NIBE Industrier AB (publ)

Good morning, good afternoon, whatever it means to you sitting out there. We are back and we're going to give you like 20, 25 minutes presentation of the report. And then we're going to, of course, invite you for questions. Just a couple of things. We have to finish around 12 because we have other tasks to fulfill today. And also we would ask you to only put two questions at a time to allow as many as possible to get their questions across.

Yeah. Hello also from my side, Hans here, and I'll be happy to fill in where Erik hands over.

Okay, fine. Well, the overall headline is, we believe it's a strong report that demonstrates both, of course, the growth in revenue and the profit and also margin wise. And that's a six consecutive quarter So we might say it's a trend anymore rather than just a quarter coming alone. So we're bold enough to suggest that. And we've given a few hints here on the slide that you have in front of you. And that is, of course, that it's less pronounced with the Swedish crown this time. It's more like par with the, here we go, There we go, with the previous similar quarter or corresponding quarter. We also talk about tariffs. Of course, we have to do that, but they've been fended off fairly well, but for stoves. We're going to come back to that during the presentation. And we see also trend towards more renewable attitudes, both in Europe and also in North America. Also something that we're going to comment more on when we come back to the quarter per business area. And then, of course, we're very pleased to see that our assortment now is so well received and our presence is appreciated, of course, both national and also international. And we keep the good cost control, although we see that things are improving. It's very tempting to perhaps increase costs. We have to have that discipline. And also we see that our investments in new facilities have given us a good productivity development. And they're sitting there, we are just idling now to fulfill the demand that we believe is going to come for the years to come now. Just a quick glance at the figures. You have them before, of course. The growth there of the 7.6 organically, that is really 8.7, which is a healthy growth. And it's also the gross margin that's improving, which is pleasing to us, demonstrating that we are polishing in our cost and keeping the cost discipline. and the operating profit speaks for itself, but also that the operating margin has taken a considerable jump compared to the corresponding quarter last year. And the graphs that we typically have, that's also indicating that we are now on a stronger path towards the revenue. And we also see, I'm sorry, the profit of the financial items, and that is of course a function or of several factors, the sales improvement, also that we have a pretty good cash flow. We borrow a little bit less or quite a bit less than we did a year ago. So all the things are working in the right direction. If we talk about climate solution, we've already mentioned that, that the market is solid when it comes to improvements. And it's very pleasing to see that in Europe, both the single individual home market for heat pumps has increased, and that is particularly for renovation, of course. The new construction is not So prosperous until now anyway. And also the commercial segment is expanding. In the US, as expected, the single family home market for heat pumps went down when the subsidies were taken away. But nevertheless, the commercial segment is really outnumbering that. So overall, we still have a growth there. Also, that we have also these political uncertainties that we mentioned initially, but when it comes to looking at it in the US with the manufacturing there, they will really have an upper hand, so that's a good thing. Of course, people are affected by the political situation, but I also think or believe, which is sad in a way perhaps, that people are getting used to these things and eventually we have to continue to live So we feel that there is an uptick in demand and in positivism in all three segments, really. And that, I think, has to do that eventually you get fatigued listening to all these problems. You just have to continue living. and again the product launches have been very very efficient and successful and that fills us with the satisfaction naturally that people are looking for better refrigerants and intelligent controls for energy optimization and so forth so we feel we are really on the right track in investments we have them the larger ones behind us now that's not something that we going to start now they are installed ready to take on the challenge And very quickly, Hans is going to come back to more detailed figures when it comes to gross margin and such. But it's important to note though that the real underlying growth here, if we take away the effects of the currency, is around 9%. And the operating margin is now up well into the the spectrum, whatever we call it, or interval that we really aim for between 2013 and 2015. And of course now we have on a running basis 12.2, so still a little bit to go, but that's quite a bit better than the corresponding period the previous year. Swinging over to Element, and there we really have had a positive development, and that is particularly for the semiconductor segment. Everyone talks about the segment, you know, AI and all that, and here we are positioned so well in North America with our subsidiaries delivering components to those manufacturers that really stand behind the manufacturing of the chips themselves. and they of course predict a steady growth in the future and now we have gotten a sniff of that and that is of course one of the major factors behind the growth. But it's also that the HVAC market is certainly coming back and that also has a positive effect on element. However, of course, the new construction that is still slower in Europe and elsewhere. And of course, when construction is slower, that is dampening the whole mechanism in society. Construction drives the whole society. So that's when it comes to the home appliances and stuff like that, that is of course still limping along. And just jumping over to the next, I'm too quick. No, here we are. I'm sorry. There we are. Again, the net sales, quite an improvement. And of course now we see a growth of organically 11.6 and even outnumbering climate solution. And then on top of that, we have a couple of percent of growth when it comes to acquisitions. And very pleasing to see that our operating margin is back within the interval again, 8.9 versus 6.6. That's quite a hefty improvement. And we're very pleased to see that. And also the gross margin has taken a good step, which Hans is going to come back to and explain. I've said that earlier during interviews today, that we would have liked to have this discussion or this press release or press conference two days later, because we don't really know what's happening on the tariff side in North America. That is, of course, very, very important that that is mitigated somehow. We have had those tariffs and and then they were worsened in April this year. And of course, we hinted about that going to be difficult to mitigate that. We feel that in a little bit longer time, we will be able. But now we know that negotiations are going on between Canada and the US. And as long as people are negotiating, there's still hope. and hopefully at the at tonight their time they will have reached some kind of agreement and we are we hope that the terrorists will be eased off a little bit we don't know they certainly won't be hardened to any respect so what we see now what we described is the worst case and we thought it was well you know, were thought out to present that to you. But we hope that after the negotiations tonight, that we're going to come back with some better news. And despite headwinds, we dare to say that demand has started to improve a little bit. And we see signs in Europe of improvement in demand. Not so strong, but still, we had an organic growth around the 2% during the quarter. It's been more stable in North America, we must say. and whether they are not so anxious as we are in Europe or what's behind that, we can't really tell. But it seems like their market has been more stable altogether, both in Canada and in the US. But it's very promising to see now that we believe that we've been down at the very bottom also on stoves. and we on a second quarter that's very pronounced as we all know the seasonal pattern for stoves and we just hope that we're going to have a real come back now during the coming six months or come let's say five months as of today of course. So that's a little bit about the stove situation and here We have the figures. The operating margin is still negative, but a considerable improvement from the previous quarter corresponding year. So that's why we are fairly optimistic about changing this into a decent result. IF THE 25% TERRORISTS WOULD REMAIN, IT WOULD BE A BIT MORE DIFFICULT TO OF COURSE MITIGATE THAT IN THE IMMEDIATE FUTURE. BUT WE ARE FAIRLY OPTIMISTIC ABOUT LOOKING AFTER THAT. SEE WHAT HAPPENS TONIGHT. Just a few more pie charts. Excuse my language, excuse my voice. Here we have the distribution of sales. Of course now Stoves has not been able to grow, so that's a very obvious dominance by the Climate Solution and eBay Element. And when it comes to the operating profit, of course, that is now all taken care of by Climate Solutions and Nibe Element with the 78 and 22%. We hope to change that pie chart fairly quickly. And I think with that, that is the last pie chart that I have. The Nordic countries slightly under 20%, rest of Europe 45%. and North America, just about 30%, and then Asia, 7%, which is predominantly element. Hans, I hope your voice is better than mine.

