Earnings Call: Q1 2019

May 14, 2019

Quarterly report

Ladies and gentlemen, welcome to the Geneva Q1 Results Presentation. Today, I'm pleased to present Guthrie Lindqvist, CEO and Hans Backman, CFO. Mr. Lindqvist and Mr. Backman, please begin. Thank you. Thank you very much. Good morning to all of you out there. And this particular report is of a certain caliber when it comes to us because today we also had the annual shareholders meeting. So what they presented this morning is also of course to be presented later on at 5 o'clock. And we also have a Board meeting here. So with that said, we believe that we have to finalize this call prior to 12 or slightly prior to 12. But we hope that, that shouldn't take away the quality by any means. And if I start as we usually organize at Hans and I, 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 held by the weak Swedish are proud. That's no secret. But the organic growth is very substantial. So we are happy with that. And the operating result has, of course, also grown in conjunction with the growth and the operating margin is slightly lower due to the slightly lower operating margin in Element and Stoves. When it comes to acquisitions, we don't have anything to report really, but as you and I, we have many discussions ongoing. Unlike the past, we have actually just recently started a divestment process of Schulte machine in RGN in Switzerland. And of course, that is something that doesn't occur that often in our camp, let's just say. The only time we sold the company previously is to 1992 when we sold a small subsidiary in France, And we sort of regret that today. Shortest, of course, was never a core business within the NIIPA Group. However, we always committed ourselves to being a good owner and investing fully. And 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. And 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 Helvet to get 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%. And we believe that that is corresponding fairly well to what we preach that you should always be a serious long term owner. And 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. But eventually, when time is there, you should be ready to divest it in an organized fashion. And 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, but there would be also an important merit of the ownership that the management is a substantial part of the future ownership. So that's on the debt side. If you just look at the figures, of course, they are pretty much corresponding what I said initially with 18.5% growth and the acquired growth coming primarily from, of course, some acquisitions last year, Ross, for instance, and also some on the element side, is only 5% or a bit better. And of the remaining 13%, of course, the majority is still organic growth, but it's a substantial part of the organic growth, is currency. And as you know, we do not necessarily describe that in detail how much is currency, how much is organic growth for the KUKAIM because we also know that there comes will come days when they're going to go the other way. And we just had to combat any condition. Now it's favorable. It might be days coming, but it's less favorable. But we as a management have to live up to your expectations, our shareholders' expectation, disregarding. So the operating margin is, of course, substantially higher, almost 16%, Again, 2 percentage units 2.2 percentage units lesser than last year. Again, because of the element and stoves having a slightly lower margin perspective. And just look at the traditional graphs that we took a look at when it comes to sales and when it comes to profit after financial items, they follow the same pattern with the 1st quarter being typically the weakest, following by 2 fairly decent and then Q4 being predominantly the strongest one. So nothing has happened in our gives that profile as far as sales. Same thing with earnings, that's the strongest one is naturally on the Q4. In the Q1, we typically have somewhere around 20%, 21% if you look at it historically. It follows a very good trend. Swinging over then to climate solution. Of course, we said before that it's privileged to be in a sustainability sector where heat pumps, of course, are valued very highly now among customers. And nothing or 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 sound that. We believe that Climate Solutions are coming up with some viable solutions to that. And that's representative of the growth here. That is substantial. And we also believe that we should be able, over the years to come to bring the same message forward when it comes to commercial buildings, not only like individual villas and smaller apartments. And that's why we acquired ROSS prior to anticipated date really, the remaining 55% early this year. And 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 net operating result naturally. Swing over very quickly then to the result as such, we see that we are now about SEK 3,500,000,000 just for the Q1. 