Welcome to the NIBE Q2 presentation for 2025. During the questions and answers session, participants are able to ask questions by dialing KEY5 on their telephone keypad. Now I will hand the conference over to the CEO Gerteric Lindquist and CFO Hans Backman. Please go ahead.
All right, good morning to everyone out there.
Good morning from Hans as well.
You're going to have very much the same procedures as before where we, in 20 minutes or so, describe the report from our views and then of course you are allowed to ask questions. We're going to come back to that. With that said, let's shoot. We believe that the headline fairly much is a summary of the status for Q2. It's a continued recovery and we also feel it's a brighter outlook. We've been claiming that for the last two quarters this year and we saw an uptick already at the end of last year. If not a trend, it seems like it's a fairly steady path when it comes to the market regaining. Of course, there are issues out there that have been difficult to assess, but we just have to combat those as far as tariffs and all that, and also the currency.
We have to, as I said, just combat that. We're very pleased to see that when the sales volume increases, then of course you also get better productivity and then we have good cost control. That results in a better margin. It's also very pleasing to see that consumers in general have a preference for heat pumps. We also feel that and judge that there'll be continued growth in sales as the year goes by. We're coming back to a more seasonal pattern as we've described several times now. 2021, 2022, 2023, demand was so enormous, so we didn't really see that pattern. Last but not least, our ambition is to come back in operating margins within the historical level. I'm sure there are going to be a number of questions regarding that. We leave it like that. It remains, certainly it remains our ambition there.
We also realize that there are uncertainties, but you can't always blame the world for everything. Our ambition is very clear and at the same time we can't say, now we have chiseled out the promise, that's 100% certainty, but that's how we work internally anyway. I think that's pretty much what we see in this picture. The revenue, of course, is limited. The revenue increases, but that is dampened by the strength in the crown. The operating profit takes a significant jump and also the operating margin. To address that more in figures, if we look at the combined two quarters, we're just sniffing at the SEK 20 billion now with an operating margin of some 8.7%. Of course we can also see that on a rolling basis, considering the disruptor, the program that we had last year, we are up at 9.2.
If you look very specifically into the second quarter, we see that we again are on the right path. Now we're up at 9.4 and the growth is not so significant again. Here we have more of a headwind during the second quarter than we had during the first quarter. Gross margin is increasing, which is pleasing. Your operating profit is around 944. If we continue just with a few graphs, the profitability of course took a dive and we are on our way up again. If we then look at the distribution of sales and profitability, now we're looking at the profitability, operating profit, of course Climate Solutions is really having a—now you're okay, some pictures. No, so 76% of Climate Solutions now is representing the operating profit. That's a little bit more than usual, which means that the other two business areas are lagging a little bit.
When it comes to geographical distribution, we don't see that much of a difference. Europe is of course 45 and the Nordic 18, and North America is just under a third of sales. If we look at the Climate Solutions situation, I know that a lot of you out there, I think we had the wrong picture up. I don't know whether. There we have it.
Yeah.
Of course the second quarter shows a continued improvement in both sales and margin. That's very clear signs, we believe, and recovery in the heat pump market and implemented cuts in interest rate that also has a positive, naturally, impact on our sales. That's a totally different atmosphere today than it was a year ago. When it comes to interest rates, we continue to believe in the long term positive growth. As climate changes, we can also always argue about the reasons, but when it gets warmer, the cooling side of our business becomes stronger. We also see that our joint efforts have been bearing fruit. We've been working very close between Element and Climate Solutions and also cross selling. We have really opened up the gates there to a larger degree than we've done in the past.
There again, it's very seasonal and we haven't seen that, but in all three business areas the seasonal pattern is going to be more pronounced as we go by. We repeat the ambition to be back at the margin levels or interval that we had in the past. I'm sure there again we're going to continue to discuss that with you. If we look at the next slide, there's a little bit of confusion here with the slides. I think we just continue with the heating element. It's a relatively stable demand. Here we are represented in most of the industry around the world, so that isn't so really seasonal because the varying product categories have various patterns. We can say that the electrification is really meaning a lot to us. Also, the rail and semiconductor industries are really showing significant improvements.
