good effect on the sales of stoves, which we then thought would come to an end when people could travel again. But that's when this brutal attack on Ukraine occurred, and oil and gas prices rise quite substantially, and people were looking for alternative or complementary heating sources where the sales for stoves picked up quite nicely again. But now we're into a phase, of course, with, as Eric mentioned here, some products in the system, also the high interest rates, less willingness to invest at home. So we've dropped some 18% basically in sales. There have been some help from acquisitions there as well. Cross-margin is also down, although it's not as dramatic as in plant solutions. And we then came in at these 6.2% operating margin, which of course is cut in half compared to last year. But if you know us from previous years, you can say this is a little bit more of a traditional pattern as well, where Q1, Q2 typically are weaker, and where most of the business takes place in the second half of the year. In terms of geographical distribution of sales, there has not been too much of a movement here, a slight increase in North America. And then last but not least, in terms of the business areas, we of course have Nib Element, which, as you all know, is our most global business area. It follows the GDP trend in most parts of the world, so to speak, in geographies and segments. And if we would exclude for a second just the HVAC business and the semi-business, the business area is performing on target, basically. But with a strong presence in HVAC and semiconductor and with the profitability levels we have seen there, the areas of course hit as well. But the drop is not as dramatic as in the other business areas. Here we talk about roughly 12% of the drop in sales. The gross margin has also dropped and it's on another level than in the other businesses, given that it's a B2B business, but they also have lower SG&A. And here, the operating profit came in at 137 million, representing a margin of 5.1%, which, of course, is far from where we want to be. But we know fairly well where the issues lie, so to speak. And as Eric mentioned, there are some positive signs or several positive signs within individual segments, like the automotive, like RAID. and with the prediction that semis should already be coming back during the second half of this year, and where wind looks positive for next year. In terms of splits of sales per geography, this is, again, our most global business area, and here the other pie chart there, or piece of the pie, has increased, and that is our Asian business.

It was 9% a year ago, and it's now up to 16%.

Leaving the business areas and looking at some group numbers again, there is not really much to comment upon the balance sheet, neither on the asset side nor the equity or liability side. It's very stable from where we were at the end of 2023. More interesting to look at is the cash flow. And of course, it's not pleasing to see that the cash flow generated from operating activities is minus 300, where it was 1.4 billion last year. But it's a direct consequence of what we've just been talking about. A little positive sign in this is that we've had a positive change in working capital. It's not big, but it's still there and a little signal that we have really been addressing this. And it's, quite frankly, not that easy to reduce inventory when the market is almost at a standstill. But that has come into play, and we've also been able to put a brake on the investment, you can say. Well, both put a brake on them, but as Eric mentioned, we're basically through our big investment program as well, so we will not see the same levels or amounts of investment going forward as we've seen in the past. And now with some small finance activities basically from some of our subsidiaries and have positive effect from exchange rates when we translate cash out in the companies into Swedish kronor. We've had a less negative change this year in liquid assets than last year. But nevertheless, looking at the key financial numbers, of course they are affected as well But as I said, the balance sheet has been stable and interest-bearing liabilities in relation to equity is almost on par with the end of this year. Net debt to every DA, which of course is a critical and important key figure, has jumped up from 2.1 to 2.5, but it's still at a reasonable level, I would say.

And also the equity assets ratio is very stable. Take from the working capital. Yeah, that's true.

