Ladies and gentlemen, welcome to the NIBE first six months results presentation. Today, I'm pleased to present Gerteric Lindquist, CEO, and Hans Backman, CFO. Mr. Lindquist and Mr. Backman, please begin.
Thank you. Good morning to all of you out there. Hello, good morning. We're going to have the same procedure as we usually have here, me introducing and then Hans following up. We believe that we should give this an hour, if we are not impolite, because we have other matters to look after as well. If I start, you've seen the headline and the varying demand. Of course, when we say that, it's very important also to understand that the sustainability profile that we have is gaining a very interesting momentum, which we're going to talk about as we go on. At the same time, of course, on the element side, we are exposed to the industry in general, and there we have seen some softer segments. That's why we have also explained that as good as we possibly can.
The operating margin is slightly lower. That's, of course, a reflection of the, particularly the NIBE Element, a bit lesser performance and also the NIBE Stoves. Whereas NIBE Climate Solutions, our largest division, is really charging ahead in a very promising way. During the first six months, we've really gathered our forces around how we're now going to approach the 40 billion target in turnover and how we're really going to use the sustainability wave that we notice all over the world. That's also what you see in our report, that we have gathered our forces, both NIBE Climate Solutions, NIBE Element and on the NIBE Stoves side, to really make everyone fully aware of our targets for this year, naturally, but also the target toward the 40 billion, and that we truly have to live our sustainability message to the market. It's not something that we just have sort of glued on.
It's something that we truly believe in. It's something that we've been preaching for all these years, and we see now an opening in practically all continents, but predominant naturally here in Europe, where we are active, and also North America. The growth has been considerable, stable, of course, a bit lesser during the second quarter, but the group has expanded with almost 16% during the first six months. You can also notice that the first quarter then had 18.5%. Of course, the second quarter was a little bit lesser in growth, which we possibly can just have a very quick look at when we come there. I don't know if Hans going to continue to report on each division, so I don't dwell too much on each of those.
The second quarter, you can see very clearly here, of course, that the growth is around 8%. Now the difference between the currency situation this year and last year is a little bit less favorable than it was in the first quarter. Of course, there's always a gain by currency in the second quarter, but to a lesser degree than it was in the first. In the operating margin, of course, run from 11.8 to 10.8. We would like to see that, of course, stable, but that's how it is when we are exposed to the different segments as we are.
If you just have a quick look at the graphs that we typically follow, we can see that they are fairly consistent when it comes to following our pattern with the first and second quarter being clearly the weaker ones when it comes to turnover or revenue. Then, of course, the third and the fourth are always the strongest ones. The seasonality, we have never gotten rid of that. No matter how we invest and where we are in the world, it seems like the third and the fourth quarter always turn out to be the strongest. That is, of course, reflecting also, or that's being reflected in our results, where you see that three and four always going to represent almost 60% of the year's result and slightly even more some years.
If we just have a quick look at each division, we can say that, of course, Climate Solutions, they are charging ahead, as we indicated from the very beginning. It's very pleasing to see that many countries are now taking that step, allowing renewable energy and climatization, naturally, that we so much have been talking about. We've had a decent development or a good development in North America and Europe and in the Nordics. We've also talked about going into the commercial sector, where we have now Ross on board, and we, of course, have those companies also in North America. Whereas we're still searching for a stronger presence in the northern part of Europe. The operating margin, of course, it's a reflection of a good growth, both on the acquisition side and on the organic side, and also, as always, looking after the productivity.
We can see those figures in summary. Hans is going to come back to those in more detail, where we've had a growth almost 20% combined during the first six months, and the operating margin is up slightly more, like 22%. It's very pleasing to see, and of course, that is driving the whole group. Nevertheless, if we jump over to Element, there we see also that the renewable energy side and sustainability profile is gaining momentum. We talk about wind, we talk about HVAC, where Climate Solutions is positioned naturally. We also see that white goods sector, when the economy is a little bit questioning the development, of course, we see that it's a softer demand.
Also in the semiconductor industry, that's relatively new to us, we've seen a slackening demand, and that's an industry that we have not fully followed so much before, but we believe that that's a more temporary, shall I say, profile, because we believe that semiconductors, they're going to continue to dominate our daily lives, as long as we can foresee. We look at the semiconductor softer market more like a blip. Also on the transportation side, railways, and there we've had a weaker demand. Those two categories of products are relatively good margin-wise, and that is also, of course, one reason why the operating margin is softer. We are not so worried about that not coming back in those particular segments, because semiconductors and transportation, that's certainly coming back.
