NIBE Industrier AB (publ)

Ladies and gentlemen, welcome to the Nibar Third Quarter Report 2024. At our customers' request, this conference call will be recorded. As a reminder, all participants will be in a listen-only mode, and 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 Backman, CFO. Please go ahead.

Thank you. Good morning, everyone out there. Good morning. Good morning. And we're going to follow the same procedures before as I go through a number of slides here and then Hans continues. But on top of that, we'd like to address that there have been so many, you know, questions in the past, and sometimes there are people that have not been able to put questions. So for the sake of order and some courtesy, we'd like to address that every individual person that is allowed to come in only puts two questions to allow for other ones to eventually come in and put their questions. And as before, we have to end the discussion at 12 o'clock because then we have other duties, so to say. With that said, let's dig into the report. And without being too selfish, we think that the report is sort of aligned with our own expectations. And the market is more stable from our point of view. And, of course, the adjusted cost structure is also helping us, you know, presenting a margin that is more in line with what we have planned internally. And, of course, when we say that the market is more stable, that refers pretty much to the situation where the inventory levels have been or have come down more to the acceptable levels. So more and more we see that the actual demand from the end user out there is reflected also in the production level, and now we talk for the industry. And also, of course, the action program is implemented to a large extent. We have another five or six weeks to go, and we are very confident that we're going to put that in operation before we head home for new year. And the full effect, as we said before, will turn out in 2025. And overall, the comment is also that we see the light in the tunnel, but, of course, the market remains tough. We're not saying that now everything is over. It remains tough. But we are still fairly optimistic about a future action plan and cost reductions and all that. And I think it's also important to mention in this context here that what we've done is also a demonstration of how flexible we are and the agility of NIDA when we are facing a situation that's rather cumbersome, the whole group is standing to attention and we attack the problems as soon as possible and as united as possible. And I think that's a very, very unique, should I say, feature we have in our group. That's our DNA setup. So with that said, let's have a quick look at the figures. And you've seen them, of course, and they are at, we are just under the 30 billion. Of course, comparing that to last year, it's another, it's a contraction of some 16, but then it also helped by the acquisition. So in reality, we talk about a contraction of some 20%. which is, of course, dramatic. And that is naturally also affecting the operating margin. But we see as quarter and quarter go by that we are nearing a better situation. And I think you see that on the following slide, where we just present the quarter itself, where we had a little bit lesser of a contraction and a little bit less again of the acquisitions. And now we are at a margin that is, of course, not at a 10%, but it's on its way up. So I think that's also a healthy sign. And the gross margin is, of course, has taken a hit. And we are still below what we had last year. And that's very important that everyone understands that it's a delicate balance between what you can reduce cost-wise and still remaining muscle to continue to grow in the future. And we believe that we've been able to fairly well keep that balance. All this cumbersome, painful to cut down on staff and cut down on costs, but we still believe that we have still the strength necessary to combat the market 25 and onwards. So again, without being too pleasing with ourselves, we believe that we've been able to cut that or have that in a fairly delicate balance. And then we have the ordinary bar charts. And of course, the downturn is very obvious, but it's at the same time pleasing to see that the tremendous downfall we had in Q1 starting to flatten out. And that's, of course, our ambition going forward to turn that the other way. That's the same thing with the profitability, of course. It's a tremendous dip there. Also, of course, taking into account the cost we had to take the first quarter. And if we just dig into the different business areas, Climate solution, which of course by size is very important to follow by you out there and also for ourselves. And as we say, we sometimes been using normalized inventory levels. We have decided to call it more acceptable levels because it's difficult for us to judge what is normal for all the actors out there. But we believe it's very much coming down, except perhaps for Germany, where they have still some work to do on their inventories because they were fairly heavily built up. But the action program, again, here, is according to plan, giving results, and going forward, we expect the improvements to continue. And, of course, here again, we have received so many questions regarding our ambition to be back, at the operating margin level within the historical range. And that's exactly what we are aiming at. We don't have a different agenda externally compared to the one internally. These are the targets that we work with internally. And it's very important that the employees of all our companies around the world feed the same target, and