But of course, it's still too high. I mean, obviously, we're still sitting on finished goods inventory, component inventory, and also with not purchasing as much from our suppliers. There's not much to obtain from the accounts payable days, so to speak. And the second to last picture, I believe it is, the key financials here, I mean, return on capital employed adjusted is 11.7 compared to the 17.7. So, of course, it's a drop there of six units. Return on equity is also down at 12.7. And the net profit per share is not much to brag about at this moment. But overall, a stable balance sheet, I would say. And then just ending up with this last picture, which we will include in the report that's been published. We realize this should have been included, of course. It gives a little bit more color on the program. I mean, what we announced on February 16th was that we would have one-time costs of around 900 million, leading to annual savings of some 600. During the last three months, where we've been deep diving into this in all business areas, although it is more of a European heat pump issue that we are addressing. But we've taken the opportunity to address costs in all three business areas. And while doing that, we've actually come up here that if we spend a little bit more money on making these adjustments, the 1095 instead of the 900, we will be able to save some 750 on an annual basis instead of 600. And here, what you see what's missing in the report is the split between the different business areas. So for example, in climate solutions, we will be spending some 794 approximately, I mean, of course, 800 as well. And where we expect them to save some 570 million on an annual basis. And the corresponding numbers for stoves and elements. And you can... possibly ask why is the sum so much lower in elements. But I think this has to do with this being the more global business areas we mentioned before. It's only a few segments there that are now heavily impacted. But also they have for decades been living under a very tough business climate in their B2B environment where they have been chased, if you like, by automotive suppliers, by the white biz industry. So they are quite field at maintaining a healthy cost level. I think that was my last picture. All right. I don't know if you would like to add something before we open up for the Q&A.

Well, I'm sure that we could add a lot of things, but now the floor is yours out there. We try to answer you as expediently as possible. And we just have to say that at 12 o'clock, we have to break if we are not impolite. because then we have interviews with other parties.

But please, the floor is yours out there.

Thank you. Thank you. We will now begin our question and answer session. If you have a question for our speakers, please dial star 1 on your telephone keypad now to enter the queue. If you find your question is answered before it is your turn to speak, you can dial star 2 to cancel your question. The first question comes from the line of Kyle Ragnastam from Nordea. Please go ahead.

Hello, it's Carl from Rodea. A couple of questions here. I'm a bit curious to know more about your statement on sort of Q2 demand, where you said that at manufacturing level, the demand will troffen out during that quarter. So should we necessarily expect Q2 sales in climate solutions to be sequentially lower, or how should we interpret that message?

very delicate questions. I don't think that we can forecast any more detail than we've done or indicate. I think that's not fair, but I think this is coinciding with what we said already at the break of the year or start of the year, you know, that the first two quarters would be weak, and I think that that's pretty much what we maintain in our thinking and our assumptions here, knowing that the inventory is were not at a level of a year or two or a year and a half. They were lower. And we're fairly certain that they will diminish now. But to give any more precise figures, I have to obey that, if you don't mind.

For sure. Thank you. And you also talk about the gradual improvement of demand during the year. Could you help us with the components to that guidance? I guess you have consumer sentiment with the rate cuts. You have subsidies in, for instance, Germany, materializing comps. Obviously, the inventory level at some point during 2024 expect to return to organic growth, or maybe that is a bit too optimistic still.

Well, I think that what we try to explain here is that we... we're going to see improvements. I know that everyone wants to have more precise figures. I think now we've come one step further. We feel comfortable, or relatively comfortable anyway, with our forecast given six months ago. And now we dare to say that rather than painting the second half in grayish tones, we now feel that there could be some improvements there. And of course, for us to give anything more clear than that, but it's our sincere opinion that that will improve. But specifically, you know, quantify that more than we've done. There we are a bit cautious.

And the components to the improvements, I guess it's everything that I mentioned, or is it a specific thing? I guess inventories must be one of the more important factors, I guess.

You mean components like on the element level?

No, I mean components behind the improvements of the demand in climate solutions.

We believe that of course when the inventories have been normalized, then of course the rate where we are going at now will not only be absorbed by the installers and the distributors that head to large inventories, but that will have pass through to the manufacturing level. So that's one factor. We also believe that when it comes to refurbishment in houses, that becomes more of a, the customers are more willing when the interest rate is on its way down. Perhaps you're waiting, should we really replace this? But then you see it won't be more expensive if we can't finance it strictly than yourself, that you could possibly borrow some money. And we also know that, of course, the house builders, they are very eager and ready to sign contracts. And families are out there waiting for, you know, the signs that we're just seeing in the markets. And that's the third factor. Politically, I mean, we know that there won't be any immediate help, but we still like to address that because we've been given such clear signals from Brussels and everywhere that, that this industry, particularly the heat pump, we have to be ready for the big change or the big leap, if you like, to make it very clear. And we say, well, we are ready. We say that the industry is ready. Please, it's your turn really to fulfill that. So I guess that's in a quick way to answer your question there.

