Earnings Call: Q2 2019

Aug 16, 2019

Quarterly report

Ladies and gentlemen, welcome to the Niebuhr First 6 Months Results Presentation. Today, I'm pleased to present Jeterik Lindqvist, CEO and Hans Backman, CFO. Mr. Lindqvist and Mr. Backman, please begin. Thank you. Good morning to all of you out there. Hello. Good morning. And we're going to have the same procedure as we usually have here, Ami introducing and then Hans following up. And we believe that we should give this an hour if we are not impolite because we have other matters to look after as well. And if I start, you've seen the headline and the varying demand. And of course, when we say that, it's very important also to understand that the sustainability profile that we have is gaining a very, 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 had seen some softer segments. And that's why we have also explained that as good as we possibly can. The operating margin is slightly lower, And that's, of course, a reflection of particularly the element, a bit lesser performance and also the stokes, whereas Climate Solution, our largest division, is really charging ahead in a very promising way. And during the 1st 6 months, we have really gathered our forces around how we're now going to approach the $40,000,000,000 target in turnover and how we're really going to use the sustainability wave that we notice all over the world. And there's also what you see in our report that we have gathered our forces, both on the solution element and on the stope side, to really make everyone fully aware of our targets for this year naturally, but also the target of €400,000,000,000 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 predominantly naturally here in Europe, where we are active and also North America. So the growth has been considerable, stable, of course, a bit lesser during the 2nd quarter, but the group has expanded with almost 16% during the 1st 6 months. And you can also notice that the Q1 then had 18.5%. So 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 Han is going to continue to report on the each division. So I don't want to dwell too much on each of those. But the Q2, you can see very clearly here, of course, that the growth is around 8%. And now the difference between the currency situation this year and last year has been a little bit less favorable than it was in the Q1. So of course, there's always a gain by currency in the second quarter, but to a lesser degree than it was during the first. And the operating margin, of course, 1 from 11.8 percent to 10.8 percent. 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 had 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 1st and second quarter being clearly the weaker ones when it comes to turnover or revenue. And then, of course, the 3rd and the 4th are always the strongest one. The seasonality, we have never gotten rid of that. And no matter how we invest and how where we are in the world, it seems like the 3rd and the 4th quarter always turn out to be the strongest. And that is, of course, reflecting also that's being reflected in our results where you see that 34 always going to represent almost like 60% over the year's results and slightly even more some years. If we just had a quick look at each division, we can say that the Post Climate Solution, they are charging ahead as we indicated from the very beginning. And it's very pleasing to see that many countries are now taking that step, allowing renewable energy and the climateization naturally that we so much have been talking about. So we've had a decent development or a good development in North America and Europe and in the Nordics. And we've also talked about going into the commercial sector, where we have now brought some 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. And the operating margin, of course, is a reflection of a good growth, both on the acquisition side and on the organic side and also, as always, looking after the productivity. And we can see that those figures in summary, Arndt is going to come back to those in more detail, where we've had a growth almost 20% combined during the 1st 6 months. And the operating margin is up slightly more like 22%. So it's very pleasing to see. And of course, that is driving the whole group. But nevertheless, if we jump over to elements, 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 solution is positioned naturally. But we also see that white good sector when the economy is a little bit questioning the development. Then of course, we see that it's a softer demand. And 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, long as we can foresee. So 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. And those two categories of products are relatively good margin wise. And that is also, of course, one reason why the operating margin is softer. So we are not so worried about that not coming back in that particular 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, let's call it, uncertainty how we should react to all the signals. Should we buy electric vehicles? Should it be like hybrids? It would be diesel ones? With all sorts of equipment attitude and so they don't commit part of it and stuff like that or NOx for that matter. So there, of course, we are spending quite a bit of money working with the automotive industry, not only on the automotive but also on the transportation sector like heavier vehicles to go electric. And that, of course, has also burdened the result. But that's part of the game. So we will not diminish that by any means. Then