Welcome to the Beijer Ref Q2 presentation for 2023. During the questions and answer session, participants are able to ask questions by dialing star five on their telephone keypad. I will hand the conference over to the CEO, Christopher Norbye, and CFO, Ulf Berghult. Please go ahead.
Hi, everyone, Christopher here with Ulf.
Good morning.
Morning. I hope you're having a nicer weather than we have in Malmö. The rain is pouring down, but we're sitting inside, so it doesn't matter. We'll get started right away. I'll start with the slide. Slide three, Beijer Ref at a glance. I think you can follow there that the rolling 12 continues to go up in a nice pace. We keep adding markets, employees, four different acquisitions in the quarter, those smaller ones. And we continue to work with, you know, the small customer base that we have. We move into the next slide, which is the highlight slide, we, heading this as a stable quarter with continued good, I would say, profit and margin development as planned from our side.
Sales almost closing into SEK 9 billion, which is an increase of 46%. Of course, we continue a very high pace, different mix this quarter, where the acquisition of Heritage is driving a lot of the increase. Organic sales, about 2%. We will surely come back to that later on. The acquisition that will continue to drive our organic growth, of course, also for the rest of the year, which feels fantastic, and also on the profit side. FX effect continues to be positive for us.
We come to the EBITA, going over SEK 1 billion. It's an increase with 64%, driven by, of course, the acquisition side, but also continued good margins, especially driven in the MEA business that continues to develop strong. A little bit more muted in APAC, but they're in the off-season now, so it doesn't have a major effect on us. The operating cash, and of course, margin at 11.7%, best ever. Also, I mean, I would say a very good development over the last two years, three years of systematically working with the margins. Of course, we see that in our gross margin that's developing well through the initiatives we're doing. Also, as we expected and said, we really like Heritage for the high margins in their business.
They'll continue to support good margin here, and they had a really strong margin quarter here in Q2 that I'm sure we'll come back to. Cash flow minus SEK 200 million versus minus SEK 360 million Q2 last year. For us, this is as expected. We are in the season where we build inventory in Q1 and beginning of Q2. It's already starting to go down. We see a strong trend on the inventory side. The main side affecting cash from negative actually in Q2 is accounts payable. We're not buying very little products from our suppliers as we are destocking. Of course, that affects the numbers.
Because of that, we'll see, and we know, a fairly strong trend on the cash flow as we release inventory and accounts receivable in Q3 and Q4. We'll come back a little bit, though. We feel very good about the cash flow. It's going actually a little bit better than expected from our side. Acquisition continues to do well and adding a lot of value for us. As I said, we closed four down, and we expect, you know, an active Q3 and Q4 as well, both in Europe, APAC, and especially in the U.S, which is very exciting for us. The EPS went up + 41%.
All in all, I would say, I mean, a very good quarter for us and setting us up nicely for the future as well. We move over to the next slide. In the quarter, we saw the OEM side, which is our business drive, driven by natural refrigerants, both, you know, SCM Frigo and Fenerge, having very good development. A little bit easier comps from there as we were having supply chain issues the last two years in that business. But good activities, especially on the Fenerge side, on the CO2-based heat pumps, with strong orders and a backlog now covering the rest of the year already. We expanded their capacity, tripled it, and moved into new facilities about two weeks-three weeks ago.
We also have the FCM Frigo, expanding another 30%. They'll be ready by the end of the year. Feel very good about that segment. Stable in when we come into the HVAC and commercial ref, as we expected. Also remember, on the HVAC and commercial ref side, as being a distributor, every day matters for us as we sell our products through distribution and wholesale. Of course, having a couple of less working days is 3%-4% straight off the organic growth for us, and we knew this coming into, to the quarter. In MEA, good growth, mixed picture, but in general, I would say good activities in the Nordics, in Central Europe, South Europe. It's of course now getting hotter and hotter.
The only development is Eastern Europe, that's weaker and Italy sticking out, of course, picking up now as it's being very warm. In general, good development both in sales and the margin side. Moving into North America, I wrote the comment. We'll go over the divisions as see now in the rest. In general, a good development, we'll come into details on it. Inventory we see now peaking and going down, we're also flushing out accounts receivable and accounts payable. Of course, as we're not buying anything, would have a negative effect in Q2, we feel strongly about Q3 and Q4. Added some nice companies, Condex was signed, is actually closed today.