That's very fair. And the final one from my side, if I may, is around the margin for climate solution in 25, where you guide for sort of a normalized margin level for that business. Would you say, when you talk about normalized margin, is it the past five years when you had obviously very good volumes and good margins in 23 included, or is it since inception or when we could track it early 2000s, or what's

We've been given, of course, the sort of spectrums of something, anything from 13 up to 15. I think that's where you find in our long-term views. That's more statistically proven. Of course, last year we came out with a relatively good margin. I think it was the highest ever. To predict that they're going to be the average in the future, that would be No one could stand behind that. But I mean, history speaks its own language. And if you go back since we introduced Niva Share on the stock exchange in Sweden, I think you'll find the answer there. And as we've been through, as I said before, in 92, 93, in 2007, and those have been indications that we are not, you know, we're not standing above difficulties. But our way to counteract and come back, that comes without saying is pretty good.

Very clear. Thank you so much.

The next question comes from the line of Victor Trollsten from Danske Bank. Please go ahead.

Thank you, operator, and Jep Erik and Hans. Thank you for taking my questions. Perhaps firstly on the gross margin, obviously down, but could you help us or remind us how much of cost of goods sold is fixed for you guys? Just understanding sort of the volume leverage and that.

Well, I don't know whether we disclose any analysis of our calculations. I appreciate the question. I don't know whether it's fully comprehended, but you mean that we should disclose what's material and what's direct labor, or what are you saying?

Yeah, I guess that's one way of looking at it. What's direct labor? Because I guess that's fixed costs in COGS.

Well, I think with all respect, I think that's something you really have to respect that we don't answer in full term. But I mean, you know what kind of, if you read our annual report, you know, that's there you see the group direct material. So that's no secret. And you also see the direct labor. But that is, of course, on the group level. That's as far as we report when it comes to being a public company. But to go into each individual calculation, I mean, that goes beyond what we typically would answer.

Yeah, no, I see that. But I guess what I'm after is, of course, how much of the gross margin decline would you refer to volumes being down? And would you say that there's any in the gross margin being down?

Yeah, I'll tell you. We've said that before. And we are not in a market where we like to decrease prices. And no one wants to decrease prices. We have an assortment. in all our three business areas, where, of course, we respect prices, and we are not out there trying to circumvent the difficulties. The difficulties that we have in demand will not be cured by cutting down prices. What we sell is value for money, and we're going to continue that. Of course, when you hold the stock somewhere in the distribution chain, there might be some kind of a offers but that's we don't stand behind that we have a very solid price structure so I think you have to take it from there

That's very clear. Thank you for that. And just finally on the gross margin, I'm sorry for that, but a couple of quarters back, I remember that you sort of had the ambition to get back to 36% gross margin, which you had in 2014, 2016. And now, of course, the short-term issues we all know, but is that still sort of the ambition when things normalize, would you say, or has anything changed?

Well, very much about the future now. I mean... We are all fighters, aren't we? Who wants to see figures deteriorating? We, of course, have the greatest ambitious idea to counteract difficulties. That's why we are here. That's why we have these jobs that we have. But they say, well, now we're going to be back to that and that figure. You just have to believe in us, who we are, and how do we counteract. And no one is satisfied at the margin level where we are now. I mean, it's more like a reflection of our, you know, identity.

No, that's clear. I'm sorry, just one final on my side. I'm sorry for pushing a bit, perhaps.

Do you know one thing? You had now three final ones, but this is the final one, please, because otherwise the other guys would like to come in. Okay, we take that one because you're such a nice guy. Come on.

Thank you so much. Then one final, but you refer to the statistics of climate solution margin historically, and then you have done a lot of M&A, which is dilutive. Just, you know, should we, if it's in a 13 to 15% normalized level, we should think of with or without M&A?

