NIBE Industrier AB (publ)

Welcome to the NEBE Q1 presentation for 2025. During the questions and answers session, participants are able to ask questions by dialing pound key five on their telephone keypad. Now I will hand the conference over to CEO Eric Lindquist and CFO Hans Backman. Please go ahead.

Thank you very much. Good morning, everyone out there. Good morning. Good morning. It's a gorgeous day here in Markaryd, graduation day we call it, when we have the annual shareholders meeting later on today. So we'll use our regular pattern. We start to go through the report, Hans and I, and then we allow for questions. And due to all other things that we have to participate, and carry out today. We would appreciate if we could stop around noon. That gives us an hour in total.

And limiting the questions to two per person.

That's right. Thank you, Hans. The headline we would like to say is pretty much in line with our own expectations. That's Q1. there is signs of recovery and some of course still cautious market, but already at the end of Q4 last year, we saw a change and that continues and that fills us with, you know, positivism, of course. Our action program is in place and that makes us return to a more traditional CECL pattern as well, because now the large orders that we had for years, they are pretty much gone. And now it's back to ordinary pattern. And what's also very pleasing is that the inventories and the distribution chain, they have come down. We call it more acceptable levels rather than saying that there are ideal levels. We can't really judge that. But we now see that the end customer's demand is so much better reflected at the manufacturer's levels, which has been a difficult situation for all manufacturers in our three different industries. That is always difficult to assess naturally the future with this economic and political uncertainties. But we believe in a continued recovery and the strength we represent ourselves. And also we have come down considerably interest rates. And there's a debate whether that possibly could continue to go down. And of course, we also like to say that we are a different company today than we were a few years ago. We have a different range of products. They have been kept at a steady pace when it comes to the continue to develop them. We haven't cut down there. And also on the production engineering side with more rational production. And of course, the facilities that we talked so much about, that's now coming to an end at its investment in just this quarter. We finalized a factory in Finland. And as late as yesterday, we opened up our new market center. We can call it the Niva World of Energy. And today, later on, we're going to have the annual shareholders meeting in a factory that's newly erected producing tanks. So that is also being opened up here in a few weeks' time for the shareholders to look at. So that's pretty much the summary. And of course, our ambition with that said is still there to try to come back to a margin situation for all three business areas within the historical span, we can call it. So that's a summary. And if we don't jump very quickly into the figures, I mean, they speak for themselves. It's a modest growth, and it's particularly on the climate solutions side where we have the growth, which is very pleasing. And stoves, it's very pronounced a seasonal pattern where you have the significant increase during the second half of the year. And of course, the operating margin is up quite a bit from the previous year, which was not very pleasing to us. So we are going in the right direction when it comes to that. And that's all illustrated in the graph that's coming up here with the bars indicating that there is a slight change in the curve in the direction which is pleasing to see. And if we just swing to the profitability part of it, there I think in the future we're going to switch over to having the EBIT here. We also have the financial items. And we see that, of course, relatively easy quarters to compare ourselves to. But there's also a change. And as the quarters are going to go by now, we're going to see us returning to a more seasonal traditional pattern. Having a few words then about the climate solutions. Improved underlying demand here in Europe, particularly in Holland, Sweden, Germany. In America or North America, it's stable. There isn't any real growth to talk about. And also here we see the more traditional seasonal pattern. And yeah, inventory levels, of course, it's the same thing for all three business areas. It's come down to a much, much better level on the commercial side, which is not as big as we would like it to be. But there is another resilience in that segment. And overall, we believe in a gradual improvement going forward. And of course, the ambition here is to be back. on the operating margin within our historical range, as we're going to show in a little while here. And those are the figures operating margin is still below 10. And of course, we are striving to be up at our traditional span there between 13 and 15. that's an undertaking and we are not wavering on on that or shivering or anything like that on that target and ambitions are ambitions and the world is that is as it is but that's a very clear target on the element side that's a varying demand of course depending on which industry we we look at some are very buoyant like the semiconductor and rail Of course, rail continues to be very positive since there is a very obvious change in attitude. People use rail much more and also for cargo means that the railroad systems and the trains themselves, they have to be climatized and heated and obviously the rail itself. In the industrial segment, a little bit weaker. and also here of course inventory levels among our customers is also a reflection of the element itself on the heat pump and white goods side it's a slightly deferred cycle whereas the ready-made goods at our customers they are come down to acceptable levels but then of course the The components that they also bought prior to the downturn, they're not totally emptied yet. So that's why we have a certain delay in the improvement there. Low construction in, you can say overall, there isn't any booming construction industry. And I think that's a concern to at least the whole Europe. And the thing is, of course, that we need to come back. But that's a political or financial decision by banks to arrive at lower interest rates. And also here to be back at the historical range, 8 and 11. And as we see here now, we are taking a small step up from last year up to 6.2. And that we're going to continue as before, put down our hats and go ahead. And finally stoves again very pronounced seasonality and we have really taken a lot of activities when it comes to marketing knowing that the market will remain relatively slow and also on the production side that you have to prepare yourself for the peak during the fall but then you have to be very alert so you don't come into the next year with over capacity meaning that we have to have some temporary people employed to gather or to guarantee rather the volume during the fall and then if the demand weakens a little bit again if we're back to the seasonal pattern so we have to have them you know going back to whatever they did before not to harm the margin that first half year next year and yeah here you see the figures and of course It's a drop in revenue, but despite that, we have been able to almost maintain the operating profit, but foremost, the operating margin, which I think illustrates a strength by the business area. And here we see a difference between North America and Europe. Europe here has been relatively seen weaker than North America, which is of course also filling us with, you know, prosperity when it comes to the rest of the year. Having a few, yeah, the usual pie charts that I present before I hand over to Hans is pretty much the same, where climate solution is roughly not two thirds here, but 61%, an element just south of 30 and stoves around 10. That's been pretty much the same. And now the profitability, of course, extends climate solutions position into the 71, an element 23 and six respectively. Remembering now that stoves particularly will have their strong period during the second half of the year. Geographically, North America is about a third. The northern part or northern countries, we are like less than 20% anymore. And the rest of Europe is like 43%. So no dramatic changes really, but North America plays a big role. And we know that there's been a big debate about customs and things like that. And as we say in the report, it's It's not so sensitive when it comes to customs as some of you thought, because our expansion has been built around acquisition in the past, and of course, also growth on those platforms. But we have a very small export from Europe to North America and the other direction as well. So from that point of sense, we are fairly robust, we can say. Just a few words about that. Hans, I think I will be back in 12 minutes.

