Ladies and gentlemen, welcome to the Nibe Q1 results presentation. Today, I am pleased to present Gerteric Lindquist, CEO, and Hans Backman, CFO. Mr. Lindquist and Mr. Backman, please begin.
Thank you. Thank you very much. Good morning to all of you out there. This particular report is of a certain caliber when it comes to us, because today we also have the annual shareholders meeting. What we presented this morning is also, of course, to be presented later on at 5:00. We also have a board meeting here. With that said, we believe that we have to finalize this call prior to 12:00 or slightly prior to 12:00. We hope that that shouldn't take away the quality by any means. If I start, as we usually organize it, Hans and I think the headline describes it. It's a very good start to the year, but the demand has been varying between the different market segments and also between the different business units that we have. The growth is good.
Of course, we've been helped by the weak Swedish crown, that's no secret, but the organic growth is very substantial, so we are happy with that. The operating result has, of course, also grown in conjunction with the growth. The operating margin is slightly lower due to the slightly lower operating margin in Elements and Stoves. When it comes to acquisitions, we don't have anything to report really, but as usual, we have many discussions ongoing. Unlike the past, we have actually just recently started a divestment process of Schulthess Maschinen AG in Switzerland. Of course, that is something that doesn't occur that often in our camp, as you say. The only time we've sold a company previously is in 1992, when we sold a small subsidiary in France, and we sort of regret that today.
Schulthess, of course, was never a core business within the Nibe group. However, we always committed ourselves to being a good owner and investing fully. We can say now that when we finally have found a setup that we believe is decent for the future, we're also handing over a company that is in very good shape, ready for growth. Of course, we, as a soft, should I say, transition period, we are to be the majority owner for another 36 months, and then for Helvetica Capital to come in and take over the leadership and us to remain as a smaller shareholder with a successive divestment of the remaining 25%. We believe that that is corresponding fairly well to what we preach, that you should always be a serious long-term owner.
Even if a company comes on board that doesn't absolutely match our profile, it should not be treated as a foster child or anything like that. It should be treated just like our own subsidiaries. Eventually, when time is there, we should be ready to divest it in an organized fashion. We believe also that engaging management now will also fulfill the promise that this company in Switzerland that is having a very decent margin, we have not been able to grow substantially since we took over. That would be also an important merit of the ownership that the management is a substantial part of the future ownership. That's on that side. If you just look at the figures, of course, they are pretty much corresponding what I said initially with 18.5% growth.
The acquired growth coming primarily from, of course, some acquisitions last year, Rhoss, for instance, and also some on the NIBE Element side. It's only 5%, a bit better. Of the remaining 13%, of course, the majority is still organic growth, but it's a substantial part of the organic growth is currency. As you know, we do not necessarily describe that in detail how much is currency, how much is organic growth of the true kind, because we also know that there come days when they want to go the other way, and we just have to combat any condition. Now it's favorable. There might be days coming where it's less favorable, but we as a management have to live up to your expectations, our shareholders' expectations, disregarding. The operating margin is, of course, substantially higher, almost 16%.
That's again, 2 percentage units or 0.2 percentage units lesser than last year, again, because of NIBE Element and Stoves having a slightly lower margin respectively. If you look at the traditional graphs that we typically look at when it comes to sales and when it comes to profit after financial items, they follow the same pattern with the first quarter being typically the weakest, following by 2 fairly decent, and then quarter 4 being predominantly the strongest one. Nothing is happening in our profile as far as sales. Same thing with earnings, that the strongest one is naturally on the fourth quarter. In the first quarter, we typically have around 20, 21%, if you look at it historically. It follows a very good trend. Swinging over then to NIBE Climate Solutions.
Of course, we said before that it's a privilege to be in a sustainability sector, where heat pumps, of course, are valued very highly now among customers, and no one can be untouched by the message in the market, of course, that there is some change in the climate and several ideas how you possibly should solve that. We believe that NIBE Climate Solutions are coming up with some viable solution to that, and that's represented in the growth here. That is substantial. We also believe that we should be able, over the years to come, to bring the same message forward when it comes to the commercial buildings, not only individual villas and smaller apartments, and that's why we acquired Rhoss prior to anticipated date, really, the remaining 55% early this year.
Again, of course, with the organic growth that we've had and practically good markets both in North America and Europe, we should improve the operating margin, which we've done, and also the operating result naturally. Swinging over quickly then to the result as such. We see that we are now about 3.5 billion SEK just for the first quarter, and the operating profit is substantially up, naturally, and the operating margin is like 3 percentage units up compared to last year. Again, it's a quarter where we have typically the weakest demand. Of course, if everything materializes we hope, we have to look forward to even better quarters. NIBE Element, also good organic growth, but there you see in our report that on the sustainability side and on the climate solution side, we have substantial positive outlooks.