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 had typically the weakest demand. So of course, if everything materializes, we hope, we have to look forward to even better quarters. Need elements, also good organic growth. But there we've you see in our report that on the sustainability side and on the climate solution side, we have substantial positive outlooks. Then when it comes to the whiteboards, for instance, and also the semiconductor industry, it's of a lesser magnitude. And that has, of course, influenced our operating margin. And also to that has contributed the relatively high labor cost increases in what we called we used to call across countries. I think that we have to rename that very soon because not so low cost anymore. But underlying is, of course, positivism when it comes to our assortment following the trend in the market being pretty much very much sustainable in all segments. When it comes to cranes, automotive industry, wind power, commercial vehicles, Everything is pointed in a sustainable direction, and we feel that we are very well positioned when it comes to that development. So I don't think that we should take this as a trend when it comes to the slightly weaker margin. And 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 chain operating margin or I mean here we talk about a percentage, 1 percentage unit and of course we are not totally satisfied with that, but that's the market conditions presently. We are well positioned with our assortment geographically. So it's just that some segments have been a little bit weaker and we just have to continue to combat that. With other segments, there are more, of course, profitable, hopefully. But it's difficult for instruments in the semiconductor industry to combat. That's a relatively decent margin in that segment, and we all know that has been weak now for some 3 quarters. Swinging over then to Stokes, 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, they had just much severe winter than we had. And 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. And 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 and 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, but of course the operating margin is slightly below last year, more or less based on the same level. And if we just do a few comparisons to the cost, 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 thermal solution being steadily above the 60% and the 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 Climate Solutions and Element now down at 27% and sales on 8%. Geographically, we pretty much keep the same distribution as before, but the time is very healthy, with the Nordics now being sort of a quarter of our total gross revenue and sales, Rest of Europe, 40% and North America, almost 30% and then 5% outside these core markets. And that is, of course, element probably predominant in the Asian markets where they are more present than the other 2 business units. So I think that's a very quick summary of the Q1. And I think I hand over to Hans for more perhaps precise presentations of figures. And then of course, we are open for all sorts of questions after that. We shouldn't drag on too much, I guess. So thank you very much. Thank you, Erik. All right. So before jumping into the individual business areas, I would just like to comment upon the IFRS effects as well as the effect of the Schultes Group then being partly divested. And I mean, 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. I mean, 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. And of course, you have the corresponding liability as well. So the interests have, of course, increased. And instead, the rent cost has been taken out. So the EBITDA, which is not displayed here, is, of course, slightly better. But the net effect on operating profit is like SEK 6,000,000 in the Q1. And on results after financial net, it's basically a zero sum gain. So the margin has just moved by 0.1 on units. And on the balance sheet, I mean that has, of course, been increased by some €800,000,000 which is fairly limited given the size of our balance sheet today. And then just to clarify maybe or just make that clear that the effect of our transaction with the Schutels Group does not have any major impact at all at this point in time on neither our income statement nor balance sheet. And 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. So there's no profit or a gain like that being recorded at this point in time. And 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 is no real effect after this transaction. A minority will, of course, be exactly 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. And if we move on to the business areas, Climate Solutions. As Erik 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. And then we've taken on board ROS, as mentioned in the report, which gives us the full flexibility, you can say, to develop our business in our own hands, being the majority owner. And 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 some 18 to 24 months. All in all, Climate Solutions has grown with slightly more than 20%, almost 7% coming from acquisitions and then the remaining chunk organic with a large portion of currency. But the organic part is the major contributor to the growth, which is very pleasing to see. And the 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. And then 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. But if you would take out the corresponding pie chart from last year, sales in Europe would represent some 38%. They have now increased to 41%. So growing slightly more than both Nordics and North America, although both of them also have developed quite well. If we head on to elements, it's also been a good organic growth, up some 15%. So we have passed the SEK1.7 billion in sales, a fairly small portion coming from acquisitions right there. And then 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. Of course, 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. And we've seen a fluctuation in the demand per segment. So the product mix has been changed, which then 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 Cooks 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. So it's a lot of change going on. But then also many interesting segments, and Eric mentioned them before. But I think what we can see there is that the world is becoming more and more