Perfect. Thank you. I will continue with the same speed to leave room for questions. A little bit of a deep dive into the business areas and then a few snapshots on the balance sheet and some key numbers. Climate solutions then again. I mean, here we grew, as Eric said, with some three plus percent landing in sales, just above six billion. We had a little bit of boost at the end of the quarter, you can say. And this is a true growth in the sense that it's neither been supported by acquisitions nor currency. It was relatively flat there in terms of support. But having said that, the currency was helping us in the two first months. And then, of course, it switched when the Swedish krona took off in March. And going forward, we see probably some headwind from the Swedish currency. Nevertheless, we do see an underlying better demand driving this growth and where the commercial segment, as Erik mentioned, has been more robust during a slightly tougher period. So we remain with the targets that also Erik mentioned of returning to our historical margin intervals. And what has developed quite nicely here due to the volume growth we've had and also the savings program that we've taken is that the gross margin now has picked up from the 31.2% up to about 32. And on the SG&A side, we've also reduced quite a lot, of course, and that's the reason now for the growth in profit here with some 67% and landing in an operating margin here of 9.2. And in climate solutions, I mean, we have a seasonal pattern as well, where Q1 and Q2 is one phase of the year where we build, typically build inventory and prepare for the second half. And then in the second half, that's really when the margins kick in at another level, so to speak. If we just take a quick, quick look at the geographical distribution of sales, one quarter is in North America and roughly 75% in Europe. No major change from the way it looked a year ago. Heading into NIBE element, I mean, within NIBE element, we grew with 6.5%, of which a smaller portion, came from acquisitions and in this case a small portion also from a positive currency effect. But just as for climate solutions we don't see that the currency will help us going forward the way the Swedish krona is developing right now. But also here we definitely strive towards the goal of returning to the historical margins. And we made progress here as well. If we look at the gross margin, it's come up from 18.6 to 20.2. So that's quite an achievement during this phase. And also on the SG&A side, following the savings program and the actions we took there, the operating profit has grown with some 31% and landing in an operating margin of 6.2 up from 5.1. It's obviously not where we want to be, but it's a good step in the right direction to where we then want to be. The geographical distribution of sales, no major changes at all compared to last year. It's our most global business area, as we typically mention, with a large portion in North America, some 40 plus percent. Europe and the Nordics being together slightly bigger, but then also with a good portion mainly in Asia. Moving on to stoves, within stoves, sales actually dropped by some 12%, mainly as a result of the low level of new construction and renovation that we've seen. But we have also returned to a more traditional seasonal pattern in this business area, meaning that here more pronounced than in the other business areas, the first half of the year is typically rather weak, and then almost everything happens in the second half. And this was not the case for a couple of years following the pandemic when people were at home renovating their homes. And then when Putin invaded the Ukraine and people wanted a stove as a second heating source. We're away from that or those phases you can say and now coming back to this traditional pattern. As Eric mentioned, I mean, despite this quite, you know, steep drop in sales in a way, cross margin has improved, come up two percentage units. And on the SG&A side, we've also held on to costs or even reduced them, meaning that we've been able to land an operating profit almost the same as last year, but an operating margin that is actually higher. So I think we're well positioned here for the second half of the year, so to speak. Also here in terms of the geographical distribution of sales, no major changes have taken place. It's the same picture as before. The North American operations being some 38%, they've actually grown a little bit compared to last year. And they have also shown a better resilience and a stronger performance than the European side. But it's North America and it's Europe, including the Nordics, where we are active with this business area. Then moving into the balance sheet, some cash flow and so forth. There are no major changes here. I mean, the total assets, total liabilities have come down from some 70 billion to 66. From year end up till now, there's a portion or a good portion, you can say, of a currency conversion effect in there. But we've also amortized loans. And of course, depreciation has continued as normal. And also, as a consequence of the savings program, some projects have been written down or written off and taken off the balance sheet, so to speak. If we look at the cash flow, we generated 658 million compared to a large minus number from last year, minus 318. But then a lot of that has disappeared, so to speak, in changing working capital. But beneath that number actually lies a continued reduction of inventory. And I mentioned before that we typically build inventory during the first half of the year. But here we've really continued our focus on reducing inventory as much as we can, both on component side and on finished goods sides. And that has been successful. Also, the payables have actually increased, meaning they have contributed well. So the sole effect for this negative change comes from accounts receivables. But we have not changed any payment terms that would not be in our benefit, so to speak. Don't have any overdues more than before. And we have very few of those. So this is more of a timing issue. We had this boost of sales at the end of the quarter, which I mentioned. And yes, so it's very much related to a phasing of those receivables. Then we've continued to invest in our operations that might stick out a little 619 million compared to 470. But we have not launched any major, larger or new investment programs. This is all linked to the very large program that we launched some five years ago now, so this is also a phasing question of factories now being completed. We have done the last bits and pieces in Markarid where we're standing right now, also in Finland we've completed a factory, so it's all in line with this program. Financing activities. I mean, we've also amortized some loans, but then there is an exchange rate effect in the working or in the cash flow that hits us as a consequence of that. Working capital is not really where we want it to be. It's coming down. I mean, it's a 22.7%. We have as a mid-term target, so to speak, to bring it down below 20% as a first step. And then, of course, go below that as well. So we're on our way, but we'd also... benefit, of course, from a more buoyant market or vivid market, so to speak. As a consequence, I mean, we're moving in the right direction, but with still a slightly challenging market, the key financial numbers are obviously not where we want them to be, but definitely now heading in the right direction. And I see now when I look at the picture there, that little star that we have on the two first key numbers there, return on capital employed and return on equity is not in for 2025. They should be there. The numbers have been adjusted for the savings program. So for items affecting comparability so that we compare apples with apples. So I mean, All in all, I would say we're very well positioned. Obviously, we're not exactly where we want to be in terms of numbers, but still landing in the 9.2 at climate is not too bad, if I dare to say. And we're foremost well positioned for what is to come. And we have made some investments over the years now, and I think you can give some color on that on the coming pages, Erik. Yeah. By all means.