we've all read about the low cost countries, as we call them, where the cost increases have been significant. And we are talking about Mexico, we're talking about Czech Republic, we're talking about Poland. And that again is a surprise, of course, to most of us with a magnitude they have been reinforced. But 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 a market where you also have a market. And 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. But of course, it causes a dilemma in the shorter period before we have compensated all those increases with the privatization and however you go about it. So 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 I come back to the sustainability again and also on the semiconductor and so forth. So 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 neither industries. Yes, the figures that speak for themselves occurs that we have lost some millions there and the margin is a little bit lower. For the stove side, it's a relatively flat situation in the 1st 6 months. And then we say that the performance is after all fairly decent, if we look at it. And we are spending quite a bit of money naturally on the marketing side with all the new models coming out. You've seen that in our report. And also, the R and D costs are substantial because there are new legislation or new rules coming about. And we are trying to, of course, need those but also to beat them to come out a little bit better than the actual requirements. And in some markets, there have been a little bit of a price competition as well where the market is contracting. That is of a lesser magnitude. We think that the operating margin due to the restaurant due to R and D and the marketing costs, that's what's worth mentioning. So figure wise, yes, plus almost 10%, whereas the Q2 of course is only up like 6%. And Hans is coming back to that. As far as distribution is concerned about sales, and there we see again that the Climate Solution is pretty much holding its 63% as far as revenue is concerned. And then we have 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, but it seems like today, I'm really gearing up. And then our geographical, my last slide here before Hans is taking over. As we said so many times, we feel that we have a fairly good distribution of the sales where the Nordics now, our home market with our 25,000,000, 26,000,000 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 go, naturally, the Nordics could potentially be of a lesser percentage. Everything right now, we have a very solid and robust structure whereas like only 10 years ago, the Nordics in Europe was so dominant when we looked at this chart. So I think I'll stop by hands and see whether you are quicker than the computer or whether it's going to beat you. Well, let's see. Thank you, Erik. So I'll take you through the each division quickly and then also some words on the balance sheet and key numbers. So starting out then with Climate Solutions being the biggest area for us. The overall demand, as Erik mentioned, has been very good in most, if not all segments really, where the Nordic has been holding up very nicely. Europe has been good, especially the Netherlands, of course, sticking out following the political decisions made there. And the residential side in the U. S. Continues to developing in a very nice fashion. So all in all, during the first half year, we have grown close to 20%, up from the SEK 6,300,000,000 to the SEK 7,600,000,000 where a larger portion of the growth, excluding acquisitions, have been true organic growth even if we are helped by currency, of course. The gross margin has been fairly stable, down slightly, slightly there from 35.1% to 34.8%, but which is also reflecting in a way continued R and D and product development. But of course, we have some units in there also on their path to improving their results. The newly acquired ROS was mentioned, And we have some other acquisitions from the last 12 to 18 months, which are still on their path to improving their results. So they're in there. And all in all, we were able to then increase the operating margin slightly from 11.7% to 11.9 percent, so more than sales grew, which, of course, is always nice. In the second quarter, it was a similar picture. We grew with 19%, 7% from the acquired units and then the remainder there, some 12% organic, where the where a slightly lesser portion was the currency, did not help us as much as in Q1. So a very good organic growth, being able to land an operating margin there on 13%. So the result itself was more than SEK 500,000,000. In terms of sales per geography and also following the nice development in Europe, the portion from Europe, the 42% has actually increased some units from the corresponding period last year, which is nice to see. We would like to have the balance between all of the areas, of course, where we have been traditionally very, very strong and still are, of course, in the Nordics, where we are aiming at a balance throughout the world. So having European markets grow more is very nice to see, and there's a huge potential in many of them. Just small Poland in a way, and has you see what can happen when a country takes decisions in favor of renewable energy. Coming then to Element, which is perhaps the theme of the day. But at the same time, I mean, the world is going electric, and there is a huge potential here. And of course, as Erik has mentioned already, there has been a softening in demand, specifically then in the semiconductor, white goods and partially the transportation with rail