Thank you very much. Well, if I may start, it's EGerteric Lindquist talking here. We are very excited today to announce this. Just looking at our vision to create world-class solutions in sustainable energy, that sounded, some years ago, a little bit perhaps too much to many. Now we are very much into that particular stage when we are actually realizing that vision. We've been in North America for 3 years, in a more heavy presence with the elements, now we have this opportunity. Later on, Tom Huntington going to present the company more precisely, I'd just like to dwell on a few things before we let Tom present WaterFurnace more in detail.
From our point of view, WaterFurnace is a very clear market leader in North America on the residential market, geothermal one, we've known the company as a nice competitor or colleague for many years, having a profile very similar to NIBE, family-oriented. Even if it's been listed for 20 years, it's still run in a very family-oriented way. Not saying that they aren't professionals, it's with a lot of heart, with a lot of soul, which we feel is very important when we are stepping in now. They have a broad arrangement of products. They are well advanced into technologies that we also are using anymore, like inverters and so forth. It looks very promising as far as the technology is concerned.
They're also located in an area that is not downtown New York, just like our sale has not been located downtown Stockholm, rather in a nice city in Indiana, in Fort Wayne. I'm sure Tom going to tell you a little bit more about that in a little while. Tom has been heading this now for some 5 years, last year the company had turnover of close to $120 million, a very solid EBIT. It's been through the difficult years with a very solid EBIT margin, last year was 17%. There are 267-plus employees, predominantly in Fort Wayne, Indiana. By this acquisition, we are, as I initially said, creating a global leader in sustainable energy solutions.
We've been claiming for a number of years now, since the acquisition of Schulthess and Alpha Innotec, that we are a definite leader in Europe, now we'll also claim that together we are really forming a formidable, should I say, body, when it comes to renewable energy and saving energy and also being sustainable. The operations are very complementary. Geothermal is, WaterFurnace's main emphasis, whereas we have also our exhaust air heat pumps, and air-to-water. We see that that is one area where we could further develop things around, also that WaterFurnace is more used to distribute the heat and the cold air through duct system rather than the hydronic systems that we're used to in Europe. It's also very pleasing, that this EPS accretive already year one.
As far as the math is concerned, we know that WaterFurnace has been listed in Toronto for several years, 20 years, the reason being, as Tom has explained to us, and Mr. Shields, that all the major wholesalers, they were Canadian from the very beginning, it was natural to list the company in Canada. We are now in the process of acquiring all 100% of the outstanding shares for a price of CAD 3.6. Depending on how you calculate this, we say it's a 27% premium on the last 30 days running rate. The total equity value amounts then to CAD 378 million, depending on which exchange rate we use, it's north of SEK 2.3 billion. It's unanimously recommended by the board and independent committee that Nibe is now the preferred buyer.
We also have entered into a support and voter agreement by 20% of the outstanding share capital. I think with this as a start, Tom, I think that I hand over to you to present the company, how you operate and where you operate in more detail, I come back later on. Please, Tom.
Thank you very much, Gerteric. It's truly an honor to be part of a world-class company in Europe in the very near future. I welcome any of the questions later in the call. Just a bit about ourselves here. Gerteric mentioned that we have 267 staff members, my direct reports are all veterans of the industry. I have been in this air conditioning heat pump industry my entire career as well, the best years have been the last five with the geothermal heat pump sector, obviously that's been WaterFurnace. Let's jump into a little bit of the details that separate us from our competitors here in North America. The premier channel that drives profitability for us is our direct-to-dealer model.
This is a model that is used only by WaterFurnace because we have a unique manufacturing capability that allows us to squeeze out field inventory by shipping so quickly to these large dealers. Our average lead time on residential is three days, we have a special one-day rush program, quite literally no one in our industry can match that. That's a competitive advantage. What that enables us to do is to deploy our resources, our field staff people, build local relationships with key large dealers, keep those dealers supplied with factory direct shipments. Not only does this give us the ability to build long-term relationships, we then enjoy the margin on those product sales that a normal distributor would have.