Well, I think that you've seen our history. And our target is to arrive at 80 billion turnover. Of course, we're going to have acquisitions on the path forward as well. So to say now individually on that, on the organic side, on the acquired side. Of course, what you've seen in the past is a fairly healthy average of what we've been able to do. And I think that's the way we have to perform also in the future. You have to bring up acquired entities to the level where the original body is, and then you take it from there. So the figures, you know, statistically shown in our annual reports, I mean, they are a good blend of organic and acquired.

Okay. Fair enough. Thanks a lot. Thank you. Thank you.

The next question comes from the line of Vivek Nida from Citi. Please go ahead. Please.

Thank you very much, everyone, and good morning. I'd like to start with a follow-up for Hans. You mentioned that the net debt to EBITDA has crept up to two and a half times. Beyond your target of the equity to assets ratio of 30%, are there any other metrics or levels we should have in mind as to what you think is an adequate balance sheet? Thank you.

Well, I think we've had this discussion I mean, if you look at our initial targets that we've had for quite some time, I mean, you have the growth target in there, 10 plus 10. You have the operating margin. And then we have the equity assets ratio, which should be at least 30. And then we have return on equity. I mean, those have followed us for a long, long time. And when we can meet those targets, we see that we have a healthy growth in the business in general. Then, of course, we can deep dive into individual targets like the net debt, the VDA, or return on capital employed, and so forth. And I'm not sure if you're getting at something specifically, but, of course, ever since we, in a way, acquired Schultes and paid 40% with shares, and then we made a right submission several years later, of course, the balance sheet has been very strong in that sense, but then showed some slightly lower impact key figures, so to speak. But that's why we are pretty solid and in a good position to continue the M&A growth.

Understood. My question was ultimately getting at, where do you see as an upper level for where that net debt to EBITDA can go and that you'd be comfortable with? Are you still comfortable with doing deals and so on if there's temporary problems upward pressure on that net debt to EBITDA because of the weaker profitability that you're seeing?

Well, of course, I mean, we need to balance, of course, everything we do. But if you look back at our history, as an average, we've had a net debt to the DA of around 2.3 or even below that over the last 10 years. But from time to time, when we have made acquisitions, we have been above three, even up to almost four, but then being able to amortize our loans and our debts back down again. But having bonds on the market, I mean, we indirectly say that 2.5 is an average level that we should stay within.

Yeah.

Understood. Thank you very much. I'll get back in the queue. Thank you.

We appreciate that. Thank you. Now we have at least 10 that would like to have some answers. And I would suggest, without being impolite, that we at least give one individual, one question per individual, that it would give it like at least 10 answers, if that's fair. So you guys that happen to end up in the lineup place 13, you should also be able to put at least one question. Sorry for rationing this. but also trying to be fair. Please.

Thank you. The next question comes from the line of Christian Hinderaker from Goldman Sachs. Please go ahead.

Yes, good morning, Eric Hans. Thanks for the opportunity. I'm having to be selective here. So I guess let's focus on the margin, if I may. Rather than talking about guidance, forecasts, or anything else, can we just talk about the mechanics and how we should calibrate our expectations for drop-through margins for the climate solutions business? I believe 20% to 25% is the range historically. Does that still hold given the capacity investments you've made and also the offset potentially in terms of cost actions you've recently announced? Thank you.

Well, I think that we are fairly flexible with all costs. If, of course, revenue goes up, then we try to stay a little bit below that to get a bit of leverage. What we cannot avoid is, of course, the fact that we have invested relatively heavily. So the depreciation is coming in, whether volume goes up or not. But that's, of course, that's in the cards. But we've done this gradually over the four and a half years where we paid primarily our investments from own generated cash. But of course, the appreciation is higher than it was in the past. That's what we have to calculate with. But of course, the idea is that the growth as such will be the leverage to even that out. I don't know whether I answered that question correctly, but that's... The adjustment that we make now on the cost side, you can argue we should have done that two months ago or something like that, but you also have to have some time. It was a little bit of a surprise, a very big surprise, you know, that this happened. Otherwise, we always praise ourselves being fairly good at adjusting costs. But, of course, the depreciation, we cannot avoid. They're there due to the... investments were made. But on the other hand, now we are ready. No one can say that NEAP isn't ready for the growth, for the leap. And we are there with the products. We are there with the facilities. But as you see now, when volume is stagnating, of course, the depreciation comes up to a level that's not actually what we would like to see. All right?