Yeah, we have very, shall I say, professional photographers around our companies. And the first picture here is an illustration of yesterday when we opened up the World of Energy in Markerud. And that, of course, was a very, very important happening here because the building itself is... very extraordinary for customers to visit us and installers, wholesalers, house builders, specifiers, but also for training naturally and meeting our suppliers and meeting all categories of people, giving a statement that we believe in the future. This is where things happen. And Nibiru world of energy has a double meaning. Of course, we are into the energy sector, but it also we are filled of energy to move forward. And here we have the What was it they call her? The county something. I tried to. County governor. Maria Arnholm. And, you know, in Sweden we have like counties and she is the highest principal you can call for that district being an arm for the king, actually, historically. And she called this the crown in the jewels. And she gave a very nice speech, touching. And on the picture below there, slide below, you see the number of people standing in front of her just before we cut the ribbon. And just another slide that also illustrates that we have not slowed down whatsoever in our activities at the big ISH show in Germany. We have all represented by our biggest or bigger brands and Nivea of course and Alphenotec and Watercock and also Ross on the commercial side and railroad of course it's going on and there is hope I mean we are not responsible for the railroad system but we can just say that the investment's coming up so sit still and be angry when your train is stopping but From our part, it looks fairly buoyant because the politicians, whoever is governing this, they understand that things have to be improved all over Europe and also in North America. So that's a very good thing. And also on the stove side, we had two very important shows, one in Leipzig in Germany and one in New Orleans. And of course, here you see the Contura brand in Europe and in North America. There are only other brands represented there, which also underlines what we said before, that North American products, Contura doesn't sell anything to North America and neither the other way around. So I think that's pretty much what we have. Oh, you got a little bit more time. I was quick. 25 minutes over 26. Now we are ready for questions, please.