Automotive, we all understand, I think, as private consumers, that there is an, if you call it, uncertainty how we should react to all the signals. Should we buy electric vehicles? Should it be hybrids? Should it be diesel ones with all sorts of equipment added to them so they don't emit particles and stuff like that, or NOx for that matter. There, of course, we are spending quite a bit of money working with the automotive industry, not only on the automotive but also in the transportation sector, like heavier vehicles to go electric. That, of course, has also burdened the result. That's part of the game, so we will not diminish that by any means. We've all read about the low-cost countries, as we call them, where the cost increases have been significant.
We're talking about Mexico, we're talking about Czech Republic, we're talking about Poland. That, again, is a surprise, of course, to most of us with the magnitude they have been reinforced. At the same time, that's a signal, I think, to all of us that you cannot outsource things. You have to be present in the market where you also have a market. I think that's coinciding fairly well with our philosophy of also being sustainable when it comes to producing and developing products in different markets. Of course, it causes a dilemma in the shorter period before you have compensated all those increases with robotization and however you go about it.
By no means are we satisfied with the outcome, but we are very certain that Element has its very solid position within the group and the market segments that we see now that are positive, and when it come back to the sustainability again and also on the semiconductor and so forth. We are not proud of the diminished operating margin, but we are very determined that we're going to counteract, and this will continue to be a very important part of NIBE Industrier. The figures, they speak for themselves, of course, that we have lost some SEK millions there, and the margin is a little bit lower. On the Stoves side, it's a relatively flat situation the first six months, and then we say that the performance is after all fairly decent, we look at it.
We are spending quite a bit of money, naturally, on the marketing side with all the new models coming out. We have seen that in our report. Also, the R&D costs are substantial because there are new legislation and new rules coming about, and we are trying to, of course, meet those, but also to beat them, to come out a little bit better than the actual requirements. In some markets, there have been a little bit of a price competition as well, where the market is contracting, but that is of a lesser magnitude. We think that the operating margin due to the lesser one due to R&D and the marketing costs, that's what's worth mentioning. Figure-wise, it's plus almost 10%, whereas the second quarter, of course, is only up like 6%, and Hans is coming back to that.
As far as distribution is concerned of our sales, there we see again that the NIBE Climate Solutions is pretty much holding its 63% as far as revenue is concerned. It's even more pronounced on the, of course, profitability side, the operating margin side, where it's 70%, which you can see on the next pie chart. I'm quicker than the computer. My wife is not always telling me that, seems like today I'm really gearing up. Our geographical, my last slide here before Hans is taking over. As we've said so many times, we feel that we have a fairly good distribution of the sales with the Nordics now, our home market with our 25, 26 million people, representing like 25%.
Of course, we don't like to diminish that, but as the rest of Europe and North America and other markets will grow, naturally the Nordics could potentially be of a lesser percentage. I think right now, we have a very solid and robust structure, whereas only 10 years ago, the Nordics and Europe were so dominant when we look at this chart. I think I stop there, Hans, and see whether you are quicker than the computer or whether I'm going to beat you.
Well, let's see. Thank you, Gerteric. I'll take you through each division quickly, and then also some words on the balance sheet and key numbers. Starting out then with NIBE Climate Solutions being the biggest area for us. The overall demand, as Gerteric mentioned, has been very good in most, if not all segments really, where the Nordics has been holding up very nicely. Europe has been good, especially the Netherlands, of course, sticking out following the political decisions made there. The residential side in the U.S. continuously developing in a very nice fashion. All in all, during the first half year, we have grown close to 20% up from the SEK 6.3 to the SEK 7.6 billion, where larger portion of the growth, excluding acquisitions, has been through organic growth, even if we are helped by currency, of course.
The gross margin has been fairly stable, down slightly there from 35.1% to 34.8%, which is also reflecting in a way a continued R&D and product development. Of course, we have some units in there also on their path to improving their results. The newly acquired Ross was mentioned, and we have some other acquisitions from the last 12-18 months, which are still on their path to improving their results. They're in there. All in all, we were able to then increase the operating margin slightly from 11.7%-11.9%. More than sales grew, which of course is always nice. In the second quarter, it was a similar picture. We grew with 19%, seven from the acquired units, and then the remainder there, some 12% organic, where a slightly lesser portion was the currency did not help us as much as in Q1.
