Ladies and gentlemen, welcome to NIBE Q4 2021 results presentation. Throughout the call, all participants will be in a listen-only mode, and afterwards, there will be a Q&A session. Today, I am pleased to present Eric Lindquist, CEO, and Hans Backman, CFO. Please begin your meeting.
Thank you. Good morning.
Thank you, everyone.
Thank you for calling in, and we're gonna try to have the same procedure as before, meaning that Hans and I will go through some slides to try to summarize the year. Afterwards, we're gonna have a Q&A. We will try to finish as latest by 12:00 P.M. because we have another assignment here shortly after. We won't drag too much in our presentation, so we will allow for questions and hopefully good answers after that. Well, to summarize 2021, I mean, you've written the report, and we call it another stable year. Of course, that's an average summary because the first three quarters were certainly very strong.
The fourth quarter, of course, was really, shall I say, dampened by the difficulties we've had with deliveries and with shortages of material and components from our sub-suppliers. Nevertheless, we can very clearly see that sustainability is here to stay, and that's, of course, driving very, very important driver for the demand. Also the COVID-19, we had some months there during 2020 in the beginning of the second quarter, where we were suffering. Other than that, the demand came back, and it's also been quite clear that the pandemic has focused the customers' behavior more in the direction of home refurbishment. It's also been a favor to us. Of course, material and component shortages, we've talked so much about that I don't have to mention that.
We're not alone, but nevertheless, noticing the demand, it's very frustrating to have that shortage. Looking at our target, when we passed the SEK 20 billion mark in 2018, then we said, "Now we're gonna go for the SEK 40 billion." We've sensed now that we've passed half that distance, and now we are going for the SEK 40 billion. I think that's pretty much in summary the atmosphere in here. If you look at the growth, of course, it's been a steady or healthy growth when we talk about the 13.6%, out of which the organic growth was 11.8%. That is despite the fact that the Swedish currency has been, not the last quarter, but during the whole year, of course, it's been working against us.
The result is up, operating result in [kronor] and also the operating margin. That is, of course, due to strong growth and we've been able to handle the fixed cost in a good way and also some productivity improvements. I mean, of course, that's not at the level where we would like it to be, again, because of shortages and disruptions in the production. We have completed two acquisitions, and that's been done practically without visiting those companies and doing it more by Teams and email, and that's a little bit strange. We see now that the world is opening up, and it looks fairly prosperous when it comes to potential acquisitions. Just looking at the actual figures, you've seen them, both the quarter and the full year.
Of course, we are pleased that we passed SEK 30 billion, because that's always a milestone, and the margin already mentioned. Of course, we see here when we come to the growth that the full year is 13.6%, but the last quarter is only 9%. We've been affected pretty much during the fourth quarter growth-wise. Also, as you can see on the gross margin side, for the full year, we pretty much keep our gross margin from the previous year. In the fourth quarter, where the price increases are really hitting us and shortages are hitting us, that's a pretty bad cocktail for us. We were able to come up with an operating profit that's roughly the same as last year.
You can also see that the operating margin, although for the full year it's up more than a percentage unit from 13% to 14%, for the quarter, it is really down with a little bit more than a percentage unit. Still a decent height or level of the operating margin, but of course, we never like to see it going down. The two coming illustrations here are the bar charts. They, when it comes to sales, we don't notice that much of a change from before because we have the third and the fourth quarter as the strongest quarters when it comes to revenue. We don't see that much of a change there.
When we switch over to the profit and financial items, of course, we see that the final bar there, the Q4 bar is shorter than Q3 or slightly shorter. That's, of course, an illustration that is not as it should be. If you walk into the business areas, I mean, Climate Solutions. They've been really working hard and, of course, organic growth is substantial. Again, good control of the fixed cost, and that's why the operating margin has never been higher than that. At the same time, that's the business area that's been hit the hardest by the shortages of components. That doesn't mean that we have slackened when it comes to R&D.
We've been very aggressive, and during the year, we launched three new categories of heat pump exhaust air with propane and air-to-water with propane, and then the ground source with another-
Please hold
another refrigerant with a relatively low GWP. For those of you interested in our products, you are most welcome to the exhibition in Stockholm here in April, where you're gonna see all three new generations of our heat pumps. Of course, as much as we are frustrated by the shortages of components, we are very much convinced that the demand is gonna continue, and that's why we are in the middle of a very ambitious investment program, particularly here in [Markaryd], where we produce heat pumps with a new visitor center, a completely new factory for heat pumps, and also a new innovation center. Also on the element side in Sösdala, we are really expanding due to the electrification. We feel that is really coming about.