As you become more familiar with the profitability of WaterFurnace, you'll then understand why our margins are much higher than our competitors. Our market also requires that we service to fully exploit any opportunity, that we service smaller dealers. Some of these smaller dealers are in outlying areas, and they may actually be on a job site from time to time, and they would require, instead of having large shipments come in and receiving them in their facilities, they may elect to go and pick them up. We built a distributor model just to ensure that we have more than adequate market coverage, and that distributor model is dominated by a new brand name called GeoStar. Once again, GeoStar products are similar, but yet we've built in some differentiation between the WaterFurnace brand and the GeoStar brand.
It's an exclusive distributor arrangement, meaning that we ask distributors, and we require distributors to be loyal to the brand instead of handling two or three other brands that are possibly in their marketplace. On the commercial side of the business, we have a manufacturer's representative channel. This is a very important channel for commercial products in North America that goes out and meets with architects, engineers, and then specify our products in the design of new construction. What is emerging from this channel is a much broader opportunity for manufacturer's reps to also develop relationships with large real estate firms that have buildings under their responsibility for their tenants. There's approximately 2 million water source heat pumps installed in the U.S. that were built in the 1970s and '80s. During that timeframe, units were much lower efficiency and much smaller.
We're the only manufacturer now of commercial products that build high efficiency water source products that can go into the existing space that were allocated for those small heat pumps. In the commercial building, that's a huge competitive advantage. Our manufacturer's rep channel is not only working on new construction opportunities, but now also building new relationships with key customers around the U.S. to penetrate a very lucrative commercial replacement market. There's a distinct difference in the margins between new construction and the replacement market. We see that as a very strong competitive offering. We also enjoy wonderful relationships with key OEM manufacturers in the U.S., most notably Johnson Controls, where we supply them commercial products that complement their offering.
Also under the YORK brand, which is one of the brands of Johnson Controls, that is a channel that goes through independent distributors and branches, and that's a combination of light commercial products and residential. We also enjoy a wonderful relationship with the Trane company on residential products. Once again, the product differentiation exists between WaterFurnace and Trane, enabling us to go into the marketplace and sell effectively both WaterFurnace brand and Trane. We're currently engaged in conversations with another major OEM. Those conversations look to be very fruitful in the near future. I'd ask that we look to the next slide, please. The proven multi-channel strategy, there's approximately 3,000 dealers located throughout the U.S. that are buyers of WaterFurnace product. Certainly, our premier dealers represent a smaller percentage in the three to 400 range.
It's pretty typical of any type of industrial products that are sold. Close to the 80/20 rule. For those dealers, we hold them in the highest regard because of their commitment to quality installations. The education that goes into educating not only current buyers of equipment, but they also have a local community presence, and then also stand behind the products with very low warranty claims. For those dealers, we reserve the name GeoPro dealers. In the U.S., we maintain 33 different distributor relationships, and then our manufacturer's rep firms, as you can see on this slide two of four, there are 230 different representatives across the country.
On the next slide, on slide eight, I'd like to walk you through some of the exciting brands and then the products that are associated with those, probably more important than that is the strategy behind each one of those brands. WaterFurnace, what came into being in 1983, we have almost 400,000 systems installed. As we look at our current forecast, I think we'll top that in 2014. In the U.S. and Canada, we're certainly the residential market leader. We have a huge market share in Canada, and we dominate that market in a very nice fashion. The industry is unique for a direct-to-dealer network in that only WaterFurnace has this capability. Once again, it's because of our manufacturing capabilities that becomes an enabler for this business model.
Without a short lead time, we would have to revert to two-step distribution and then basically compete on a price-only basis with other manufacturers. We covet our capabilities in manufacturing and the lean manufacturing environment. WaterFurnace is the best recognized residential brand of geothermal products, bar none. Earlier, I spoke briefly about GeoStar. It's an exclusive brand for our distributor network, and that distributor network services typically smaller dealers that have local needs that we may not be able to properly serve from one point here in Fort Wayne. It's kind of what we would call a local brand, and it's one that's rapidly improving in market share. It also has what we call a balanced approach to cost and comfort, recognizing that some of the smaller dealers may not have all of the control expertise that the larger WaterFurnace dealers have.