I hand over to you. Thank you very much, Erik. I hope you recover quickly now for the question and answer session. All right. Hello again from my side to everyone out there. And just like on previous calls, I will take you through the numbers a little bit more in detail. And of course, also the balance sheet cash flow and some key parameters. If we then again look at climate solutions here, I mean, as Erik said, we've seen a robust growth in this business area in both sales and profit in most markets and both on the residential side and the commercial side. The only exception really being the residential in the US. But which has not declined as much as we expected following the Trump administration's seizing of the tax credit. So they've actually done fairly well under these circumstances. And with regards to the US, our local manufacturing footprint is of clear advantage over there because we virtually do not ship any product across any borders there, meaning that tariffs within this business area is not much of an issue. So for that reason, we have neither had much of tariffs nor any refunds. It's the underlying business, which we show here. And looking at the underlying business, I mean, as Erik mentioned, we saw a growth in the quarter of 9% cleaned from the currency effect, which, by the way, is becoming less and less pronounced for every month that passes. Coming in at sales of 7.3 billion up from the 6.8. leading to an increase in the result of some 20%. And if we would do the cleaning of the currency impact here, it's actually up to slightly more than 23% improvement in margin. And the reason for this is the improved gross margin, which comes naturally when we get more volumes into the factories. But it's also, of course, a consequence of the investments that we've made where we have more efficient, more modern and automated factories. Year-to-date, we're up some 9.6%, up from the 12.8 billion in sales to more than 13.5%, also with a good improvement in gross margin because, of course, that took off already in Q1, leading to a result improvement of more than 18%. So, on a rolling 12-month basis, we're now at 13.6%, thanks to the 13.8% that we made in Q2, and carrying the 12.2% with us from the first half of the year. So, all in all, we feel very confident and happy about the development in this business area. In terms of geographical distribution of sales, there have not been any large movements at all. A small shift between Europe and the US, where Europe has taken a percentage point, you can say, because that's where we've seen a larger growth. And then the US just coming down to 23 from 24% a year ago. Moving on to Element. Also, as Erik mentioned, we've seen a phenomenal growth here in the second quarter of 11.6%. And the Element business area has seen an overall strong growth, mainly driven by semiconductors, very much in the US, but in general, and also the HVAC business. as well as an improvement coming from the electrification of the industry that is going on in general. And this growth has been achieved despite of the geopolitical uncertainty that's out there leading to not very many houses or buildings being built. And people are also careful when it comes to private spending, be it in the white goods industry and so forth. But the statistics and what you hear, so to speak, from central banks and elsewhere is that this slowdown in economy is coming to an end. So we should hopefully here also see an improvement as we move forward. And also in this business area, the local footprint for us, manufacturing footprint that is, is clearly a strength and neither here do we see any large impacts of any tariffs. So again, the numbers speak for themselves. Sales, as I mentioned, up by 11.6%, up from 2.8 to more than 3.1 billion in the quarter, leading to an improved profit of, you know, 50%. also when you clean it for currency. Here we've seen the gross margin improve by two percentage units also coming from more volume in the factories but of course the large investment program that we've been carrying out over the last five years has been within all three business areas so Element has naturally benefited from that as well. Then landing the operating margin in the second quarter at close to 9%, well within our announced interval there. And year to date, we're up some 9% and with an operating margin of just below 8. And rolling 12 months, we're at 7.7. And have good hopes to, of course, improve this during the remainder of the year. Geographical distribution of sales within Element. Here we have had some movements in the sense that both North America and Europe have improved if you compare with a year ago. So things are clearly moving here in the right direction and in our very strong markets. Nordics has kept its share in this respect. Stoves is as Erik mentioned of course still facing an overall challenging market but in North America it's actually fairly stable. It's again these tariffs that causes some questions of course but the negotiations between the two countries are ongoing as we speak and we Interpret that as a positive sign. From a market point of view, we definitely think that we've been down at the bottom and are moving in the right direction. And I think a very clear sign of that is the small but very important organic growth that