A nice development there as well on the acquisition side. Next slide, we'll go in a little bit more on EMEA. Good overall growth. You see the OEM business in Europe being very strong, both from SCM Frigo and Fenerge, so it's very positive. Also, of course, positive on the environmental side. We're selling more and more green products of our offering. You see how the development, it's mixed between regions, in general, I would say, good growth in most regions in Europe. Eastern Europe is slower, but also comparing to extremely high sales last year. It's not very. It's still good activities, but not as strong as last year. In general, good development in most of our regions.
You can see that the EBITDA continues to improve, driven by strong growth margin development. Also here, we're starting to release inventory, and we are doing Q3 at the end of Q2, so we expect good cash flow coming forward. Moving into APAC, it's not a big quarter, as they're off-season, and they'll start picking up towards the end of Q3, Q4, when they move into high season. Continue good growth, driven by OEM, which is also positive. A lot of these OEM is developing better and better in Australia and New Zealand, and we also see trends in Southeast Asia moving into CO2 products. It's very exciting one. HVAC, fairly stable, positive, driven from the acquisition.
EBITDA continues to increase, with sale, somewhat lower margin, but no, nothing strange, more of a mix shift in the business during the Q2 . Moving into North America, I would say a solid, you know, very solid quarter. I know I wrote, came in somewhat lower than our plan, but we do have a very high plan in the business. It's still second-best quarter ever in the history of the company. I would say a couple of things that's limiting, and maybe that's why we're using the word lower than our plan, is that we're not getting enough products from our main suppliers in HVAC to satisfy the underlying demand. It's mostly related to the new requirement, SEER 15, and how you pair the product and get it approved.
It's, it's clearing out here in Q3 and Q4. You know, we could have done better with, with more product supply, but still a very solid quarter. The other trend we see, also use Silvair in a very good margin, 15% EBITDA, is there are a lot more repairs going on in the U.S. instead of replacing the products, which for us is a good margin business. Of course, it creates a pent-up demand, because if you're repairing a 10-year-old system, 12- year-old system, 13-year-old system, it will soon need to be replaced anyway. We see it still a positive, and we see also that that's the reason we bought Heritage, that they're very strong in the whole repair and maintenance segment as well, and it drives a good margin.
All in all, very happy with that. If you look at some of the things that will be happening, is that we are now actively going over the different suppliers to private label. That will be launched here in the end of the year, and also mainly to drive the season next year and having two different product portfolios that we think will be extremely positive for us. It also open ups new product segments that we can go after with our infrastructure.
We are planning to open branches as we see the product supply opening up, and we have, you know, I would say at the moment, five, six location where we have exclusivity with our key suppliers that we now are actively in discussions to build or to lease and get it up and running. We won't open five or six at the same time, but we do have plans to open, you know, three, at least, in Q4, and that's also will support next year. A lot of good things happening in that position. Finally, M&A. We have a fairly long-reaching discussion with some key companies that we would like to add on to the portfolio. That would be in the regions with the right suppliers.
Developing positive, and we expect some activities here in Q3 and Q4 in the U.S. I would say, yeah, solid quarter and continues to be very exciting for us for the future. In summary, you heard these numbers, sales growth, organic growth, 2%, EBITDA, 64%, and a good EPS growth. We continue to drive both positive organic, but also the acquisition side of our business. I think that the next one, financials Q2, sales we covered as well, SEK 8.6 billion in the quarter from SEK 6 billion, driven by a large part of Heritage as well. Still positive, organic and FX continues to be positive. Moving on to the next slide, sales development continues to be fantastic, of course.
Now we see eight quarters, 10 quarters with double-digit growth for us. Of course, the organic was lower in this quarter, but also coming into very strong comps. If you look at Q2 last year, almost 14%, Q2 2021, 34%. I think I'll say that again, but positive for us is the quarter started weak in April, May, across most regions, bad weather, one part, but then June came in strong, and July started well from a sales perspective as well. Moving over to the next slide, EBITDA, 64% up, and especially very proud of the margin development that we accomplished over the last couple of years, both driven with organic initiatives, volume growth, and also good acquisitions supporting our business.