When it comes to the white goods, for instance, and also the semiconductor industry, it's of a lesser magnitude. That has, of course, influenced our operating margin. Also to that has contributed the relatively high labor cost increases in what we used to call low-cost countries. I think that we have to rename that pretty soon, because that's not so low cost anymore. Underlying is, of course, a positivism and optimism when it comes to our assortment following the trend in the market being very much sustainable in all segments. When it comes to cranes, the motor industry, wind power, commercial vehicles, everything is pointed in a sustainable direction, and we've seen that we are very well positioned when it comes to that development. I don't think that we should take this as a trend when it comes to the slightly weaker margin.
We see here in the results themselves that substantial growth, of course, in sales and revenues, operating profit is up, but not enough to fulfill the same operating margin, or, I mean, here we talk about a percentage, one percentage unit. Of course, we're not totally satisfied with that, but that's the market conditions presently. We are well-positioned with our assortment geographically. It's just that some segments have been a little bit weaker, and we just have to continue to combat that with other segments that are more, of course, profitable, hopefully. It's difficult, for instance, in the semiconductor industry to combat that. It's a relatively decent margin in that segment, and we all know that has been weak now for some three quarters. Swinging over then to stoves. We can say that it's a fairly decent performance there as well. In North America, slightly better.
We believe that is partly due to the weather, where they had a much severe winter than we had. In Europe, of course, we see also a change pretty much from wood, or wood is a little bit lesser in growth now, and it's more like wood pellets and gas. That's always been the trend in North America. Here we've been launching several new products, so we have had some increased costs for the R&D and marketing. Other than that, the operating margin is fairly much in line with the previous year, as we see on next slide. The growth is not bad in the quarter, and the operating profit is slightly up. Of course, the operating margin is slightly below last year, but more or less based on the same level.
If we just do a few comparisons to the past, we can say that when we look at this pie chart, it's pretty much the same as we've seen the last quarters, with NIBE Climate Solutions being steadily above 60%, and NIBE Element slightly below 30%, and the remainder is the stoves. When it comes to the profit line, that is a little bit different due to the difference in margin, of course, where the operating profit then is like 65% of NIBE Climate Solutions and NIBE Element now down at 27% and stoves on 8%. Geographically, we pretty much keep the same distribution as before, which we find is very healthy, with the Nordics now being a core to our total group revenue or sales. Rest of Europe, now 40%, and North America almost 30%, and then 5% outside these core markets.
That is, of course, NIBE Element probably predominant in the Asian markets, where they are more present than the other two business units. I think that's a very quick summary of the first quarter. I think I hand over to Hans for more perhaps precise presentation of the figures. Then, of course, we are open for all sorts of questions after that, but we shouldn't drag on too much, I guess. Thank you very much.
Thank you, Eric. All right. Before jumping into the individual business areas, I would just like to comment upon the IFRS effects as well as the effect of the Schulthess Group then being partly divested. It's in the report, so you've probably seen it, but the IFRS effect on us is very limited, especially on the income statement side. Since we're not into airplanes or anything like that, it's mainly normal rental agreements that now have been capitalized on the balance sheet. Then, of course, you have the corresponding liability as well. The interests have, of course, increased, and instead the rent cost has been taken out. The EBITDA, which is not displayed here, is of course slightly better. But the net effect on operating profit is like SEK 6 million in the first quarter and on results after financial net, it's basically a zero-sum game.
On the balance sheet, that has, of course, been increased by some SEK 800 million, but which is fairly limited given the size of our balance sheet today. Then just to clarify maybe or just make that clear that the effect of our transaction with the Schulthess Group does not have any major impact at all at this point in time on neither our income statement nor balance sheet. Even if we have sold the whole company and bought into a new company, from an IFRS perspective, we've sold a minority, which means that we're continuing to consolidate the business. There's no profit or a gain like that being recorded at this point in time. Also the balance sheet remains fairly much the same.
We will, of course, consolidate the new co, which has been capitalized, so the balance sheet grows slightly, but there's no real effect after this transaction. A minority will, of course, be deducted going forward, both on the income statement and on the balance sheet side, but the effect is very minimal. Just to have that stated as well. If we move on to the business areas, NIBE Climate Solutions. As Eric mentioned, we've had very good organic growth in this business area. We are in the green sector, you can say, and it has developed quite well in all of the regions. North America has continued well. Europe, mainland Europe, if you like, very well, and the Nordic has also been strong.