Also a number of other factories are being expanded or being built elsewhere in Europe and North America. We're also launching or just in the midst of starting the erection of a new building in Germany with our heat pump factory down there. If we just have a quick look at the climate solutions, we passed the SEK 20 billion. It could have been much more, of course, had things been more cooperative. Now we had a growth of 12.2%, and the operating margin is up, like, 20%, and it could have been much better, of course. I guess I forgot to mention that perhaps during the full quarter for the group, because it's a bleak improvement in operating profit. It should, of course, be much more percentage-wise.
When you grow 10%, you should grow more than 10% the operating margin. Otherwise, there's no sense of growing. Nevertheless, Climate Solutions, they've never been higher than 16.1% on the operating margin. So despite the fact that we've had our issues, we are up on a relatively healthy margin as far as the operating side. Swinging over to NIBE Element, we see that, of course, Element was hit a little bit harder during the beginning of the pandemic. So their figures are now very positive, and they're coming back. We also see that the electrification and the sustainability profile is really helping us or are helping us. Also the semiconductor industry, that really continues to develop and prosper, I dare to say.
All market segments are growing, but particularly when it comes to sustainability and semiconductors. Of course, it's almost ironic that the semiconductor industry is booming, and still most of industries can't get their wafers. But it's just a matter of time as we judge it because it's a tremendous investment program, and we are, of course, delivering to the machine producers, to those gigantic factories. But also here, we have had a shortage naturally of components, but not to the extent like Climate Solutions. It's very pleasing to see now that Element is taking a very important step back to a margin that is about 10%. That's been a struggle, as we all know, for many, many years.
Some four years ago, we were up there, and then 2020, we saw with some sadness that we were under 10%, but now we are above again with a 10.4%. As a sub-supplier in a very, very competitive environment, we're very pleased to note that improvement. Then stoves, it's been a remarkable year also for the stoves. Whereas we see very clear seasonal patterns typically for stoves, the last year we didn't really see any of that pattern. It was like every quarter was very good. That is, of course, a little bit strange.
Perhaps it is due to the pandemic there, where people are trying to refurbish their home, or they were trying to refurbish their home even during Q2 and beginning of Q3. Of course, here we also had shortages of material and delivery problems, but again, not to the extent like Climate Solutions. It has dampened the capacity, particularly during the fourth quarter. Here we also spent quite a bit of money on R&D trying to improve even further the combustion of wood. Their margin also went up from, I shouldn't say a bleak 2020, but just above 10%. It's now solidly parked around 13.5%.
That is, of course, a reflection of the growth of 18% or a bit better than 18%. It's even more, of course, if we didn't have that negative currency effect. That also has resulted in an improvement in the result of some 52%-53%, which is remarkable. When we wrote the report, sitting here now in a very I mean, you we're all street fighters. We all like to be better in every quarter, and we all like to say, "Well, now we are there, and we like to grow." Then of course see that we were hindered to the extent, and then we brought out this picture and said, "Well, it hasn't been so bad after all." I mean, we grew.
We've been growing since 1993, practically without exception, but for 2007, just during the pre-Lehman Brothers era. We haven't quite been able to live up to the 20%, but we are coming close, like 17.9%. Of course, 1993, we were not on the 10% margin, so that means that the growth since then has been just south of 22%. That gives us comfort when we talk about the SEK 40 billion, that nothing really in the graphs here would indicate that that's not possible. On the contrary, it's very much, should I say, enhancing the philosophy that we have just a few years before we hit the SEK 40 billion mark.
Just a few or a couple of pie charts before we let Hans continue here, and it's regarding this distribution of sales. We can say that Europe has been the driving part here, particularly on the sustainability side. Whereas the Nordics are fairly stable, and North America has contracted somewhat percentage-wise in this graph compared to before. Here we have a typo, we apologize for that. Here we talk about distribution of group sales. That's pretty much stable as before. Climate Solutions around 64-65%, Element 26% in this graph, and Stoves 10%. Then, of course, due to Climate Solutions higher margin on the next, the last pie chart, there you see that climate solution is representing some 72%, and Element some 19%, and the Stoves 9%.
If we look at it over time, it's pretty much the distribution that we've had. All right. That was the first 15s minutes, Hans, and now you have 14 minutes.
No, that's fine. I'll try to keep it short, allowing for questions.