Moving on to EBITDA development, you can see the trend there on the margin. We have our strongest margin in quarters, of course, in Q2, Q3, and moving into the U.S, you know, they have the similar seasonal effects as we do in Europe with the cooling side being very active in the Q2 and Q3 . Of course, we expect peak sales and peak margins over this side, but if you look at the trends, it's been very, very strong over the last couple of years. Another slide, EBITDA development. Yes, continued to be very positive for us. You can see these numbers. I think it's a fantastic development over the last couple of years, of course.
I'll hand over to Ulf, go in more in details on the P&L, and then we'll wrap up with conclusion and some Q&A. Thank you.
I'm going to page on the P&L statement. I will not repeat what Christopher said already. We have a very good EBIT. If we go down to the net financial income and expense, we have a SEK 93 million interest, which is higher than previous year. That's driven by we have a normal higher debt, and also we, of course, the interest rates have had an impact on the cost. Due to acquisition, we also have the IFRS 16, the rental or the interest part of that is also a year-on-year increase.
Tax is slightly lower in the quarter, driven by that we have some costs associated with the equity raise that would have a positive impact, but the underlying tax rate is about 23% in the quarter. Moving over to the next slide, here, we, as we already comment, we have a very nice development on the EPS, so that is 41% increase from SEK 0.98- SEK 1.39. The next page, the cash flow is a normal seasonal pattern of the cash flow, that we built inventory, or we also we pay off our payables.
This quarter was slightly more impacted due to that we had a high payable in Q1, that is then having an impact now in Q2. Overall, the cash flow is in line with the seasonal pattern. A good EBITDA performance, we have also, Christopher mentioned that we see in the end of the quarter that we are getting the benefit or the impact from the measures that we have taken on the inventory, so we see a release of the inventory. CapEx, leasing, and others, they are in line with normal business. We have the operating cash flow per quarter, and then you can see then that Q1 and Q2, they are negative, and then Q3 and Q4, they should be positive.
We expect very a good cash generation rest of the year in 2023. If we then move over to the next slide, then the net debt development, of course, then it is impacted, so the normal debt is then coming from last year and year, from SEK 6.1 billion- SEK 8.9 billion. Of course, the EBITDA is also much higher. We have then a net debt leverage ratio of 2.54, and then, but if I exclude leasing and pension, the leasing IFRS 16, that is basically our rental, the rent contracts on our distribution centers or branches, so there is not going to be hidden investments. We have a leverage of 2.13 versus last year, 2.50.
I will hand over to Christopher again.
Yeah, in summary, we continue to grow. We are affected, as I said, I would say a weak start to the quarter and a couple of less working days in the quarter. Underlying, we still feel positive, and the trends in the market are still, I would say, very active in both Europe, both in the U.S. and of course, APAC is winter season right now, so we expect that to pick up as we move into the summer season. EBITDA growth driven by acquisition, but also improved margins, continue to improve margins also in our underlying business. I would say strong development, continuing on the gross margin to drive our underlying margin according to our plans.
Cash flow, as Ulf said, according to the seasonal pattern, but inventory has turned and is going down. We're flushing out AR in Q3, Q4. Of course, as we're now buying, we're buying very little, AP is a negative effect in Q2, but of course, that will also improve as we move into Q3, Q4. We feel good about it. The U.S., good development, strong margins, we're happy about the underlying trends there as well. A little bit looking forward, more in the long term, you know, we still really believe in sustainability, electrification, regulation, driving it. You know, we see a high activity.
side. Also next year, you know, there's gonna be new cuts to quotas moving into 2024. We expect that to continue to drive and be positive for the business. We see it also in the U.S., they're starting to cut quotas already next year. Very interested on the CO2. We also have soon, hopefully, our first customer on the CO2 in the U.S. as well. It will be an exciting long-term business for us. The platform in the U.S. we'll continue to invest in and build, both, as I said, you know, private label. We will open new branches, and we'll come back shortly to the acquisition side. Cooling, I think everybody is reading, it's hot in different places in Europe.
Of course, this is a trend that will continue and also trends that we see cooling, growing, and also down in Central Europe, UK, and also the trends in the Nordics, because it's getting warmer, so it supports our long-term business case. We do have heat waves surrounding Europe right now, so we had a good start to July, so that's promising for us, so positive development. We do continue to have strong comps. We do have less working days in Q3, but, you know, we're off to a good start, so that right now is compensating for those challenges. Cash flow, expect to be strong Q3, Q4, and release a lot of inventory. It's already happening, so it won't change. That's why I'm guiding fairly strongly on that statement.