Now we've taken on board Rhoss, as mentioned in the report, which gives us the full flexibility, you can say, to develop that business in our own hands, being the majority owner. Of course, that company has a lower profit margin at this point in time, so we'll be working on bringing that up to a decent level over the coming 18-24 months. All in all, NIBE Climate Solutions has grown with slightly more than 20%, almost 7% coming from acquisitions, and the remaining chunk organic with a large portion of currency. The organic part has been a major contributor to the growth, which is very pleasing to see. Pleasing to see is also that we've been able to grow the profit more than the sales volume, which of course shows that we have a robust organization behind it.
As Eric mentioned, this is a seasonal business, and this is the start of the year. We will be doing more, so to speak, during the months and quarters to come. From a geographical point of view, the strong and good development that I mentioned in mainland Europe is in a way displayed in the pie chart here, although it's not seen. If you would take out the corresponding pie chart from last year, the sales in Europe would represent some 38%, and they have now increased to 41%. Growing slightly more than both the Nordics and North America, although both of them also have developed quite well. If we head on to NIBE Element, it's also been a good organic growth, up some 15%. We're past the SEK 1.7 billion in sales. A fairly small portion coming from acquisitions right there.
A good organic growth, but of course also here a help from currency, which in this case has been slightly more than the organic part. This is where we have been fighting and are fighting against what Eric mentioned, the former low-cost countries. We see some substantial salary increases and wage increases in several of those countries. We've seen a fluctuation in the demand per segment. The product mix has been changed, which has led to this slightly lower gross margin and also a percentage less in operating margin. It's mainly been the semiconductor business, the white goods having performed slightly less favorable than last year. The automotive is going through a big change, of course, moving away from diesel and petrol in a way to electric, although not yet there. It's a lot of change going on.
Also many interesting segments, Eric mentioned them before. What we can see there is that the world is becoming more and more electric, so it is a very interesting business to continue to develop, of course. From a geographical standpoint, it is very stable compared to previous quarters, with Nordics being roughly 20%, Europe slightly more than a third, North America still being the largest, and also compared to the other business areas with a pretty large chunk of business in Asia, also in Australia and that part of the world. It is very good spread across the globe. Last but not least, we have our stoves business area. Eric said it was a decent performance. I would say it is actually very stable.
It is, in a way, a sideways move, but it is very stable, developing or being very stable and developing as we have seen over the last quarters. The latest focus on R&D and marketing has led us to coming slightly below on the operating margin, but we are hovering around the same level as last year. The Q1 and Q2 here are the ones where we used to be around 3%, 4% in operating margin, maybe now we are up to 8% because everything basically happens in the latter part of the year. From a geographical standpoint, it is North America, 21%, thanks to SBI in Canada, serving both Canada and North America or the U.S., Nordics, a third, and Europe, the rest. Moving quickly to the balance sheet.
Not dwelling upon that too much, but just mentioning that this is where we see the effect of IFRS 16, and especially on the tangible asset side, because that is where we have activated our rental agreements, so to speak, with some SEK 800 million. Of course, Rhoss came on board, which also has had a small impact. On the non-financial current assets, you see an increase there due to receivables and inventory coming from December 31st. We are again now approaching a growth period where we are producing more for the seasons to come. On the liability side, it is the long-term liabilities the interest-bearing ones, and the short-term interest-bearing ones that correspond to the leaseholds from the other page. They have to be split up, of course, depending on how long the contract lasts. That is the reason for the increase in those numbers.
From a cash flow point of view, there is also a slight effect from IFRS 16. It is slightly less than SEK 60 million, which is taken out again on the financing activities the way IFRS 16 has been introduced. Apart from that, we have generated a very good cash flow for the first quarter from SEK 800 million, up from SEK 492 million of last year. We have had a slightly less negative effect from changing working capital. We built much more last year, you can say. We have still been building this year, as I just mentioned, but not quite as much. We have continued to invest in our current operations in expanding our business. All in all, we have had a very good operating cash flow, I would say, and in line or even slightly below our depreciations still. Just looking at some key financial numbers.
They are, of course, also influenced by IFRS 16, the first one being the investments there, which are seemingly much lower than the ones last year. That's, of course, related to that last year they included the acquisitions that Eric mentioned initially, especially within the NIBE Element business area where BriskHeat and Hemi Heating and those were acquired. Looking at the interest-bearing liabilities in relation to equity, that has had an influence slightly by IFRS 16, as has net debt to EBITDA. They would have been 1.7 had we not had that change. Equity assets ratio would have been 48, and the interest-bearing liabilities, they would have been 57. That's just pure math from that change in accounting principle. Working capital, an area of constant focus, you can say. In a way, it sticks in the walls to some extent what we have.