The next question comes from Christian Hinderaker from Goldman Sachs. Please go ahead.

Morning Eric, morning Hans and thank you for the opportunity. I've got two as noted. First one may be for Hans on the free cash flow side and specifically the working capital development because I think the other inputs relatively as expected. You made some good progress reducing inventories down 780 million versus last quarter. Consensus had assumed an increase. Receivables looks like little changed and that's sort of consistent with the consensus. You then have this current liabilities and provisions line. That was down 700 million and so I think represented an outflow in cash terms versus expectations for an increase and hence a cash inflow.

you just talk about what drove that cash outflow are there any provisions in there and how do we think about this working capital line assuming growth continues through the rest of the year well i think the the challenging thing when looking at the the cash flow and compares comparing it with what you have in the balance sheet so to speak is that there are quite a few currency exchange effects in there so I mean, we have continuously worked on reducing the working capital. And as I mentioned before, we have been able to do so on the inventory side. There is a portion of currency in there as well when you just look at the balance sheets or the balance sheet numbers. and also on the liability side we've actually or the payable side rather we've actually been able to increase those so so it's it's more of a continued work in addressing this and i think we've talked about that before that that has also been more in focus for each individual manager in the local companies that this needs to be addressed more meticulously Other than that, there are no major changes that we have done on this side that sticks out or that I think should have been commented upon or so. I don't know if you're happy with that answer or what it is you're actually after, so to speak.

Thanks, Hans. Maybe we can go into that separately in a bit more depth. The second question is a little bit shorter. If I look at the Europe X Nordics revenues, those were down year on year in all three segments. Can you just add some color on what you think is behind that and in climate solutions specifically, maybe add some context on country-level growth dynamics?

All right. Is it down, you say? I thought that the figures for the first quarter was up.

For Europe.

Yeah, well, I mean, the thing is, of course, that North America represents like 25% and the rest of Europe, something 75%, right? And of course, it's in Europe where the growth has taken place. Whereas in North America, it's been more stable, as we pronounce it in the report. And in all fairness, North America stood up 24. We didn't have that. downfall in the 24 at all. So that kept up pretty well. Now, of course, it's expected to come back and which we also see. So you can say that the 75% in Europe would carry the climate solution as a whole, meaning that in particular, Holland, of course, Sweden and Germany being important market, we've seen a positive development. I don't know whether I answered your question correctly.

I guess I'm a little confused because you had 4413 was your Europe revenue number in Q1 of last year. In Q1 of this year it's 4213 and hence is lower. All other regions were up it looks like. So I'm trying to understand that when we think about if heat pump sales last year had declined 51% and this year presumably growing on an easier comp, why your European revenues are lower year on year?

Okay, well, I guess you caught me on one foot there. The way we have reason is that... Well, I think I have to explain that more specifically perhaps in a different, separate meeting so we don't do anything incorrectly here.

Okay, no problem. Thank you.

The next question comes from Carl Dagenberg from Carnegie. Please go ahead.

Thank you very much. Hi, Hans and Erik. So two questions from my side, and I'll start also on the inventory side, and maybe more specifically on your own inventory. As pointed out here, they're coming down again here sequentially in Q1, and I just wanted to understand little bit how you look at this going forward, at what sort of levels do you see your own inventories being more normalized relative where current demand is right now? Because I guess what I'm trying to understand is, given that you're likely suffering a little bit on the gross margin on underutilization here, for how many more quarters do you see that progressing? Thank you.

I mean, in terms of the inventory, we have as a target to at least have an inventory turn of five, which we think is a good measure for us, so to speak, to strive for. And I mean, what happened during the COVID phase and when demand picked up so drastically was, of course, that we sourced a lot of components because we were in a situation where we couldn't deliver and had very long lead times. And that's an inventory, of course, that we're, you know, working down now step by step. And at the same time, you know, with volume hopefully continuously picking up here, we will have a better flow through in our factories, giving us the possibility to increase the turnover. And of course, also selling out or those finished goods that we've had on the shelves.