Acquisition will continue to be active here in Q3, Q4, both in the U.S., but also in APAC and in Europe. Pipeline is good, you know, development continues to be strong, and valuations are in line with what we expected. All in all, the longer-term trend continues to look, I would say, very solid for us. I think that's my last comment. We can open up for Q&A.
If you wish to ask a question, please dial star five on your telephone keypad to enter the queue. If you wish to withdraw your question, please dial star five again on your telephone keypad. The next question comes from Carl Ragnerstam from Nordea. Please go ahead.
Good morning, it's Carl here from Nordea. A couple of questions. Firstly, you mentioned the weather effects in Europe here. Is it possible to sort of give an indication of the organic pace in April and May compared to June and July? In especially in HVAC, which turned negative organically in Q2 here, and also whether it's realistic to maybe expect HVAC to return to positive organic growth already in Q3 here, given the weather effects and also considering the tough comps?
I think I won't go into that type of detail, but July has built on a good development in June, as well, where HVAC was positive. Right now, it is trending positive and, but it's strong comps, but it's high activities and, you know, of course, in strong HVAC market like Spain, Greece, areas in, you know, also in Eastern Europe, in Central Europe continues to be active. We'll continue monitoring this. I won't get into details for the full quarter, but it started on a positive note there in July.
And also, I mean, on the underlying demand a bit, if you look back to the financial crisis, for instance, you had a certain degree of cyclicality in the business. I mean, on one hand, we have financially constrained consumers. On the other hand, it might be consumer non-discretionary product, subsidy-backed as well, to some extent, if you look into the cooling segment in Southern Europe. What sort of is your view on the underlying demand and the consumer side of the cooling segment currently?
Yeah, as we are very active, as we said before, in the replacement segment of the HVAC side. Of course, we also work when you do repairs and upgrades, not so much in new construction because it's a different business model with in our view, with lower margins, it's not very attractive to us. In that area, I mean, you continue to replace when breaks, especially in Southern Europe. I mean, and you can imagine if it's this hot, you can't really live without HVAC. I think those are the main underlying drivers for us. Of course, as it's getting hotter like this, what happens long term is that, you know, the replacement cycle increases, or I mean, decreases.
You need to replace these type of machines more often as they run out because running it when it's 40 degrees hot, you know, both in the day and in the evening. Step by step, that also increases the market. Then also we need to respect, you know, there are, you know, uncertainties out there in the market, but right now, I would say or, you know, demand is still good, it's very active. It's, you know, a couple less working days, good, bad start to the quarter and et cetera, and high comps. I, you know, I'm still very positive to the activity levels in that segment, both short term and long term. I mean, we never sold more HVAC than we're doing right now, right?
It's still a good market out there, and we see it, of course, even stronger when it gets very hot, because, I mean.
You really don't have a choice, but you have to exchange it. The long-term trend as it's getting hotter, we see, you know, very strong growth in the UK and Central Europe from lower levels because more and more people are installing HVAC. The problem you have when you get into heat waves in these type of countries is that you run out of installment capacity, so it's a little bit too late to get your products right now, but it usually drives a good trend for the rest of the year when you have these type of trends.
Okay, very good. Also, could you perhaps indicate how much less supplier components you have ordered during Q2? Also, for how long will you continue to have significantly lower order of components? Also, you seem quite confident that you'll re-release working capital in the second half. What magnitudes are we talking about, would you say, in terms of working capital releases?
We don't, well, I mean, we will have, what's we, I think it's because Kristoffer has been quite bullish here, so even I, we are all very confident and very, we will have a strong cash flow. We will release, but going into details and numbers and like that, but we will release inventory. That is the main focus need to do. Release the inventory, and of course, then that also goes along that if you don't buy anything, you will, of course, that will also have slightly a negative impact on accounts payable. Regardless of that, we will have a strong cash flow or release of working capital.
If you think about it, is that inventory is turned and will continue to release every single month in Q3. That's a fact, as accounts payable has really turned. Two, you're gonna flush out all the accounts receivable. I mean, you have a timing lag there of 30 days-60 days, depending on what region you're in. When we look at those two, AP in Q3 is less of a factor on there. I would expect us to start buying products again towards the end of Q3, beginning of Q4. Right now we have plenty of inventory to manage the situation. It's driven by the, now we have lead times are back in most of our regions, the U.S., still some challenges, and we expect to be sold in Q3.