We're basically around the same level as last year, and also since year-end, around 20%. It's a decent number. It can always get better if you ask a finance director. Yeah. Then a very last number, we open up for some questions as well. Return on capital employed, 12%, return on equity, 13.6 unchanged due to the IFRS effect. Net profit per share up from SEK 0.67 will, for the full year, be slightly influenced by the minority share being deducted then for the Schulthess business. That's like a percentage and a half as we estimate it right now. That will, of course, be influenced by both currency and the actual performance of the business. I think that sums up a very quick walkthrough of the numbers, both balance sheet and the business areas.
Let's see how clear we've been.
Exactly.
All right. Thank you, Hans. I think we open up for questions then.
Thank you. Ladies and gentlemen, if you do wish to ask an audio question, please press 01 on your telephone keypad. That's 01 on your telephone keypad now. If you wish to withdraw your question, you may do so by pressing 02 to cancel. There will be a brief pause while questions are being registered. We now have our first question from Carl Ragnerstam from Nordea. Please go ahead. The line is now open.
Hi, it's Carl Ragnerstam from Nordea. I have a few questions, but could you please first talk about the wage of inflation situation, and then what you're doing to offset it, especially within the element segment? Can you also comment a little bit about weakness in the semiconductor industry as well as automotive industry and what we can expect going into Q2 from those segments?
Well, with the wage, if I understood the question, there was the wage situation in the.
Exactly. Yeah. Sorry.
Well, how do you combat that when the sudden salary increase occurs? I think that we just have to continue to automate and in some instances, of course, we might have to transfer production, and that's why it's so favorable to already have production sites established. You don't do that from a month to another month, but we have a fairly good experience when it comes to combating salary increase by robotizing, automating processes. If that isn't sufficient, of course, we would have to transfer certain segments. That's what we've been doing in the past. When you get double-digit increases like in Czech Republic, for instance, or even in Mexico, of course, that's not something you can cure overnight. I think that was the answer to your first question. If you don't mind, what was the second and third here now?
Yeah, the second is regarding the semiconductor industry and automotive.
Yeah, the semiconductor.
What we can expect going into Q2 if you have seen improvements at all.
Well, forecasting is, of course, not allowed to do, but I think that we've been taught over the last year that it is a cyclical industry because it is very expensive to invest in a new factory. We've been, of course, more active looking into the market now, and we were totally aware the cost of establishing a new factory is around $11 billion. Of course, if the telephone manufacturers or whatever it is, if they see a question mark in demand, they slow down in their investment processes. There, I think we just have to follow suit. We can't change that industry. Of course, we have to be more cautious with our costs, and we cannot hammer us out of this situation on our own. We have to just follow the market, being a sub-supplier to a sub-supplier.
Of course, we are supplying the machinery companies in this industry. I guess we just have to follow suit there and be cautious with the cost, knowing that always comes back. We are just being aware of the cyclicality of the industry. The third question was again?
No, it was not the third question, related to that, should we expect increased CapEx levels due to the optimization of manufacturing footprint, automation, and so on? Should we just follow the Q1 level, or how should we see that?
Well, I think that the depreciation rate is pretty much where you should take your guidance from the group. I think that's where we are. Of course, to automate one particular industry or one particular segment doesn't cost SEK 100 million. I don't think that we can foresee a dramatic jump, but just stick to the depreciation rate.
Over the last years, we've actually been slightly below that for many years, but just slightly, and now we will be around it. There are no dramatic changes.
Okay. One more, if I may. Given the consolidation of Rhoss during the quarter, with pretty low margins compared to the segments. Climate Solutions reported a pretty good EBIT margin. What was behind the improvement year-over-year? Have you seen improvements from the acquired units such as CCG and Enertech? Have you been able to turn them around?
Well, I think that without giving you exactly the figures, we typically give, as Hans, I think, suggested, 18-24 months is typically what we find reasonable to bring it up to around the 10% margin area. When we acquired Enertech that we got on board, they are there now. That is not sufficient if you think that the rolling, of course, margin is rather 13, between 13 and 14, that is still a 5. Same thing with CCG. Of course, that's immediate target they get. Not necessarily do they always arrive at 15 or 20, but 10, that's just like relevant stoves. That's where you have to arrive after a decent period. Now ROS has been given that precise target. We have a new management on board, a very experienced fellow that is from the industry, and he's gathering a good team around him.
We feel fairly comfortable that we're going to fix that, but not in a quarter. Our experience is now the last six or seven years, the large acquisitions takes 18-24 months. Be very disappointed if we wouldn't arrive there in two years.
Okay. Thank you.
Our next question comes from the line of Douglas Ligo from Kepler Cheuvreux. Please go ahead. Your line is now open.
Hello, Erik, Hans. I have two questions from my side.
Yes. I can take both.