we achieved in the second quarter of 1.8%. So we did come up from the 678 to the 686 and have also here been able to improve gross margin. And numerous actions have, of course, here been taken to fend off the impact of the weak market and the tariffs. So I think we're very well positioned for a further growth. And the operating profit, which is a loss, but if you read the line, it says profit. I mean, it's been cut in half. which also is a very good sign for us. Year-to-date, we're basically on a plus-minus zero situation, a small profit in there, and expect to improve from there. On a 12-month rolling basis, we're at 4.3% and have said that we should aim to be somewhere between six and eight for the full year. Also here, the geographical distribution of sales. The Nordic region has actually taken a slightly larger portion of this pie compared to a year ago. North America has kept its portion, whereas mainland Europe has been losing out a little. And that's where we've seen the strongest weaknesses over the last quarter, as you can say, but where things are beginning to move again. Leaving the business areas and moving into the balance sheet. I won't dwell too much upon this. I think we can comment upon the non-financial current assets having increased from 16.2 at the end of the year up to 18.4. I would say that is a very natural trend for us. That is the working capital, the inventories that we build during the first half of the year in order to have our stocks filled with good products for the sale that takes place during the second half of the year. So it's all within our planned levels. On the equity and liability side, the equity itself has increased by some 2 billion compared to the beginning of this year. Long-term liabilities there have increased slightly, the long-term ones. We've issued a bond and it was a very successful bond emission that we made. It was oversubscribed. quite substantially and we decided given the good conditions that we got there to simply take on board a little bit more bonds than we needed to replace as a matter of fact. Very pleasing to see coming from the performance of the business areas and the group in total during the first half year and not the least in the second quarter is of course the cash flow. We've increased that by some 50% if you look at the quarter now compared to a year ago from some 950 million up to 1.4 billion. And of course, we have had a slightly negative effect from the change in working capital. But again, that's just what I mentioned, that's building the inventory. And then the investments in our current operations has also been reduced quite substantially, down from 480 there to 330 roughly, meaning that this large investment program that we have been carrying out has come to an end and we're more moving into normal maintenance Investments so all in all and operating operating cash flow in the second quarter of close to 800 million up from you know minus 100 a year ago and then the remaining positions there are more of Mathematical character, you can say, financing activities, for example, being the dividends that we paid out. Looking at the cash flow year to date, it's actually increased by some 65%, which is a sign of the increased sales and profit from our business areas. working capital roughly on the same level as last year, but then investments being cut in half. So I think it's a very good cash flow and we will come back to the net debt on this page instead, because that is now on 2.7. It's the same number as we had last quarter. If you do the decimals again, it's actually an improvement. It's 2.65. But going forward during this year, we are quite convinced we will bring this down roughly to the 2.0, 2.1 line hovering around there. And this is a key parameter, of course, that the banks look at, investors look at, and so forth. And we keep it very much under control. We're not worried about this at all. It follows exactly our path. The only challenge was back in 23 when we made this very large acquisition at the peak of the cycle, and then the market turned sour. But ever since things have normalized, the development here has been exactly according to our plan. So we're quite pleased with that. Interest-bearing liabilities as a portion of equity have also continued to decrease at the same time as our equity assets ratio has increased. So we feel that we are quite stable and also well positioned for both an organic and a growth through acquisitions going forward. Working capital, a slight improvement there from a year ago. It's natural, again, that it is a little bit higher during this part of the year because we need to fill our stocks for the sale, which I just mentioned. And now a last slide here before we open up for the Q&A. Return on capital employed, return on equity. They are of course not at the targeted level yet, but they are improving step by step as they were also last quarter. So they are on the right way and of course a result again of this improved sales and profitability situation that we have. and the equity share. Equity per share has also increased. And the closing day share price, we will know at the end of the day what that will be. That's right. Won't comment that any further. But with that, I'm ready for questions. I don't know if you have anything to add, Erik.