Yeah, fair enough. Thank you and then my second question would also be a little bit let's say the sequential development here in EQ1 on a monthly basis I mean I understand that there is seasonality you know March being a very important month but have you seen any underlying let's say market change in Europe here in EQ1 because I guess some of your listed peers have talked about the better exit rate also underlyingly versus what the entry rate was into the quarter.

No, there is a better transparency, absolutely. Before it was a little bit of a hide and seek what's coming in at our end and what's going out in the other end. So, I mean, as we say then report that already last year, first fourth quarter the later part there we saw that things were improving and it continued to improve relatively seen in in the quarter and but then it's on said you know during the last month of course order intake and so forth was pretty decent and but then of course the currency will work in the other direction if you just break out one individual month but that's why we have to come back we don't know how we're going to land on the full year when it comes to the currency situation. Of course, we send some singles, but I mean, it's our, you know, task to lead the company, whatever currency, whatever political turbulence out there. And we just hope that it goes up and down, as we say, from day to day, it changes. And that, again, is like, weather rain one day and then the sun in the next one that means that it's not raining every day so we just have to assume that we will arrive at some kind of a stable situation and what they're going to look like we don't know we believe that we have come to a position where our assortment our capacities they're well in line with what we have anticipated but always going to be some kind of unexpected thing arising.

Okay, thank you very much. I'll get back in line.

Next question comes from Carl Ragnarstam from Nordia. Please go ahead.

Hi, it's Carl here from Nordia. Two questions from my side as well. When I read the report, you see that you haven't seen a noticeable increase in demand in Germany, i.e. a sluggish market. Is that correct? But on the other hand, we're seeing industry numbers indicating a 35 underlying market growth. So is it the reason behind the discrepancy or did I just misunderstand your comments in the report here? Thanks.

No, no, we didn't misunderstand it. So it's, of course, it's a growth in Germany from a very low level of the previous year. And of course, in that particular case, we would have liked to have much bigger market share to benefit from that growth. But the market growing with some, say, 12,000, 13,000 heat pumps, of course, had we had 50%, it would have been significant. As we all know, our market share is significant, but not of that magnitude. If you just assume 10% would mean like a growth of some, 1,200 or 1,500 heat pumps that particular quarter. It's positive, and that's what we see in other markets as well. But it's not like it's changing the whole world and then giving into account that North America is very stable. Those increases are what really is lifting the business area.

So you feel that you kept your market share in Germany then?

Yeah, that's right. But if it's difficult to gain anything, we have to admit that.

Okay, very clear. And the final one, if I may, is on the Dutch market, which you also wrote this and said this is a good market right now. Obviously, we see some pre-buying effects. On the other hand, we also see other... I mean, growth in inflexible housing, for instance. Do you think that the growth in flexible housing, that's one example, would be enough to potentially offset the potential whiplash from Previcer?

I don't know whether I fully comprehended that question. If you repeat that a little bit, please.

Yeah, sure. So in Netherlands, The government is planning on lowering the subsidy schemes, which, according to trade decisions, has led to a pre-buy effect like we saw in Germany, right? So on the other hand, we also see a good demand for flexible housing. So do you think that flexible housing demand will offset a potential whiplash, depending on how you look at it?

Well, I think that we've been living with uncertainty now in Holland for some time, and what we see is also there that the demand is not that of course, tremendous as it was like two or three years ago. But I think that it's sort of like the water comes down from the hillside and it looks like the market is perhaps returning to a more realistic rate of growth. And perhaps we all would like to have some support, of course, but perhaps the subsidies were too much in a fair sense. And it's becoming more of a market where the end user decides what to use in the future. So I think we believe that the Dutch market will remain strong, but not at the level that it was like two or three years ago.

That's very good. Thank you. That's very good. Thank you.

The next question comes from Vivek Mita from Citi. Please go ahead.

Thank you very much, everyone, and good morning. My first question is around the U.S. Clearly, it's an important market for you. And while nothing's decided, there has been a draft of the new U.S. reconciliation bill. which does propose to eliminate some of the Section 25C and 25B tax credits under the Inflation Reduction Act. So you expect that you don't, you've said in the report, you don't expect any major changes in the near or medium terms. Could you maybe talk about or expand on those comments and how you see the political situation potentially affecting demand? Thank you.