We also see that although it's always a lag when Element is supplying the heat pump industry or the heating industry in general, they come in at a slightly later stage where the producers have had perhaps in the past a little bit too much of an inventory. Now it's slimming out and they don't experience the same growth we estimate that the manufacturers are experiencing, and the industry is such typically that is a reflection of perhaps the weaker climate, perhaps very much so in Europe, that the industry, they invest a little bit less and we notice that in some segments. Again, trade, tariffs, and currency always are going to have an impact on us. We try to say okay, they are there, but we have to operate on a professional basis anyway, that's our task.
Again, the margin here takes a jump again up from the pre first quarter. Our ambition is still the same, to return within the interval that we've had in the past prior to 2024 setting in. When we look at Stoves and say okay, now we are coming up with some other figures here. I don't know, but we can comment on those of course. The Stoves, that is a little bit unexpected perhaps, that the development in North America, disregarding all the rumors and all the issues over there, it's been pretty good. Of course, it's been tough or tougher for the Stoves businesses we produce in Canada. We've decided to continue to sell and not to just protect the margin here, but continue the volume because we've been working so many years building up that market.
One of the reasons that we have a considerably lower margin is of course a desk that takes a hit when the tariffs come in, and also in Europe there is a weak performance or a weaker performance. I guess that the consumer confidence is not 100% here, and that of course we feel. We believe that the second half is going to be considerably stronger, returning to that pattern, as we said ago, as we said again, and the product launches and the marketing activities that we've had also, it's a very important factor or important factors for the positivism that we feel for the second half of the year here again, I mean, perhaps more pronounced. Hans will return to that perhaps. The margin on Stoves there, we realize that with such a start during the first half, it'll be cumbersome to arrive at the historical level.
I think we need a few more quarters to really bring that up to par. I think I stop there. I hope it hasn't confused you by the slides, perhaps coming in a little bit of a disarray order, but I think I'll hand it over to Hans and then you can continue more with precise figures for the quarters, quarters respectively.
Thank you, Gerteric. Once again, we apologize for the slide mix up here. The slides are correct, you can say, but for some reason the order has been a little bit mixed up. Anyway, I will take you through each business area now with the numbers and then also through the balance sheet and then working capital cash flow. Of course, we will leave room for questions. If we look at the numbers then for Climate Solutions, year to date, the business area has step by step improved both in sales and in operating margin, which is thanks to this underlying growth for a sound demand for our products. As Eric mentioned, of course, there are some clouds out there with the geopolitical situation that is difficult and also with the currency working against us. The growth that we see here of 4% is the net effect, including translation effect.
If we were to remove that, we would see a considerably stronger increase in underlying states. What's pleasing to see is that the gross margin has improved from 30.9% this time last year up to 32.6%, continuing to head in the right direction, so to speak. An operating margin that has improved by some 66% or even 67%. There we see what effect a good volume has on our structure, so to speak. If we just get the volumes into our factories, we have a phenomenal opportunity here to generate a good profit. The first half year came in at 10.9% and over the past 12 months we're now at 11.2%, up from last year's full year of 9.3%. If we head over to the second quarter, that was an even better improvement.
You can say where sales grew by 4.7% on a net basis, but where currency hit us even more as Eric said before. More than half of the improvement there was erased by translation effects. Here the gross margin took another step up in the right direction, hitting 33% and the operating profit came in at SEK 840 million, up with 66% and showing an operating margin of 12.3%. As stated, step by step, we're definitely moving in the right direction within the business area. In terms of geographical distribution of sales, we see a slight increase here, you can say in the Nordic countries compared to last year. That's the area that came back first. North America has been almost surprisingly stable. You can say, you would think that a lot of things would not be working as normal over there, but the business actually is.
It's Europe that has fallen a little bit behind compared to last year, but it's on its way now again in the right direction. If we move on to Element, Element has had this development with a rather fluctuating demand. It's not been as fluctuating as neither Stoves nor Climate Solutions. It's been more stable all along. It's of course exposed to many, many segments out there where the HVAC segment is step by step coming back. Semiconductor is more and more back already, you can say, whereas other segments like automotive are still struggling a little. White goods as well. Here it seems as if we.