Mm-hmm.
Just before I jump into the individual business areas, I'd just like to highlight that in the report for the fourth quarter, we have an operating income that is tswice as high as the one from last year. That's simply due to currency exchange rate effects, you can say. The Swedish krona has lost quite a lsot in value during the last quarter, and that's where that portion ends in the income statement. The majority of that amount comes from that. If we jump into Climate Solutions, just like Eric said here, it's actually a record year, both in terms of sales, profit and margin in absolute values as well as in percentage. This despite challenges both with some headwind on currency, but foremost on the supply chain side.
Organic sales, they grew with more than 12%, including then a negative currency effect, which has been driven very much by the increasing demand for sustainable solutions. Although mainland Europe in combination with the Nordics make up the strong portion of the growth, the movement in North America are also moving in the right direction with the Paris Agreement being signed again and also the Clean Energy Act. The full year, as you saw, I mean, we came in at SEK 3.2 billion in operating profit, growth in that of some 20% when sales gained 12%. Quite pleasing to see landing in the margin there on a record of 16.1%.
In the fourth quarter, we grew with some 9%, but unfortunately, the profit level did not grow at all that much. It's basically on the same level, and that's very much related to the supply chain issues that we've had, not only having difficulties getting the products but also paying a phenomenal price for the ones that we have been buying. So that's why the gross margin there has come down about a percentage unit. So that's been the challenge, and that's why this record year could have been even more of a record year, you can say. In terms of distribution of sales, the picture is very similar to the year before. Just like Eric said, North America has lost a little bit because of the growth that we've seen in Europe.
Really, it's mainland Europe that's up a couple of percentage units now when heat pumps especially are becoming more and more asked for in various European countries. The next slide shows the operating margin ever since we made the IPO, and it's, of course, a very strong and stable legacy that we can show for Climate Solutions being above 10% from the year 1999, and where we now are hovering around the 15% and even 16% mark. We've been able to keep this level and improve it despite the strong growth, and also acquiring companies and bringing them on board and integrating them. Heading on to Element. Element has seen a very strong growth across the board, and especially in HVAC and semiconductor.
The so-called post-COVID recovery, I guess you can call it, is reflected very much in this business area. We are present with our products in so many segments and in so many geographies, and the strong demand that's been in these areas are reflected very much in Element. For the full year, we grew with almost 16%. Again, including a negative currency, in fact, effect, which is not negligible, and an improvement in gross margin. Then the growth in operating margin of almost 33%, bringing the margin up above the 10%, where we have strived to be for quite some time.
It's not been without challenges, of course, because also here we've seen supply chain challenges and even had some factory closures or partially so due to COVID in Asia, where people have not had the same vaccination rate as we've had in the western part of the world. Despite that, the sales grew by some 14% in the fourth quarter, and the profit was up with 18%. Also that quarter came in at above 10%, which was very pleasing to see. Reflecting then the way we are represented throughout the world, you see the distribution of sales. This is our most global business area, and there are no big changes here in terms of geographical split of sales.
Looking at the same graph here for the development of the operating margin since our IPO, we've been on a constant upward trend since 2005, you can say, where we took a restructuring expense to make some changes. With a very determined working path here on building and consolidating a business within a broad range of heating elements, we've now managed to become a Tier 1, Tier 2 supplier and break through the 10% operating margin level, where we, of course, intend to stay. NIBE Stoves has performed almost exceptionally well during the pandemic.
The business area was strongly hit in the second quarter of last year, or well, 2020, I mean, we're talking about 2021 now, when the pandemic really hit, but then recovered strongly and which then has continued very nicely ever since, and which is a pattern we're not quite used to be seeing. It's usually the second half of the year that is the strongest. Due to this good performance, we have been able to reach slightly above SEK 3 billion in sales. We're up some 18% in sales year-over-year, and the profit increased by more than 50%, also with a good improvement in gross margin.
Also here, even in this segment, there have also been supply chain issues which have dampened the development in Q4, where we actually saw a slight decline in growth. Q4 of last year was also very, very strong. The comparables were a bit tough. We were able to keep the gross margin, did not quite land in the operating margin where we wanted to be, some 1.5 units below. As Eric said, and which we've said in previous calls, we also keep a good spend on R&D projects within this area to bring out the next generation of stoves to meet the environmental needs, so to speak, that are out there. Distribution of sales here is very similar to before. We're very strong in Europe.