Well, I've been trying to cure my voice, you know, or my vocal cords, so we should be ready. So please, you shoot now.

If you wish to ask a question, please dial pound key five on your telephone keypad to enter the queue. If you wish to withdraw your question, please dial pound key six on your telephone keypad. The next question comes from Christian Hinderaker from Goldman Sachs. Please go ahead.

Good morning, Eric. Good morning, Hans, and thanks for the presentation. I want to start on the working capital, Hans. You mentioned, obviously, it's up year on year. I think inventory is actually broadly flat in that sense, but you had more than $700 million list in both receivables and the liabilities line. If we look at the non-interest-bearing current liability, $8.6 billion, including provisions, that's up quite considerably quarter on quarter and was well ahead of consensus. I guess two parts to my question here is, first, what drove that increase, and are those drivers structural? And then second, what's actually in this number? Because when I look at the annual report, I think only a third of the line is coming from trade payables. I think you have some contributions in here from acquisitions. Just interested in the splits, if you can share those.

Well, there are no major or, how shall I put it, one-off effects in these numbers, really. The effect from acquisitions is fairly limited because we have not made any larger acquisitions in this respect. We have some delay when it comes to the invoicing or the effect from receivables. And we saw that quite clearly during last year as well, where they kick in more during the second half of the year. We have a tendency here of invoicing very much at the end of every quarter, very much in the third and especially in the fourth week, which has an effect. And this is especially pronounced, I would say, when we come to a quarter as well. So, I mean, the inventory we've been building, actually, we should even possibly be building even more to meet the demand out there. But the payables and the receivables, which are the major things in there, have developed quite normally. But we can dig into the numbers in a separate call if you have remaining questions.

Yeah, thank you Hans, appreciate the color. My second one is on M&A. You have a through cycle growth target that includes a 10 percentage point contribution from acquisitions. The software end markets in recent years, growth from M&A is understandably a bit more modest since 2023. but you've acquired Beltrami in the quarter, and the release talks about aims to be more proactive on acquisitions. I guess just interested in, is Nibe still targeting M&A of that scale, mid-single-digit, double-digit percent of sales, and then what are the technologies or segments really that you're seeing as a particular focus in your pipeline?