A very good organic growth, being able to land an operating margin there on 13%. The result itself was more than half a billion SEK. In terms of sales per geography, also following the nice development in Europe, the portion from Europe there, the 42%, has actually increased some units from the corresponding period last year, which is nice to see. We would like to have a balance between all of the areas, of course, where we have been traditionally very strong and still are, of course, in the Nordics, but where we are aiming at a balance throughout the world. Having European markets grow more is very nice to see, and there's huge potential in many of them. Just small Holland in a way, you see what can happen when a country takes decisions in favor of renewable energy.
Coming on to NIBE Element, which is perhaps the theme of the day. At the same time, the world is going electric, there is a huge potential here. Of course, as Gerteric has mentioned already, there has been a softening in demand, specifically then in the semiconductor white goods and partly the transportation with rail and the automotive, where automotive is at a crossroads and where rail certainly will come back. If you just look at the Nordic region and Sweden specifically, it's hard to find a train today because they're all fully booked. When you take one, you're not sure if you're going to get there on time.
There are so many flyers, so no one can ride the train. Another story.
That's another story.
Sorry for interrupting.
People were recommended this morning to take a car as an alternative, which was quite interesting to hear on the radio. Some other areas have been quite good in the NIBE Element business area, and it's the ones also that Gerteric mentioned. I mean, the ones related to renewable energy, HVAC, wind. There is a difference between individual segments. All in all, during the first half year, we have grown with some 9%, where 3.1 was acquired, and the remaining part then was organic, where the majority of that was currency. Nevertheless, we came up from SEK 3.1 billion to SEK 3.4 billion, and the result, unfortunately, then was hit and came in lower. We had the last portion last year of some one-off effects, which made that result additionally good, you can say.
9.3 is still decent, but as Gerteric said, of course, we are not pleased, and we're always striving to become better. The effect is, of course, from a changed product mix following the shift in demand, the cost inflation in the low-cost countries, but also continued R&D development and product development, where there are a lot of interesting products being developed for the future. The second quarter was a bit tougher. We grew by 4%, but when you take away the acquired part, it was mostly currency that helped us up there. Also, to some extent, the [week Sunday] has an effect sometimes. The working days can have an influence there. We're not trying to blame it on anything. It was a weaker demand in the individual quarter as such.
In terms of the split by geography, the safe split there is very similar to before, and it reflects the split that we want to have with a good spread amongst different geographies. Having said that, at the same time, this is our most global business area, and of course, when there are trade barriers and trade discussions and things like that, it has an effect as well. Last but not least, stoves. It is actually, I would say, a quite decent performance in a relatively flat market. There is really not an area sticking out as being very good or very bad. It's just stable. Electric stoves is actually good, but it's still fairly small, but with a very nice potential in there. To our experience, it's a fragmented market, and it's equally much up to a good management to make money in that business.
There are companies making very nice profits, many hovering around a lower level. I think we're landing a decent result here at an operating margin of 5.9%. It is down from the 6.9% last year, which is an effect slightly of the market moving sideways, but where we also spend a considerable amount on product development, R&D, and marketing. During the first half year, we did have an organic growth in there, helped by currency, but the true one was also there. In the second quarter, it was basically standing still, you can say. There was a positive currency effect, some effect from the earlier acquired units, and an operating result, and that seemingly landed low by the 2.9% operating margin down from 5%. Really, we're talking about SEK 8 million or some EUR 750,000.
It's not a lot of money, and the experience also shows that everything actually happens in the second half in this business area. It's not so long ago, actually, that we were hovering around the zero mark for the first half year. In terms of geographical split, it's virtually the same as before. About 26% Nordics, a little less than half in Europe, and then North America, the remaining parts. Just a few quick words on the balance sheet. As introduced during this year, which we presented in Q1, we have the IFRS 16 shift in there, which has made our tangible assets grow by some SEK 800 million. On the liability side, it's of course the long- and short-term liabilities as a corresponding item in there. We have a large portion of cash right now, SEK 3.6 billion.
That is, of course, generated from the day-to-day operations, it's also partly containing the amounts that we have received from the part acquisition of Schulthess. Also, as you might have followed, we issued some bonds before the summer, the request and the demand for the bonds was quite high. We actually went for a slightly higher amount than we needed because we couldn't resist the good terms, so to speak. In terms of cash flow, just a quick word on that. We generated some SEK 1.6 billion, up from SEK 1.2. There is a portion of IFRS in there as well, around SEK 150 million. Still a much better cash flow than last year. More favorable change in working capital as well, because the working capital has come down a couple of percentage units. That is generating more cash. We'll continue to invest in our operations.