It's mainland Europe, that is. Half the sales are there. Slightly above a quarter in the Nordics, and with a good foothold in North America. This is the business area where we have always been able to be above 10% in operating margin since the IPO, even though it was a very close call in 2019, just before the pandemic hit and when the world was talking about a possible recession. It's been a very stable area for us. Talking about stability, if we move into the balance sheet, it is a very stable balance sheet. The development we've seen there during the year is a natural development of our growth, you can say.
The one item possibly sticking out is that we've been building inventory now during the year to try to cope with the supply chain issues. Otherwise, equity has grown very strongly, and then we will come to some key figures later showing the equity to assets ratio. This building of inventory has of course had an effect on the cash flow. We've generated some SEK 600 million more of cash flow this year compared to last. Most of that, or more, much more than that, have been consumed in the change in working capital. Now, we came from a very, very low level in last year where we sold out basically everything we had. Like I said, we've been trying to build some inventory here to be able to deliver.
Of course, it has an effect on the cash flow. We've continued to invest in our current operations. Eric mentioned some of the projects that we have, which are quite necessary to meet the demand going forward. All in all, the change in liquid assets was just below zero, you can say. In terms of financial figures, it is a very stable picture that we show. I mean, the interest bearing liabilities to equity are well below 50%. The net- debt- to EBITDA is actually below 1 if you reduce the decimals, and the equity assets ratio is around 50%. We're well equipped, I would say, for future growth through acquisitions. The next slide is on the working capital.
I mean, it landed in at 17.4%, excluding cash and bank, up from the 12.9%. I would rather say that maybe some around 15% is a more sustainable level, 15%- 16%, somewhere around there. Then some last key financial figures, return on equity has possibly been the key figure where we've not met the expectations or our own goals for that matter either of 20%. We're up now to 17.2%, up from the 14.5% last year, and clearly moving in the right direction. Return on capital employed has also improved. The closing share price is there, of course, which we typically don't comment upon. Where we stand today is still up from where we were about a year ago.
Then just two more slides very quickly here before we open up for the Q&A. The next slide here shows it's really summing up not only 2021, but also our financial performance ever since the IPO in 1997, where the equity has been well above the targeted 30% for quite some time. Now, as I've mentioned before, it's basically 50%. Whereas the return on equity has ever since the acquisition of the Schulthess Group in 2011 been below. It was also an acquisition that we paid with shares, and after that, we made a rights issue. You can really see how equity and the return on equity, they correlate very much. I mean, it's communicating vessels.
When the equity assets ratio is down to close to 30%, we had a very high return on equity. Then when equity has been higher, the return on equity has been a bit lower. The margins have been constantly improving, I would say, since more than 10 years, stepping up slowly, but very steadily, giving us the position that we have today. The last picture is really to substantiate the growth target that we have of reaching SEK 40 billion, which Eric mentioned, which we launched in 2018. Coming from a turnover of SEK 20 billion and saying we're going to double to SEK 40 billion can of course sound very ambitious and almost braggish.
If we look at our history and the way we have been able to grow for many, many years, we have, as a matter of fact, been able to double in sales roughly every fourth year. We've said that we would allow ourselves a couple of more years if times would become very tough. The performance right now gives us confidence that we are well-positioned to meet the 40%.
That's right.
By that, unless you have something to add and complement, Eric, I guess we're ready for questions.
I think we open up for questions now. Thank you. That was very perfect, you know?
Yeah.
Another 15 minutes, okay?
Ladies and gentlemen, if you have a question for the speakers, please press zero one on your telephone keypad now. If you wish to withdraw your question, you may do so by pressing zero two to cancel. Our first question comes from the line of Carl Ragnerstam from Nordea. Please go ahead. Your line is now open.
Hi, it's Carl here from Nordea. A few questions from my side. Firstly, on the component issues which you sort of guide could ease from Q2 and onwards. Have you seen a slightly better situation already, or do you base it on the fact that you talk to or from what you hear from your suppliers? Also, I think you've tried to use different components, new suppliers, et cetera. Is it giving results, or maybe it takes a bit of time to change components, et cetera?
For the first issue, I mean, is that correct? We hear from our suppliers or a number of them that it'll improve from Q2 and onwards, and that's what we dare to state here because it's not only one supplier. We just hope that is true. I mean, there's no scientific answer, but we don't get the picture that it's gonna go on forever.