Only.
Grew by some 2, 2, 3%. Of course, we had a currency effect taking away more than half of that growth. The underlying growth has actually improved. We also here see an improvement in gross margin coming up to above 20%. It's a slightly different business model than the other business areas, which is why it is lower. The operating profit has grown with some 30%. We're up at the 6.4% margin, not where we want to be, but definitely on track and in the right direction which we want to be on, so to speak. Over the past 12 months we're now at 6.3% compared to some 5.7% operating margin for the full last year. If we look at the individual quarter here for Element, it seems as if we have actually declined in growth. That is also the true number in our reporting, so to speak.
Here the currency hit us even. Harder, taking away the whole growth. The underlying growth here has been mid single digit, you can say so also on the right track going forward, an improved gross margin here and again a profit that has risen by some 30% coming in at an operating margin of 6.6%. In terms of the geographical distribution of sales, there have not been many movements here. It's been fairly stable between the different geographies and it is, as we've pointed out, many, many times our most global business area. If we then head on to Stoves, as pointed out a couple of times, Stoves is back to a more traditional seasonal pattern, which means that the first half is not as strong as the second half as an average.
Before we had these strange years, you can say with the pandemic and then Russia invading Ukraine, we had like an average operating margin here of some 4% or 5%. We had a very strong second half. We believe we're back to that pattern. Of course there is a large uncertainty right now with a lack of consumer confidence, low new build rates and such things that have an effect on us. Here we lost some 13.5% in sales, but less if we adjust for the currency effect, which however was not as strong as in the other business areas. The gross margin has improved, it's at 34%. We did generate a small profit for the first half year. Expect more. To be done here during the second half. If we just look at the individual quarter, this is of course also part of the weaker part of the year, the first half. Here we have fallen below, so to speak, our break even point, which has led us to generating an operating loss. Here also the currency hit in stronger than it did in the first quarter. Obviously we have some homework to do. We believe that the cost saving program that we ran last year has had a very good effect. It's more a matter of volume rather than any structural issue. In terms of geographical distribution of sales, there have been some movements compared to last year where North America actually has come back very nicely being at 38%. It was at 32% last year, whereas the other ones have lost slightly.
All in all, no really large movements in that respect. If we then leave the business areas and move on to the group again and the balance sheet, I would say that we, I mean there are no major movements here really. You can see that intangible assets have been amortized. A little tangible assets were depreciated as well. Financial current assets are fairly stable at SEK 5.6 billion. The total balance sheet is roughly at the same level, slightly lighter if you like. We can in a way jump the equity and liability side and move on to the cash flow analysis, because I think that attracts a little bit more of attention. We've generated considerably more cash than we did last year at this point in time. It's been almost SEK 900 million or more, which of course. Is.
You know, a sign of the recovery that we are seeing. The change in working capital might seem severe, so to speak, eating up all of that change. Typically what we do during the first half year and have done traditionally is to build inventory for the latter part of the year, since we often close down our factories, run maintenance in them during the summer, and we need to be fully equipped when we come back from vacation. We've done that to some extent also this year, but not at all to the same extent. We've been building a little bit of finished goods inventory, but we've nicely reduced our components inventory. The effect from inventory in that number change in working capital is actually positive. We've also had more favorable conditions with our suppliers, so our accounts payables have also contributed positively.
The whole change in working capital here comes from increase in receivables. We had a fairly strong sales period just before the summer where we invoiced a lot to our customers and that came in fairly late. That's also a little bit of a pattern that we have, that in the latter part of a month, that's when products really leave our doors. We've not yet been paid for those, but they are coming in. It's all a matter of or a consequence of the higher sales that we see this negative change in working capital. If we look at the investments in current operations, they are at SEK 1.1 billion. It's very much related to this program that we announced some years back where we're finishing off the last bits and pieces. It's come down from the SEK 1.2 billion and will continuously come down. We believe the cash flow, after. All, is.