Well, we believe that there will be a long haul of negotiations regarding that, just like it was the previous time when the administration changed in 2017. And similar discussions, and that ended up in a compromise. And we don't like really to dwell on the outcome of such a potential change. We know that those discussions are going on, and it was sort of, expected but to have any theory we can just lean against history and there the industry was able to come to an agreement with that government to that administration that was fairly favorable balanced in a way we can say and uh they're going to continue now as well for the rest of the years we understand with our colleagues over there and the associations

Thank you. My question is again, expanding on the question earlier about Europe. I think France and Poland have been weaker markets recently, and you're sounding in the reports more optimistic about those markets. So what are you seeing there that gives you confidence? Is this relating, for example, to some of the subsidies in Poland coming back and so on? Thank you.

Well, just as one reflection, one thing they gave the market a little bit of a hiccup on top of inventories being too high or inventory levels being too high, was that new ZUM list that there was a new sort of certification required just for Poland that deviated from the European certification. And that meant, of course, that there was an uncertainty there and that cleared out now. So that's why we believe that, okay, that uncertainty is taken away. So that's one of the reasons that we didn't specifically write about that. And then in France, of course, we are launching our, what do you call it, exhaust air heat pumps down there. And we are quite successful in doing that. So that is also adding to our optimism, although the market is not so buoyant, as you say. that there's always a room for a small operator to come in. Because there, of course, we are not a major operator. Then we're still a relatively small one.

Thank you.

The next question comes from Carl Boakvist from ABG Sundal Collier. Please go ahead.

Thank you and hello. The first one is on gross margins compared to the operating margins. You've been very clear in your ambition to get back to historical operating margin levels and my question is then how we should think about the efficiency you can make on the SD&A line compared to an ambition to get back to also historical gross margin levels.

Who starts with a cost? Well, I mean, as I said, it's always a balance with how much you should cut down on your costs. And of course, if we were assuming that we're never going to handle growth anymore to really exaggerate a darker scenario, then of course, we could cut down further on sales and marketing efforts and also on the R&D. But we don't believe that. We believe that volume eventually gonna and gradually come back. And then you have to be ready. You can't wait now when the market is coming back. Now we have to develop products. So now we have to be present in the market. So we cannot say that we're going to cut down those costs just to please the operating margin. With a combination of what we've cut down on cost and a combination of a slight increase in volume, we believe that we can be back within the bracket that we promised and talked so much about. Hope I gave you a better picture on that.

Yeah, understood. So, Dan, if I interpret you correctly there, the benefits on volume you expect to become visible also on a gross margin point of view.

Yeah.

Yeah.

Absolutely. I mean, both are in focus for us, obviously.

Yeah, understood. Then just on new construction, anything you see here and lead times from improving activity in that segment up until it results in more sales for you?

Well, new construction typically has a long lead time. We all know that. To erect a new building, whether there's a A residential home or a bigger building, of course, that takes a number of quarters. So there the market is still relatively weak. And that's where we talk about the interest rates coming down. That gives a better flavor for the end users. And as much as we would like it to come down, that makes also people possibly a bit hesitant. You wait another quarter or two to really carry out the investment. So it's a balancing point, and that's, of course, affecting all our three business areas. We like to see the new construction increase or come back to, if not a dramatic increase, but come back at least, because that's important not only for our two industries, but for the whole society. Construction drives practically everything for the new construction. So that's more philosophical. All right. Yeah.

Yeah, okay. Understood. Thank you for that.

The next question comes from Brijesh Shah from HSBC. Please go ahead.

Hi. Good morning, gents. I have two as well. The first one is on the demand assessment. You said that there's a gradual recovery coming in. So if I recollect previously, you were expecting this year heat pump volume growth of around low to mid-teen. Has that expectation changed, or do you see anything different now compared to what you were expecting beginning of the year? That's the first one. And the second one, okay, I'll come back on the second one a little later then.

Now, as we said initially, The quarter is pretty much in line with our expectations. We did not foresee that all of a sudden things were bouncing back to a tremendous growth, but it would come gradually. And I think that's what we've seen. So in that respect, it follows our own internal expectations. All right.

Okay, fair enough. Thank you. And the second one is on the margin progression. You talk about... talk about the margin ambition to reach to the historical level. And at the same time, you say that it'll be a second-half rate of recovery in climate solution. So putting all this together, how should we think about the margin progression as the year goes? Is it kind of, you are going to hit this margin targets towards Q4, that's how you should think about, or on a full year basis, you are going to hit two targets?