That's a correct understanding. As far as changing components, I mean, it's one thing to change steel for the steel supply, but I mean, components that are tested, let's say in a heat pump in a refrigerant circuit, you know, you can't really do that very quickly. There are some components you can change, but not the very vital ones. It takes a long time to do that, and that's one of the difficult situation we are in. That there are some very vital parts that we have shortages of, and it's not easy to find a new supplier. Even if we would find a new supplier, of course, we have to test that. We can't just put it in.
It's, I think that would be even worse, you know, if we now made shortcuts putting in components without testing properly, because then we could run into quality issues. That's the last thing we would like to see as a result of this. All right?
Yeah. Perfect. Very helpful. Also, on the order growth, you said that you see an unprecedented demand situation at least. Is it possible to put it in numbers so we could get more flavor in and a better picture on the sort of organic growth pace when component issues ease?
Yeah. Well, I mean, that's. I understand your question, but we don't go out and of course quantify that. It is just that we notice just like in if you look at the hybrids or the electric vehicle situation. I mean, that's a very, I dare to say, at least from my perspective, very, it's a surprising that things were catching on that quickly. We've seen, if not the same pattern, you know, percentage wise exactly, but we see the same pattern. People are understanding that something is happening and they like to change. That is of course also, should I say, assisted by governments and authorities willingness to support that. That's, it's a remarkable, should I say, order intake.
We don't typically talk about that because we have very short delivery times. Of course it's kept pumping in and that's an illustration to us that customers out there they like to change. It's not that we are pipe dreaming or saying something you know just for the sake of it in reports, it is very substantial. But at the same time, the sad side of it is, of course, that we also have delayed orders to an extent that we haven't had before. That's not only positive.
Mm.
Okay.
The final one from my side is, you mentioned that you've had raw material headwinds during Q4 that you implemented price increases throughout the quarter. Should we expect them to start materializing in Q1, Q2, or will it take time for it to sort of work through your backlog?
Well, no, I think that we'll see improvement there. Again, it's not a fixed target, you know. The price increases, they continue. It's not like, of course we are catering for price increases that hit us up to the certain point. Then you have given notice, you have to give notice to your customers. Then still price increases, considerable ones, quite considerable ones are coming in from some suppliers also this year. It's very difficult to say, well, now we are ahead of something. We're always gonna lag a little bit because when we get a price increase, of course, there are weeks or sometimes months before we can implement them. It's more a time lag than a difficulty of implementing.
Of course, I mean, we are no bank, so we have to put forward the price increases that hit us, of which we cannot absorb productivity-wise and being more effective, which we always try to do. We don't try to be just, you know, an echo of, our suppliers, but also try to improve ourselves, now, of course, with the price increases that the market is hit by, not only us, but in general, no one can absorb that by productivity, there always gonna be a lag in, our performance, of course, we are very eagerly working on trying to improve our prices every month. Okay?
Perfect. Very helpful. Thank you.
You're welcome.
Our next question comes from the line of Douglas Lindahl from DNB Markets. Please go ahead. Your line is now open.
Hello, Eric and Hans. Thanks for taking my questions. I have a few. I prefer to take them one by one. I hope that's okay with you. My first question is for Hans, just a clarification on the other operating income in the quarter. You already touched upon it, but is the entire SEK 200 million coming from FX gains or is there anything else in there? And going forward, I guess you would expect that number to come down to historical levels. So how should we think about that? That's my first question.
Yeah. The vast majority of that line item you can say is currency effects, especially in relation to the Swedish krona. Of course, if we would have some one-off thing like a gain of sale of an asset of some sort, that would also land in there. The majority and continuous number that lands in there is currency in transaction effects.
Okay. In this quarter, were there any gains from sale of assets?
A very small portion, but really negligible.
Okay. My second question is on Pacific Energy, the acquisition within stoves, which at least to me have been flying a bit under the radar, but it seems that you have intentions to go through with that, and acquire the residual or additional 40% of the company. Can you give some sort of timing on when you expect to consolidate this?
Well, I mean, during the first half of the year.
During H1, okay.
Yeah.
Okay. On the topic of M&A within stoves, you've done a few now or including Pacific Energy. Do you expect to continue to do acquisitions here? Can you maybe comment on the M&A pipeline within climate solutions as well?
No, as we said, I mean, the, we've been hindered by the pandemic, no question.
Yeah.
We carried out a few 2020, as you remember, but they were sort of instigated or started the processes that started during 2019 and even some of them 2018. Sometimes it's not just a matter of a quarter. Then we were able to materialize and a few others there during the pandemic. Now, of course, we have to work up a order book, might I say, again.