Very much, or rather much under control. If we move on to some key financial figures, we once again have the investments there. They're all in current operations. We have the unappropriated liquid assets, which of course is the cash and undrawn but already existing credit facilities. They're at SEK 6 billion, which leaves room for both acquisitions and what have you, so to speak. Interest bearing liabilities continuing to come down. Net debt hasn't moved much, it's up a little bit of a tick. As many of you know, we had bonds outstanding on the market and we refinanced some of those before the summer because we thought it was a good time, although the maturity doesn't come until after the summer. An equity assets ratio, which I believe is quite decent here with 44%.
Coming back to working capital, obviously that is something that we continuously are working with and you can say especially on the inventory side. As I mentioned, we've actually been able to bring that down despite a period where we typically increase it. Again, it's very much related to these receivables that I mentioned. Of course, we're looking into inventory turns, receivable and payables, the days there, the terms so that we optimize this. We're not either brutal to our suppliers because we need them in both good and bad times. If you haven't treated them well when things are in your favor, they might not be there for you when things are tough. It's always a balance, you can say.
Last but not least, the key financial figures, of course, return on capital employed, return on equity, they still need to come up, you can say they will do so with an increased level of sales and profit coming. We're a fairly, you know, equity assets rich company in a way with a 44% equity assets ratio as I mentioned. You have these communicating vessels there, how they will develop, but they will step by step come up. Net profit per share has of course taken a good jump upwards and also the equity per share has improved slightly and as always we never comment upon the share price. That's up to you guys out there to sort of control and by that I think we're through with the presentation. I don't know if you would like to complement with something, Eric.
I think we are ready for the questions.
Please limit yourself to two questions and then return to the queue. The next question comes from Uma Samlin from Bank of America . Please go ahead.
Hi, good morning, Erica Hans. Good morning everyone. Thank you so much for taking my question. My first question is on the organic growth on Climate Solutions. It seems like this quarter has picked up fairly well for you. My FX estimate is around 5%, 6% if that's correct, which would indicate around 10% growth in Climate Solutions. How sustainable do you think this organic growth is in Q2 for Climate into the second half of the year? How should we think about the sort of demand dynamics in the second half? Thanks.
I think we sent a fairly clear signal that we believe it will continue, but not with the gigantic leaps that we had two or three years ago. We think we are back to a fairly steady pace and the market is fairly healthy in Sweden. Germany is a source of pleasure not only for ourselves but also as a leading nation in Europe. We believe that when Germany sets a target and they return very much to heat pumps, that's a very good sign for the rest of Europe. We also believe that Netherlands is also showing very good signs of continued growth. We have the commercial side of it, like in Italy. We have a particular company down there, Ross, that's really prospering.
That's again an illustration how the balance between residential and commercial should perhaps be a little bit more towards the commercial machines to be more stable. Same thing in North America. Our commercial products there also show a healthy development. In summary, yeah, we believe that the growth will continue. To give you a percentage on the growth, I think they have to refrain from that because we have not written anything about it. Verbally we have given you a sign that we believe in continued growth, that we are. As again the headline saying that we look at the future in a more positive way, but saying that you always have to be cautious. Of course, that's the best I can answer the question.
Thank you so much, that's really helpful. My second question is on your market share and what's against competition. Can you give us a bit more insight on the market share changes in the quarter? Have you lost or gained market share in the key markets such as Nordics, Benelux, and Germany?
I think that the market shares are very stable with the market as it is. Of course, we can always say that we have gained somewhat, but I think that you can be very certain that we have not lost any market share. We have followed the market growth, and with the rationalizations that we've done with the investments in place and so forth, we've been able to benefit from that. I think that this, in summary, our main markets is positive, and the markets have also developed positively.
All right, that's great. Thank you so much.
The next question comes from Carl Ragnarstam from Nordea. Please go ahead.
Good morning, it's Carl here from Nordea. Two questions on my side as well. Firstly, on your margin sort of guidance in Climate Solutions, it is the same, but when I read it, it sounds a bit more prudent compared to the one you had at least in Q1. Is it any difference at all? Is it anything trend wise you see that is holding you back, or is it just sort of you being a bit more prudent with the, I guess with the things happening, especially in the U.S. I guess.
