Earnings Call: Q4 2020

Feb 17, 2021

Ladies and gentlemen, welcome to the Needy Year End Report. Today, I'm pleased to present Eric Lindquist, CEO and Hans Vachsund, CFO. You can ask any questions at any time in the Q and A box that you can find on the bottom left hand side Mr. Lindquist and Mr. Vachman, please begin. Good morning. Thank you very much. Good morning. We're going to have the usual split between myself and Hans. So I start and then Hans dig into The financial numbers more precisely. I hope you have a nice winter day out there wherever you're sitting. We had a snowstorm in Maljarit. We've gotten like 25 or 30 centimeters of snow between 12 o'clock last night and 9 o'clock this morning, it's still snowing. And it's been minus for 3 consecutive weeks here in Markelley, which we think is pretty good for business On top of everything. Starting with our business environment For the full year, we all know that it's been a very, very different year, and we are quite pleased To announce that it's been a strong full year for us despite the COVID-nineteen that everyone is talking about. I guess we're all exhausted about hearing that COVID-nineteen. We are rather call it a situation just to avoid that name. Nevertheless, of course, we've benefited to some point with the large variations in demand from quarter to quarter. But in the end, it seems like we have landed fairly successfully. And one driving force behind that is, of course, that Sustainability has remained relatively strong even during this pandemic. What has also hit us during the latter part For the year was of course the Swedish crown being stronger. So we had some headwinds During the 4 or 5 last months, hindering, of course, the pure organic growth a little bit as we presented typically to you. And when we look at the growth and results and so forth, We have continued to grow like 7% predominantly naturally driven by acquisitions. And our results has also improved both operating run and the margin. One thing that we like to describe Precisely now and Hans going to come back to that is of course the $353,000,000 that's disturbing everything. And we've all the figures that we're going to present from now onwards, except one slide. They do not include those 353, That's more of a bookkeeping auditing phenomena. When we acquire companies as you typically do, With one amount initially and then an earn out amount, the result assumptions in the future, We, of course, base the theoretical purchase amount on. And that is being evaluated every year. And now during 2020, we have come to Sure. There are some companies that has taken a hit and that's why the considerations that we have Stand on going to be a little bit less. And funny enough, that means that the same amount is going to be plus effect in the profit and loss statement. So that's of course not a true operational phenomenon. That's why we're taking that apart In the slides that we have ahead of us here now. Acquisitions, you've seen that the 1st 6 months, we had a number of acquisitions and Later on, it's been a little bit slower. And that doesn't mean that we don't have prospects. But of course, it is a hindrance that we can't see people or can't travel as Done in the past, but it's important also to note that it's not come to a standstill at all, but it's a little bit It's more difficult, we can say, to approach new companies particularly. And we once again like to, Should I say, appreciate our own management model. It might sound like we pat ourselves on the shoulder, but the decentralized model has Proven once again to be very, very valuable and hard to beat. It would be impossible for Hans and myself and if you are others here, Marc Harrouz, To stand and scream to all the 120 companies and you better be cautious, it's impossible That we have instilled during the years that everyone is running on a very autonomous way That has proven to be so valuable once again. So we are very appreciative to our managements out there, and also the employees. The slide here, that is just showing the Q4 and the full year with those $353,000,000 included. So we just skipped that. That is just what you see in the report. But the true numbers, of course, operationally That they are on the next slide, where we came out with a decent 4th quarter on the SEK 7 point $7,000,000,000 versus the $7,100,000,000 at prior quarter 2019. And the year, of course, ended almost $2,000,000,000 ahead of last year. A healthy growth mainly acquired, But nevertheless, the organic growth was still there, but of course, hindered again a little bit by Quite a bit by the headwind currency wise. The gross margin is also on the right side compared to last year, both in the quarter and in the full year. And of course, very pleasing to see that we were able to come in On operating margin, well ahead of last year, both in the Q4 and in the full year. And you can see That we have been at 13 ever before in our history. We've been between 13 12.9, But I think 13% is record, if we are to say that. So we are quite pleased with the results. First, we would have loved more organic growth, but then already sitting here in March, April, May, I guess, we all had that experience. We were Pretty pale and where is this going to end. And now we see that the 2nd part of the year after all was pretty decent. And we just look at the bar chart that we typically look at. You see the same seasonal phenomena that we have Had for so many years that every quarter beats the previous one. What we see here in the Q2 is slightly, slightly below the Q1, and that is very much a pandemic effect. But then it took off again as of mid June, late June, and the 4th quarter is back almost at full steam. And if we look at the result bar chart, it's the same structure. And there we see that we were able to cater for the margin for the profit in a pretty decent way. So although the Turnover went down. Revenue went down slightly. We were able to present profit after financial items. That is it was quite a bit better than the quarter number 1. So The graph is