You will find some of their feature content simplified, and as a result, the sheet metal is more simplified as well, not quite the same aesthetics. As a result, there's a cost and trade-off that optimizes cost and comfort for the small dealer presenting to their particular customer base. A company that we acquired in 2012 called Hyper Engineering. They're located in Wollongong, which is south of Sydney, Australia. They design and manufacture a line of soft starters, and these are devices in both single-phase and three-phase products that enable, when applied to any compressor that has what we call a PSC motor, and it can be a motor that goes into a wide range of applications, but it limits the inrush current on those motors. Many of us have probably experienced what we call light flicker.
If a home has a large compressor or fan motor and it starts and stops, you'll see that light flicker in your home, and that has to do with heavy inrush currents that those motors are drawing. This eliminates light flicker, but more importantly, as we look at some of the global requirements, inrush current is being limited in Europe as well as in Australia, and a number of municipalities in the U.S. are now trying to minimize the amount of inrush current by home so that their transformers are more efficient, so that the line losses on the utility lines are less, and then they also have fewer consumer complaints. We think we've got a real upside opportunity with our small operation in Wollongong, Australia. The WFI brand is used in China in our China JV. The China JV, we are a 49% owner in that JV.
51% was held by our partner in the event that if this entity were ever in the future to be taken public, it would have to be taken public with a Chinese partner that has majority ownership. We are truly blessed with our JV partner. They are involved primarily in automotive. The Shenglong Group has worked very successfully with BorgWarner and Williams Turbochargers and Superchargers. They have their own camshaft business and joint ventures in India. They've got R&D centers in the United States and a manufacturing location in Sallisaw, Oklahoma. With all of this expertise in automotive, they elected to branch out into another industry, which is certainly why they joined with WaterFurnace and began production with geothermal products. We've quickly expanded into very large chillers that go up to 1,000 tons. Both traditional forms of chillers as well as chillers that can do geothermal.
We have very high expectations for our China JV. They are very well-financed, and it's a delight to go there because they are very progressive in their thinking, and we think that this will be a powerful opportunity to bring some of the JV products through the distribution channels in Europe. If we would look at slide number four, our sales by segment, you can see that 70% of our sales have been in that more lucrative residential business. Commercial represents 30%. What is probably the best model as far as level loading the plant is to have 60% residential, 40% commercial from a level loading standpoint. People sometimes are surprised, well, why would you want to have higher amounts of sales in what has traditionally been lower gross margin equipment?
It's simply that we're about the only manufacturer that's set up to capture the replacement commercial business, and that business can be as lucrative as residential. It's an untapped opportunity that we're pretty excited about. What I think is really part of the heart of the synergies of this partnership between our companies is the fact that 87% of our sales are currently in the United States, 10% in Canada, and only 3% internationally. Of course, we firmly believe that many of our products, especially our hydronics products, our water-to-water geothermal heat pumps, can find a wonderful application in the U.K. and throughout Europe. We expect to see this pie chart change rather dramatically. That's a pretty quick outline of WaterFurnace, but I would like to convey my sincere thanks to the entire teams that enabled this marriage to be.
We're excited about it here in Fort Wayne. We just completed our employee meeting, and I will be happy to answer questions at the end of the call. Eric, I will turn it over to you, and thank you very much for this opportunity.
Thank you, Tom. If we then just go through another chart about the transaction effects. Of course, the pie charts there, we weren't so pleased to see them prior to this marriage because we noted that WaterFurnace was almost a bit more profitable than ourselves. Now when we are in the same house, we don't mind that at all. You can see the pie charts now with the EBIT line, of course, where WaterFurnace is having 10% rather on the sales side where they would have 8%. It's a very nice marriage. If we look just on the pro forma effects, we talked about previously, the CAD 378 million offer, and the financing is cash through existing credit facilities. The net debt ratio will immediately be like 3.10, calculated on the December 31st, 2013.