Okay. So a higher incremental margin, perhaps.

Well, I pass on that.

All right.

The next question comes from the line of Alexander Virgo from Bank of America. Please go ahead.

Yeah, thanks very much. Morning, Eric. Morning, Hans. I guess my one question would be, you make a comment in the report that growth rates in the market will not match previous expectation levels in the medium term. So I just wondered what you actually mean by that, given your broader optimism and the comments you just made on the backdrop of demand and the context of your own 10% growth target. Maybe you can give us a sense of what you think that market growth outlook actually ends up being.

Well, it's another $10 million question. But I guess what we saw during last year, for instance, climate solutions, I think for the full year, we had a growth of almost 20%. And of course, that is something that we cannot promise by any means, unless we have to get some help. But we believe that this industry is going to continue to prosper. So we stand behind that. But we also have, as Hans mentioned before, that the war, sadly enough, of course, made people panic. And that was not in our favor, really, as we see now. Neither did the pandemic. did work in our favor in the long run, although people stay at home and install all sorts of equipment like we're burning stoves and even heat pumps. So I think that we've said in the past that if you are able to grow 10% and Hans indicated that before, then you're on the healthy side. And if we exceed that, you know, that's a pretty good year. I think that we haven't changed our targets in any way. So I don't know whether that gives you some comfort in your question or in the answer we are giving you. I hope so.

Okay, I'll get back in line. Thank you.

The next question comes from the line of Carl Dayenbeck from Carnegie. Please go ahead.

Please. Thank you very much. So one question from me then, and I just wanted to follow up. I really appreciate the picture you showed in the beginning of the estimated deliveries here in Q1 on the individual countries. And I just wanted to ask you if you could provide any sort of quantification of what the actual installation development had been, i.e. how big has this inventory drag been for the OEMs? Are we talking 15 to 20 percentage points, or do you have any good sense of that?

Thank you. That is practically impossible. The only thing we can say is, of course, that if the inventory is gathered up from, say, during the fourth quarter, more or less, and it's been trying to digest that, that's a substantial buildup of inventory. And now we say that when the market is down like 45%, That gives it still a healthy portion out there just provided by the installers and by the distributors. But to do any guesswork there, I think we refrain from that, if you don't mind. But that is, of course, a little bit of a surprise as well, that the inventories out there were that large. But that's also indicating, coming back to that, Our installers and the distributors out there, they are also business people. They saw the shortages and said, we will not make our customers disappointed. So they started to stock. And you can't really blame them. We're all in that way. We start to stock even privately, like toilet paper they did in Sweden during the pandemic, which we laugh about now. But I think you see that instinct in businesses. So it's impossible, but as I said, I can't answer it more precisely. Then we can also have an idea about it. But to say, well, I believe it's like 25 or 35 or anything like that, I refrain from that. We do. We? I hope I don't use the word we too much. I. Yeah, please.

Okay, thank you. Thanks.

The next question comes from the line of Douglas Linda from DMB Markets. Please go ahead.

Hello, gentlemen. Thank you so much for taking my question. I wanted to circle back to the climate solution margin comments there for 2025. It would just be quite interesting to hear what your base case assumptions are for the heat pump industry by 2025. Are you assuming sort of volumes back to 2023 levels at that stage? and the competitive environment you assume, any sort of macro or heat pump specific commentary would be quite interesting to just hear how you're thinking.