and the automotive. Where automotive is at 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. And when we take 1, we're not sure if you're going to get there on time. But then there's so many tires. No one can drive the train, but they're not having to worry. That's not a surprise. People were recommended this morning to take a car as an alternative, which is quite interesting to hear in the radio. Anyway, some other areas have been quite good in the elements business area, and it's the ones also that Eric mentioned, I mean, the ones related to renewable energy, HVAC, wind. So it's there's 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 10 was organic, where the majority of that was currency. But nevertheless, we came up from SEK 3,100,000,000 to SEK 3,400,000,000 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. So 9.3% is still decent. But as Eric said, of course, we are not pleased, and we were 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 cost or well, continued R and D development and product development, where there are a lot of interesting products being developed for future for the future. The second quarter was a bit tougher. We grew by 4%, but it was when you take away the acquired part, it was mostly currency that helped us up there. Then also to some extent, the Whitsunday has an effect sometimes. The working days can have an influence there. But we're not trying to blame it on anything. It was a weaker demand in the individual quarter as such. In terms of split 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. I mean it is actually, I would say, a quite decent performance in a relatively flat market. There's 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. And to our experience, it's a fragmented market, and it's equally matched up to a good management to make money in that business. There are companies making very nice profits, mainly hovering around a lower level. I think we're landing a decent result here at an operating margin of 5.9%. I mean 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 and D and marketing. And during the first half year, we did have an organic growth in there, helped by currency, but the true one was also there. And in the Q2, 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. But really, we're talking about SEK 8,000,000 or some SEK 750,000 euros So it's not a lot of money. And 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 0 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. And just a few quick words on the balance sheet. I mean as introduced during this year, which we presented in Q1. We have the IFRS 16 shift in there, which has made our tangible asset grow by some EUR 800,000,000. Dollars And 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, dollars 3,600,000,000 that is, of course, generated from the day to day operations, but it's also partly containing the amounts that we have received from the part acquisition of Schultes. And also, as you might have followed, we issued some bonds in the before the summer. And that's where the request and the demand for the bonds was quite high. So 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 1,600,000,000 up from SEK 1,200,000,000. There is a portion of IFRS in there as well, around SEK 150,000,000 but still a much better cash flow than last year. And more favorable change in working capital as well because the working capital has come down a couple of percentage units. So that is generating more cash. We'll continue to invest in our operations. You see the number there maybe of EUR 619,000,000 up from EUR 358,000,000. And of course, there are a lot of interesting projects and expansion plans going on within the group, which requires cash. At the same time, we 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 at EBITDA is at 2%, also following the IFRS effect. Without that, it would have been slightly below. So I think we're very well positioned for with the cash, with the net debt ratio. We're very well positioned for further acquisitions. And even if we've only acquired 1 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 we need the D and A setup to have such discussions. Working capital, I don't need to comment on that again. There you see the portion coming down from $22,700,000 to $20,500,000 Last page here, return on capital, slightly up 0.5 percentage units, return on equity as well. Of course, that is the key number maybe that is the farthest away from our target, which is a result of the light emission we did 10 years ago, the cash we generated. And so we definitely need to get that money working on going, so to speak. And an increased net profit per share of some 10% to 11%. So I think all in all, a very stable and solid set of numbers, even if we always want to improve, of course. And by that, I'm ready for questions. I guess you are as well, Harry. Well, I think we're all geared up. The first question comes from the line of Karl Ragnas from Nordea. Please go ahead. Hi, it's Karl here from Nordea. I have a few questions. First, looking at the elements, what do you see there in terms of demand from the semi and auto industry for H2? Well, I mean, that's I shouldn't say it's a good question. It's impossible question to answer. I think that the automotive industry is struggling with that question themselves. Of course, from our side, the electric vehicles, of course, are going to be equipped with much more equipment from our side. But I think customers are hesitating buying a car at the moment. What kind of a car should you buy? So I think that