You see the number there, maybe of SEK 690 million up from SEK 358 million. Of course, there are a lot of interesting projects and expansion plans going on within the group, which requires cash. At the same time, our estimate is that we will be approximately on the same level as our depreciation, which, as an average, is around 3.5%. Some words on the key figures. Net debt EBITDA is at 2, also following the IFRS effect. Without that, it would have been slightly below. I think we're very well-positioned with the cash. With the net debt ratio, we're very well-positioned for further acquisitions. Even if we've only acquired one company this year so far, I can assure you that we are, as always, looking at many acquisitions all the time. That's part of the NIBE DNA set up to have such discussions.
Working capital, I don't need to comment on that again. There you see the portion coming down from 22.7 to 20.5. Last page here, return on capital, slightly up half a percentage unit. Return on equity as well. Of course, that is the key number, maybe that is farthest away from our target, which is a result of the rights issue we did some years ago. The cash we've generated, we just need to get that money working or going, so to speak. An increased net profit per share of some 10, 11%. I think all in all, a very stable and solid set of numbers, even if we always want to improve, of course. By that, I'm ready for questions, and I guess you are as well, Gerteric.
Well, I think I'm all geared up.
Thank you. Ladies and gentlemen, if you do wish to ask an audio question, please press zero one on your telephone keypad. If you wish to withdraw your question, you may do so by pressing zero two to cancel. Once again, it's zero one to register for a question. The first question comes from the line of Carl Ragnerstam from Nordea. Please go ahead.
Hi, it's Carl here from Nordea. I have a few questions. First, looking at NIBE Element, what do you see there in terms of demand from the semi and auto industry for H2?
Well, I shouldn't say it's a good question. It's an impossible question to answer. I think that the automotive industry is struggling with that question themselves. From our side, the electric vehicles, of course, are going to be equipped with much more equipment from our side. I think customers are hesitating buying a car at the moment. What kind of a car should you buy? I think that our situation is a reflection of the automotive industry in general. What we see on the R&D side, I shouldn't use too strong words, but a very strong demand for solutions when vehicles are getting different from what they have been using, petrol or diesel. We are definitely going into hybrids and electrical vehicles, not only on the passenger car side, but also on the mining equipment, on the heavy-duty equipment side.
We see that as a positive development, but can't guarantee anything for H2.
Okay. Also you talk about similar to Q1 investments in automation in order to mitigate the salary inflation. What timeline should we expect there in order to implement that? Also, do you still plan to move manufacturing footprint, maybe from Mexico and China into other low-cost countries?
I think we are well positioned. You can answer the questions as well. Let's say now in Mexico, of course, it's a tremendous increase. We have a very loyal workforce. We have no intention of moving production from where we are. We have a very extensive robotization program, for instance, in Mexico, where we substitute, of course, manual labor with robots. The smaller ones, not like the heavy duty like the KUKA or the ABB, but the smaller ones that is so easily programmed, that can be catered for by the operator or by the operators, rather than having a workforce of engineers doing the programming. It always going to take time.
We can't promise you, saying, "Now we're going to take a quarter or two." I think that you should remember, all of you out there should remember that when you try to change a company from a lower or lesser EBITDA line, we typically give them 18 to 24 months. Then we talk about changing a whole company. Here we talk about, of course, matching labor cost increases. That has to be during a shorter period, if I'm not playing too much hide and seek. I also think we're well-positioned in the manufacturing space in the sense that newly acquired companies or where we have invested lately, we have also set up manufacturing units in other low-cost countries, if that's what we're going to call them, like Malaysia, Thailand, Serbia, Vietnam, for that matter. We are spread in many countries.
Okay. The automation. Oh, sorry.
No, I would say that perhaps we are too politically correct when we're going to say what we're going to say now. I sort of indicated that sustainability, if you really believe in that's also treating people in a fair fashion. I think those days are gone when we could have, I shouldn't use such a strong word, perhaps, but we could have people underpay people. Everyone has to live. I think by that, you also gain quality, you gain loyalty. You have to consider also there's not only a negative factor, and it might sound strange when I say that, but in the meaning of sustainability is to treat people decently, but get them to work hard, and if it gets too expensive, of course, we have to robotize.
That's also making it more interesting for the operator that he or she could have two comrades, being mechanical friends rather than a human being. I think it's a natural trend. Of course, we would have welcomed them not in 100%, but rather in perhaps 10% or 15% stages. It's been coming quicker than we would have liked it.
Okay, perfect. The automation initiative will be on a global basis, not just in Mexico, it will do to Europe as well, and Asia?
Absolutely. All over.
Okay, perfect. Final one for me. In terms of the F-Gas Regulation, what portion of your product portfolio is now converted?