electric. So it's a very interesting business to continue to develop, of course. From a geographical standpoint, it is very stable compared to previous quarters with Nordic being roughly 20%, Europe slightly more than 3rd North America, still being the largest and then also compared to the other business areas with a pretty large chunk of business in Asia, in also in Australia and that part of the world. So it's very, very good spread across the globe. Last but not least, we have our Stokes business area. It's I think Eric said it was a decent performance. I would say it's actually very stable. It is in a way a sideways move, but it's very stable developing or being very stable and developing, as we have seen over the last quarters. The latest focus on R and D and marketing has led us to coming slightly below on the operating margin, but we're hovering around the same level as last year. And really, Q1 and Q2 here are the ones where we used to be around 3%, 3%, 4% in operating margin. Now we're up to 8% percent because everything basically happens in the latter part of the year. From a geographical standpoint, it's North America, 21%, thanks to FTI in Canada serving both Canada and North America or the U. S. Nordics, a third and then Europe, the rest. Moving then 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's where we have activated our rental agreements, so to speak, of some SEK 800,000,000. And then, of course, ROS came on board, which also has had a small impact. And on the non financial current assets, you see an increase there due to receivables and inventory. Coming from December 31, we are again now approaching a growth area where we are producing more for the seasons to come. On the liability side, it's the long term liabilities, the interest bearing ones and the short term interest bearing ones that correspond to the leaseholds from the other page. I mean, they have to be split up, of course, depending on how long the contract lasts. So that's 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's slightly less than SEK60 1,000,000, which then is taken out again on the financing activities the way IFRS 16 has been introduced. Apart from that, we've generated a very good cash flow for the Q1 some SEK800 1,000,000, up from SEK492 1,000,000 of last year. We've had a slightly less negative effect from changing working capital. We built much more last year, you can say. We've still been building this year, as I just mentioned, but not quite as much. And then we've continued to invest in our current operations in expanding our business. So all in all, we've had a very good operating cash flow, I would say, and in line or even slightly below our depreciation still. And just looking at some key financial numbers, they are of course also influenced by IFRS 16, not the first one being the investments there, which are seemingly much lower than the ones last year. And that's, of course, related to that. Last year, they included the acquisitions that Eric mentioned initially, especially within the elements business area where Chris Key and Hemmer Heating and those were acquired. But 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 interest bearing liabilities, they would have been 57. So 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 sits 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. And then a very last number, so we open up for some questions as well. Return on capital employed, 12% return on equity, 13.6 percent, unchanged due to the IFRS effect. Net profit per share up from 0.67 percent will, for the full year, be slightly influenced by the Manawari fee share being deducted then for the Schultes business, but that's like a percentage 0.5 percent as we estimated 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 walk through of the numbers, both balance sheet and the business areas. Let's see how clear we've been. Exactly. All right. So, thanks, Laurence. I think we open up for questions then. We now have our first question from Carl Rehnstein from Nordea. Please go ahead. Your line is now open. Hi, it's Karl Johan Stavanno here. I have a few questions, but could you please first talk about the wage inflation situation? And then what you're doing to offset it, especially within the element segment? And 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? With the wage, if I understood the question, there was the wage situation in the Exactly. Well, I mean, 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 by robotizing, automating processes. And if that isn't sufficient, then of course, we would have to transfer certain segments that we've been doing in the past. But of course, when you have 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. So I think that was answered to your first question. And if you don't mind, what was the second and third E and L? E and L? Yes. This is regarding the semiconductor industry. Yes. The semiconductor industry, well What we can expect going into Q2 if you have seen the improvements the quarter? Well, I mean 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. And we've been, of course, more active looking into the market now. And we were totally aware of the cost of establishing a new factory is around US11 $1,000,000,000 And 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. So there, I think we just have to follow suit. We can 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 subsupply to subsupply. We don't of course, we are supplying the machinery companies in this industry. So I guess we just have to follow suit here and then be cautious with the cost knowing that, that always comes back. We are just being aware of this cyclicality of the industry. And the