If you were to break down the drivers behind the organic growth in NIBE Climate Solutions for Europe, what degree of the organic growth we see now would come from new building construction, and what would come from change or phasing out of current installed fossil heating equipment and replacing this with heat pumps, would you say?
I'd say the major drive is now that you are replacing older equipment, also that countries are going through a different period when they are more organized in changing older equipment on the fossil fuel side, rather relying on new build, because they're going to take forever. It's no secret that the industry in Sweden, for instance, new build is slowing down. We always been forecasting the last year in similar information situations like this, and we believe that the refurbishment or the changeover from one system to another is going to be the main driver. I think that's the answer to the first question.
Yeah. Okay. Thank you. You mentioned now that you're starting to roll out new heat pump products. Can you comment on the gross margin levels here compared to previous levels in the short term and in the longer term, how we should think about this?
Would you like to have a forecast precise at the quarter or just the week?
No. Will there be material impact, basically?
No, I'm sure. Of course. No, the new generation they're going to roll out here during the end of this quarter and onwards, country by country. That's, of course, an assortment that they view very positively. I guess some of you might have been down in Germany earlier this year to look at the S-Series, where we now have full connectivity. I think that is something that the customer's been asking for. There's also, of course, the facelift design-wise. The connectivity side of it is, I think, extraordinary, and that is, by far, as we can judge now, exceeding the industry standards. We are looking forward to that very positively. When we launch new products in general, we always try for them to come out with at least the same margin as the previous level, and perhaps even better.
You also have to take into consideration when you launch a new product, of course, it takes a few quarters before you really have streamlined everything. Even if a margin is thought to be slightly higher, the present models, of course, they have a margin that we've been polishing. In comes a new generation. I think that we shouldn't expect too much of a change with that said.
Okay. That's very clear. Final question from my side, I wanted to see if you've done any price adjustments for the Climate Solution business area in the quarter.
I think it was a smaller one at the very beginning of the year.
Thank you very much.
All right.
Our next question comes from the line of Max Fröjdén from Danske Bank. Go ahead. Your line is now open.
Thank you. I have a question more long-term on NIBE Climate Solutions and Nibe's commercial offering. You now have ROS on board. You have Climate Control Group in the U.S. You have the smaller company, ARIA. You have some commercial exposure, ARIA, if I'm not mistaken.
Going forward, you still need to do a larger M&A deal in order to get the footprint necessary to get to your targets?
Well, of course, we'd like to be larger, it's always a matter of being civilized or being a bit cool, if I may use that expression. It's like, no, I'm cool now. If you're stressed, we are in a good position in a way that we have a sufficient amount of cash to carry out a large acquisition. I think that should be monitored also by knowing that we are entering a new segment. Of course, we like to see that we have now achieved what we aimed at achieving when it comes to margins and market penetration. We know once we acquire a larger chunk, we shouldn't find too many surprises. I think that we are not stressed in a sense.
Of course, there are some targets out there that we would love to have on board, it takes two to tango, as we say now in market and the movie. I think that all in all, we are very much geared up to an acquisition, we are not stressed. We're going to do it correctly. We have the greatest respect for changing our company, also being commercial. We see how many years it's taken us to go fully residential as we are now and rolling that out, we know that we need further acquisition. Perhaps it is more like two or three half-sized ones rather than a gigantic one to get the right geographical presence, to get the right setup product-wise, and also to reduce the risk, quite frankly, if something would go wrong.
If you buy a large chunk in an area where we're relatively new in, of course, you would increase the risk. I think you would find all the facets of the need, this personality in the future growth here.
Sounds sensible. Just given the recent deals you have done, I presume you have started to address the commercial customer base maybe a little bit differently. If so, how is the response?
Hello? Something happened to the line there.
Can you hear me?
Now we hear you again.
Can you hear me again? Yeah, I was just wondering, since you had Ross on board for a while now, even if it's a bigger company, and the commercial exposure you already have in the several of your underlying companies. Just maybe talk about the organic growth opportunities, because I assume you have a different way to market compared to your traditional residential offering. You must address the commercial customer base differently.
Yeah.
Following that, how is the response?
Well, I think that when we acquire a company, typically on the residential side or in any segment, we pay such attention to the management being the right, and we see what have they done in the past, do they match our personalities and stuff like that. Once we feel comfortable there, then we go ahead. On the Ross side, why we hesitated was of course, partly their development or their margin, but also that the management, without being too brutal, they were more administrative rather than commercial. Now having brought the new management on board, now we dare to start to consolidate. Now we started the race, you can say. It's only one quarter into the business, but the livelihood, the vigilance of course is totally different with these new people on board.
I don't like to bad-mouth anyone, but it wasn't as strong nearly as we have now.