Well, of course, we are going to go back to acquisitions. But as they say, you know, once bitten, twice shy. And Hans mentioned that, of course, when you acquire a company that's relatively large at the peak of a cycle, and then the downturn comes. And we have, of course, been very, very cautious not to overburden the balance sheet since then. I think that the overheated market 23, 22, 23, particularly in climate solution, has also taught us a lesson that we have to be cautious when we aim for larger acquisitions. Hopefully, also the market has been taught that lesson. So we are definitely back to, again, evaluating acquisitions of larger kinds than the Italian ones you referred to, not to diminish that one to any point. But certainly now, which haunts projections here of the important ratio coming down to in the vicinity perhaps of two or so, we are certainly positioned to take on large acquisition, but without being, of course, too risky-minded. So we are back on track when it comes to evaluating acquisitions of larger kinds again. I hope I answered your question partly anyway.

Is there any sort of regional technology kind of focus there?

Well, I think that there are no specific regions, but of course, we are fairly well set in the Nordics. I mean, that's very important to note. I mean, you could possibly buy one or two companies, but the growth is going to come from mainland Europe and North America for all three business areas. That's as clear as I can be there, I think.

Thank you.

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

Yes, thank you and good morning. My first one is just on climate solutions here. We think about both what we see happening in the market and I'm specifically talking about heat pump volumes here. Of course, that's not all of the climate solutions division. Now, when we come into the second half here, and we've had organic growth of, well, for the first half close to 10%, you also should have, and to your guidance here about the stronger second half than first half, I'm just a bit curious about how you'd expect kind of the seasonality to help you, given that all is equal. This should also support a bit of an acceleration in your year-over-year figures.

Well, I mean, it's perhaps a very naive answer in a way, that the seasonality, you can always argue and reason around it, but it seems like heating equipment has more of a season towards the second half of the year, and that comes for heat pumps, that comes for stoves, to a lesser degree, of course, on the element side, where we supply so many categories of industries. I think it's an old or established truth that the equipment that we supply has typically its more major season during the second half of the year. And it's very pronounced for stoves, of course. Whether that is intelligent or not, you can always argue. But you like to have your stove in for Christmas, whether you live in Sweden or whether you live in France or in North America. and it seems like when you have renovations going on, now comes the season, could be of course a little bit of a difference when it comes to air conditioning that you like to install in the spring. And that is more pronounced on the Mediterranean market in Italy, for instance. So it's more of a tradition than anything else. So we don't foresee that that pattern will go away. How much is that going to influence the whole thing? Well, I think we have to look at the figures prior to the war in Ukraine and the pandemic, where we had more of a seasonality of a certain kind.

Understood and I'll limit myself to two questions so the second one is just on also on climate solutions here but when we think about the last four quarters really the increase in operating margins have to well almost well to a full degree been driven by higher gross margins of course you get the benefit as you talked about from more volumes in your factories and so on and as we now look into second half and think about your margin range guidance and so on should it still be expected that if we fast forward to the end of the year that it will have been driven by a continued increase in your gross margins rather than efficiency on the SG&A and R&D line for example

Well, I think that overall, I think we are through the streamlining that we went through 24. So that is more to monitor that. That won't be any major additional savings on that. Just trying to keep what we've achieved now. So that is one thing. And of course, productivity-wise, as volume now will increase, as we predict, of course, the productivity is going to be more pronounced. So that is the major thing, of course, when it comes to gross margin. I don't think that we can cut down any further on sales and those activities. I think they have to tag along with the growth, because we are utilizing our sales resources

The next question comes from Daniel Kajanuri from Morgan Stanley. Please go ahead.

Good morning, gentlemen. Thank you for taking my questions. I have two and I'll take them one at a time, if okay. I wanted to start with the climate solutions segments organic growth was intense but if I reverse the FX benefit in Europe if it's behind peers market indicators and it has decelerated sequentially I do appreciate this is a decentralized business it would be useful to get some color about the underlying top line trends where you're seeing growth by product category and just be useful to comment on growth those appears here

Yeah. When we take Europe, we also mentioned in report, you know, we are fairly large on water heaters. I mean, the fundamental idea years ago when we started to acquire was to acquire companies selling water heaters and then couple that with the heat pumps produced in those days here in Markaryd in Sweden. So of course water heaters today, they don't have any growth, a very modest one. It's more for replacement and for some reason it's rather replaced in several instances by a heat pump for just tap water. And also district heating that we have invested in, and that's typically a Nordic phenomenon, that is also fairly flat. So it's the heat pumps in Europe that is driving the growth. And what's pleasing to see is also that the HVAC commercial segment is improving considerably in Europe. And that's something that we are looking at with, you know, very focused because we believe that there's a lot of things to do that saving energy, adding air quality to offices, hospitals, schools, That has been, I shouldn't say, hasn't been forgotten, but compared to individual homes, it's on a lower level. So that is to come, very pleasing. In North America, the drive there is of course on the commercial side. and that is naturally ventilation, cooling, and also heating, particularly on the commercial side. On the individual, single home side, there's been a downturn, as we have explained a couple of times now, mainly due to the tax subsidies taken away. But we also see there that that downfall is not as big as we would have anticipated, hopefully giving us a signal that also there the understanding is now coming. You have to heat and ventilate and cool your home in a different fashion. Hope I answered your question there, the first one.