third question was again No, it was not the 3rd question, but related to that, should we expect increased CapEx levels due to the optimization of manufacturing footprint automation and so on? Or 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, one particular segment doesn't cost €100,000,000 Of course, it's because there are costs there. But I don't think that we can foresee a dramatic jump. But just speak to the depreciation rate. Over the last years, we've actually been slightly low that for many years, but just slightly. And now we will be around it. So there are no dramatic changes. Okay. And one more, if I may. Given the consolidation of ROS during the quarter, with pretty low margin compared to the segments, I mean, Carbon Solutions for parts are pretty good EBIT margin. What was behind the improvement year over year? And have you seen or have you seen improvements from the acquired units such as CCG and Enertec? 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 a 10% margin area. So when we expect Enatec 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% 14%, so that is LSI. Same thing with CCG. Of course, that's an immediate target they get. Not necessarily would always arrive at 15 or 20, but 10, that's just like relevant stores, that's where you have to arrive after a decent period. So now Ross has been given that precise target. We have a new management on board, a very experienced fellow that is from the industry, and he is gathering a good team around him. So we feel fairly comfortable that we're going to fix that, but not in a quarter. Our experience is now over the last 6 or 7 years, the large acquisitions takes 18 to 24 months. We'll be very disappointed if we wouldn't arrive there in 2 years. Okay. Thank you. Our next question comes from the line of Douglas Tsimbo from Kepler Cheuvreux. Please go ahead. Your line is now open. Hello, Eric. I have 3 questions from my side. If you were to break down the drivers behind the organic growth in the Diamond Solutions for Europe, What degree of the organic growth we see now would come from building construction? And what would come from change or phasing out burn installed full size 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 and also that countries are going through a different period when they are more organized in changing old equipment on the fossil fuel side rather relying on new bins because they're going to take forever. I mean it's no secret that the industry in Sweden, for instance, newbuild is slowing down. But we have 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. So I think that's the question that's the answer to the first question. Yes. Okay. Thank you. And you mentioned now that you're starting to roll out new heat pump products. Can you comment on the gross margin levels compared to previous levels in the short term and in the longer term? How we should think about this? Will I have a forecast precisely for quarter or just No. Will there be material impact basically? No, I'm sorry. Of course. So the new generation, they're going to And that's, of course, an assortment that we view very, very positively. And I guess some of you might have been down in Germany early this year to look at the S Series where we are now fully we have full connectivity. And I think that's something that the customers have been asking for. And there's also, of course, a facelift design wise. But the connectivity side of it is, I think, extraordinary. And that is, by far, as we can judge now, exceeding the industry standards. So we are looking forward to that very positively. When we launch new products in general, we always try to for them to come out with at least the same margin as the previous level and perhaps even better. But 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. So even if a margin is thought to be slightly higher, the present models, of course, they have a margin that we've been polishing and polishing and polishing and in comes a new generation. So I think that we shouldn't expect too much of a change with that set. Okay. That's very clear. So final question from my side. I wanted to see if you've done any price adjustments for the Climate Solutions business area in the quarter? I think it was a smaller one at the beginning of the year. Thank you very much. All right. Our next question comes from the line of Max Seiden from Danske Bank. Go ahead. Your line is now open. Thank you. So I have a question more long term on Climate Solutions and need less commercial offering. You now have ROS on board. You have China Control Group in the U. S. You have a smaller company, Airside. You have some commercial exposure out to imitate, if I'm not mistaken. So going forward, you still need to do a larger M and A deal in order to get the footprint necessary to get your targets? Well, of course, we'd like to be larger, but it's always a matter of being civilized or being a little bit cool, if I may use that expression. It's like, I'm cool. But if you're stressed, I mean, we are very we are in a good position anyway 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. So we know once we acquire a larger chunk, we shouldn't find too many surprises. So I think that we are not stressed in the sense. Of course, there are some targets out there that we would love to have on board, but it takes 2 to tango, as we say now in Marcheline, the movie. So I think that's all in all, we are very much geared up to an acquisition, but they are not stressed. We are 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. And we know that we need further acquisitions. Perhaps it is more like the 2 or 3 half size 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, large chunk in