Well, that was a question. I think that when it comes to 2021, I think that practically the whole European assortment is going to be converted. Whereas in North America, they don't have those demands. There, of course, we are talking about now utilizing the European experiences and also changing over to those intermediate refrigerants like R-454B and all the other ones, and even the R-32, and eventually aiming for propane, or the R-290, as they call it in chemical terms. I think when the next lot arrives, when the three years have passed, then I believe, without giving you a guarantee, that we should pretty much be out of those R-410A and the R-407C heavier duty refrigerants.
In some instances, going directly for Propane, in some instances, going with an intermediate solution of that GWP index running around 500 rather than the 2,000 that is so prominent now, and eventually heading for the zero. Not for the zero, but for the one to four.
Okay, perfect. All from me.
Thanks.
The next question comes from the line of Douglas Linder from Kepler Cheuvreux. Please go ahead.
Hello, Jake. I have three questions from my side. I hope it's okay if I take them one by one.
Thank you. That's very good.
Good.
You don't trust our members, I hear.
No, it's a somewhat long question, so I prefer taking them one by one.
Okay.
Hopefully. First of all, looking at the Climate Solutions margin development, we continue to see somewhat low operational leverage here, while you obviously are operating at high underlying organic growth. I'm just trying to understand the bear sort of margins being up year-over-year. Is this mainly investment weighing on profitability, or is it something else you want to highlight on the Climate Solutions business?
Did we get the question why the margin is not higher than it is?
Exactly. You're growing quite substantially year-over-year organically, and you don't really see the operational leverage feeding through in terms of earnings coming up really.
Right. No, I think that what you see is, of course, a reflection of companies that come on board that do not have the profitability that the business unit has from the start. That's a conflict, of course, between growth and profitability to a point. That's why we have said that had we abandoned, of course, the acquisition, and particularly the acquisitions with a lower margin, we could gain quite a bit of momentum only riding out the wave of sustainability. We like to build a company that is more robust. We like to enter the commercial segment. Of course, Ross coming on board as an example, they came on board with a relatively weak margin. Naturally, we have to compensate that
By those companies being on board as many years, by improving their profitability and margin when they grow. At the same time, they're going to take 18-24 months, as already mentioned. By having those aggressive targets, you might call them, or you can call them aggressive targets of growing. We cannot grow organically 20%. It's even cumbersome sometimes to grow 10% without some favor on the currency side. That's the, I shouldn't say conflict, but that's pretty much the mix we arrive at when you have a good organic growth or the company's already in the group, and then you add new companies with a lesser margin. You pretty much land at the same level. You saw that when we brought the Climate Control Group on board. I think we landed on some 13.3% or 13.2%, if I recall it correctly.
Now we're taking it up to 13 points on a running basis, 8%-9%, whatever it is. At that time, we brought both Enertech and the other ones on board. They, of course, coming up to 11% now or they are much, much better. Now we have a new company on board, like Ross and so on. I don't think you're going to see a situation where we all of a sudden would arrive at 17%-18% with the growth target that we have.
Okay. Yeah, that's very clear. Following on your acquisition, you mentioned it yourself that so far this year, we haven't seen any acquisitions. What's the reason for this? Is it valuation holding you back, or is it lack of target companies in general?
We wanted to have a question like that during this session. No, of course. As Hans was saying, we constantly have, I said 10 to 12 negotiations or discussions going on. Sometimes, you come to signing it almost in the same quarter, three or four, and sometimes they are just dragging on for various reasons. I think you should know us well enough, and all of you out there, that if we would slow down in acquisitions, we would tell the market that. We will tell you. There's no hide and seek. Of course, you might think that we are a little bit secretive with certain things, and that's not to hide information from yourself, but we are very exposed also to our customers. Just Hans mentioning now that it's beautiful in Holland and in Norway, for example.
Typically, within four months, almost like wasps or bees around a glass of juice, everyone going to be there. That's why we are a bit perhaps less transparent. When it comes to acquisitions, would we have a desire to slow down? We would mention that in reports. There's no intention whatsoever. I think you should look rather at something Hans mentioned during his session here, that our ability to acquire is very good and it's very strong. Why do we emit or have those bonds? Well, they're not to sit there just to generate interest. They are there because we see there are so many interesting companies. As you correctly say, we don't necessarily like to overpay, and we also like to do our homework very thoroughly.
We've always done that. We don't like to run into a situation where we have a fairly robust, strong company and now we start to be less meticulous when it comes to doing or carrying out the due diligence. That's always going to be very, very important to it, as it was years ago when we were a smaller company. It was a long answer to your question.
Yeah.