Mm-hmm.
During the last quarters, of course, we've seen quite a bit of an interest in selling our companies coming to the market. We take that as a good sign. We, you know, as Hans mentioned, are certainly ready within all three business areas. I mean, financially, we are strong. Perhaps too much money in a way, and that's also a danger if you would try to spend too much just because we have money. We're gonna be as cautious as we've always been when it comes to using our money.
Mm-hmm.
I think that we also have noticed over the years that we are always, almost without exception, contacted when interesting companies are coming to the market, which we take as a pleasing attitude that we are out there and we are being appreciated as a potential owner.
Mm-hmm.
Having the financial means and also being recognized among sellers is a strong sign that of course the acquisition speed will increase naturally within all three areas.
Okay. The M&A pipeline within all three business areas is growing, basically. No sort of strategic decision to do M&A within Stoves specifically?
No.
What's the logic behind doing acquisitions in Stoves generally, would you say?
No, no. I think that the target for the SEK 40 billion, you know, there we have.
Yeah.
A very, should I say, relatively, at least detailed, laid out trail how to arrive there. If we ever would decide to do anything contrary to what we said in our target, we would tell the market.
Mm-hmm.
So.
Okay.
Yes.
Thanks. You already commented a bit on it today, but on pricing, is it possible to give some sort of indication on what price hikes levels you are implementing currently? Is it mid-single digit, high single digit, or do you want to give some sort of indication on that?
Well, I guess you can call our, you know, our wholesalers, and they would indicate, of course, that we don't increase with double digit figures.
Mm-hmm.
It's in the mid- digit.
Okay.
You can just call our customers and I'm sure they will give you details on that without giving that precisely here on the phone.
Okay. No, I appreciate the answer. Thanks so much. That's it for me. Thank you.
You're welcome. Thank you.
Our next question comes from the line of Pam Liu from Morgan Stanley. Please go ahead. Your line is now open.
Hello. Thank you very much. Thank you. Good morning. I have three questions, please. Number one is on production capacity for heat pumps. Could you please comment on the current capacity utilization rate? For the expansion that is currently underway in Markaryd, what is the percentage capacity increase that will be achieved by completion, and when will that be? For the capacity expansion you are planning to do in Poland and Germany, are these both for heat pumps, and roughly when will we expect them to come up and running? The number two question is on regional exposure and M&A. I think North America still looks a bit weaker compared to the Nordic and Europe in Climate Solutions. Could you please again talk about what improvement measures you're taking over there?
If I may, you know, would you ever consider potentially divest North America and double down in Europe, perhaps with acquisitions because the European market is growing very strongly, and that I believe there are still markets over here that you could potentially strengthen your presence with M&A. My final question is purely accounting. I believe at some point in 2022, there could be a deconsolidation of the washing machine businesses out of climate solution. I'm just wondering whether we're still expecting that in 2022. Thank you.
Very rapid questions. You're very efficient. I think we should speak faster as well. When it comes to production capacity, there is no lack of capacity at the moment and for the immediate future. I mean, you know, our facilities can be used even further. There have been some issues rather on the raw material side, as I said before. If there are, you know, shortages of operators. Because you can hire on a permanent basis. We have a fairly well-established system now where you can rent people, if I call it, or where you have those companies where you have them on a temporary basis. I think that combined, if we could get components and material, we could increase capacity substantially.
Of course, when you build a new factory, then you don't think about increasing capacity with some 20%, then you typically take a bolder step. I'd say that anyone increasing capacity at least looks at a 50% increase in capacity, with the possibility of also extending that investment possibly to arrive at 100%. But we also have to be modest enough so that, when now everything looks very prosperous, I think that's our thinking when we take a step forward, typically increase with at least 50%, but also having a chance of continuing the expansion relatively easy if the demand would continue to be stronger than anticipated. I think that's the thinking behind that. In Germany, it's the same thinking.
It's a heat pump factory going up with the alpha innotec there. The second question, whether we would abandon North America, you know, I really understood the question whether we would pull out of North America. I think that would be totally insane to do that. The fact that they are not walking or used to having the same pace at the moment doesn't mean that North America won't go sustainable. I think that once they decide, they go very fast, typically. I think if you look at it, we think that Europe has been dragging their feet for a long time. It's just recently that Europe has really, you know, woken up, you can say. I would not criticize the U.S. at all.