an area where we are relatively new in, of course, you will increase the risk. So I think you will find all the facets of NISBRA's personality in the future growth here. Sounds sensible. And just given the recent deals you have done, I presume you have started to address the commercial customer base maybe a little bit differently. And 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? Yes. I was just wondering, you had ROS on board for a while now even though it's a big company and you've been the commercial exposure you already have in several of your underlying companies. So just maybe talk about the organic growth opportunity I assume you have a different way to market compared to your traditional residential offering, so you must address the commercial customers differently. And following that, how is the response? Well, I think that when we acquire a company, either on the residential side or in any segment, we pay such an attention to the management being the right. And we see what have we done in the past, do they match our personalities and stuff like that. And once we feel comfortable there, then we go ahead. On the ROS side, why we're hesitating was, of course, partly the development of their margin, but also that the management without being too brutal, I'd say they were more administrative rather than commercial. And now having brought the new management on board, now we dare to consult start to consolidate. Now we have now we started to raise, you can say. So I mean, it's only 1 quarter into the business, but the livelihood, the vigorance, of course, is totally different with these new people on board without, I don't like to bad mouth anyone, but it wasn't as strong nearly as we have now. All right. So it's not organizationally set up a commercial business unit or anything like that? Yes. That's correct. I mean that is the people in Roche, of course, they are totally geared towards this. And it is very different from selling it 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 basis and the building industry. And that's something you have to have people doing that that are familiar with that. And the last one on Element and thank you for the answers. But on Element, if you look at your majority of your exposure and your end market, it looks like it's declining quite a lot actually. And you seem to be defining that market growth. And you talked about other areas such as rail, aerospace, etcetera. Is this the reason why you're growing in new markets for you? I don't know whether I fully understood the question. Sometimes, like we are very strong on rail like gear or heating the switches and on railroads. And for some reason, the maintenance, and on railroads. And for some reason, the maintenance has been very low in 3 or 4 countries where we typically would see a totally different demand. And we don't believe that's a coordinated action. We believe that 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. So I think the slackening there is more of a coincidence whether that's a quarter or 2, that they're going to come back. If that was the answer to one of your questions, then of course we have to increase where we are successful. And there is no secret that, of course, on the Climate Solutions side, not selling to NIVE 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. But at the same time defending those segments like weaker right now because also the white glove sector, we take that as a total market. I mean customers in Europe and all over the world, they've been frightened for a year now. We're talking about rate increases and now we are facing a downturn in the economy. Politicians and forecasters have been crying wolf for a year. Of course, there's no wonder that people are worried. And then now when Fed came out and said, well, perhaps you shouldn't increase interest rates so much. We hope that and we also feel that customers say, well, perhaps I dare to buy my house, I dare to buy my dishwasher. So I think that the once crying wolf, they are also to be blamed for the negativism that's been around in the world. I don't know whether I've answered some of your questions. It was philosophizing. No, not really. The question was actually, I mean, you talked about declining markets throughout your statement. And if you look at the automotive white goods, which is the majority of your sales, that's down. And if I adjust for currency, you seem to grow roughly 8% of revenue. I'm just trying to understand. Okay. Well, then I never think that we 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 the transition from a traditional automotive industry into electric and hybrids. And there we see a 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? And 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 we have cameras and sensors that have to be heated. So I don't think the report should be read as I know 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 now or the world is falling apart. And 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 or 2, a year and a half ago, we were not even in there. So I mean, there's a tremendous potential going forward as well. Fluctuations have hurt. I won't take up more time. Thank you for answering my questions, please. Okay. Our next question comes from the line of Clara Johnson from SEK. It's Erik and Hans. Thank you for taking my question. I have sort of a follow-up question on Max's previous question. You talked a little bit about the demand for commercial property hitting 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 Climate Solutions right now? I didn't really catch if you answered that before. Well, I think that if you look at it, we really don't give those