they are that are familiar with the targets like we announced here. So there's no secret internally by any means. What we tell you here is exactly how we work. Anyone or no one out there to say could promise, you know, that that's exactly where we're going to land. But we can tell you that our ambition is very clear and determined. And then, of course, again, looking at just the figures very quickly, Paul is going to dig into the more detailed ones. The operating margin, taking into account, of course, the cost set aside in the first quarter is 8.5. So, of course, it's an operating profit that's not even, should I say, 50% of what was a year ago. We see, as we said, a tough market, light in the tunnel, and we are taking step-by-step towards our final target of being back within the span of the operating margin. On the heating element side, of course, we have many positive things there, but they have been, of course, following the heat pump downturn trend. sort of violently. And also the wind turbine or the wind power industry has also had a downturn. And it's been tough for them to, or for us, to compensate within that business area. But then there are other sectors that have more positive signs, like the rail and semiconductor industry. So, you know, it's like pros and cons. And again, we just have to survive in a tougher environment And we feel, again, very comfortable with the fact that everyone is struggling like crazy to manage the situation we are in and, as we say here again, to come up to an operating margin within our usual range. No secret, everyone is very determined to be there. And I must say, personally, I'm very proud of all the people picking in or kicking in when it comes to helping. I mean, Pons and I, we're only two individuals. It's up to the more than 20,000 employees we have to be determined, to be proud, to try to be back on track already next year. And here again, of course, the margin, again, is... hasn't taken that dramatic drop as in climate solution. We are from 8.5 down to 5.3. So that's an indication that there are some positive sectors as well. And when we talk about semiconductor industry, we're very proud of being able to serve that very advanced industry with our products. And that has a different cycle than the other sectors where new construction is very dependent on... naturally interest rates and so forth, whereas the semiconductor industry is more into new products being launched, like, of course, different new computers and new artificial intelligence, whatever we call it. And those are other factors. They have their own lives, sort of, and it's very important and good to be in a sector that has its own cycle rather than new construction and interest rates. And having a look at stoves, they also hit pretty hard by the downturn. And it's a bit unusual to see that all the, not all of them, but quite a number of our retailers catch stock, which is not very common. Here we don't have an in-between wholesaler. It's just a regular outlet stable stocking. but we are fairly certain that they are gone now, and now our production will reflect more the actual demand at the end-user level. And here, again, we believe that the interest rates coming down are going to be an asset. The action program is well on its way. And the same target here, again, is the other two business areas to return to operating margin that we are used to within the historical range. Of course, they're pretty bold statements from us, but we believe that with the strength, with the platform we have, with the tradition we have, we are fairly certain that that can be achieved by us as an organization. Having said that, I think we should just look at a few more graphs, perhaps. Yeah, having a look at the margin, of course, that's taken a dramatic drop. I think it's worthwhile, before we go back to Hans' story here, that the seasonal pattern is different, or has been different. It's back more to the usual pattern. Prior to the pandemic, it was always, in the fall period, and early winter where we had a strong season. During pandemic and during the war starting and the energy prices escalating, people were more and more consuming, you know, more than we were used to, of course, and we had delivery problems. And now we believe that the demand is more back to the ordinary seasonal pattern. And that's something we also... are very certain that they're going to continue now when the inventories are back on ordinary levels. So just a quick look at the pie chart, have a typical look at. We haven't seen that much of a change. Climate's still about two-thirds, and element about one live better than a quarter, and stores, of course, just under 10%. Looking at the operating profit, Since climate solution has a history of having a higher margin, then, of course, that's some 75%. An element is 21%. And stoves, of course, being hit fairly hard, it's down to full. So that's as it is. Geographically, we, of course, are very strong in Europe, where we have some two-thirds. But also in North America, you have 30%. And we've been working very determinedly over years to establish ourselves in North America. And we have a fairly good balance where the Nordic countries being our home market, so to say, and allowing us to have a good, strong foothold here. And then being very aggressive, of course, on all the other markets out there in Europe and also in North America. And on the element side, They've been fairly successful also in Asia, but that's the only business area that's been really attacking that part of the world, despite the fact that there are so many people down there. I think, Hans, that gave me 15 minutes. Perfect.