Right. It's not organizationally set up a commercial business unit or anything like that as yet.
Yeah, that's correct. The people in Rhoss, of course, they are totally geared towards this. It is very different from selling residentially in Italy and Southern Europe as it is here. That is not a wholesale business. That's a project-oriented business with something you have to be established in the consultant phases, in the building industry. That's something you have to have people doing that are familiar with that.
The last one. Thank you for the answers. On Element, if you look at your exposure and market, looks like it's declining quite a lot actually. You seem to be defying that market growth. You talk about other areas, such as rail, aerospace, etcetera. Is this the reason why, that you're growing in new markets for you?
I don't know whether I fully understood the question. Sometimes, we are very strong on rail, like gear or heating the switches on railroads. For some reason, the maintenance has been very low in the three or four countries where we typically would see a totally different demand. We don't believe that is a coordinated action. We believe that is more or less a coincidence because at the same time, every politician in the world. Or at least in Europe, they talk about the importance of railroads. I think the slackening there is more of a coincidence, whether that is a quarter or two, that is going to come back. If that was the answer to one of your questions, of course we have to increase where we are successful.
There, there is no secret that, of course, on the climate solution side, not selling to NIBE Climate Solutions, but in that area and also the sustainability side. There, of course, we have to hire more people. We have to be more active to follow the demand, because now we see that the potential demand is very, very great, and we have to follow that. At the same time, defending those segments that are slightly weaker right now, because also the wide sector, if you take that as a total market. Customers in Europe and all over the world, they have been frightened for a year now, when we talk about rate increases, and now we are facing a downturning economy. Politicians and forecasters have been crying wolf for a year. Of course, it is no wonder that people are worried.
Now when Fed came out and said, "Well, perhaps we should not increase interest rates so much." We hope that, and we also feel that customers say, "Well, perhaps I dare to buy my house or dare to buy my dishwasher." I think that the ones crying wolf, they are also to be blamed for the negativism that has been around in the world. I don't know whether I have answered some of your questions. It was philosophizing.
No, not really. The question was actually, you talked about declining markets throughout your statement, if you look at the automotive white goods, which is the majority of your sales, that is down. If I adjust for currency, you seem to grow roughly 8% organically. I am just trying to understand where-
Okay. I think that you have misread, or we have to rewrite the report. We are not saying that all segments are declining. We are saying that the automotive industry is standing in front of a transition from a traditional automotive industry into electric and hybrids. There we see hesitation from the customer's point of view, what am I going to invest in? Is it a hybrid? Is it electric vehicle, or is it like a fuel cell car? When it comes to that segment, of course, as we mentioned several times, when you walk into that market area, the market is phenomenal because you have cameras and sensors that have to be heated. I don't think the report should be read as saying now the world is crumbling, but we shouldn't, at the same time, give too much of a rosy picture.
Of course, the segments that we've been mentioning here, they've had a weaker or flatter demand, but it's not saying that now the world is falling apart.
I think the reason for us experiencing a downturn in the semiconductor industry is that we are in it now. It's a very interesting industry for us. A year, two, a year and a half ago, we were not even in there. I mean, there's a tremendous potential going forward as well. Fluctuations occur.
I won't take up more of your time. Thank you for answering my questions.
Okay.
Our next question comes from the line of Klas Bergelind from SEB. Please go ahead. Your line is now open.
Yeah. Hi, Jesper and Hans. Thank you for taking my question. I have sort of a follow-up question on Max's previous question. You talked a bit about the demand for commercial property heating, that is increasing in Europe and U.S. in the report, and I guess this is in part what's driving your growth right now. Could you explain a bit how much this affects you? I mean, how much is commercial out of total NIBE Climate Solutions right now? I didn't really catch if you answered that before.
Well, I think that if you look at it, we don't give those figures, but I mean, the ARIA, when we acquired that's less than SEK 50 million. Then, of course, Rhoss S.p.A. is no secret that they are around SEK 770 million when we acquired the company. That makes it like SEK 750. Then, of course, in the Climate Control Group, I don't know where we have it divided. That's another chunk of some GBP 2.5 billion and the majority are more than 50%. Of course, out of NIBE Climate Solutions rolling turnover some SEK 16 billion, you'd say that it's more than 10% already, but it's not like 30%. Just as a rough figure.
The 7% organic growth is on NIBE Climate Solutions was specifically commercial, or sorry, residential heat pumps, both in the Nordic and U.S. Is that correct?
No, I think that I don't know whether we heard that we had a 7% organic growth. I think that we all in all had.
I mean, excluding currency, of course.