our situation is a reflection of the automotive industry in general. But what we see on the R and D side, let's say, 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. So we see that as a positive development but can't guarantee anything for H2. Okay. And also, you talk about, similar to Q1, investments in automation in order to mitigate the salary inflation. What time line should we expect there in order to implement that? And also, do you still plan to move manufacturing footprint, I mean, from maybe from Mexico and China into other low cost countries? I think we are well positioned, and you can answer the questions. But let's say now in Mexico, of course, it's a tremendous increase. And but we have a very loyal workforce. We have no intention of moving production for where we are. But 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 ABD, 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. So it always going to take time. We can't promise you, say, now we're going to take a course or 2. But I think that you should remember all of you out there should remember that when we try to change a company from a lower or lesser EBIT line, we typically give them 18 to 24 months, and then we talk about changing the whole company. Here, we talk about, of course, matching labor cost increases. So that has to be during a shorter period, if I'm not getting too much hide and seek. And 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. So we are spread in many countries. Okay. And the observation sorry. No, I was just perhaps we are too politically correct when we're going to say what we're going to say now. But I sort of indicated that sustainability, if you really believe in that, that's also treating people in a fair fashion. I think those days have gone when we could have I shouldn't use such a strong word perhaps, but we can have people underpay people. Everyone has to live. And I think that's by that, you also gain quality. You gain loyalty. So 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. But that's also making it more interesting for the operator that he or she could have like 2 comrades being mechanical friends rather than a human being. So 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. So it's been coming quicker than we would have liked to. Okay. Perfect. So the automation initiative will be on a global basis, not just in Mexico, but in Europe as well and Asia? Absolutely. Perfect. Perfect. Final one for me. In terms of the F gas regulation, what I mean, 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. So there, of course, we are talking about now utilizing the European experiences and also changing over to those intermediate refrigerants like 455 and all the other ones and even the 32 and eventually aiming for propane for the $290,000,000 as they call it in chemical terms. So I think when the next slot arrives, when 3 years have been passed, then I believe without giving you a guarantee that we should pretty much be out of those 410 and yes, the 407 heavier duty refrigerants. In some instances, going direct to propane. In some instances, going with intermediate solution of that EWP index running around 500 rather than the 2000 that is so prominent now and eventually hitting for the 0 or not for the 0, but for the 1 to 4. Okay, perfect. All from me. Thanks, Andrew. The next question comes from the line of Douglas Linde from Kepler Cheuvreux. Please go ahead. Hello, Jake. I have 3 questions from my side. I hope it's okay if I take them 1 by 1. Yes, thank you. That's very good. Good. No, you don't trust our members, I hear. No, it's somewhat long question, so I prefer taking them 1 by 1. So looking at 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. So I'm just trying to understand the better sort of margins being up year over year. Is this main 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 or 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. So 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 when we start. And that's a conflict, of course, between growth and profitability to a point. And 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. But we like to build a company that is more robust. We like to enter the commercial segment. Of course, in Ross coming aboard as an example, they came aboard with a relatively weak margin. And naturally, we have to compensate that by those companies being on board as many years by improving their profitability and margin when they grow. But at the same time, they're going to take 18 to 24 months, as already mentioned. So by having those aggressive targets, as you might call them, or yes, call them aggressive targets are growing, we cannot grow organically 20%. It's even cumbersome sometimes to grow 10% without some favor on the currency side. So 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 is already in the group and then you add new companies with a lesser margin, You pretty much land at the same level. And you saw that when we came to the Climate Control Group on board, I think we landed on some 13.3 or 13.2, if I recall it correctly. And now we're taking up to 13 points on a running basis, 8% or 9%, whatever it is. Because at that time, we brought both Enertec and the other ones on board and may, of course, coming up to 11 now or we are much, much better. And now we have a new company on board like Ross, for instance. So 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. Yes, that's very clear. So following on, on your acquisition, you mentioned it yourself, Tayo. So far this year, we haven't seen any