There's no change. In 2015, I think it was now, we didn't acquire too many companies either. All of a sudden many came in the year after.
Yeah.
Constantly evolving
Your balance sheet obviously sort of indicates that the pace could have potentially been higher. Multiples, from what I understand, seem to be somewhat elevated right now, right? My last question is, I remember in Q2 of last year, we talked about you building inventories. You built up stocks of finished goods because you expected a busy second half of the year. This was something you learned back in 2017 when you were not able to deliver on the very busy Q2 2017. I guess you remember this. That's why in this report, when you don't comment the inventory levels, I'd just be curious to know what this sort of indicates for H2 of this year. For now, we've seen that the inventory levels in relations to sales in this Q2 is down compared to Q2 of last year.
I guess your Element market outlook, we'll discuss that, but I'd be more curious to see what impact this would have on the Climate Solutions business.
Well, I think that we always build up inventory, and perhaps we should have mentioned that. When it comes to a situation where you do it all the time and it doesn't stick out that much, I guess we have forgotten perhaps. It's the same procedure. We, during the first six months of the year, we typically produce the demand for the coming seven and a little bit better because we always know that the second quarter, second half of the year going to be much stronger. We also have developed perhaps a little bit more sophisticated system to meet production demands. We hope now that we have not overvalued that. We hope that we have a workforce that is more flexible, that can kick in fairly quickly if demand would get bigger or greater than we had anticipated.
We're coming to a stage where it's more business as usual, and we also have improved our way of running larger volumes.
I think we were a bit surprised by the demand in 2017. That's where we couldn't really meet the demand. That's why we built up in 2018, and now it's more stabilized, as Erik says. It's more business as usual and with some better tools.
Yes.
Douglas, just one very quick comment there on your conclusion regarding the acquisitions. I think your takeaway from that was that the multiples are high, and that's why we're not acquiring. I wouldn't say that is the case at all. We always do our homework in terms of both due diligence, valuation, strategic fit, whatever. That hasn't really changed. From an investment point of view, we could be paying very high multiples, and the companies we acquire would still be accretive to us. We have our own philosophy in how we bring companies on board. It's always a discussion.
Okay. Thanks for clearing that. Just a follow-up on that, mentioning the more sophisticated system in order to meet demand. Is that something that's been rolled out now in recent time, or has it been ongoing for several quarters or years, so to say?
Well, we've given our suppliers, just to give you an example. Our suppliers are more geared up when it comes to giving us good deliveries with short notice rather than storing the ready-made product in our own warehouses. The reason is, of course, that if we get that assistance from those, it's lesser capital tied up. It's also the difficulty of forecasting for the marketing and sales side, which are the categories of products to be sold. Are they air to water, or geothermal exhaust air, and so forth, which capacity, is it 4 kW, 8, 12? We try to tie up money at a little bit earlier stage, and then once you see the demand, when the components are there, we try then to build the products up to a finished stage.
Okay. Thank you very much, gentlemen. That's it from me.
Right.
Thank you.
The next question comes from the line of Clara Jonsson from SEB. Please go ahead.
Yeah. Hi, Erik and Hans.
Hello.
Hi. My first question is about the U.S. and NIBE Climate Solutions. Could you say anything about how your sales of heat pumps progressed in Q2 versus Q1? Did you see any change in demand?
No, I think it's pretty much charging on. Q1 was good and Q2 was good.
Yeah.
Yeah. It's good.
All right. That sounds good. For the Climate Solutions segment as a whole, do you have any big launches of new models coming up ahead?
Well, we have now launched, of course, at the shows. They are now being delivered here. We had some slight delay. They are now being, when we come into the first week of September, we will start to deliver those fully fledged. We have not taken such a dramatic decision that we discontinue the previous assortment. They're going to be paralleled with the new assortment for some time. It's a rather sophisticated assortment that's coming out that now connected or wired through the cloud. That's pretty sophisticated also for the installers. We'd like that to mature.
Yeah. Understand. Does this mean that you had any extra production set up costs or anything that impacted profitability in Q2 maybe?
Well, of course, when you start to produce a new model, there's always cost in all there.
In this particular case, in all fairness, it's not a change that is so dramatic. Of course, there are facelifts. If you come here, you can see that there are several shelves of the new machinery. We believe that the major change to the customer, to the end user, is after all the control and the possibility to be linked to the cloud and all those possibilities. Of course, it's always expensive to launch a product. I mean, the production setup, marketing activities around it, and all that jazz.
Yeah.
Comparing it to when we launched generation 2010, when we changed everything, it's a little bit less than 2010 and 2011, where we had major introductions of shelves.