Yeah. Well, I understand it's slightly more than that, no, I think that it's the overall growth. It's not that the commercial is slackening, but since we are so much exposed to the residential side, and there the change is very obvious. There, the private individual decides they're going to go for a more sustainable solution. That is growing quicker, but I also see a growth in the commercial one. Perhaps you should ring here on that and report. I don't know. There's no contraction.
Thank you. I have a question about another thing that you wrote in the report, that efficiency measures you're taking in time you're taking out some costs there. Is this already helping the margin in Q1 or will the savings increase throughout the year and could you say something about how much you expected to save from this?
Well, there's no secret that we have an engineering team that we send out to newly acquired companies and also in companies that we like to see the efficiency increasing. That's typically a process that takes anything from six months to 18 months to see the result of such a thing. It's a very obvious first phase where you sort of take the planer of a larger caliber and take something out, and then you have a more like a sandpaper period when you file it off to a very nice shape. I think that's the time span that you will see when you talk about that. It's no secret that we try to utilize time to a maximum. We pay, in most countries, eight hours, and we like to get work out of those eight hours all the time.
It's not always that you have to work so much harder every hour, but you have to work those hours. I think that's a Western world phenomenon. It's a world phenomenon, that we do not work our eight hours. I don't think that's any criteria for us or symbol for us. I think it's the same thing all over the world. We're using that little thing, that we have to have, and we are so addicted to the telephone, and that's no different from an office in a workplace. We try to get people to work eight hours. If they like to smoke, they have to punch out. If they like to use the telephone, they should do that on a different time of the day, or they have to punch their card and talk, and then they come back again. That's what we call efficiency.
It's old-fashioned, you might say, but I think that for the Western world to survive, I sound now philosophical again. I think we have to go back to the old way of working full time, not being paid full time and working half time. I think that's the wrong avenue. That's where we work with mean with efficiency.
All right. Thank you so much for that. Then, just a last question on elements, because there's been quite a lot of questions on that. You mentioned that you're seeing some increased uncertainty among global customers, and we've talked about the semiconductor industry, we've talked about the auto industry. Looking at your organic growth, we don't see any weakness yet. All of this weakness we're talking about, is this going to come in the second quarter? Or when are we going to see that?
No, what we say is that demand has not been so favorable. Let's say that we continue to grow in the segment that has a relatively weaker demand. Of course, we see some flatter demand in the segment that has a better margin, of course. Let's say, talk about railroads, where we have a very good grip, and where we have a decent margin. Of course, if that is contracting or flattening out, that is hurting the margin without sales being dramatically down, because you grow in a segment that has a lesser margin. I answered a question previously, said, okay, heat pumps coming from the same manufacturer, like Nibe, in that particular case, of course, we try to have the same margin. Here we talk about different companies.
One company supplying, let's say, switch heaters coming from one company, and another company in another country might be in another continent supplying components. The demand is pretty good, but they have a totally different margin set up. That answers the question that of the Element 50 companies, of course, you see a summary when you look at the 10% or 11% margin that we've had the last years. Within that group of companies, of course, we have varying margins. There is not one company that would have exactly the same. They're striving for the 10, but some have not quite arrived there, and some that have far exceeded that. If the demand starts to move in between them, although the overall revenue has been up, that is affecting the margin. That's the math behind that.
All right. Okay. To sum it up, we're going to see continued growth ahead likely, and that the margin is still going to be a bit.
Well, it's not the target to have lower margin.
All right. Thank you so much for taking my question.
Absolutely.
Our next question comes from the line of Marcela Klang from Handelsbanken. Go ahead, your line is now open.
Thank you so much. Many questions have been answered, but I have two more.
Yes, sir.
One, you mentioned obviously the wage inflation and the raw material prices causing problems. Do you expect further issues with this in the coming quarters? Or have the raw material prices stabilized for you? Is there any room for increasing your prices more following the small increase at the beginning of the year?
Okay. I'll try to sort that out. When it comes to raw material prices, I think that we've seen some, they're dangerous to say that, but some stabilization, I guess, we dare to say. When it comes to direct labor, we don't know. It's politically driven, of course, when they now have increased salary levels, let's say, in Czech Republic 15%, we don't know what that means for the coming years. We also know in Mexico, it's a political decision, the same thing in Poland. We have to live with that. We have to combat that with the reactions that we have given and also other companies that are active. I think it might be difficult for politicians to drive those issues so much harder in the future, because I think that might cause the transfer of industries to other countries.
I think they're also sensitive for that. I can only guess in that regard. I don't know whether I answered your two questions there.
Any room for more price increases towards your customers?
Well, I think that we're always cautious with price increases, as we've said in the past. I think that we have to also to hammer back on our suppliers have been giving us, in some instances, we think unfair increases. We also have to protect our customers or end customers so we don't become ridiculous as far as having too high of a price on our products. It could also be a hindrance for the growth. It's a delicate balance. We don't have any immediate thoughts of that, but rather combating it with the measurements that we've explained earlier.