acquisitions. What's the reason for this? It's valuation holding it back? Or is it lack of target companies in general? Or We wanted to have a question like that during this session. No, how do you answer? No, of course. I mean, as Hans was saying, we constantly have, I said, 10 to 12 negotiations or discussions going on. Sometimes, you come through signing it almost in the same quarter, 3 or 4, 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 would tell you. There's no hide and seek. Of course, you might think that we are a little bit cheeky for 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 4 months, we're going to almost like wasps or bees around gas and juice. Everyone's going to be there. So that's why we are a bit perhaps less transparent. But when it comes to acquisitions, would we have a desire to slow down? We would mention that in the report. So 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, very vivid. It's very strong. So I mean, we are okay. Why do we admit to have those bonds, whether they're not to sit there just to generate interest? They are there because we see there are so many interesting companies. But 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. And then 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 due diligence, that's always going to be as a very, very important to it as it was years ago when we were a smaller company. So there was a long answer to your question. There's no change. And in 2015, I think it was now, we didn't acquire too many companies either. And then all of a sudden, many came in the year after. Yes. Obviously, as you say, your balance sheet obviously sort of indicates that the pace could have potentially been higher. So but multiples, from what I understand, seem to be somewhat elevated right now, right? So my last question is, I remember in Q2 of last year, we talked about you building inventories. You build 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, very busy 2017. I guess you remember this. So 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 because now we've seen that inventory levels in relation to sales in this Q2 is down compared to Q2 last year. So I guess your Element market outlook is we discussed that, but I'd be more curious to see what the impact this would have on the Client Solutions business. Well, I think that we always build up inventory, and perhaps we should have mentioned that. But when it comes to a sort of a situation where you do it all the time and it doesn't stick out that much. So this we have forgotten perhaps. But it's the same procedure. We, during the 1st 6 months of the year, we typically reduced demand for the coming 7 and a little bit better because we always know that the second quarter or second half of the year is going to be much stronger. We also have developed perhaps a little bit more sophisticated system to meet production demands. And we hope now that we have not overvalued that. We hope that we have workforce that is more flexible, that can fairly quickly if demand would get bigger than or greater than we have anticipated. So we come into 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. So that's and where we couldn't really meet the demand. So that's why we built up in 'eighteen. And now it's more stabilized, as Eric says. It's more business as usual and with some better tools. Yes. Doug, 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 the billions valuation, strategic fit, whatever. So that hasn't really changed. And from an investment point of view, I mean, we could retain very high multiples and the companies we acquire would still be accretive to us. But we have our own philosophy in how we bring companies on board. So it's always a discussion. Okay. Thanks for clarifying that. And just a follow-up on that, mentioning this more sophisticated system in order to meet demand. Is that something that's been rolled out down recent time? Or is it has it been ongoing for several quarters over a year, so to say? Well, look, I mean, we've given out suppliers, just to give you an example. Our suppliers are more geared up when it comes to giving us good deliveries with shorter notice rather than storing the ready made products in our own warehouses. And the reason is, of course, that if we get that assistance from those, it's a lesser capital tied up, but it's also the difficulty of forecasting for the marketing and sales side, which are the categories of products to be sold. Are they like air to water or a geothermal, exhaust air and so forth? Which capacity is like 4 kw, 8, 12. So 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 for me. Thank you. The next question comes from the line of Clara Jonsson from SVB. Please go ahead. Yes. Hi, this is Erik. I'm Hans. Hello. Hi. So my first question is about the U. S. And Climate Solutions. Could you say anything about how your sales of food 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. Yes. Very steady. That sounds good. For the Climate Solutions segment as a whole, do you have any big launches of new models coming up ahead? Yes. Well, I mean, we have now the we launched, of course, at the shows, and they are now being delivered here. We had some slight delays, but they are now being when we come into the 1st week of September, then they will start to deliver those fully fledged. But we have not taken such a dramatic decision that we just discontinued the previous assortment. So they're going to be parallel with the new assortment for some time. Because it's a rather sophisticated assortment that's coming