I think that we have a continuous story where we are, as I've said so many times, you know, able to follow our history, what we've said and where we are heading. I think it's appropriate to tell the market and you folks out there that things have not become easier when it comes to the political turbulence and so forth that we didn't foresee. On the other hand, I think that the market development in a number of countries might have been slightly better than we anticipated. Of course, we don't like to neglect the fact with all the tariffs and all the political unrest that we have. If we didn't mention that, that would be strange. I don't think that you should read too much into that. We try to be balanced. If anything, we don't like to send a message now of peachy keen, no problems.
At the same time, we have been able to conquer so far those issues in the market which we think is a strength. We have had the turbulence, we've had the strength in the crown, but still we came out with a report like this and that's what you expect out of the shareholders internally. That's what you rightfully should expect of us to maneuver, not only being, you know, crybabies.
No, it's very, very good, and yeah, thanks. The second question I have is a little bit about your feeling around the consumer installer slash distributor behavior. Whether you've seen any kind of down trading during the quarter, that you sell more of, I wouldn't say entry level product, but more simpler products, which might come back and fuel the gross margin once the consumer sentiment might return, if it's second half or early 2026.
Of course, perhaps I'm too repetitious here now repeating what I've said in the past or what we've said in the past. Excuse me if I say I haunt. I mean we are, we are a duo here.
No problem.
There are certain categories of heat pumps. We've been trying to keep a good price discipline not to enter a slightly lower specified segment with the higher specified products, and the margins on the different categories, that is pretty much the same. I'd like to make another comparison. If we set an insert on a stove side, we have the same margin as we have selling a complete stove. That's how we try to organize ourselves so we don't run into difficulties. Would the mix all of a sudden change, of course the invoice value would be low, but this shouldn't affect the margin. That's how we reason. That's not only within Climate Solutions, that's also within water heaters. You can have very strict water heaters, no electric or electronic control whatsoever. Of course that's a different kind.
If you would like to have some kind of a control and even a water heater, then you walk up in a different price category. I hope I answered your question at least.
Very good. Thank you so much. Perfect, thanks.
The next question comes from Carl Bokvist from ABG Sundal Collier . Please go ahead.
Thank you. Good morning. Just wanted to follow up a little bit on the comments there. You talked about the market share, but just perhaps understand possible regional differences or technology differences or category differences just for reference. I mean if we look since 2019 until 2024 the entire European market grew by 9% and your Climate Solutions organic growth was around 5%, 6%. When we look ahead it would just be interesting to hear how you think about, you know, if the market grows by X, how do you feel about your current geographic position and product position in terms of growth versus the market?
When you mention those figures, you talk about turnover, you're talking about numbers.
I talk about European market volumes compared to the organic growth for Climate Solutions, which then includes price mix, of course, for you. Okay. Yeah.
I think that we are very determined and we can also prove that we at least grow with a market. We are not geared for losing any market share. Having said that, we also understand and fully appreciate that of course the competition out there is, which it should be. It's very serious and fierce, but it's not to the point where it's butchering, but a lot of alternatives presented and we feel that we have very good alternatives from our side, but we are not alone. It's the same thing on the other two business areas. We are confident when the market as we estimate continues to grow, we are certainly going to follow the growth for the market at least. Of course, there are some markets where we are not so strong on the residential side.
There's no secret that we are not strong in France, we are not particularly strong in some other fairly densely populated countries. I think that has to be taken into consideration. Just mentioning France, of course there we haven't been so successful in the past and now that market is dominated by other groups and there we of course can always do so much better.
Understood, thank you. The follow up is more a numbers one related to Stoves. Is it early days? Perhaps. Is it possible to give some kind of indication just how much of an impact tariffs had on the profits?