Of course, if we had added the 2 sales and revenues together for the previous year, we would land on SEK 10.6 billion and SEK 1.3 billion on the EBIT line, respectively, a margin of 12.4%. The multiple enterprise value divided with the EBIT estimate this year is like 14x, and accretive from year one on the EPS effect, as I said before. Synergies, of course, as Tom said, we see several synergies, but we haven't really shifted them out, suggesting that we're going to be so and so many millions. We see several synergies on R&D, sourcing, and manufacturing efficiencies and so forth, and also naturally sales, as Tom indicated. As far as the timeline is concerned, of course, we need two-third of the voting at the WaterFurnace shareholders meeting that is supposed to take place sometime in August.
That is to say that we expect this to be closed at the end of August, which is like a couple of months' time from now on. If we then just summarize what we have been talking about, we have 9 specific items here. To create the true global market leader, I think we've been dwelling on that, and that is very exciting. I guess you can hear that in our voices, that it's very exciting to sit here and be able to talk about this. The North America platform, we've been a very European phenomenon on the energy system side, and now we have a very nice axle between the 2 continents. Tom is also suggesting, of course, that we also have a possibility now in Asia with a joint venture that WaterFurnace has over there.
Also the valuable competencies and new technologies, and we've also talked about those, both on the air-to-water and on the exhaust air heat pumps, as well as on the soft starters and the inverter technology and so forth. Strong brands and all the distribution channels that you've been described offers us all these, should I say, strong possibilities also to demonstrate over even tougher times. I think WaterFurnace and Nibe are very good examples that you can have a sustainable EBIT margin even if times are tougher. I think that is something that we have in common. We both want to grow, but if the market is very tough, then we put priority on the EBIT margin. I think that's a very good philosophy that we have that in common.
Of course, experienced leadership, Tom was suggesting there, or telling us, that he's been on board for some 29 years in this industry. I'm lagging a little bit behind, only 27, but I'm sure that's all right. His R&D department, the production and so forth, they're all experienced people, just like we are on our side. When we look at the future, of course, we see a nice retrofit market and also the residential new construction market picking up in North America and all those thousands and thousands of units now moving towards replacement. As before, of course, we continue to look for consolidation opportunities. That's no secret. I think that this acquisition is very well-timed as far as our vision and growth targets, and I think that we are just mature now enough to take another step into North America.
Our balance sheets remain sound, and we've demonstrated before with the acquisition of Schulthess some three years ago, that of course, instantaneously we increase the debt ratio, but fairly quickly we work it down again due to solid performances when it comes to profit. We also are very pleased that the shareholders of WaterFurnace have given us such a support, and we think that the 27% premium that we've offered is both an appreciation from our side that it's a very good company quality-wise, and we've also gotten the support from the shareholders of WaterFurnace correspondingly. I think it's a very happy marriage. With that, I think that we should just hand over the speaker to the audience out there, whether there are any questions that we possibly could answer.
Ladies and gentlemen, if you have a question for the speakers, please press zero one on your telephone keypad and you'll enter a queue. After you are announced, please ask your question. That is zero one. Please hold until we have the first question. Thank you. We have a first question coming from Mr. Sachin Shah. Your question please.
Hi, good morning. Congratulations, good afternoon as well, on the deal. Just to clarify, you're expecting the shareholder vote August, and the deal closing as well, in August. Is only HSR the regulatory approval that's required here or are there other approvals?
Well, see here now. You mean from a true jurisdictional point of view? What do you mean then?
Yes. A governmental jurisdiction. Do you need any Canadian or other foreign approvals aside from HSR?
Well, now you've got me on perhaps the wrong foot. I don't know exactly how to answer that question. It's a bit awkward to say that, we have not judged that there will be any difficulties anyway. Our advisors have not judged that, I can't be more specific than that.