In Q2 and Q3, we are flushing that out. Of course, our sell-out is much stronger than what we're buying in from our suppliers. Not that it's part of your question, but we do have a lot of discussion with our suppliers because we're trying to guide them as well, you know, how we're gonna move towards the end of the year, because the demand out there is still strong. Because of the supply chain issues, we don't need inventory right now, and we stopped and turned that already, you know, in Q2. That's why we're bullish. You know, we'll have, we also expect continued good margin, plus a good working capital release, so, you know, both in Q3 and Q4.
Sounds very good. The final one from my side, if I may. Very good to hear that you're starting to open a few branches in the U.S. I'm a bit curious to know what payback times do you have on opening a branch? Also, especially if you compare it to the incremental returns you're getting from acquire a few units or 1 unit.
I would say that the payoff time is in these type of branches would be, you know, less than a year. Then you start building value because in, you know, on the HVAC side, and these regions are, you know, we have exclusivity for the product. Those are the ones we start with, which means that nobody are selling the product here, that we have exclusivity. It's a good payback in this platform we have compared to buying out weak competitors when you say one or two branches. Of course, on top of that, we'll continue. We have some good add-on acquisitions in our regions, but they're of course, much larger than opening a couple of branches.
Okay, very good. Thank you.
Thank you.
The next question comes from Karl Bokvist from ABG Sundal Collier. Please go ahead.
Yes, thank you. Good morning. Just, first question there on your comment that you saw a stronger end to the quarter than the first part of the quarter. Just to make it clear and understand it's, that excludes the effects from seasonality?
Yeah, absolutely. It's more comparing to last year. Of course, June will be higher than May, and May will be higher than April with seasonality. It's more comparing to last year.
Okay, good. Then on the, on the, let's call it profitability side of it. Now, when you, when you lower the inventories here, I take it the products are still in high demand, but could there be any risk of a margin impact or anything as you sell from inventory due to varying dynamics or that you want, potential price discussions and so on? If I may also follow up, on the cost side, have you seen any notable impact from lower freight rates?
My first question and your first answer, I mean, the two go a little bit hand in hand. They do connect, of course, but because if you have those two to work with, we don't see a margin impact of flushing out the inventory. I mean, we already started it, and we turned the inventory already to most of our inventory is still, you know, fresh products coming in the last three months- six months anyway. There are some of our businesses where you, for example, Toshiba works a lot when they pay their own freight. Most of our business is included in the business, and the resi side, you know, we buy most of it from Europe. The U.S buys it in the U.S..
Pockets will have a positive impact of it. All in all, when you patch that together, we continue to see a stable development as we flush out the inventory.
All right, good. On the HVAC market in the U.S., at least based on some data points on HVAC shipments, it seems like the end of the quarter might have marked a bit of the trough. I'm just curious if you see the same thing or if it differs between resi, commercial, product mix, and product categories, and so on?
Yeah, I think it's timing. You know, it's hard. I mean, in the U.S., July has started well, you know, about the trends we had in June. I don't think that connects too much to that data, to be honest. I think, you know, it continues to be, you know, our installers are fully busy, but it's a little bit more mixed on repair versus replacement, as I said in my call, which of course drives margin for us. It pumps up demand, but you have a lower sales value in exchanging the compressor versus the whole system. You know, for us, it's probably been a good mix anyway because we're missing products on top of that.
I think it's early days to follow those trends, but I think that commercial is still very active. The, you know, that's, we don't see any weakness at all on that side. On the new construction, it's actually, you know, it's small part, it's less than 5% of our business, but our key customer there are not, you know, down as much as we expected to be honest. I think it's a little bit early to say, but in the meantime, I think it's developing fairly stable with good profits in there, and it will probably turn sooner than later in the U.S. as well.
Understood. My final one is just on the, or anything you can say on the earnings contribution from the acquired units. Yeah, we, of course, can track Heritage, but if it's possible to say anything about profitability in the other businesses that have contributed to the acquired growth.
I mean, well, if you see, you break it up, you saw EMEA continues to drive a big growth, both on the margin side, to us. Then you have the U.S., and you see APAC, and I think that's all that we disclose.
Yeah.
Underlying, I would say in the underlying business, excluding Heritage, it continues to be strong growth margin development that supports an increase in EBITA, it continues to develop in a good way.