We haven't mentioned that in the reports. I don't think it would be fair to indicate that, but it's not. If you give any indication, I mean we are not talking about SEK 4 million, we are talking about substantial amounts, but I think we don't go any further than that. As I said, we absorb that in our say because we don't like to lose anything down there, and we are just going to see how the market is reacting to those tariffs. It could also be that when the quarters go by, just a theory here now, that the domestic manufacturers might see a chance also to increase prices on their own. Of course, that means that they are going to make it a little bit easier being an importer brand even if it's imported from Canada. That is speculation.
That has had an impact, double digit of course in SEK. I don't think we should dwell any further on that in all fairness for the rest of our shareholder crowd and those people following us.
Understood, that's all from my side. Thank you.
Thank you.
The next question comes from Carl Deijenberg from Carnegie Investment Bank AB. Please go ahead.
Thank you very much. Two questions from my side. Firstly, I wanted to ask a little bit on the CapEx development. Obviously, you've been in a quite substantial expansion program now for quite some time, and I just wanted to ask when do you expect CapEx levels coming down more to, let's say, maintenance levels versus expansion, which I guess you're still in. Is that already enough for the second half of the year, or is that going to be more going into next year?
We're going to see, as Hans mentioned, I think you mentioned that we're going to see a gradual decrease already this year, and not to give any promises that we can fulfill definitely next year. Of course, we don't see the premises are there, and then we're going to return to more maintenance, and of course if a new robot or something has to be installed. Those are not the phenomenal costs. It's correct to assume that we will return more to the ordinary way of the CapEx already this fall of this second half, but definitely next 2026 and onwards.
Okay, very well. My second question was regarding the sort of heat waves we've been reading about in media. I guess both in Europe and in the U.S., I guess that comes into demand more of, you know, air conditioning equipment and so forth. Would you say that have you seen more pronounced demand effects from the weather this year, and would you say the industry has seen a more pronounced effect from that as well?
I think that if you just take North America, all our heat pumps are of course also in cooling mode in the end of summer, both residential and commercial. In Europe, it's coming more and more. I mean we are a little bit behind and for natural reasons it's warmer but not as warm as it is in North America. I think it makes people realize and discuss and reason among themselves, boy, we have to have cooling in our homes. To a certain degree I believe that that is also something that people are considering and they also dwell upon the economy. The cooling is relatively expensive if you do it in an old fashioned way, but you can also do it very economically with, as we call it, the heat pump. I hope I was fairly clear in my answer. Was it a hide and seek also.
Yeah, no, that's maybe just a quick follow up on that one. Given what you talked about, I mean, I guess this is more pronounced on the air conditioning side where I guess your exposure is a little bit more limited. Given the long term trends and I guess everything is pointing to a warmer climate over time, I guess in all your geographies basically. Is that product categories that you would, let's say, consider entering now given the development that we're seeing, or is that not of interest for you given, you know, lower price points and different margin profiles and so forth?
I don't think that we should give any promises here that we haven't said in the report as such. Of course, it would be very strange if we wouldn't follow the market trends, whether it is in any category of products, and when the climate is, you know, getting warmer. Of course, we have to follow that pattern. All right.
Okay. Yes, very well. Thank you very much.
Thank you. Thank you.
The next question comes from Christian Hinderaker from Goldman Sachs . Please go ahead.
Morning, Gerteric. Morning, Hans. I've got two questions. Firstly, you've called out commercial as a future development area in the report. I believe this is a double-digit % of your Climate Solutions business, but it's 2/3 of the U.S. Climate Solutions sales. Is that correct? Are there specific customer areas in commercial that you sell more to than others, like commercial data centers or industrials? Just eager to understand the mix here a bit better.
If we talk about your assumption about the shares within the group, they are fairly correct. You can say so, I can confirm those. Maybe Gerteric, you would like to mention the different areas that we're focusing on.
I think that we have not specifically focused on a single segment of the market. We have ventilation, we have chillers, we have larger heat pumps, not to be too dependent on one category of products. We are perhaps, should I say, conservative when it comes to that. We know that if one category of products really escalates very quickly, then you lose out on something else. We are selling to commercial buildings, we are also selling to data centers. There has not been a major, major, should I say, market effort, marketing effort from our side. We are there with a broad assortment, not to be dependent on one particular segment. I guess that's more our view. Just like we have so many categories of corrosion protection when it comes to water heaters. We have different refrigerants, we have different categories of heat pumps.