Thank you. I hand over to you. Thank you. Yeah, before jumping into the individual business areas, I would just like to come back to the group result quickly. hopefully answering a couple of questions that might come in the Q&A later. And that is that on the elimination line, when you look at the group, there is a positive effect of two, three million. And usually that is around maybe minus 35, 40 million. And the simple reason why it's positive now is that we have finalized a couple of acquisitions. You know, we always buy them in pieces, so to speak, and second tranche a third tranche kicks in and we buy the remaining part and then we need to settle the the final purchase price and of course dissolve the reserve that has been made and in this case we've had a slightly positive effect coming from those of around 25 million so the underlying cost there right now is around 2025 rather than the 35 as well, due to the fact that that's also a line where a lot of acquisition costs typically end up when we look at many acquisitions, due diligence work and stuff like that, which there has been slightly less of. So that's the reason for that. And then we also have a one-time effect of 36 million coming from the finalization of the purchase price allocation for Climate for Life. It's pretty well described on page 12 in the report, so I'm not going to dwell upon it, but due to the fact that we moved intangible assets from customer relations for which we depreciate to pure goodwill for the reason mentioned in the report, we needed to reverse 36 million of such costs, and that has a one-time effect in the quarter. So that's just trying to be as transparent as possible. We have nothing to hide, not trying to hide. We apologize if we're unclear sometimes, but that's not the intention. If we then just head on to the business areas, as Eric mentioned, I mean, obviously we're not back at previous levels, but we are in a way in line with expectations and where we expected ourselves to be, both with... the cost-saving program kicking in and holding up on prices. The Nordics have been performing decently recently. The North American market is keeping up pretty well, whereas the German market and surrounding countries have been slightly weaker. So sales came in at just below $19 billion, down from $23.7, so it's a decline. There are some 20%. We were helped a little bit by acquisitions. And then coming in with the gross margin for the first three quarters of 31.5. Obviously much lower than where we used to be, but it's still a slight improvement from Q2. So we're step by step moving up in the right direction. And then for the reason that I just mentioned around Climate for Life and the finalized PPA, the underlying operating profit here is rather 1528. as opposed to the 1564, so a margin of 8.1 if we are to be very correct, so to speak. In the third quarter as such, sales came in at 6.5 billion compared to 7.8 last year, which of course also is a strong decline. There are some 17%. but much less of a decline compared to what we had in both Q1, which was more than 30%, and Q2, which was far more than 20%. So that's also slightly moving in the right direction, step by step. And also here, to be fully transparent, again, the one-time effect from Climate for Life came in, obviously, on the operating profit line. So the underlying profit there is rather 690%. as opposed to the 726, meaning an operating margin of 10.6. In terms of geographical distribution of SAIDs, the largest share, if you compare to a year ago, is that North America has 26%. A year ago, it was rather just about 20%. So that's the market that's kept up. Europe, excluding the Nordics, has been fairly stable. And the Nordics has also been a little bit weaker compared to a year ago. If we then move on to NEBE element, I mean, as Eric mentioned, we have had big variations between different segments and where the majority of the negative impact here has come from the HVAC sector and especially heat pump sector, you can say, but also white goods. Whereas others actually have been performing reasonably well and where we've seen an underlying growth as well. Here sales came in at 8.2 compared to 8.9. So the swings have not been as dramatic here as within climate solutions. But we operate this business being a B2B business with a lower gross margin coming in at 19.8. and which we're, of course, working on to increase step-by-step. And then the operating margin landing at 5.3. And also here, for the sake of transparency, I would just like to mention that because there has been one or the other question here this morning on a number in the report, also on page 12, related to deliveries of deliverables recognized as revenue over time. That's related to project reporting, where we have a number of 489, but we didn't have anything in the last report. And one could suggest that we have had a one-time effect coming from a big project, but that's not the case at all. We have very few companies within the group reporting according to percentage of completion. They have been doing that whole time there's been no change at all it's rather that the information to this specific table in the report has not been fully up to date but now it is complete it's the correct way but there is no one time effect in there whatsoever in the individual quarter sales have basically moved sideways or actually slightly down from q2 so came in at 2.7, down from 2.9 of last year, and Q2 was at 2.8. But thanks to the cost program kicking in and us working on the cost structure in general, we've been able to slightly improve the operating margin, coming in now at 5.9. And the gross margin has actually also taken a step by step up in the right direction. In terms of distribution of sales, as we have said many, many times, this is our most global business area with operations in most parts of the world, you can say. And during this period here, if we compare it to a year ago, it's clearly been the North American and the other portion there, which is Asia, that has gained on behalf of the Nordics and the European part. which again has been suffering mostly from the decline in HVAC and white goods.