Well, I mean, you know that we report our margins on a on a yearly basis and of course that's a gradual improvement and when we now are at a certain level of course then we expect particularly the second half to be considerably better than we are now and then when we sum it up we hope to be within those spans that we've talked about talked too much about otherwise you say well it won't be so difficult to arrive at a line with a return and one particular month or one particular corner a quarter i mean that's why we always refer to the year and that's why we believe that we are sticking out down next there and we we keep that ambition it hasn't deviated all right fair enough thank you thank you the next question comes from victor trollston from dansky please go ahead

Mm-hmm. Thank you. And I know you have Eric and Hans. I guess firstly to you, Hans, perhaps, but you mentioned, you know, boost to sales by the end of the quarter in climate solutions. So I guess the first question would be, you know, if climate had organic growth of 3% in Q1, could you give an indication how much the growth was at the end of the quarter? Was it double digit or?

No, I don't think we can get into those details, but this is also a little bit of a human touch in a way. We experience it actually every month that at the end of every month, the last few days, that's when the shipping really takes place. And there was no difference, so to speak, now when coming to a quarter end and perhaps a little bit boosted by the fact that it was a quarter end. That's when our companies really make sure to get the products out the door. So it's more of a, I would say, a human pattern in a way that when we're coming close to closing the month, that's when the shipments are made.

But there were orders.

Of course. Yeah, of course.

Yeah, exactly. So I guess if I try you on the same topic, but from another perspective. So I think you're right in the report that there is a better correlation between orders and buildings now in the industry. So does that go for Q1? as well, i.e. 3% sales growth in climate solutions. Is that reflective of the order situation in Q1? Or would you say that orders is higher than that figure in Q1?

Well, it's a very intricate question, as a political person would say.

Let's hope for a good answer.

Yeah, right. We try to answer that. But I think you should view our wording, of course, it's always a delicate thing. The transparency is not that, or the visibility, I should say, is not that very long. Now we are back to the visibility of two, three, four, five weeks. And the customers, wholesalers, house builders, whatever they are installed, they know that we can deliver and the whole industry can deliver, which means that What we saw before when everyone tried to compensate themselves, that pattern is totally changed. Now it's more the other way around. They know we are very eager to deliver and consequently the visibility is very, very short because we don't really know what's happening out there. But what we've seen during the first quarter is corresponding to what we assumed that now demand slowly going to come back. We can deliver. our colleagues or competitors they can also deliver and that means that we cannot really say what's going to happen in June as an industry unless you have long orders for new construction when you build apartment buildings for say then of course you have a different situation. So it is more positive, but visibility is very short, like it was prior to the pandemic as well. There's more back even there to that pattern.

All right. Okay, no, fair enough. I fully agree. But I guess orders were a bit higher than full stone.

Well, as Hans said, I mean, we could not have. It's not that with the ability to deliver. Of course, we don't sit on our little fannies not delivering because we deliver whatever is asked for. And then the beginning of the year, as you know, after New Year and everything is always a little bit slower before the wheels start to roll again. So then again, if you use the microscope and start to look at the first six weeks versus the later six weeks during the quarter, I mean, there is a difference there as well. And I guess that's what Hans was saying, that we like to get the products out the door. And to judge everything from one quarter is very difficult. But we try to say, OK, try to convey the message that we believe that the market will gradually increase. And with the seasonal pattern coming back the second half of the year, you're going to recognize the pattern that you saw before 2019. And now it's up to us to really make sure that we can deliver properly during the second half of the year, because that's when stores will traditionally have the majority of their earnings. It's also very important that we now fulfill our promises when it comes to delivery and the accuracy from climate solutions, because they're also going to be a step up due to a seasonal change. It might not sound that big, but if you the first year, first six months have like 46, 47 or 45 percent, and then the second half, the remainder, Oh, but that's a pretty good jump, like percentage-wise. And that's what we are preparing ourselves for.

Well understood. I appreciate it a lot. Thank you very much.

Thank you.

The next question comes from Axel Stass from MS. Please go ahead.

Hi. Good morning, everyone. Thanks for taking my question. I have two, and I will do one by one. The first question is about the EBIT margin in climate solution and your 2025 guidance for the division. Could you just maybe elaborate on how you want to reach this guidance and how much volume actually we need to reach this 13% to 15% EBIT margin guidance? That's the first question, please. Thank you.