just showing that we are very solid in development. Looking very quickly into EBIT Climate Solutions, of course, there we've had a stable growth both in revenue and results. As you've seen, We have had some acquisitions, so we carry those out quite successfully. They've all given us certain Features, Tiki Group, of course, is a large water heater producer in Serbia, where we haven't been Geographically, so what I presented, and now we have a large producer at a cost efficient platform. Untes in Turkey, we've been looking at those for a number of years, ever since you bought ROS In Italy, because Oontes, they are closely related to RAS in Italy. And now we have a good platform between those two companies. Oont is mainly known for ventilation and air conditioning equipment. The O, they are producing Boilers, larger boilers for industrial use, we feel that that can be combined or will be combined with our own Oostiparker operation. Nauttan Holding came in very handy, large outlet for heat pumps and underflow heating in Netherlands and Walter Koth in Germany. Of course, again, broadening our presence in Germany also came in very handy. So that's the business area where we've had pretty good, should I say, market conditions in Europe, The whole with some exceptions, the whole year, whereas North America has been a little bit different. Donet sales, all in all, up some 9% and the operating margin He has taken a considerable jump with some 18%. And then of course, we are very pleased To announce that the acquired companies, they have really contributed very successfully to that growth. And of course, they came in, Lundqvist, for instance, in BEO and Ozanata. They had decent margins and with their whole markets increasing, It's been a pleasure to see how they have developed. And all in all, of course, that has taken us up to 15 Present on the operating margin level, and it's quite a while since we were there. I think it's like 4 or 5 years since we hit that 16. Some other acquisitions in the past, they have not helped us immediately. But now we can say on a combined basis, We'll accept the 15, Debbie. Where we have a chance to be if everything is running decently. And then keep in mind that the market conditions, although we say it was decent, I mean, it wasn't ideal. Of course, Climate Solutions We've also been hit by the pandemic. Element got hit very early by the virus being so present in Asia. And then of course, Europe came and later on North America. And they've been practicing an extremely Good management style to compensate for orders being drying up All orders drying up and then compensating with costs and still maintaining the most important functions And of 2 segments that haven't really been hit that hard and that keeps pumps and semiconductors. So of course, they've been carrying The results and the volumes during more or less the whole year. We haven't had that many acquisitions here. We had 1 in Italy in the middle of the year. But being a sub supplier with all our customers being exposed in such a different In varying way, we are very pleased to again announce that we've improved revenue, margin and results. I think that's an extraordinary performance for the management and the people in that business area. And of course, we did not hit the 10%. We improved our operating margin from the previous year from 18.8 0.9% to 9.1% and sales is up. Here we have an organic contraction, But still, we demonstrate our strength by coming out with an operating margin that is still above last year, some 6%. And then jumping over to Stokes, again, I think Stokes were Individually hit the hardest in the springtime and almost came to a standstill during some weeks. But then again, just for the other two markets or the other two business areas, demand picked up. In this particular business area, we've had 2 factories that have been hit very hard also by The governmental, should I say, rules saying that we had to close both in Britain, we had to close in British Columbia in Canada for certain weeks. And then the market came back. And again, the management, respectively, Again, proven to be very, very flexible and strong. So I dare to say we dare to say that we have not been Sure. In any fashion so far, by people leaving us, we're heading ahead A lot of layoffs in important stock. Of course, there were some people that were laid off or When demand diminished, we, of course, came out with some fuel on the operational level. But I'd like to say, at year end, we're up and spinning like we were at this time last year. And again, improved revenue, operating yourself and operating margin. It's almost, I shouldn't say unbelievable, but it's very impressive to sit and look at the figures that we do here in Marchetti when we all saw The train coming in towards us in the early spring. And here again, the operating margin has improved from 10.5 And Stolt, as we said so many times, they haven't had a year since we got listed some 23 years ago below 10. So that in itself is a very good sign of strength. And just in summary, We can say now that we are on a $27,000,000,000 level, and we are 2 year into the term Heading for SEK40 1,000,000,000. And of course, we had a 2018 that we arrived at some SEK22 1,000,000,000 and then last CEO 'nineteen was $25,000,000,000 and now it's $27,000,000,000 So we are very, very determined to hit the $40,000,000,000 And what you see in this graph, this graph contains both the Lehman Brothers crisis, the bank financial crisis in Sweden, 1993 and now the pandemic. Anyone looking at this graph has to observe that there's tremendous strength and the transformation behind our growth. And looking at the development of our profit of the financial items, It's pretty much the same. There you see, of course, that they put in neat lead In profitability in 2020 compared to 2019. So it's very consistent. And of course, there we had some 21.6% average growth, whereas on the revenue side, You might have noticed that you had some A team. We're not quite at a training, but we haven't given up. We are very