out that's now connected or wired through the cloud, and that's pretty sophisticated also for the installers. We like that to mature. Yes. I understand. So does this mean that you had any extra production set up costs or anything that impacted profitability in Q2 maybe? Well, of course, I mean, when you started to produce a new model, there's always cost in all there. But in this particular case, in all fairness, it's not a chain that is so dramatic. Of course, there are facelifts. I mean, if you come here, you can see that there are several cells of the new machinery. But 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. But of course, it's always expensive to launch a product. I mean, production setup, marketing activities around it and all that jazz. But comparing it to when we launched Generation 2010, when we changed everything, it's a little bit less than 2010 2011 when they had major introductions as well. And also when they introduced the Air to Water 2016. Right. But maybe since we're launching this in Q3, then we could maybe hope for some good sales development for the new models then? Well, that's what the whole mantra is. We're all geared up. We had a board meeting here yesterday, and everyone is aware of this new generation. It's a major, major step. That's the first time you can say that we have taken this step. And now heat pumps, you can say, is now part of this artificial intelligence, whatever you call it. And perhaps I'm not the right guy to talk about this. But being quicker than confused, I guess, I know how it works anyway. And we are very positive, I must say, or we must say about the potential here. Yes. Are you launching it in sorry, for interruptions, but are you launching it just in the Nordics? Or is it broad in Europe and U. S. As well? All in all the German speaking countries and Sweden. All right. Great. So 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. I guess maybe this has passed with 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? No. 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 the heat pump, what's your thermal or air to water, how can you save, how is the sustainability thinking behind that? So we're going to spend we're going to continue to spend quite a bit of money on that, not to just squeeze the lemon, everything out of it and then stand there, okay, well, people really understand. Yes. I get that. Okay. So I have some questions on Element. I know we already spoke a bit about that. But 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. So is it a fair assumption to assume that volumes were down some 5%? Well, perhaps a little bit less, but it's a contraction. That's correct. Yes. And can you say anything about how Q3 has started? Maybe it's difficult so far. Yes. Well, better off to be too quick to answer that question. Well, I mean, we are very cautious when it comes to those comments and not to guide in an unfair way. We understand your question, of course, Lauren. But they, of course, sometimes we have to be very polite when we say no. Yes, of course. I understand. Then I just have one more question, if I may. It's about the increased investments in automation and productivity that you spoke of before. 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. And I guess that's that will not be like 1 quarter. We believe that, that's something that we are pretty much going to remain at. Of course, automation is one thing, But we also see that some factories, there, we have to expand. So it's not only automation, but we also have to go for pure footage or square meters. Like Marcellus, we are continuously growing. We are trying to renovate all the factories that we acquire. We try to add on our logistics center. We are building a new factory in Poland on the climate solution side. So and of course, also on the Element side, I don't think that we should look at it as now it's exited or something. I think that we should I mean, sometimes you're hit by a softer market. I don't think that this is the end of the world. We feel very positive about the development where we are. And of course, we are also, you can call it, racehorses. Of course, we always like to win. Every quarter, every month, every week, we would like to win. But we are not so phony that we can't take a quarter that's a little bit softer. Of course. And there's nothing to hide. So no, no. Just bear with us, young lady. I'm here. You still have quite a good profit growth. It's not really a losing quarter anyway. But thank you so much for answering my question. Thank you. Thank you. Thank you, Karl. The next question comes from the line of Marcella Klang from Handelsbanken. Please go ahead. Hi, gentlemen. You promised us 1 hour, so I'll try to be quick. One short term question and one more long term. When it comes to 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 Element division? Well, I think that we have how it is. I mean, the customers, they put in orders. So we have a very good picture of how the demand is to come in 6 or 12 months. But having said that, that occurs they have the possibility changes within a few weeks depending on factory. So they are 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 had desired, then of course, they change the forecast. They cannot do that within 2 weeks, but that depends on how it's set up for each individual factory. So in theory, we have a fairly good visibility. But then it depends on how the industry or the economy is developing. And that's it's a very difficult situation because whether it's a roller coaster in a way. So