figures. But I mean, the air side when we acquired that, it's less than €50,000,000 And therefore, the loss is no secret that they are around $770,000,000 when we acquired a company. So that makes it like $750,000,000 And then of course in the climate control group, I don't know where we have it provided. That's another chunk of some 2,500,000,000 rounds and the majority are more than 50. So of course, out of Climate Solutions rolling turnover of some €16,000,000 you'd say that it's more than 10% already, but it's not like 30%. I think just as a rough figure. So the 7% organic growth is on Climate Solutions was specifically commercial or sorry, residential, it's up both in the Nordic and U. S. If I'm correct? No, I think that I don't know whether we heard that we had a 7% organic growth. I think that all in all had some Excluding currency, of course. Currency. Yes. Well, I understand it's slightly more than that. But no, I think that it's the overall growth that it's not that the commercial is flattening. But since we are so much exposed to the residential side and there the change is very obvious, there the private individual decides I'm going to go for a more sustainable solution. That is lowering quicker, but I also see growth in the commercial one. Perhaps you should ring clear on that and report, I don't know. But that's there's no contraction. Then 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 it helping margin in Q1? Or will it the savings increase throughout the year? And could you say something about how much you expect to save from this? Well, I mean, there's no secret that we have an engineering team that we stand out to newly acquired companies and also in companies that we like to see the efficiency increasing. And that's typically a process that takes anything from 6 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 plainer of a larger caliber and take something out and then you have a more like a sandpaper period when you find it or you file it off to a very nice shape. So I think that's the time span that you will see when we talk about that. It's no secret that we try to utilize time to maximum. We pay in most countries 8 hours. And we like to get work out of those 8 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. And I think that's a Western world phenomenon. It was a world phenomenon. And we do not work our 8 hours. I don't think that's any criteria for us, a 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. So it takes us to the telephone and that's no difference from an office and a workplace. We try to keep people to work 8 hours. If they like to smoke, they have to punch out. If they like to use telephone, they should do that on a different time of the day or they have to publish their card and talk and then they come back again. So that's what we call efficiency. It's old fashioned, you might say, but I think that with the Western world to survive that they're now philosophical again. I think we have to go back to the old way of working full time, not being paid full time, but working half time. I think that's the wrong avenue. So that's where we're working with mean with efficiency. All right. Thank you so much for that. And then just a last question on elements, because there's been quite a lot of questions on that. And I mean, you mentioned that you're seeing some increased uncertainty among global customers. And you could talk about the semiconductor industry, we talked about the auto industry. And then looking at the organic growth, we don't see any weakness yet. So all of this weakness we're talking about is not going to come in the second quarter or when are we going to prove that? No. What we say is that demand has been not has not been so favorable. Let's say that we continue to grow in the segment that has a relatively weak demand. And then of course, we see some flatter demand in the segment and has a better margin. Of course, let's say, like talk about railroads, where we have a very good 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 the segment that has a lesser margin. And I answered the question previously, say, okay, heat pumps coming from the same manufacturer like Ni Bin, that particular case, of course, we try to have the same margin. But here we talk about different companies. 1 company supplying and let's say, switch heaters coming from 1 company and another company in another country might be in other continent supplying components of demand. It's pretty good, but they have a totally different margin setup. So that answers the question that of Element 50 companies, of course, you see a summary when you look at the 10% or 11% margin that we've had the last year. But within that group of companies, of course, we have varying margins. There is not one company that would have exactly the same. We're striving for the 10%, but some that have not quite arrived there and some that have far exceeded that. So if they start if the demand starts to move in between them, although the overall volume revenue has been up. I mean, that is affecting the margin. That's the math behind that. 