Yeah, that was very useful. Thank you. And my second question is on the cost and margin, because in my view, this is the key positive surprise for investors. But if we exclude operational leverage, could you maybe give us a little bit more detail on what drove the better cost performance? And it would also be very useful to understand if you see any cost inflation coming down the supply chain looking into the rest of the year. Thank you.

I think that all manufacturers, they are looking at the inflation when a product is coming in. And I think that is very important for us to do everything, our utmost, to hinder that. We have, of course, very ambitious savings programs going on, where you, together with the manufacturers and our suppliers, you know do it in a different way where you say well if we promise you a certain volume over a number of years you also have to come down in price but we also allow you to modify the design not only a brutal you know saying price cutting but also designing the products in a different way for us to benefit that the ready-made product at the lower cost so that's going on parallel with guarding off with the price increases that everyone wants to have now The next question comes from Anders Akerblom from Nordia. Please go ahead.

Yeah. Hello. Thanks for the presentation and for taking my question. So I wanted to follow up again on climate. You've been through sort of the automation, sort of operating leverage uplift, but I was wondering a bit on sort of the pricing side. How do you see sort of, I guess, pricing potential in the current environment? You raised quite a bit a while back, but how do you see sort of that potential developing?

I think that as inflation has come down, as interest rates have come down, it's not that much of a maneuvering room for price increases. There might be room for smaller ones, but I mean, they can't be compared at all to the price increase we had just, you know, some 36 months ago, even 30 months ago. So that's come to a totally different scenario. And of course, that is balanced out with a better volume. So I think there are communicating vessels. You cannot continue to increase prices when inflation is fairly low, at least here in Europe. And of course, it's not so positive to hear from one point of view that the interest rate is going to go up, but also an indication that the market is coming back, which we feel. I don't know whether I answered your question fully, but that's how we reason. Difficult to import when the larger price increases. Work together with suppliers.

That makes sense. Thank you. I guess the second question that piggybacks a bit on that. From a competitive point of view, Would you say that sort of that's impacting your outlook on sort of pricing to any extent? And I guess a sort of question in that, I mean, how do you see the competitive landscape mainly from a sort of volume perspective and capacity additions in the market now that, you know, market growth has been good, a lot of projects that have been sort of potentially not really ramped up? How do you see that developing going forward?

Well, typically in the past, we were not so well geared up when it comes to taking on all the volumes. So we believe that for once we have done our investments. It's never ready. You know that. But the major chunk is done. We are ready to expand. Of course, we have to get labor accordingly when we see the order intake coming. So that's very important. And as far as the landscape of competitors, they've always been there. And I think everyone is really clinging on to the market shares they have. I don't think that anyone is going to give up. Neither will we give up. So it's a fight out there, but I think that the pleasing part is when market is developing in a positive direction, I think it's becoming lesser of a dogfight. So we look at it as a fairly decent situation, but always tough competition, but there's nothing new.

Make sense. Thank you very much for taking my questions. Thanks.

Welcome.

The next question comes from Uma Samlin from Bank of America. Please go ahead.

Hi. Good morning, Hans and Eric. Thank you very much for taking my question. Two for me, please. So first one is on air-to-air. I think in the last quarterly result, you announced that you're going into the air-to-air segment. Would you be able to give us a bit more update on what are the opportunities there? What are the timeline of the product launches and what would be the expectation in terms of margins for that product in Europe?

Well, I'll try to be as expedient as possible there, Uma. When it comes to air-to-air, a number of our companies that we have acquired have had agencies for air-to-air machines. But they have been limited to their respective countries, Italy, Norway, just to mention a few of them. And we've not been able to capture or broaden that, because there have been other countries that have had that agency. Now we decided to work with another company to broaden our source under the NIBE umbrella. The products that are produced here in Markaryd, because there we have exhaust air, we have air-to-water, and we have ground source. And we do not have the supplement of air-to-air. So that's why we introduced that one. It's not a new subject in our group, but it's new under the NIBE brand name. Was that clarifying?