when you go when somebody is coming out good indications, okay, now we sort of put on the accelerator And then when it's a bit tougher, all puts on the brakes. So it's almost like sitting in a stow in Germany, where all of a sudden, everyone is driving 110 and then it's down to 0. So we and 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 of a lesser demand, we know that the demand is not going to totally evaporate. And we dare to perhaps produce a little bit during so not to just use people as an elastic, but be decent also there. There's a long answer to your question about the visibility. In theory, it's fairly good, but no customer is taking our products if their demand isn't solid. Yes. I understand. And the second question, related to M and A. I guess, ventilation is a big area of interest for you. And 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 there has been also that takes a takes 2 to tango as Marlon Brando said. And I think that's exactly what it does. And of course, some companies in this industry, they've had some tougher times, and we've been perhaps a little bit hesitant to enter there. And some companies are making really good money in there, and they like to continue on their own. So it's a match there. But of course, we would like to enter the ventilation market, the condensation for larger buildings. And we see that some companies are really profitable and some companies are not so profitable. And I'm sure you could find companies with our coal fired that would have the same companies in our industry that would have the same coal fired. Of course, we wouldn't like to come into a company with an extremely low profitability, let's say, running around 0 because we know that takes quite a long time to monitor that. We rather have to work with companies that are preferably about definitely about 5 And then we try to monitor them with our way of doing business, our way of thinking production and so forth and combining it with the already cost. So I understand that it's a bit frustrating that we haven't bought a gigantic company. But we are very, very meticulous, and we have not by all abandoned our target in walking in here. So you can rest assured that you're going to see press release that Nida has finally done something here. It could also be some smaller or not smaller, some midsized companies that are combined if that wouldn't be possible to buy a larger entity. Okay? Yes. Thank you so much for that. I'm looking forward to that press release. All right. That's good, Marcela. Thank you. The last question comes from the line of Kai Bockvis from ABG Sundal Collier. Please go ahead. Thank you very much. I know that you are a bit sketchy on timing, but I'll try to be very brief. I just wanted to pull up on Charles' comment on new products. When you launch a new product, do you expect that you can get better prices or just better margins on those products? Or is this sort of an assessment to continuously release new products into the market? Yes. Of course, that's a good question. I think everyone's desire is to slightly improve the margin on the new products. So that's, of course, the aim. But I don't know whether we can sit here and promise that now we're going to improve our margin. I think that's it's very important that you don't launch a product that diminishes your margin. And that's why there's, of course, when it comes to quality and performance, that we don't launch anything that would tarnish by any means our reputation in the market. And I think that we rather would like to see larger volumes than perhaps increasing the margin additionally because it's also important that we now come out with products that we can sell on a broad scale in Europe that are not too expensive. So that we are also very eager to enhance volume. But the first question, of course, the precalculation, but we always try to do a little bit better than the previous model. But having said that, we also know how it is. I mean, it's in theory, it's better. But at the same time, a model or a series that you've been producing for 3 or 4 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 that the previous model is. And then my final one here will be super quick really. Just had to do this on some finance there for Hans. Just in terms of non controlling interest now going forward, it was still in the quarter, but I guess one should expect that we will see some kind of SEK 20,000,000 CFD or non controlling interest from 2 premium onwards? You mean in terms of Over the short shifts, yes, exactly. Yes, that's right. Yes. Okay. And then net 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 €5,000,000, €6,000,000 And then yes, the other effect that has come in there is when we issue bonds, we typically go for the variable interest rates, so to speak, where some bond makers want to have them in a fixed. So we make a swap there. And they are, of course, revalued as we move along. So that's the reason for the pickup right now because the Swedish interest rates are now rather around 0 or minus 0.5 percentage. So slightly higher, but no real big movements. And I mean, the whole world seems to be lowering their interest rates again. No problem. Yes. 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. And here, you have a number of fighters in Marcaroon. And we can guarantee you that we're going to produce several press releases. So we won't be disappointed by Taylor. All right. Thank you. Thank you very much. Thank you. This now concludes our presentation. Thank you all for attending. You may now disconnect.