determined, very positive And the world is certainly changing towards sustainability. That word is used too much, we believe, But I think we all have gotten signs saying that we have to be cautious with our planning. Otherwise, Something bad is going to happen to us and we feel that we are correctly positioned when it comes to Saving the planet. We can save it, but we can add a little bit to a detriment for climate and lesser of beans to the timing. And again, we talked about seasonality. I don't know whether we've shown you this graph Before, it's amazing, if you go back all the years since 'ninety seven, The seasonality is so consistent. The Q1 is between 21%, 23%. The 1st 6 months add up somewhere around 45%, 46%, and then the 3rd quarter Accumulated early up around $70,000,000 to $72,000,000 and then the Q4 is always the strongest. It's the same thing on the results side, but even more pronounced. Of course, as in the first two quarters typically some between 3540 And then the 2 last quarters during the year, that's where we really make a lot of money. So I think this graph is good when it comes to analyzing NIDA. It's very, very stable. And although we are so differently presented now geographically and The products are changing or being modified. We still have the same pattern. Very interesting to look at that. Let me take the 3 business areas and just compare them where are we, With almost the same pattern as before, Climate Solutions, almost twothree of sales, the NIIBA element is a bit better than a quarter and the remaining EBITDA Stokes. And then we will look at the result line on the operating level, of course, Retirement Solutions headings are 15% operating margin. They represent almost 3 quarters of our results And leave elements on a deal and then sold to 9. That picture has pretty much remained the same for a number of years. Here, we see that Europe and the Nordics, they have grown slightly. North America has dropped back a little bit and particularly on the Climate Solutions side, We haven't had that positive development there. So that's one reason. And also on the element side, we have some Headwinds, particularly in the 1st 6 months. So I think with that, I hand over to you, Hans. Did I No, it took 20 minutes. Was that too much? I'll try to be quick and leave some room for questions, of course. So I'll just jump into Climate Solutions. Thank you, Eric. Well, as we said, I mean, it's been a very, very different year, of course, maybe the least for Climate Solutions in the sense that it's been the most Stable business area for us. But one thing that the pandemic has shown is the sustainability trend and that it continues And that people have become more and more aware of this. And when we say people, it's not only The average person like us, so to speak, it's also the politicians having increased incentive programs both in Europe and in the U. S. Where the tax Credit was prolonged for another couple of years. So this has led to this business area being fairly stable for the year. I mean, we finished off the Q4 in a rather stable fashion, although that was also the quarter where the Currency hit us the most, the translation effect into Swedish kronor. But the quarter as such grew by 9%, Driven by acquisitions, but as I said, the currency hitting us more than in the quarters before. Stable gross margin and then an operating profit increasing by close to 23%. And for the full year then, we are seeing a growth in the business area of 9.2%, Very, very getting very close to $18,000,000,000 in turnover and on this generating an operating margin of 15%. And what we've seen underlying that is, of course, that the Nordics have been stable in general, maybe with the exception of Norway, But then that Mainland Europe has continued to be very, very good for us, whereas North America has been slightly weaker. And that's really what you see on the next slide as well, the pie chart where North America now represents some 21% of sales. They were up to 27% a year ago. Europe was mainland Europe there was 42% a year ago, it's now 49%. So also the Nordics playing a slightly smaller role, so to speak, in the average picture. But it's a reflection of mainland Europe really Taking on now the sustainability trend. In terms of profitability over the years, I mean, it's a stable trend, you can say. We are far above the 10% operating margin target. And of course, that is the target for the group in general. Once we've reached it for a business area or for a company For that matter, we of course do not want to fall behind. At the same time, allowing ourselves to invest of course in product development and Acquisitions, but here rather around the 13% to 15% operating margin level than 10%. Jumping quickly over to Element. This is, as you know, our most global business area, Both in terms of geography and the exposure to different industries. And as such, it has, of course, been exposed To the pandemic and as Eric said, starting out in China, then coming to Europe and then over to North America. So it's been a very volatile and shifting demand over the year. HVAC and semiconductor continuously very strong. The volume segment being much weaker, but coming back at the end of the year, not the least in the white goods industry, a lot of people Obviously spending time at home and either replacing because they're worn out, but because they want new products. The automotive industry at Crossroads, as we've said before, and parts of the industry actually in decline. But having said that, the overall trend of electrification is definitely continuing, which is a positive outlook for the business area in general. It's been here a little bit of a struggle for demand and capacity and staffing in the factories, but I think we've managed that Quite well coming out with a solid result. The business area definitely picked up in Q4, Grew by some 4.5%. You may argue that it was all acquired. But again, the currency Has been working against us in Q3 and especially in Q4. Gross margin has come up to 24.2% And we were able