Now, of course, due to the Paris Agreement that we always sort of blessed here in Europe, politicians understand that to fulfill that, you have to do something quite differently from what you've done before. I guess that's what we see. As far as divesting of Schulthess, it looks like that will materialize. We have no other signs on that, but we're gonna come back, of course, with very precise dates for that. As you correctly say, that's the first chance Helvetica has a chance to take over the majority. The performance of the company is still very solid, so we have no reason to believe that that will not be materialized. Okay?
Okay. That's very helpful. Just to come back to my first question, I know you talk about the potential magnitude of capacity expansion, but what about the timeline? When do we expect to see these capacities already, you know, been put into production?
Well, I don't know whether we like to disclose that typically, but of course, a factory has to be erected. You know, a factory is typically erected in four to five quarters. Then it has to be filled with equipment and stuff like that. I guess that's as far as we're gonna go, because I think here we get in also into competitive information that we like to have a little bit closer to our chest.
Sure. Thank you very much.
Yeah.
Thank you.
You're welcome.
Our next question comes from the line of Karl Bokvist from ABG Sundal Collier. Please go ahead. Your line is now open.
Thank you. Hello. I just wanted to follow up on the prior question. My line was a bit at fault here, but when it comes to production capacity and CapEx, I think over the past few years, you've had a investment pace in relation to revenue a bit above 4%. Should we assume that it's kind of a normal investment pace as part of a business going forward? Or that we should, you know, expect a bit of a, perhaps a higher investment pace in relation to revenue or something like that?
Well, I mean, we typically talk about in relation to depreciation and of course, we will be above that. We've been suggesting that for a longer time. Last year we were SEK 100 million over? I think that when you erect that many buildings, you know, more almost parallel like innovation center and the visitor center, completely new factory in Markaryd, a new factory in Germany. We have also in Poland and Czech Republic doing also major investments in North America. It'll be of course, more investments per year for the coming two to three years. We're not that we're gonna run out of money, but we feel it's appropriate to do that now. We feel very certain that the market is there. Of course, there are gonna be hiccups.
We don't know politically what is gonna happen in Europe, but those are things that we just have to counteract. We cannot do it. We think that the timing is proper right now or is ideal to do the investments because we are certain that Europe cannot go back when it comes to sustainability. North America is also very, prospects are coming back. You know, the problem over there is the low unemployment rate, but there's no question that both Europe and North America is also bringing back production from Asia, and that is again enhancing the demand for own capacity here. We never believed in outsourcing, as you know, and I think that in that sense, our foresight has been correct.
A lot of companies are, you know, struggling with their supply chain, and we believe that the fact that we stayed or remained where we were, although, of course, we have invested also to some point in Asia, we never gave up the idea of producing in North America and Europe. We feel they're gonna be both a supply chain merit, but they're also gonna be a should I say, an issue that's important for the consumer, being more comfortable with the fact that things are produced closer to where they're gonna be used. There's also a sustainability profile of our company.
Understood. Just two questions on whether or not do you see any variations by region when it comes to the supply chain dynamics? Pick either direction, whether or not there's a region in particular that stands out on the challenging side and a region that has fared a bit better. Perhaps mainly if we talk about climate solutions, I understand that element has a bit more related to Asia, for example.
I mean, the idea, as you know, is that for the situation, of course, the wafers or semiconductors is not only our own control boards and stuff like that, but practically all advanced components that we use. Let's talk about a circulation pump. I mean, they also need controls because they are not like in the old days, you know, with alternating current. Now they are direct current, which means that they have to be monitored in a totally different way. So everyone is affected by that. We also know that when the economy is coming back, there is, in many countries, a lack of a labor force. I don't see any country that is free from that.
All countries that we hear here, people are concerned about the labor force, where even if you go to countries like in Eastern Europe, where, you know, like, were so popular 15- 20 years ago, now they don't have the adequate number of employees, so they bring them in from even further east. I think that the shortage of people is another issue that is hitting all countries, that of course leads perhaps to a little bit more inflation. We are no, you know, economists in that sense, but in the long run, we believe that you can't use slaves. You have to pay people decently, and they have to be very loyal to the company, because otherwise you're never gonna produce any quality products.
Perhaps I sound like a labor union leader, but we believe that to be truly sustainable, you cannot abuse people's, you know, ability to or possibility to make money. They have to provide for their families. That took me on a long route, perhaps away from your question. No country is better or worse. I think we're all in the same boat, as we can judge it. We have a problem with components and material, and there's also a shortage of people working in the factories, and that is also almost without exception. Perhaps the U.S. would be hit the hardest because they are down now to an unemployment rate of some, well, less than 4%.