Yeah, that's super helpful. And what kind of margin expectation do you have for the R2R product, if I may ask?

Well, I think that we are entering that segment with two price categories, you can say. One very premium one and one a little bit lower priced. So that should not be derogatory to the overall margin, of course. We don't carry any investments or anything like that. We, of course, have to carry inventory. So that should be a supplement to what we already have, not being a burden. And of course, coming from a relatively low volume, they're going to take some time before we up and running. But we see from the companies where we have it elsewhere, there has not been a burden on the profit and loss. And that's the experience. And Hans would like to add something there.

Maybe I haven't forgotten it. I think Uma also asked the question on the timing in this respect. Yeah, the timing.

Yeah, of course. They are on the way to the market now. So, of course, they're going to take You know, before we really can say, well, there was a success, so we need another year. I think we need a year. We need a definitely we need another summer season. So perhaps at this time next year, we can give you a more adequate, clear answer of the timing. If we have been successful, have we kept the timelines we have given ourselves? I apologize for not getting that. Thank you.

They were introduced on the Nordbygd fair this late spring and they will, as Erik said, they're on their way to the market as we speak. So they're being launched now during the fall here or will reach customers during the fall.

That's super exciting. Is that both cooling and heating for that product?

Is it both cooling and heating? That's the traditional one. Yeah, absolutely.

Yeah, that's super helpful. My second question is actually just on the longer term. I guess it's a follow up on the previous questions regarding the margin on climate solution. So I guess if you look back in between 2017 to 2020, your climate solution margins is around like 14% give or take. I guess, you know, after the roller coaster of like between 21 and 24, I would say that as you have now higher efficiencies, you have a bit more you know, you've done like several rounds of cost cutting. So what do you see, you know, in the medium term as the throughout the sustainable modern profile for climate solutions? Do you see that to be higher than the previous levels you have before 2020?

I think that it's premature to give you that guidance, Uma. We believe that we give guidance in our report that we are fairly certain we can fulfill. And until now, I think we have delivered a 13 to 15. But of course, there's nothing saying that we wouldn't like to come higher. But I think we have to give you that guidance continuously right now anyway, that 13 to 15. But it looks promising to fulfill that this year. I hope you see that in our report. But to come out and say, now we're going to go for 16, 17, it's premature.

Yeah, that's super helpful. Thank you very much.

Thank you.

The next question comes from Carl Dienberg from DNB Carnegie. Please go ahead.

Thank you very much. Thank you for the opportunity. So my first question is regarding the semi-exposure in the element business. I think in the past we've said that that's been accounting for roughly 10 to 15% of the division. So first question, does that assumption roughly and then second question related on the same topic as well, if you could share anything with regards to the growth in this specific segment here in Q2 given the quite significant step up we see here sequentially relative to Q1. Thank you.

Okay, I see the 10 to 15% I think that I think is rather on the upper side there of course anymore. So that's clear guidance we can give you. When it comes to the growth, particularly Q2, I think that's been in the system for a while, you know, that they've been hinting us that you better gear up. And that is very, very promising to us. Of course, they don't release anything, everything to us, but they're fairly good when it comes to giving us indications of what they foresee, what they see in their system. They are giants, of course. I mean, when you talk about those companies, I guess it's no secret that we talk about AMAT and LAM. We are a little midget compared to those. So it's very interesting to work with them. And we feel that we have a very good relationship. And we also feel that we have a solid position among them, which means that when they grow, we're going to grow. And we also launched new products. during the spring here now, which is also helping the improvement. New, very delicate components to their machinery that have been developed together with our customers. So I hope that gives you a little bit of a... an answer to your question.

Absolutely, yeah, yeah. I was maybe also looking for if you wanted to share the growth number in your element or semi-exposed business in the element side, but maybe you want to keep that number for yourself.

Okay, well, perhaps I'm a little more discreet there. Okay, sounds good.

Secondly, I just wanted to ask also very briefly on the your US heat pump business. I mean we talked about this in the beginning of the year. I think you were sort of anticipating quite a drop here given the removal of the tax breaks and now we see that your US, at least especially on the net sales, is still holding up fairly well. So maybe now in hindsight would you say that the market is still doing a little better than what you anticipated and Also here would of course be very interested to hear anything if you give any numbers of what the decline has actually been on the US heat pump side as well for you.