Understood. Thank you.
Thank you.
The next question comes from Andreas Brock from Coeli Global. Please go ahead.
Hi, gentlemen. Sorry to add on questions on the U.S. I was just wondering, you know, the EPA has set in, issued a final rule of 40% cut of HFC refrigerants from 2024. We finally have something. I was just wondering how, you know, will that have an impact on how you think about your U.S. business? Like, you know, the kind of private labels you want to introduce, the acquisitions you want to make, et cetera?
It plays in actually a lot, but it's not so much because the 40%, because it wouldn't matter if it's 30%, 50%, or 60%. We knew it was coming, there's still a lot to go. Of course, it plays in on the product portfolio, on, you know, on private label, on the HVAC that we're working. It's gonna be natural refrigerants as we move into 2025. The whole product portfolio is changing in the U.S. relating to all these requirements. Of course, we like the refrigeration segment, so we are working on expanding that, also on the acquisitions that we are working with. They're more heavy on the refrigeration side, so we can drive that because it will continue to...
You know, prices are increasing on that. That will continue in the U.S. as we had in Europe. It does affect our strategy. Not to be overconfident, we already knew this. We were planning for it. It is part of our plan. It was from the beginning as well.
Fair enough. Just a final question then. On the supply issues, on the product availability in the U.S., I was, you know, slightly surprised by that. I wasn't expecting that. I was just wondering, perhaps you cannot say if it's Daikin or whoever it is, but, you know, in general, who are the suppliers of the Heritage Distribution business? Who are the main suppliers?
Yeah, I don't want to hang the main supplier out.
Okay
I would say that our strategic supplier, and we'll continue, we're exclusive, and we'll continue to be, and we're working very closely with them, and they are, you know, doing everything. It's a little bit hand-to-mouth type of structure right now.
Okay
...the main reason for this is that this supplier is actually the only one that's completely tooled up for a new product portfolio for SEER 15, while the other suppliers are using the old one and just bringing a more expensive model in there. We believe that our supplier is doing the right thing for the long term and already has these problems behind them, while the other ones might get it in front of them. It's more that they decided to completely retool their product portfolio, and there's been some consequences of that.
Fair enough. Thank you so much.
Thank you.
The next question comes from Douglas Lindahl from DNB Markets. Please go ahead.
Hello, gentlemen. Thanks for taking my questions. I wanted to come back to the organic growth in HVAC. It seems like, you mentioned a bit of a mixed picture in your presentation, but really the only market that seems to be negatively, organically in this quarter seems to be Eastern Europe. Other markets seems to be doing pretty well, if I understood you correctly. Can you give some sort of indication on what sort of organic growth rates we're seeing in Eastern Europe? Negative, obviously, and what you're seeing in other markets like, in Central Europe. Just an example would be useful.
Yeah, I won't be to that type of detail, but I think you'll see that Eastern Europe last year was, you know, was growing, not single, not double, but, you know, if you add a couple of higher numbers to that. If you look at the long-term trend, Eastern Europe is still, you know, way above 2021 and et cetera, but it was really boosted last year, and now I think they're flushing out that activity level. I won't get into detail, but it's negative on, you know, over double digits, and it is a big market for us.
We also see trends there now, you know, in Poland and other areas that's starting to flush out and pick up, while, as I said, you know, Southern Europe, here in June, July, it is very good. Central Europe is good. I think the Nordics were, you know, flattish or slightly positive. It's not a huge, you know, it doesn't affect the numbers in a huge way. That's why all in all, we see UK extremely good, continues to been growing the last three years, four years at very good levels and continue this year as well. There is a clear trend, more and more people are driving penetration of AC.
You know, if you look at that picture, it feels still pretty solid, out there, on the HVAC side, to be honest.
Despite the increasingly tough comps here moving into Q2 and Q3, it seems like you are confident in positive organic growth then?
No.
Based on what you see now in June, July?
Yeah, based on what I've seen, June, July, yes.
Yeah. Okay, now that's it. Thank you.
Thank you.
The next question comes from Daniel Johansson from Pantechnikon Advisors LLP. Please go ahead. Anonymous, your line is now unmuted. Please go ahead. The next question comes from Karl Bokvist from ABG Sundal Collier. Please go ahead.