Perhaps they don't have that many people employed or that many people out in the workforce like we have in Europe. That is, of course, a major concern, not only to producing companies, but to politicians, where we're gonna land as far as inflation is concerned. That was a longer answer call, but, you know, you led me astray with that question.
All right. Thanks for that. Hopefully my final one is a bit more brief, but I understand you don't disclose margins on this level, but the demand from semiconductors within Element, would it be fair to assume that by growing quite nicely in this segment, it has also been quite a positive contributor to why margins are up year-over-year?
Yeah. No, no, it's of course any segment that's growing, an advanced segment that's growing provides a better margin. That is correct. I don't like to mention that it is, you know, tremendously better, but of course, it's a very advanced sector where quality, delivered performance, and also engineering abilities are very much appreciated. That is a better margin segment. Correct.
All right. Thank you. That's all for me.
Mm-hmm.
Our next question comes from the line of Phil Buller from Berenberg. Please go ahead. Your line is now open.
Thank you.
Thank you. Hi, good morning. Thanks for taking the question. On the topic of M&A, it makes a lot of sense that the acquisition profile has slowed a bit, I guess, given the pandemic, and it's obviously very good to hear that you're being sensible with deploying capital and not paying silly multiples. How should we think about the importance of this returns metric over your revenue target? As I guess a lot of these assets, you know, arguably including your own shares are expensive but arguably still seen as good value. I guess I'm asking if this portion around pricing of assets might come with a greater cost, perhaps from a technology standpoint.
You know, I guess I'm wondering if you feel like you could lose ground competitively by being more cautious to protect returns and perhaps we might just need to swallow some optically rich M&A to prevent peers from gaining ground.
How do we answer that question? Of course, we understand that we are not alone in the world. Of course, we have to be modern, if I say, but we also see how quickly things can change, and I don't think that we would be very happy paying a phenomenal price or phenomenal multiple. Perhaps we have to move a little bit from what we've been used to. But I think it's important that we don't change our DNA setup. The way we work must continue. That's the way we've been trusted and trained. We understand the world, but also, you know, now when the possible interest rates are going up, I mean, that we don't really know how they're gonna affect a lot of industries in general.
We've been almost tranquilized by low interest. It doesn't take much interest increase to make it squeaking a little bit. We don't like to be in a situation where we are, you know, concerned or worried about something that we acquired.
Yeah.
We understand that some companies might be a little bit more expensive, but then they also have to be high quality companies, and you should never buy anything at its very peak. But history tells a lot. If the history suggests that they are very solid, of course, there's a premium for that. All right?
Yeah. Thank you. Just last one quickly from me on pricing. Has there been any evidence from your sales channels at all in terms of demand destruction from all the price ups? I appreciate the backlogs paint a very different picture and imply, you know, very good demand. But that also feels a little at odds with the typical rules of thumb regarding price elasticity. That's not unique to you guys. Everyone in the industry and in many sectors are increasing price dramatically, but there doesn't appear to, as yet, be any suggestion that things may slow down as a result of it. It's difficult to get an understanding of the underlying demand environment, I guess.
I was wondering if there was any anecdotal feedback from the ground in terms of volume impacts from the rising in price. Thanks.
No. We don't have that impact, but your question is very valid. Of course, one day, I mean, if everything just continues to go up, either demand will slacken or there'll be, you know, higher salaries because someone has to pay for if it's a truck, a car or a heat pump or whatever it is. So, but we don't have that indication now. Your question is very legitimate. Okay?
Thanks. Yeah, great. Thank you.
Yeah.
Thank you.
Okay, we have one last question. Who is the happy person with the last question?
Thank you. Our final question comes from the line of Gustav Österberg from Carnegie. Please go ahead. Your line is now open.
Well, thank you to Eric and Hans. I think I've been in the queue for a while, and I've had the sort of similar questions to the last speaker here. No further questions from me, and thank you very much for presenting today.
All right. That was very quick.
We were able to answer.
Yeah. We exhausted the folks out there. Thank you very much. Hope we haven't had too much hide and seek. Some, of course, questions we can answer them, but for tactical reasons, I guess we are a little bit more, should I say, protective to our own company here. All right. The hour is gone. We appreciate everything, and now we revert to new tasks.
Have a nice day.
Have a great day out there.
Thank you.
Bye-bye.
Bye-bye.