to grow the profit here by some 21%, almost reaching an operating margin just below the 10% mark. And for the full year then, we've grown by some 4.5%. So organically, a decline, as Eric said before, But still keeping the costs very much under control and being able to land in an operating margin of 9.1%. It's been a very good cost control, but then also as we mentioned in our last report, a very well timed acquisition through Thermex, both being a Sizable company and of course in the currently very attractive semiconductor industry. In terms of distribution of sales, the picture is very much like it was a year before. North America, Just around 40% or just below Europe, exactly a third and then the Nordics around 17% and others being Asia and Australia, some 14%. In terms of profitability, this business area has, of course, when we look back ever since 'ninety seven, Not been at the 10% level at all times. It's been a consolidation process for us actually to step by step Adding on businesses to build a global and Tier 1, Tier 2 supplier. And ever since the restructuring Cost was taken in 2,005, which is the bar looking or yes, in going downward, so to speak. The trend has been on an upward trend. And we were above 10% a couple of years ago, which partly was driven by a one off business. But the last 2 years, we've been able to pick up again and I think it's more than possible to reach the 10 and stay there. Last but not least, Neebus Stokes. It's really been a roller coaster ride for our Stow's Business Area. Q1 started out fairly stable, a slight decline in the latter part of the quarter When the pandemic became more evident then with a huge decline in Q2, just to be met by an even stronger recovery in Q3, which then has continued in Q4 with a very strong organic growth. And here we have had some tough actions in the sense that factories were forced to be closed in the U. Okay. And in Canada. So it's also been a juggling to meet resources and keep staffing in a good fashion. In terms of the numbers, we grew sales by some 11% in Q4 and given that we also here have Currency working against us. It's been a very strong Q4, which has made it possible for us to increase profit up At some 12%, reaching an operating margin of 17%. And for the full year, we came in at 10.5. I saw that in one of the previous picture, it pointed to 11.1 last year, but that was actually a small error in the presentation. So we apologize for that because last year we came in at 10.1%. So we beat last year this very difficult year, which is very pleasing to see. And it's, of course, been A matter of very good cost control. And then when the demand really kicks in as it did in Q3 and Q4, that has Good effect on our numbers. In terms of sales per geography, picture is exactly the same as a year ago, Europe in close to half and then an even split, you can say, between North America and the Nordic countries. And looking at the profitability over time, this is the only business area that Actually, it always has been above 10%. And it was then very pleasing to see that in this difficult year where our own projections at the beginning of the year You know, pointed somewhere else that we actually were able to meet this. So summing up a little bit then, when we look at the performance between 2016 and 2020. I mean, it truly is a robust performance. Being able to increase sales by some 7%, Let it be that it came very much from acquisitions, but still being able to achieve this is very pleasing for us. Of course, it's not quite where we have planned to be, but it's a solid performance and especially on the profitability side, Where we were able to increase it then without the revaluation that Eric talked about before with some 16%, Bringing us to an all time high operating margin of 13%, which continues all the way down to the net profit, Which also increased equally much, you can say. So over these years, we have basically we're very close We've been able to double in sales and utilizing the same business model that we've had all along. We were really up for a test this year whether or not our business model would prevail. And I think it's fair to say that it did. Just a quick look on the balance sheet. I mean, the total assets have not changed that much. The one big item we have there, just like every year basically is the intangible assets, Which of course is a natural result of us acquiring companies according to all accounting rules and procedures. We of course do the impairment test You did and have very good headroom regarding that. We also have rather good headroom, so to speak, in our financial current assets, meaning our Cash, we put us in a good position for further acquisitions. The one item that might stick out a bit is on the Equity and liability side, and it's the equity, which basically is same as last year. Of course, it's been improved slightly, But not as much as one might have expected given the good performance of the results. And this has to do again with currency effects. This comes from if you look into the report on the other comprehensive income, this is the exchange differences That we get when we translate our foreign operations into the Swedish kroner. It's an inevitable Effect that hits us and every industrial company you can say with foreign subsidiaries. So The hit, if you like, in Q4 was quite large, dollars 1,500,000,000 and on a year to date basis, dollars 2,300,000,000 Which then goes against equity. But we should not forget that in 2019, the effect was close to $800,000,000 plus And the year before, dollars 1,200,000,000 plus. So it's over these 2 years close to a 0 sum gain. Cash flow, just a quick comment on that, has been very strong, up some 20% from last year. And what really has generated a tremendously good cash flow is the change in working capital. We've come down there from some 18% to Slightly below 13% over the year, which has generated some DKK 900,000,000, which Makes the operating cash flow after investments twice as high as a year ago. And this despite the fact that we have