Yeah, well, it is actually better than we anticipated. You know, there were predictions of some dramatic drops in market going down with 50% or things like that. It's not that dramatic, but it's still a hefty cut if it's been perhaps, I shouldn't be so precise, but it's much less than they predicted, 50 or 40 or 50 that the people indicated. So that's an indication, we hope, that the knowledge among customers of private individual homeowners, it's a higher level of understanding what they can achieve by installing a heat pump, given that the tax subsidies are gone. And of course, it's also noted that the oil and gas prices are higher in North America. I personally visited Canada last summer here now, and that's one of the things that everyone talks about, the petrol prices, as we say in Europe, or the gas, I mean, when it comes to diesel or, yeah, petrol. And also on the oil side, everyone talks about that. So I think that is also, sadly enough, driven people to realize, how should I really climatize my home? So I think those are the main explanations that we've been in the market. The heat pumps is not the novelty anymore. It's something that's there. And of course, on the commercial side, the construction industry is so well acquainted with the heat pumps. So I think that wraps off.

Okay, thank you very much. Yeah, absolutely. That's totally fine. Thank you very much.

Thank you.

The next question comes from Michelle Baldelli from BNP Paribas. Please go ahead.

Hi, good morning to everybody for taking my question. I've got a question about your dealers' distributors' inventory level. Do you see them as having reduced the inventory level in the last two, three months with the Iran war that may, let's say, come back from one day to the other and therefore probably they didn't, let's say, continue to demand at the same pace of the current demand trend? This is the first question. You prefer that I do the second or you answer to this?

Well, we're taking the first one right off. Whether our inventories or the wholesalers' inventories are monitored due to the oil prices. Is that the question really?

No, the question is more if you feel that they have just used their inventory level to satisfy this spike of the demand in the last two, three months or not.

Well, I mean, that's always the question. That was one of the main reasons why everything went so chaotic like three or four years ago. So we just hope that, and I think I mentioned that initially here, we really hope that the industry now is more sensible, not overstocking of any kind, but rather realizing that heat pumps, they're gonna be there and we have to fulfill naturally the demand, but you can swing up and down depending on oil price. I think that the overall fear among customers is there that, Oil and gas will not be reliable in the foreseeable future and therefore they swing over to other alternatives. That's our view of this and of course there could be wholesalers that have been ordering a little bit too much. That is not to our knowledge but I mean we don't have a total insight into what they do and I don't like to criticize anyone but What that part of our industry did, 22 and 23, was not very good for the overall industry. That whiplash, whatever you call it, that was terrible for all of us. So we just hope, and when we talk to our immediate wholesalers, we try to convey the message, be sensible. Be realistic. Don't overstock. We know what's going to happen. We are one out of many preachers out there. We are aware of the question and the danger in your question. And we try to do our chunk to prevent that. I don't think I can answer the question more than that.

Yeah, sure. No, thank you very much. And the second one was just a clarification. When you said that H2 trends should be at least the same level or even better than the first part, you refer to the organic growth here on ERA for your business or it was just about seasonality, so basically a normal seasonal trend?

Yeah, or ordinary seasonality, yeah.

Okay, perfect. Thank you very much.

Mm-hmm. Well, I think it's... Anders, you are there with another question. Should we allow you one more question before we close? Because you are so polite.

The next question comes from Anders Roslin from Pareto Securities. Please go ahead.

Okay. I had just one question, and that's regarding the sales development in climate solutions. You had 11% up in Europe, 5... No, sorry, 11% in the Nordics, 5% in... Europe and six in the U.S. And my question is that this tendency of having a stronger second half and fourth quarter, is that true also for Europe? Because they have now for a couple of years had the strongest quarter in the second quarter. So this seasonality with Europe as well.

I think that we should perhaps divide it a little bit better. What you see in the second quarter, and I think I touched upon that during a previous question, that during the second quarter, the particular the air conditioning segment is really strong. And I think that's what you see there. I was referring more to the heating, which is our home turf since many years back.

Okay, so for the heating heat pumps, we will see the seasonal take up at least.

Yeah, definitely.

Okay, that was all questions for me. Thanks very much.

And with that, without being impolite, we have to close the session for today. I apologize for my voice, but interesting questions and very pleasing to present the report to you like the caliber of what we had today and we hope can continue with that. So thank you very much for calling in.

And if there are remaining questions, I mean, we realize there are a few more on the line here. Feel free to reach out to myself or to our new investor relations officer, Frida Lannerheim, and we'll try to answer the remaining ones. Thank you from my side as well. Thank you.