Okay.
Yeah. I think that's my limited answer on the question. I'm sorry for that.
It's okay. Are they allowed to continue to pay their $0.25 dividend until the deal closes?
Well, we haven't really discussed that either. Now you, boy, what a difficult man you are. No, I'm joking. I'm just joking. I think that we have to reverse. Rather than guessing, I think that we have to come back on that issue.
Okay, one final question, if you don't mind.
Well, I hope I can answer this one.
Yeah, hopefully, it's a little bit easier. Can you maybe just talk about the background? You guys approached them, or was it that they were soliciting offers and that's how you reached to this agreement? Can you just maybe talk about how this deal came about and maybe just kind of the process?
Well, I think that's of course a secret, but I can tell you that this industry isn't that gigantic like any industry. You know each other, so of course, you discuss at shows, and you discuss it when you see each other at the different locations. It's not that Nibe and WaterFurnace are unknown to each other. I think that we are regarded, particularly since the acquisition of Schulthess some years ago, of course, WaterFurnace and their management and their board of directors, they know, or they have known us, and we have known them. I think that how dating starts, I think that we keep that as a little bit of a secret to ourselves.
Okay. Thank you.
Okay.
We have a next question coming in from Mrs. Helena Söderman from Kempen & Co. Your question, please.
Yes. Good afternoon.
Good afternoon.
I have two questions, actually, I think mainly to Tom about WaterFurnace. You mentioned that you have a strong market share, of course, in the U.S. and Canada. Could you maybe be a bit more specific about what kind of market share we should think of? Can you also maybe talk a bit about the biggest direct competitors that you see in the U.S. and Canada?
Tom, I warn you here now, you better be cautious. This lady, she is so elegant when she puts the questions. I think that we shouldn't dwell too much on the specific market share, but you can comment in general terms, please.
Okay. Very good. Well, good afternoon, and it's a pleasure to meet you. I will say that we're obviously talking double-digit market shares, and it's very significant in Canada. The dynamics in Canada were such that we were also aided not only because of the product offering, our concentration and our heritage, but also our competitors were significantly weakened in Canada, and we took full advantage of that. I will let you extrapolate those comments into a market share in Canada, but it's very robust. In the U.S., we also have a dominant position, and I'll use those terms, on residential. What is inspirational for my team is to see the increase on commercial products growing at such a fast rate.
Our feeling was that the brand name of WaterFurnace was transportable, the brand equity and the name, from residential to commercial, but we had to design the right commercial products, and we've proven that theory to be true. We're now taking full advantage of that, and we're expanding our commercial share as well. In the future, I'll gain alignment with the parent company as far as what can be discussed on these calls, and then I'll be prepared to give you whatever level of detail is proper. Okay? That's great. Yeah, thanks a lot. This is very helpful. My second question that I actually have is on your heat pump product, basically. Could you maybe specify a bit for what % the heat pumps account of your total product offering in terms of sales? There are some miscellaneous products.
Our JV has line equity, a form of accounting, so sales of the JV are not recognized on our P&L. It's a net number that hits the P&L. We don't take into account chillers and things like that that are coming through the JV. Here in Fort Wayne, almost all of our products, with the exception of very few commercial chillers, are heat pumps. Most of the commercial products that we build are one of two forms. They're either water source heat pumps, geothermal heat pumps, or what we call reversible chillers. We are known throughout North America as a heat pump manufacturer primarily.
What is exciting is that some of the products that are being built in the JV we announced last year. We will be bringing over fan coils for chilled water that are non-heat pump. It's a high volume opportunity. We've never enjoyed high volume traditional forms of HVAC sales. That will be new for our company. Hyper Engineering, that's a smaller segment, several million USD in sales there. That's a non-heat pump. It's a component. I hope that answers your question. Yes. That's very helpful. Thank you very much, Tom. My pleasure. Thank you.