increased our investments over the last couple of years. Now it's fair to say that we might see a little bit low on the working capital given that Sales have over exceeded expectations in some parts of the organization in Q4, making our inventories lower than they usually And just on the next page or next pages, a few comments on the key financials. I think it's fair to say that we are in a good position when it comes to, well, financial stability in general and also when it comes To being able to acquire companies going forward. I mentioned the cash just a little while ago. And if we look at net debt to EBITDA, It's down to 1.1 or the 1.2, that's actually 1.15 if you would use another decimal. A strong equity assets ratio, Although it didn't improve that much due to the currency effect, but overall strong. The only item maybe that sticks out a bit is the return on equity where we still have the target of around 20%, which is a result of us, of course, being strong on cash and Equity assets ratio. And you saw the working capital there being just below 13%. So overall, I think it's been a very solid year and not the least given the situation that we all have been experiencing and Still our experience. But I'm sure there are questions regarding this. I think Eric, you Explain the 353 quite well. So unless someone has a question, I'll ask you. All right. So again, I apologize for the 11.1 there on the sold side. It was 10.1 loss as of 2019. So I think with that, we have some 25 minutes roughly For questions and hopefully some decent answers, try to finish by noon. No. That's huge, please. Okay. Ladies and gentlemen, CEO. We have a question from Victor Trollsund from SVB. Please go ahead. Your line is open. Thank you, operator. Yes, Victor here from TSNB. Hello, Erik and Hans. Thanks a lot for taking my questions. Just firstly, what you're seeing in terms of geographical Fekal Development, Meduiting Climate Solutions. You obviously are facing quite a hefty FX headwind, especially in North America. But Felix, excluding that, it seems that organic growth was quite negative in Q4. Could you talk a bit about that development in Ultomaric and how that has developed during the quarter? No, I think that for some reason, it's been fairly decent in Europe. And We can't really say that we have exactly all the answers there. But when you look at the news or watch The news and listen to radio, the close downs, close downs, close downs, everybody is talking about that. Well, it's surprising to note that when it comes to heat pump installations in Europe, they've been running fairly Equally as before, of course, private individuals or private families that causes when a person will install or will come, But they do not close their doors, so they're fine. They just leave the utility room and they can install the heat pump. I think it's been more dramatic in that sense in North America also on the commercial side. And Perhaps the close down, the lockdown has taken people have taken that more seriously or they've been more Scared, I mean, that's the only explanation that we really can give. So It's very pleasing to see that the big markets in Europe, they are moving in a positive direction despite all the bad news. But in North America, people have been more anxious. I guess that's the 2 answers we can give on that question. Okay. Now that's clear. And my second question is on the certain topic, just Adjusting for FX also in the Nordics within Climate Solution, it implies a clear improvement in organic growth year over year in Q4. Would you say that demand is accelerating in the Nordics from maybe increasing replacement demand? Well, I think that's when it comes to the Swedish market, we saw that the statistics came out from our Heat Pounds Association and giving pretty neat improvements there. I think it's important to know that it's one additional company participating there now. So the market is slightly up, but not with the percentage as indicated. I think that the fellow running The Deepwater Association there, whatever his name is, should have put an exclamation mark saying, well, Due to the following, the market has not really grown, but there is one more company leading figures. But there is certainly in Finland and Denmark, we can say that the market is really developing or has been developing well. In Sweden, that's small increase, but not the increase that you saw on the statistical figures. And in Norway, it has contracted. Norway, again, is almost the exception in Europe, where they have had a very hard lockdown, And that has taken down sales considerably. So to say 2 very positive markets, The whole market still positive, but not tremendously, growth. Norway, very negative. I think that's summary of the Nordics. Okay. No, that's Clear. And that relates to Q4 isolated also, I suppose, not for the full year. Well, I mean, it's pretty much the same Hacklin, Norway closed down very early or locked down, whatever they call it. Also, we follow, of course, Finland and Denmark doing the same, but that has not affected the Operations in such a way as it has in Norway. They've gone further. They've been much stricter. So there should be no sanction on the year and the quarter. Yes. No, that's Thank you. And just a final question from me. We have heard recently about refrigerant prices starting to increase, Which I guess triggers some memories back to 2018, where at least I believe your profitability took quite a toll from higher purchasing prices. Could you talk a bit about what you're seeing in terms of that and then the overall raw material cost inflation and your expectation on margins for 20 Antoine, from that perspective. Well, I think that the refrigerants, they might Go up a little bit, but I think that it was more of a shock 2018. I think everyone in our industry is now working In a very, very professional and determined way towards a solution where you're going to be well Below or at least on the level of 675 PWP. So Yes, now the refrigerants will go up a little bit. We do not see the pattern of 3 years, 