Yeah.
Also when we introduced the air to water 2016.
All right. Maybe since you're launching this in Q3, we could maybe hope for some good sales development for the new models then.
Well, that's what we hope naturally. We are all geared up. We had a board meeting here yesterday. Everyone is aware of the digital generation. It's a major step. That's the first time you can say that we have taken this step. Now heat pumps, we can say, is now part of this artificial intelligence, whatever you call it. Perhaps I'm not the right guy to talk about this, but being quicker to compute.
Yeah, exactly.
how it works anyway. We are very positive, I must say, or we must say, about the potential here.
Yeah. Sorry for interrupting. Are you launching it just in the Nordics, or is it abroad in Europe and U.S. as well?
All in all the German-speaking countries and Sweden.
All right, great. Thank you for that. You also talked about you're running quite large-scale campaigns in the U.S. now to raise awareness among consumers.
Yes.
I guess, maybe this has weighed on profitability slightly. Are you going to run these campaigns for the coming year, or is this something temporarily for this quarter and the next?
We're going to continue to run that. We think it's very important that we try to, because it's fairly positive environment now, good environment. We feel it's fair to try to educate the market. What's a heat pump? What's a geothermal? What's air to water? How can you save? How is the sustainability thinking behind that?
We're going to continue to spend quite a bit of money on that.
Right.
Not to just squeeze the lemon, everything out of it, and then stand there, okay, well.
Yeah.
People really understand.
Mm-hmm. Yeah. I get that. Okay. I have some questions on Element. I know we already spoke a bit about that. Just to understand, I'm trying to understand how much volumes were actually down in Q2, because if I'm correct in my calculations, you mentioned that excluding acquisitions, sales were basically flat year-on-year in Q2, and then FX should have been some 5% growth. Is it a fair assumption to assume that volumes were down some 5%?
Perhaps a little bit less, but it's a contraction. That's correct.
Yeah. Can you say anything about how Q3 has started? Maybe it's difficult so far.
Yeah. We better not to be too quick to answer that question.
Sorry.
Well, we are very cautious when it comes to those comments, not to guide in an unfair way. We understand your question, of course, Clara, and so on.
Yeah.
There, of course, sometimes we have to be very polite and say no.
Yeah. Of course, I understand. I just have one more question, if I may. It's about the increased investment in automation and productivity that you spoke of before.
Yeah.
Can you say anything about the magnitude of those investments, and are we seeing the increased investments in the numbers already, or will they increase more ahead?
Well, I think that what you've seen, if you go back some quarters, we were fairly steadily under the depreciation rate. Now we indicate that we're going to be more in line with depreciation. I guess that will not be like one quarter. We believe that's something that we pretty much going to remain at. Of course, automation is one thing, but we also see that some factories, there we have to expand. It's not only automation, but we also have to go for fewer footage or square meters. Like here in Markaryd, we are continuously growing. We are trying to renovate all the factories that we're acquiring. We're trying to add on our logistic center. We are building a new factory in Poland on the climate solution side. Of course, also on the Element side.
I don't think that we should look at it as now it's exodus or something. I mean, sometimes you are hit by the stock market. I don't think that this is the end of the world. We feel very positive about the development where we are. Of course, we are also, you can call it, race horses. Of course, we always like to win. Every quarter, every month, every week, we would like to win. We are not so phony that we can't take a quarter that's a little bit softer. Of course. We've nothing to hide. I don't know. Just bear with us, young lady.
I'm here. You still have a quite good profit growth. It's not really a losing quarter anyway. Thank you so much for answering my question.
Thank you.
Thank you. Thank you, Lauren.
The next question comes from the line of Marcela Klang from Handelsbanken. Please go ahead.
Hi, gentlemen. You promised us one hour, so I'll try to be quick. One short-term question and one more long-term. When it comes to NIBE Element, we already touched upon it, but what approximately is your visibility in terms of weeks, or do you have visibility for months when it comes to NIBE Element division?
Well, you know how it is. The customers put in orders, so we have a fairly good picture of how the demand is to come in 6 or 12 months. Having said that, then of course, they have the possibility of changes within a few weeks, depending on the factory. If the demand is getting softer, it might look good in October, but if our customer has not sold what he or she or the company desired, then of course they change the forecast. They cannot do that within two weeks, but that depends on how it's set up for each individual factory. In theory, we have a fairly good visibility. Then it depends on how the industry or the economy is developing, and it's a very difficult situation because it's a roller coaster in a way.