Yes. Hello again. Just wanted to a quick follow-up, really, on, you, well, I can't recall really how many times you referenced the word, cash flow now, this conference call, but
Yes
... Just to understand the kind of timing of it based on how you see payment dates and so on. Will you see a notable improvement already in the third quarter, or will it be tilted towards the fourth?
No, no, you will see a positive cash flow in Q3 . You will see. Let me, what do you call it? Accelerate my conservative CFO. You will see a significant effect in Q3 as well.
We have different roles. We have different roles in this company.
The reason I'm saying this, it's, you know, we know it's important. It's important for us as well. You know, we follow this on a daily basis on there, when you see it start turning, you see the accounts payable, we know. I mean, we do hundreds of thousands of transactions, AR always flows in and et cetera. We do feel good about where we ended June and how July started, and we know we haven't bought anything or very little, that it will flush too, and that's the reason we, you know. You will see a significant effect in Q3 as well.
All right. Then, finally, if this might perhaps be something you will, highlight during the Capital Markets Day, but, is there any way you can disclose, a rough amount of, how large part of your business is attributable to heat pumps?
Yeah, we'll discuss that, but to be honest, in Q2 and Q3, it decreases quite a lot. Number one, it's not the season, really, and we are extremely focused on the cooling side. The customer base we have also works, you know, mixed and moves into that. I think right now it wouldn't be a hugely relevant question, but we'll disclose it more when we come into November and how we see the future in that market of there. Q3, Q2, Q3, you know, gets very focused on the cooling side.
understood. That is all for me. Thank you.
Thank you, K arl.
The next question comes from Daniel Johansson from Pantechnicon Advisors LLP. Please go ahead.
Hi, can you hear me?
Yes, yes, we can hear you.
Great. Thank you very much for taking my question. I want to come back to the inventories, and I guess, you know, looking back, it's been a while since they started going up, basically. Based on your policies, I was just wondering if you've had any inventory write downs over the past couple of years?
No.
There have been none whatsoever?
No, not very normal. We have, of course, obsolescence, and we have our policies like that. We have not had any one, kind of a major one-off or something like that. It's normal course of business.
Okay.
I mean, of course, we reserve in the way, according to our policies, and it's reserved. Mostly, even if it is reserved, it's still something that will be flushed out. It's a little bit, we got these questions before, but if you look at our portfolio, it's very little. I mean, close to none that becomes obsolescent in the portfolio of there. Of course, we follow the policies, but I think it's more that we are conservative versus being on the other side of the fence, so.
I guess, you know, there was a previous question asking if the inventory reduction would have a negative impact because of underutilization, I guess. Could it be the other way around, that it will have a positive impact because you bought it a while ago, while prices were lower?
The main, just to maybe clarify, when you look at our inventory, the main that's been going up and growing is on the HVAC side. The ref components are, you know, step-by-step flushing out. As you said, you know, we don't manufacture these ourselves, so we don't get under or overutilization. You know, that's for our suppliers to work out. I would say, you know, even if the inventory is high, it already turned most of the product. You know, the fast runners have turned a couple of times anyway. I don't see either, you know, we said, you know, we see prices stable in the market, both from buying and selling.
you know, the positive twist we have to, the freight's coming down, but it's not a main component of our business, so I would still think that we'll continue to have a stable margin development. That's my main scenario.
Okay. Thank you very much.
Thank you.
As a reminder, if you wish to ask a question, please dial star five on your telephone keypad. There are no more questions at this time, I hand the conference back to the speakers for any closing comments.
Two closing comments. It's not related to the Q2. I think we covered that, and I think you can hear that we're pretty happy with it. One is that we'll have a capital markets day, November 30th. We'll send out invites after the summer. You can go in, I think, on our website starting this afternoon or evening to. It's going to be in Stockholm on there, and there we're going to cover a little bit more in detail, both on the heat pump, but also our CO2 developments. We'll have the U.S. as well to go more in detail. We think we'll also bring some products, so you can feel them and look at them and see them.
We think it'll be a good day, and also we're going to be clear on our financial targets. We look forward to that, and hopefully we'll see most of you there as well. The final comment is, I hope you have a nice summer when it comes to you. I don't know how many more companies you have to cover, and thank you for this quarter and look forward to catch up after the summer as well. If there's anything you need clarification on one-on-one, just give us a call and let us know, and I'm sure we can solve that as well. Thank you very much.
Okay. Thank you. Bye-bye.