We have the next question coming in from Mr. Martin Lindqvist. Your question, please.
Hello, can you hear me?
Absolutely.
Okay, go ahead.
Yes, Martin.
Hi. Thank you for the presentation. I couldn't see the slides, unfortunately, so maybe this has been covered already. Gerteric, I think you said at the Capital Markets Day in November that Nibe intended to continue with dividends consisting of 30% of net profit. Is that something we should expect going forward as well, despite the new debt ratio?
Yeah, I think that we haven't changed that. We've been above this debt ratio previously. I think that promise that sticks to the shareholders.
Okay. I have another question for Tom. Do you own any stock in WaterFurnace as of today, and do you plan to buy Nibe shares?
My stock is in two forms. There's a very modest amount that I own personally, and then there's a very sizable amount that's in a program called deferred compensation. That makes me a sizable shareholder of WaterFurnace stock. I'm committed to WaterFurnace in that regard, and that same philosophy will continue as I look forward to the future with new ownership.
Your commitment will stay the same. Does that go for the rest of the management in WaterFurnace, if I may ask?
I want to make sure I'm answering your question. The WaterFurnace stock will be cashed out that's in deferred comp. Then, if you're asking will I be investing in the parent company stock, the answer is yes.
Okay. I'm not sure I really understood whether the rest of the WaterFurnace management will continue to have some sort of stock related compensation going forward.
I believe all of those details are not yet finalized, but it's my understanding that the intent is to mirror. You're never going to have two programs that are identically the same, but they will mirror, and there'll be proper incentives put in place for retaining key employees.
Mm-hmm. Okay. Thank you very much. By the way, one more question. G erteric said you've been with the company for 29 years. May I ask how old are you, and how long time do you plan to stay?
Sure. I've been in the industry with other companies such as Carrier and Johnson Controls, and with the distribution. I've been in the industry for 29 years. I've been with WaterFurnace for five years. This November, I'll be 62.
Okay. Thank you very much.
Okay.
Bye.
Thank you.
Okay, there are no further questions for the moment. Therefore, I would like to remind you that if you want to ask a question, please press 01 on your telephone keypad. That is 01. There are no further questions for the moment.
Okay. There are some questions, obviously, on the web, and we'll see whether we possibly can answer those. The first one: Is NIBE still planning to continuing the partnership with Enertech at current ownership? We take one bridge at a time. Of course, that is something we have to revert to. Enertech continues as before. That is not part of this deal. Of course, we continue as before with that one. The other question, what was that? Can you give us more background or experience synergies? Well, I think that is always difficult to hand out. I think that our experience typically tells us that on the raw material side or material side, on the sourcing side, you typically would have immediate improvements. Of course, with this WaterFurnace being listed, it hasn't been possible naturally to go into that detail.
In general terms, of course, we have the experience that you can save quite a bit of money on the direct material. Then given the current debt rate of 3.1, are you ready for potential more acquisitions near term? I think that the answer is yes. Of course, we would not suggest that we carry out very large acquisitions in the next two months. At the same time, of course, this does not prohibit us from continuing acquiring companies at the rate that we've been using before. Because the last three years now, we've been acquiring two larger entities, that is Schulthess, of course, that we have demonstrated that we can bring down the debt rate fairly quickly. Now we have a major chunk again, that has not prohibited us from acquiring companies in the meantime on a continuous basis.
I think those are the questions that we can read on the web. I hope I've answered them better than the first two ones I got there. I guess I'm going to be criticized for that one. Well, that's how life is. You can't answer everything. You try your toughest, that's how it is. I think that if there are no further questions, we really appreciate that you took the time calling in, whether it's morning, afternoon, or evening, wherever you are. We keep you posted on this. In summary, as I'm sure Tom has underlined several times, we are very excited about it. It's a good mood on both sides. We are looking forward to future wonderful endeavors together. Thank you very much once again for calling in. Thank you, Tom, for participating from the U.S. there.
It's certainly my pleasure.
Thank you.