3 years ago at all. And first of all, we had the steel goes up. And I think that you also have to consider that things have gone down. We don't have a crystal ball. We look at it as a very rational. We shouldn't overreact, we believe. Of course, 1% or 2% or 3% The price increase and some say, wait, that increase is 10%. We do not believe that. We think that company has been suffering On the raw material side, we are trying to get back, but we do not foresee a dramatic price increase As it looks at right now for the year, if that's what you're asking. Yes. Okay. Thank you very much. I'll get back in the line. Thank you. We have a question from Pam Wu from Morgan Stanley. Please go ahead. Hi, hello. Thank you very much for taking my questions. The first question is that the German Heat Pump Association posted a 40% increase in volume in 2020. Would you be able to share with us your market share in Germany or the growth you have achieved roughly in the region, particularly given the very positive market backdrop? And then my Second question is regarding your M and A focus in 2021. How much would you like to spend? Any specifics on product or geography? You didn't ask about my shoe numbers and my shirt size. It should be asked though. Well, market share wise in Germany, they are not disclosed. We are one of the leading ones and we are following the market Well, with our brands. So that's the answer to that one. And as far as In acquisitions, of course, neither do we forecast acquisitions. We have very precisely described that 10% as an average per year should be acquisitions and 10% should be organic growth. Of course, 2020, there we arrived almost at 8% through acquisitions. So there we almost fulfilled our prophecy. But on the organic side, it was lesser naturally and coupled With the currency, what we call headwind that we've talked about so much now. But we are ready, I mean, Horne said, we have a very strong balance sheet. So we are ready and we are discussing with a number of potential, of course, targets, if you like to call it that. So nothing has happened. We are, as before, on our avenue towards the SEK 40,000,000,000 And we are very pleased to know that we have all the ammunition needed for relatively large acquisitions as well. That's all we can answer on your questions there. Okay. Thank you. Yes, thank you very much. And just Squeezing one more on the margin sustainability. You already talked about in the previous answers about the sort of managing the raw material price impact. And obviously, in this year, the good margin is also a result of productivity and cost control. Do you expect that to continue or would you expect some of that to unwind as market pickup throughout the year? No, I mean, the productivity and the cost control, that's in our DNA setup. That's something we've always been monitoring. And as you know, there's always room for improvement. We call it Always more and never enough, that's how I was saying. Whatever you do, you can always do it better. The day you slacken, You start to lose. You should never be satisfied with your productivity. I mean, that's the headline of all our companies. And as far as price increases from our suppliers, we've always said that One should not overreact. Of course, we always have the possibility of increasing our prices, but we like to monitor And observe what our supplies are doing. I mean, they can't just push tremendous amount of price increases upon ourselves Without a reason, and we don't necessarily like to push higher prices into our customers' faces unless it's totally Necessary. That's why you don't observe a month to 6 weeks. Of course, if prices if economy were then go up, Eventually, we also would have to monitor our prices, would our budgeted purchase prices not match The actual one, that's just common sense. And we would love to see the economies starting to spur again. In that sense, once volume really comes back, it's just name it again that sub suppliers might Increase their prices a little bit and the final producer like ourselves in this particular case, of course, We are going to benefit from the larger volume. And if that's not sufficient, we might have to monitor the prices. That's not the first thing we're going to jump on. All right. Yes. Thank you very much. We have a question from Gustav Osterberg from Carnegie. Please go ahead. Hello, everyone. I have a short question here from pricing. You detailed a lot here on the cost But could you you talked a little bit about pricing pressure in the Q3 report as helping margins a bit. Could you elaborate on the origin of that eased pricing pressure? Is it still present? Is it related to a higher mix The new models or is it changed competitive behavior? Could you give some more flavor on that, please? You're talking now about in general or you're still talking about any particular business area here? In particular, Climate Solutions, please. Well, I think that in Europe, given the market, we haven't noticed any real Price pressure. It's been fairly civilized, if we can call it. Of course, From time to time, not so much on our side, but we've seen some shortages of components. We've had some short experiences ourselves when our sub suppliers have been Missing out on some components in their turn, but we haven't been suffering that much. And on the price side, we can't say there's a price war on heat pump. Of course, there are different categories of heat pumps. I mean, you're So, lesser value added in some, but that shouldn't be interpreted like There's a price pressure, of course, it's like having different car models. Mercedes has many different ranges of prices. And I think it's again fairly civilized within the different ranges of the or categories of e All right, perfect. That's clear. Thank you very much. We have a question from Max Heligan from Bankster Bank. Please go ahead. Thank you so much. I have a follow-up question on Germany there, which we talked about already. So you had a strong market growth, but also had tax credit application going More than