Well, I think that we don't have that clear equation, but we know that there were at least six quarters that were sort of unrealistically good, and there was like 22 the four quarters, and 23, the first two quarters. And I think that as sad as it is, having a war on our doorstep here in Europe, and Ukraine is, of course, part of Europe, but that means that that boosted the demand because the people panicked. And I think we have to be realistic and say, well, were those six quarters a little bit too buoyant And now they are a little bit too mellow, you can call it, because we are, again, getting rid of inventors. But to say this year is a normal year and now we expect that, that would be a $10 million answer. And I cannot provide you with that. But, again, we have to look at history, how we've been able to maneuver, how we've been able to grow. And one very important factor substantiating this is, of course, that all politicians, we might criticize them sometimes, they are aware of the fact that particularly Europe has to get back on track. And you certainly don't do that with higher interest rates. They have to come down. That would stimulate new construction because new construction is relatively low from historical point of view. We believe that will be restored as the years go by, they're going to come now. Because more and more people, they don't have adequate apartments or houses. And that's very important. And I think also that people are becoming more and more aware of the fact that we have to do something about the change in climate, if I might be a little bit dwelling on that. But it's not only that we sell a heating device, we sell a climatizing device, a climate control device. It's heating, cooling, and ventilation. And on top of that, you feel that you're contributing to the assistance of making the world better. I think that we shouldn't be too one-eyed. It might well be that they have a very positive young generation growing up saying, we like to be part of the new generation. green era without being a fundamentalist. We have great hopes for the new kids growing up and forming families. They have a different attitude and they are willing to look into the future for their children and their upbringings. Now I'm philosophizing, but I think that's something we have to bear in mind when we discuss about the future. And I understand it's difficult for you guys out there and you just have to follow us and we try to be as transparent as possible. guiding you as we've done here today and as we're going to continue. But for us to look in the crystal ball, it's very difficult. We indicate that we try to come back to old historic levels. I think that's a pretty bold and forecasting statement.

Okay, so just summarizing, you don't expect any sort of changes in the industry dynamics from a competitive standpoint or anything like that? in your base case for 2025, right?

Well, I think that any market that's growing is, of course, attracting new actors. That's like that in any industry. But we believe that we've been here a long time, and it's our duty to be part of that and even be a leader of that. Competitors or colleagues, they're always going to be there. And we find that We cannot hide anything. We cannot say, this market is ours. Of course. If we improve things, someone else is going to come and say, well, we do it a little bit different. And what do you think about that? That's how the market is operating. And we are full of confidence that we will master the demand out there. But of course, the business dynamics or market dynamics is such that it attracts new companies. We've heard that now for the last, you know, eight quarters, what's going to happen. And, I mean, now everyone realizes that it's not that easy, possibly, to just come in and say, now we're going to take over this. It's also an indication that the market dynamics is there. Okay, Crystal is indicating that we shouldn't dwell too much on that.

Okay, yeah, thank you so much.

Thank you.

The next question comes from the line of Axel Stase from MS. Please go ahead.

Hi. Good morning, everyone. Thanks for taking my question. In the past, the firm has stated that products sold are, you know, at the high end of all the heat pumps out there. And this has enabled Nibe to protect its pricing strategy. The problem I have and the question I have is that all the other players are pretty much the same, saying the same thing. And as a result, everyone is expecting pricing to remain quite stable for the next year or so. So what is the risk here on your 2025 EBITDA guidance for climate solution? That we see some pricing cuts. So long story short, and put my question in another way, what is the risk that we only see volumes recovery with potential pricing cuts next year? rather than volumes and pricing on this specific guidance of 13% to 15% EBIT margin?

Well, I mean, that's, again, a very complicated question. But in general terms, what we say is that, of course, we have products in the upper end of the market, and that's our legacy. And you cannot depreciate the value of those by saying, now we're going to sell it for a 10% lower price. Then you have to come in with products that have a lesser specification. And we also have that. So that doesn't mean, but it still has to carry the Neva brand name. I mean, just like the, if I may call it, the automotive industry, of course, they have smaller models, so they have models that are specified. And that's how we act in the marketplace. If you see that on our homepage, you can go in and look at the different categories of heat pumps. I don't know whether I answered your question fully, but that's how we act.

So you don't see any risk from the excess capacity and the competitive landscape on your guidance for 2025 in climate solution?

I think that's a question that you should be very cautious answering, that we don't see any risk I think that when risks occur, you have to counteract. And the immediate reaction to us would, of course, be that when the market is as it is, then you don't gain any profitability by decreasing prices. And I think that's the best way I can answer that for anyone that would like to enter the market, to be present in the market, to have been in the market for a long time. Everyone wants to make a decent margin there. And that's also including us.