Well, I think someone else answered the question. to you, you know, we don't give any specific answers, as you know. But of course, as we said implicitly a few times here, that we expect the volume to increase. And that's why we really believe that the market can, we can arrive there margin wise. Had we not anticipated that, we should have cut down cost even further. But we believe, of course, that we have to be very frugal also with the present cost level. And there's always something built in to a budget or a plan. So we also make certain that if volume shouldn't really materialize, then we have also cost that we will not activate, so to say. employ that and that person will not instigate a certain program. We'd like to make sure that the volume together with the cost structure and the frugal attitude will make us arrive there. To give you a certain percentage is difficult. Someone else mentioned that it was in the high singles or something. Of course, we have to come back to a better growth than the 3.2. So that's very clear that we have to grow on the other side of those figures. And that's of course a little bit of a hide-and-seek answer, but I don't think that we are really willing to add any further to that.

Okay, fair enough. Thank you very much. And then my second question is about Perhaps an update on the volume or order intake you had in April or even for the first 15 days of May. Can you provide an update on this?

No, we don't give forecasts like that, as you know. But I mean, we are not embarrassed by receiving the question. I hope that we also give you a very polite answer. Had we decided to provide those figures, we would have said that in report. I think in between the lines, something or some positivism could be read. But, you know, that is as far as we go. But we understand your question, Axel. No problem. Okay?

Okay. Thank you very much.

The next question comes from Frederick Agad from Seb. Please go ahead.

Yeah, hi, thanks, and hello, everyone. Just coming back to margins, sorry for being a pain here. But in your ambition, you say that you want to go back to the historic sort of margin range and take climate solution as an example here, 13% to 15%. But you're also saying that we're going back to historical patterns in trading, so H2 is going to be stronger. Historically, that has meant that H2 has had margins that have been two to four percentage points higher than you've seen in the first half. So the question here is, does your margin ambition factor in that seasonal pattern? Or is it an ambition to reach 13% sometime during the second half?

No, I think we answered that question before. It's a full year ambition as far as between 13 and 15, and I think that everyone understands that it's in lower region of that one. But it's not like fulfilling one quarter. The challenge is now to bring it up within those brackets for the year.

Yeah, sure. I understand that. But what you're saying is that 2025 should have at least 13% EBIT margin, if I understand you correctly.

That's our ambition.

In your ambition. Yep. Okay. Thank you very much. That's very helpful.

Thank you. Mm-hmm. Okay, now we have, did you have another question?

The next question comes from Gustav Schwerin from Handelsbanken. Please go ahead.

Yeah, thank you. Two quick ones. Just firstly on the inventory reduction, sequentially, can you say roughly how much of that was related to FX, this first one?

I think that you would, do you take that?

No, no, no. Yeah, I mean, the larger portion, I would say, in this respect, since we have, you know, IB, IB, IB values, you know, calculated at different exchange rates. So you see that in the latter part of the cash flow statement that we showed. So there is a good portion of reduction, but slightly more than half is actually currency.

Okay, thank you. Then secondly, Look at the savings program now. How much would you say you've realized end of Q1? And related to that, have you actually seen an underlying increase in DNA quarter of a quarter? Because in absolute numbers, it's actually down. So is there an FX effect here or some seasonal effect or something? Thank you.

Yeah, the savings program, I mean, we have, I mean, it's, I would say it's developing, how shall I put it? I mean, the portion that we had left, so to speak, that would kick in during this year, you know, is kicking in as planned because we completed the whole program by the end of 2024. The last bits and pieces came in in December. And then we had a portion of their, and I'm trying to recall the number straight ahead in my head, but that's kicking in fairly well. I mean, we said that that inventories, sorry, not inventories, depreciations would kick in with some 150 million additionally for the full year. And that's basically what's happening now. So that's what, of course, you need to deduct from the remaining portion of the saving. And that was like 450, yeah.

Maybe I'm misunderstanding this, but if I look at, DNA in absolute numbers. It's down something like 7-8 million. I think it's a similar development Q1 over Q4 last year. Typically, DNAs are not that seasonal. So I'm wondering if there's something else here because it doesn't look like it's increasing from Q4.

I'm trying to recall or understand your question now, so to speak. Maybe we need to take this in a separate call. There could, of course, be a currency effect in here as well, but I would need to come back to you on that. Yeah, that's what I was thinking.

Okay. Yeah, sure. Let's do that. Thank you.

With that, Gustav, I think that we have to cut it here. If we are not impolite, a few other questions out there, but I'm sure you can call us, Hans or Frederick or any one of us for that matter, and clear all remaining question marks. So thank you for calling in. And now we are going to return to board meeting and the annual shareholders meeting. Thank you once again.

Thank you, everyone.

Thank you. Bye-bye.

This concludes the presentation. You may disconnect your lines. Have a nice day.