doubling. And my question relates to the dynamics in the German market during 2020 and going into 2021, if you can share something On it. And the question is basically, did you see that the restrictions on the COVID-nineteen pandemic held back the market growth? Or could the installers operate as normal in 2020? Yes. Well, I mean, We believe our quarter percentage is important to talk about. But if you compare to The total numbers of heat consumed installed is still not that dramatic. I mean typically, I think just to give you some sort of Collection on that, we believe that there are some just a residential side, some 700,000 heating devices installed per year in Germany. And now the German market is approaching some 130,000 heat pumps or something like that, If the statistics will be fully comprehensive, I mean, we are still lagging below 20%. So first, those installers installing gas burning boilers and gas oil burning boilers, they're still there. Of course, they have to be reeducated. And that's the game for our task, all manufacturers. We should not make key So complicated that it's a science in itself. It should be relatively easy to install a heat pump. Yes, that's what we are working on. That's what our colleagues are working on. So it shouldn't require a different squad of people installing heat pumps. It should be Just like in Sweden, there are no oil burning boilers installed anymore, but there's still Approximately the same number of plumbers on saunas, and they have been reeducated over the years. And that's what's taking place in Germany as well. First, from time to time, you might say, well, I recall it plumber and it couldn't come for 8 weeks. That's not a new phenomenon. That could have happened also in the past. I'll try to make it sort of a leading question, seeing if there will be an acceleration in that growth in 2021. And I Well, Yes, well, I understand that. And I think it's important to not to be overoptimistic. We've been waiting for Germany, and we've been, as I say, talking to analysts and investors For some 25 years talking about the excellence of e pumps. And Germany one day would arrive at some 120, 130 And then they're riding up to some $180,000 to $100,000 But of course, that's the target that we have. But considering that the new construction In Germany, over residential homes. Let me just take it with a pinch of salt here. It's like 90,000, 100,000 homes per year. And if they were to be equipped with a heat pump 100%, then you have 100,000. And they would be included in the 700,000 roughly per year. And we don't foresee That the new construction is going to be terribly much larger. So it's a matter of how do you attract the present owners or the vast majority of them of owners of gas boilers and oil boilers. That's the name of the game. How do you come in there and convince them now you're going to buy heat pump rather than buying another gas burning Borula. And that's going to take time. That's why we are very optimistic, very optimistic And I would say Germany, but we are also realistic. We don't say that in 5 years, we're going to None of the gas board has installed that. We don't believe that. It took a long time here In Sweden to go through that process. But we will see at least a third of the market is going to be heat pump in the foreseeable future. I guess that's more precise than that. I think you said it would be. No, that's optimistic. So it's more than Sure, Anders, I'll send them. But then again, having half of the markets with gas and then the lowest gas prices in Europe. Yes, that's a strange thing as we look at. We talk about sustainability. Everybody So from sustainability, everyone talks about saving the climate, but then all of a sudden, we start to say, but then gas prices are low. So then all of a sudden, the consumer or everyone forgets that, well, Why are people still buying gas then? When we try when we should try to avoid it, we should go electrically, everybody is saying to politicians. And all of a sudden, you return very primitively, not yourself, but to say, a lot of people return very primitively to them else, But now gas prices are down, so that's difficult for heat pump, where we could dwell for hours on Why prices on gas and oil are extremely low? Why are they announced to sell that devastating Media to private business, that's selling alcohol for 1 crown a liter, knowing that it's very bad for you. And there you have a much higher price on liquor to trying to make it Deliverable. And we don't understand really how people reason for politicians reasons in many instances. It should be so clear to everyone, we should just stay out of the gas and oil period. And now they in some countries, they try to even boost it. And we're talking about the Nord Stream now, which is a big political debate. How could that phenomena take place in talking about perish treatment and everything? I start to preach now, Max. I'm sorry. Yes, you are. I don't want to interrupt, but maybe you should leave the floor for another question. I just want to one last one quickly, if I may. It's I mean, all your competitors, all the good ones at least, are German or Austrian. Have you seen any increased competition here in terms of either 16 players on price Or sort of mid market, lower end peers coming into your premium segment in the German market? Just a quick thing, if you can. I think that in many ways, I think Northern European players are if we dare to say that German And Sveen would be in that category. I think we're all looking for quality and people like to acquire or buy Long lasting equipment. I think that we have the same philosophy in that sense. So we think it's good to have German competitors if we put it that way. They bought the Thermian, they bought IVT and we bought C2C. So we have a very solid platform and they have a solid platform. We bought our HeineTech in Germany and we have the 3 main contenders there, Plus, of course, Steve, at 4. And now we have Nida, we have Arceinetec and we have Arcecote. So I think that we are all Up there, hiding