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 just a target that has lower margin. Our next question comes from the line of Marcela Klein from Handelsbanken. Many questions have been answered, so I have 2 more. One, you mentioned obviously the wage inflation and the raw material prices causing problems. But do you expect further issues with this in the coming quarters? Or have the raw material prices stabilized for you? And is there any room for increasing your prices more following the small increases we're getting on the year? Okay. So try to sort that down. When it comes to raw material prices, I think that we've seen some, I don't know, it's very 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 of 15%. We don't know what that means for the coming years. And we also know in Mexico, it's a political decision, 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 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. So I think they're also sensitive for that. But I can only guess in that regard. So I don't know whether I answered your two questions here. Any room for more price increases towards your customers? Well, I think that we always cautious the price increases, as we've said in the past. I think that we have also to hammer back on our supplies that you're giving us in some instances we think unfair increases. And we also have to protect our customers and 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. So it's a delicate balance. So we don't have any immediate thoughts of that, but rather combating it with the measurements that we've explained earlier today. Understood. And the final question from me. You mentioned conversion to environmentally friendly refrigerants. I know that Systema 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 product? Or how are you working with this issue? No, I mean, we are too small to produce our own chemical composure. So that's far beyond our size. But we try to be independent when it comes to refrigerants. There are several out there. And of course, the ultimate target that we are working towards would be to use cocaine for the RF290 as it's identified chemically. Because that, of course, it has a drawback being frameable, 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. So I think that's what we are striving for rather than again being dependent on chemical companies, if I may say. Because today all refrigerants, they are produced by chemical large chemical giants, I dare to say. And we try to it's something that's really easy to produce and easy to handle if other than the flammable thing. So that's our target to arrive there. This to 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? Well, we do not see 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 and the compressor from wear and tear. And propane, of course, has in the past been known for requiring a certain kind of oil. But we have very good experience with propane now, technically again because 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 when 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. And they're trying to limit the usage per unit to 150 gram when it comes to propane. So something is rotten in Denmark, it's Hamlet, what I said. Okay? Yes. Thank you so much for answers. Thank you. Our next question comes from the line of Karl Bucht from ABC Central Bank. Please go ahead. Your line is now open. Hi. Thank you for taking my questions. I have 2 very quick questions. I mean, do you see any risk with the increasing tariffs? And I apologize if you mentioned it in the beginning of the presentation. It's what? Increased tariffs. Yes. Okay. Okay. Well, I mean, it's hard to predict. And I guess that's I try not to be vertical about that. The whole idea of Liebherr setup is not to be dependent on 1 production side and on 1 currency. So we feel that we have spread ourselves to our abilities as far as we possibly could have because we have our facilities in Europe. Naturally, some coal components will come from other components. We produce, of course, in North America. We produce on the element side in Asia. I mean, if it comes to a standstill, I mean, it's just like electricity being cut off, of course, you can't foresee the consequences. But I'd say that we are fairly well equipped when it comes to combating currency, some 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 LME. Okay. And then the final one for me. We talked about acquisitions earlier, but 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? Well, I think that's we don't look at it like that because they are it isn't that we've come to a point now where we are almost out of the possibilities. I think it should be viewed from the other side. We are such a small place 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. And we just have to spend our money wisely. If it's an acquisition popping up in Sweden, fine. If it's money in Spain, good. America, Asia and within the three business areas. I think we are it's rather difficult to say, well, now we have to be cautious because otherwise you're going to spend too much. The acquisitions are there. It just has to be the right ones philosophy wise. They have to be, of course, fulfilling our 3 or one of our 3 criteria is geography, products and also production efficiency. Those are the 3. We have not restricted ourselves and now we're going to invest in Austria or in Italy or in Canada. They're very open to that. The opportunities are just phenomenal and you shouldn't abuse words. But 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 productivity products coming out where the heat comes now, look at that product compared to what we had just 15 years ago, we are now part of the smart society. And when you have that attitude, the sky is the limit. I hope I don't promise too much, but that's how we feel here in Maricel Rud. I hope that wasn't too much of a political answer, but we also apologize that we have no time for any further questions. I don't know whether that is implied to say that. Thank you very much. Thank you. All right. Thank you for all your questions then. And I hope that it hasn't been too much hide and seek to try to be transparent as transparent as possible. Sometimes we cannot for political reasons on everything, but 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.