I understand. The final question from me, you mentioned conversion to more environmentally friendly refrigerants. I know that Systemair is cooperating with Panasonic on developing something new.
Are you also developing your own refrigerants, or are you basically testing which refrigerants you could switch to with your products, or how are you working with this issue?
We are too small to produce our own chemical composition. That's far beyond our size. We try to be independent when it comes to refrigerants. There's several out there, and of course, the ultimate target that we are working towards would be to use propane or the R290 as it's identified chemically. Of course, it has a drawback being flammable, but it has very good characteristics, both for heating, cooling, and producing tap water, and also a very low GWP, the global warming potential factor. I think that's what we are striving for rather than, again, being dependent on chemical companies, if I may say. Today, all refrigerants, they are produced by large chemical giants, I dare to say. We try to, propane, it's something that's really easy to produce and easy to handle other than the flammable thing.
That's our target to arrive there.
This switch towards more environmentally friendly refrigerants. Does it also mean that you need to choose more expensive refrigerants? Does this mean increasing raw material prices for you?
Typically, without being too technical, it's pretty much a matter of oil that is sustainable when it comes to protecting the ball bearings and the moving parts in the compressor from wear and tear. We have very good experience with propane now, technically, again. We've been using that in some of our heat pumps for 20 years. We had some initial issues, but they are cured, and we are very satisfied with that. It's more on the flammable side where we had issues, when the authorities are saying, "Well, you can only use so many grams per unit," which we think is ridiculous considering that natural gas is pumped into most of the houses in Europe in cubic meters.
They're trying to limit the usage per unit to 150 grams when it comes to propane. Something is rotten in Denmark, as Hamlet would have said. Okay?
Yes. Thank you so much for your answers.
Thank you.
Our next question comes from the line of Karl Bokvist from ABG Sundal Collier. Please go ahead. Your line is now open.
Hi, thank you for taking my questions. I have two very quick questions. Do you see any risk with the increasing tariffs? I apologize if you mentioned it in the beginning of the presentation.
A risk of what?
Increased tariffs.
Tariffs.
Yes, tariffs.
Okay. Well, it's hard to predict, and I guess that I try not to be political about that. But the whole idea of Nibe's set up is not to be dependent on one production site and on one currency. So we feel that we have spread ourselves to our abilities far as we possibly could have. Because we have our facilities in Europe, naturally, some core components will come from other continents. We produce, of course, in North America. We produce on the element side in Asia. If it comes to a standstill, it's just like electricity being cut off, of course, you can foresee the consequences.
I'd say that we're fairly well equipped when it comes to combating currencies and production difficulties by being so fragmented, if I may use that word, or dispersed all over Europe and North America, and also Asia when it comes to Element.
The final one from here. We talked about acquisitions earlier. I'm more interested in from a regional point of view. Where do you see the most attractive acquisitions as of now throughout the world?
I think that we don't look at it like that because it isn't that we've come to a point now where we are almost out of possibilities. I think it should be viewed from the other side. We are such a small player still, and the world is going through such a phenomenal change. I think we've never seen more possibilities than we see now due to the change and the sustainability thinking all over the world. You don't have to be a fundamentalist to notice this. We just have to spend our money wisely. If it's an acquisition popping up in Sweden, fine. If it's one in Spain, good. America, Asia, and within the three business areas. I think it's rather difficult to say, well, now we have to be cautious because otherwise we will spend too much. The acquisitions are there.
They just have to be the right ones philosophy-wise. They have to be, of course, fulfilling one of our three criteria: geography, products, and also production efficiency. Those are the three. We have not restricted ourselves, saying, now we're going to invest in Austria or in Italy or in Canada. We're very open to that. The opportunities are just phenomenal, and you shouldn't abuse words. What we see today, compared to what we saw 25, 30 years ago, the world is changing phenomenally fast now, and we just have to be part of that. Just looking at our connectivity products coming out with the heat pumps now. Look at that product compared to what we had just 15 years ago. We are now part of the smart society. When you have that attitude, the sky's the limit.
I hope I don't promise too much, that's how we feel here in Markaryd. I hope that wasn't too much of a political answer, we also apologize that we have no time for any further questions. I don't know whether that is impolite to say that.
Thank you very much.
Thank you.
All right. Thank you for all your questions then. I hope that it hasn't been too much hide and seek. We try to be transparent, as transparent as possible. Sometimes we cannot, for political reasons, answer everything, we hope that we've given you some guidance. Thank you.
Thank you. This now concludes our presentation. Thank you all for attending. You may now disconnect.