with each other, but again, if I may use to it in a surveillance way. Okay. Thank you. We have a question from Jacob Eidler from Handelsbanken. Please go ahead. Thank you, operator, and thank you for taking my questions. I just have 2 quick ones Here, firstly, you clearly described that the earnings have been boosted by the revaluations of these earn outs. Are you able to give some flavor of to which acquisitions these primarily are related to? And then my second one is just a general question on costs. Is this a sustainable cost level going forward? Have you been able to take out Some costs here permanently during the pandemic and where do you anticipate that costs will return to more normal pre COVID levels? Thank you. Absolutely. Yes. I can jump in and take the first question. I mean, we don't disclose the individual companies in this. But the revaluation that we do of these additional purchase prices, I mean, that's really done on a yearly basis. And typically, they come out with much smaller numbers, which doesn't lead to us having to disclose them separately. And since it was such a big number this And we said for fairness reasons, we would like to display it with and without. I think what's triggered it a little bit more this year was The COVID in a way where an owner had a put option which was utilized when the market looked Rather dark, so to speak, which led to this. With hindsight, I think that owner would like to stay on board. That's as far as we go. Okay. That's very clear. Thank you. Yes. And on the cost level, it's just the second question. I mean, we can combine our thoughts here. Yes. I mean, it's like communicating vessels. If the order intake It's a little bit less. Of course, you say you start to look at your cost. Of course, we've been traveling less. We have been participating lesser in shows and stuff like that. But there is also sold less. I mean, the organic growth is not tremendously high. So of course, we haven't really skinned ourselves, saying now we have the same magnitude and present a decent result. I think we live very naturally, not damaging ourselves for a long term target. We know where we have to be in a certain number of years and then that's a milestone of $40,000,000,000 If we would slacken now in R and D and if we would slacken in marketing, I mean, it would be devastating for the long term growth. But of course, there is a correlation between necessary and your sales and then your to the courses with cost. Yes. So I guess nothing strange with that. No. Yes, I think that's very clear. Thank you so much and that was all for me. Thank you. Thank you. We have a question from Karl Bocklist from ABG Sundal Collier. Please go ahead. Yes. Thank you. Hi, Erik. Hi, Anders. One question for me really. You have new thermal, you have air water exhaust there. Given the ramp up of the different markets out there, the speed of technological development, would you in the future consider entering the Air to air segment or is this it will continue to be and will remains a lower price point market and it's more focused on price rather than Quality and reliability compared to the kind of usual product segments where you are in currently. Yes. It's a market that's been, I shouldn't say bastardized, but perhaps I also already mentioned a word. It's been a lot of actors In there and it's difficult to really penetrate that market in a profitable and successful way. That's what we consider, not producing that category of product, but we wouldn't exclude Any possibility of that kind. But of course, the drawback on the Air Care, which is, I mean, perhaps I shouldn't criticize it, but it's a relatively expensive device when we use it for air conditioning. So talking about sustainability again and saving energy, that's a little bit of a question mark. And as you say, it's also a device that you do not heat or cool your home with completely, Whereas you have single units in the living room, in the hallway. So it's a little bit of a different concept where we talk more about hydronic systems or inductive systems, if you talk about North America, Heating and cooling your home your whole home at the same time. So it's more like solitary devices That they represent, but we wouldn't exclude that, but not a high, high priority on that. Understood. Thank you. Just on that subject, I mean, are there similar segment differences in the commercial space Where you have actually decided to focus on this particular part of the commercial market rather than others where you see it's a bit more commoditized, In that collaborative works. No, I think that in the commercial market, you should I mean, there is more the customer categories. What we are in right now It's of course, apartment buildings and hotels in North America. We are not so strong in hospitals, for instance. So but that doesn't mean that we exclude that. It's just that the profile of the CCD in Oklahoma, They have not been particularly, let's say, pointing out hospitals, other categories of producers. But that's more a marketing philosophy and not so much of a pricing difference. It's a real curse to say that we would be 100% supporting all segments within commercial, ventilation and air conditioning. That would not be True, but we haven't stayed away. It's more that you have to concentrate on some of them to be successful there. Understood. Thanks for that. Yes. Well, We appreciate all the questions. I hope that we haven't had any hide and seek game. Some questions, of course, we could answer, But we don't want to answer. And we hope that we've been clear, as clear as you possibly can be. It's always very educating to get your questions and it's a nice challenge to have you out there. And please continue to call in and to challenging us with your questions. And with that said, Holmes. Thank you very much and look forward to speaking to you again on the next quarterly call. Exactly. Next time, it's May. We hope that no storm will stop a few hours before then. So you all have a good day. Thank you again. Thank you. Bye bye. Bye bye.