All right? Thank you. You're welcome. Okay. Do we have anyone else?

The next question comes from the line of Bhavin Sarkar from Bloomberg Intelligence. Please go ahead.

Okay. Thank you for squeezing me in. So I was just wondering about European Union was kind of planning to implement something called as heat pump action plan, which was kind of aimed to incentivize heat pump installations in the Europe. But it was kind of sidelined given the upcoming elections next month. Just wanted to hear your view, if you're expecting to hear any update on this action plan once the elections are over next month.

Yeah, well, what politicians will do after the election and prior to that, I think it's difficult because in Brussels, as in every individual country, country. But we have a saying here in Sweden that they are very much opposed to one another, the political parties, prior to when you go to the polls and when you vote finally. But once the voting is done and the new government comes in, it's not that often that they start to change everything. They rather have to groom other issues. and I would assume the promise is given so solidly since so many years back. I think it would be difficult for anyone to change that attitude in Brussels now, because we understand it's a big anchor, difficult to change direction of, but even someone with totally new come in, we believe that promise is given, and now this is just an old experience that we have, you know, they do not very commonly believe or change things that have already been decided. So I think that's perhaps my personal view. And that's how we reason among ourselves. Let's see what's going to happen. But that's a very straightforward answer. Thank you so much. And we have a last question here, if you allow me.

The last question comes from the line of from HSBC. Please go ahead.

Hi, Jens. Thank you for taking my question. So I'll just do the previous question or the question before about competition. So if you look at in the market, there are competition who are kind of talking about going 40% this year or early into next year. Given you're talking about recovery and you do expect that to be slow and gradual as you move, how... Nibe is positioned to kind of fight this competition out because the competition is talking about having a wider distribution reach or making the installation easier. So just wanted your thoughts to understand what Nibe is doing in the marketplace to fend off competition. It's probably not a kind of a number-wise question, but anything you can give us on a qualitative term, what Nibe is doing differently and the customers can rely on either products versus any other competitive products.

Well, I don't know whether we should disclose that. Now, jokingly saying, of course, we feel that we are very personalized in the market, meaning that we work with different brands that are well-known in the markets, and all relationships have been established over years, and we feel that they're important to reach customers with a well-known local brand. That's our... ambition not disqualifying anyone else that we're doing it differently but that's how we've been so far fairly successful in keeping the brands keeping the management and maintaining our philosophy from here but grooming things together but having a face to the customer that is a combination of what you've had in the past and hopefully hopefully some improvements by injecting some of our philosophy. So local presence with local brands and of course doing and working together as much as possible when it comes to new R&D and so forth. Not disqualifying any of our colleagues, but that's how we have been able to handle the market so far. And if things have to be changed or modified slightly, then, of course, we are open to that. But we are not fearful. We are respectful.

Understood. Eric, just kind of a follow-up on that last point you make about you're very confident where you are. How do you see competitors thinking about distribution being the edge and would you need to consider that as a strategy going forward to be more focused on distribution so that you own the value chain and hence can control the market and understand how the inventory cycle is running and all.

Well, I think that you, as I said before, we are not deaf in any way. We look at, of course, the market and we do it in a respectful way and things have to be modified. Then we will do that. but we are not so fearful that, oh, no, somebody is doing something else, and they talk about it. Of course, we are known for viewing, analyzing, and if things have to be changed, then we do that. But we do not look off and say, oh, now we have to do that, and now we have to do that, because then you lose absolutely speed. You have to have confidence in what you do yourself, but at the same time, you have to be open enough If things could be improved in some fashion, that would do that. All right?

Fair enough. Thank you very much.

Thank you, Jim. Thank you for all the questions. I hope we haven't left anyone without an answer, not perhaps fully satisfied. But as previously, we took another 10 minutes. Thank you once again. And perhaps some of you are going to attend the annual shareholders meeting. And we look forward to that here in Markary, as I said initially. That's a festival in our little community here. So thank you for calling in. Thank you.

Thank you. Ladies and gentlemen, thank you for your attendance. This conference has been concluded. You may now disconnect.