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.