When somebody is coming out with good indications, okay, now we sort of put on the accelerator, and then when it's a bit tougher, all put on the brakes. It's almost like sitting in a Stau in Germany, where all of a sudden everyone is driving 110 and then it's down to 0.
We try to be as good as possible under those circumstances. Of course, we know that if it all of a sudden comes to a little bit lesser demand, we know that the demand is not going to totally evaporate, and we dare to perhaps produce a little bit during it, so not to just use people as an elastic, but be decent also there. Does it almost answer your question? The visibility, in theory, is fairly good, but no customer is taking our products if their demand isn't solid.
Yeah. I understand. The second question, related to M&A, I guess ventilation is a big area of interest for you. Generally, there is lower profitability within ventilation. Is this an issue for you? Is it more difficult to find quality ventilation companies?
Well, I think that it takes two to tango, as Marlon Brando said, and I think that's exactly what it does. Of course, some companies in this industry, they had some tougher times, and we then got a little bit hesitant to enter there. Some companies are making really good money and they like to continue on their own. It's a match there. Of course, we would like to enter the ventilation market for climatization for larger buildings. We see that some companies are really profitable and some companies are not so profitable. I'm sure you could find companies in our coal mine that would have the same, companies in our industry that would have the same coal mine.
Of course, we wouldn't like to come into a company with extremely low profitability, let's say running around zero, because we know that takes quite a long time to monitor that. We'd rather have to work with companies that are definitely above five, and then we try to monitor them with our way of doing business, our way of thinking production and so forth, and combining it what we already got. I understand that it is a bit frustrating that we haven't bought a gigantic company, but we are very meticulous, and we have not by all abandoned our target in working in here. You can rest assured that you're going to see press release that NIBE has finally done something here. It could also be some smaller, not smaller, some mid-size company that we combine if that wouldn't be possible to acquire a larger entity. Okay?
Yes. Thank you so much for that, and looking forward to that press release.
All right. Okay. That's good, Marcela. Thank you.
The last question comes from the line of Karl Bokvist from ABG Sundal Collier. Please go ahead.
Thank you very much. I know that you are a bit stretched on time here, but I'll try to be very brief. I just wanted to follow up on C comment on new products. When you launch a new product, do you expect that you can get better margins on those products, or is this sort of a necessity to continuously release new products into markets?
Yeah, of course. That's a good question. I think everyone's desire is to slightly improve the margin on a new product. That's of course the aim. I don't know whether we can sit here and promise that now we're going to improve our margin. I think that it's very important that you don't launch a product that diminishes your margin. That's why we are so cautious when it comes to quality and performance, that we don't launch anything that would tarnish, by any means, our reputation in the market. I think that we rather would like to see larger volumes than perhaps increasing the margin additionally. It's also important that we now come out with products that we can sell on a broad scale in Europe, and that they are not too expensive. We are also very eager to enhance volume.
The first question, of course, and the pre-calculation, but we're always trying to be a little bit better than the previous model. Having said that, you also know how it is. I mean, in theory it's better. At the same time, a model or a series that you've been producing for three or four years, you have fine-tuned that model into something that is pretty good. A new model coming out is not necessarily fine-tuned in all details to the point where the previous model is.
Exactly. Then my final one here will be super quick really. It just has to do with some finance here for Hans. Just in terms of non-controlling interest now going forward, it was zero in the quarter, but I guess one should expect that we will see some tens of SEK 20 million or non-controlling interest from Q3 and onwards?
You mean in terms of-
Overall the share shifts. Yes, exactly.
Yeah, that's right.
half time. Yeah. Okay. At financial expenses, should we expect them to remain at these levels approximately?
Well, the thing there is that we have some IFRS effect in that number, or we do have, which is like SEK 5 million, SEK 6 million.
Yeah.
The other effect that has come in there is when we issue bonds, we typically go for the variable interest rates, so to speak, whereas some bond makers want to have them in a fixed. We make a swap there, and there, of course, it's revalued as we move along. That's the reason for the pickup right now because the Swedish interest rates are now rather around zero than minus half a %.
Okay.
Slightly higher, but no real big movements. I mean, the whole world seems to be lowering their interest rates again, so.
No, I understand. Yeah, perfect. Thank you very much, gentlemen. Have a good day.
Thank you.
Thank you for all your questions. It's always intriguing and interesting to listen to your questions, and we really hope that you're going to follow us with the greatest interest. Here you have a number of fighters in my category, and we can guarantee you that we're going to produce several press releases, so you won't be disappointed about that. All right. Thank you.
Thank you very much. Thank you.
This now concludes our presentation. Thank you all for attending. You may now disconnect.