If one is really rushing, of course we like to be present there. We haven't made any fantastic effort just being bigger at the data centers. We are a player there, but perhaps not the most recognized player.
All right, thank you. That's very, very clear. Maybe secondly then on Stoves, I think if I look back, the $51 million loss was the lowest margin quarter since the quarter of 2007. You had lower segment sales in Q2 of 2018, Q2 of 2019, and Q2 of 2020 for that business. I know there's been some acquisitions since, but in those periods you still turned a profit. I guess the tariff effects are a challenge. I am just trying to understand the other margin drivers. Has there been a change in mix? I don't know if the recent acquisitions have driven the lower margin or maybe you've transferred some sales or marketing costs here from some of the other segments. I'm just trying to understand if you've got a high revenue base, the sort of core driver of that margin softness.
One example is of course that we entered a pellet market with an acquisition in Portugal, and of course that was. The timing wasn't perfect, we can say so there. We of course have cut down costs, but we still sit with a new production hall and sales organization. Administrative people have been reduced naturally, but that is one example of a burden to the margin. We believe they're going to come back, but that will be a longer hold. We see signs of recovery, but that's an example where you have too much of a cost structure in relation to sales.
All right, thank you.
The next question comes from Viktor Trollsten from Danske Bank. Please go ahead.
Yes, thank you very much. Good morning Gerteric and Hans, perhaps firstly to you Hans, just if you could expand a little bit on the comments on working capital in Q2. I just noticed that, I mean historically you tend to always build working capital in Q2 and to me it sounds like the build up in working capital this time around was only driven by receivables. Basically, SEK 600 million in increase in receivables. What does that mean then for the second half where you typically release working capital? Do you think that you can have a release already in Q3 given that you will, you know, sell those receivables or what’s.
Thank you, Viktor. We don't sell the receivables, obviously. We collect them. We don't work like that on the working capital side, but historically, I can't give you any forecast here and say more than what's in. The report, historically we've had this.
Pattern where we build up inventory, especially during the first half, and then sell it out because we need to, as I said before, be equipped when we get back from vacation and not wait for the production to pick up, so to speak. This year around, we did the same to a smaller extent on the finished goods side, whereas we continue to reduce the component inventory. That had a positive effect. The reason again for the increase was late sales, so to speak, in the period; they came in just before the summer. We have not collected them yet. Traditionally, also if we look back, we've had very few losses on our receivables. We have very stable customers in that sense. Obviously, they should kick in and come in here during the second half of the year. We're also following the seasonal pattern, so to speak.
We should generate more sales and have our factories up and running for the second half. If we follow that pattern, which we have reason to believe we should do, we should see an improvement here.
I guess it's reasonable to think that if you release basically SEK 500 million last year in the quite tough market, right, in the second quarter of 2024, you should be able to release more than that this time around if not anything else pops up.
If not, anything else pops up.
Okay, that sounds good. Second, just on acquisitions, obviously perhaps I'm a bit too early here. Balance, it feels a bit too stressed, I guess, in my test at least, but will probably look better at year end, given that for higher year cash flows coming through. The question building, at what level of gearing would you feel comfortable starting to acquire again? A follow-up on that, since you have not made an acquisition since 2023, I'm just curious to hear your thoughts, whether you have missed out on opportunities or if the pipeline has rather been piled up from that context.
I don't think we have really missed out on so many opportunities. I mean, we have obviously made a big acquisition in terms of Climate for Life mid 2023, which is an excellent fit to the group. The reason why not so many acquisitions have kicked in after that is simply that a lot of the sellers have based their projections on the phenomenal development that many experienced in 2022 and 2023. They've drawn out the line based on that, whereas the buyers have seen what really has happened in the market where it's very unlikely that that development will continue at that level. It's been difficult to meet. I think I would say that's probably the main reason. As a matter of fact, we have made a couple of acquisitions or some, but they've been so small that we've not needed to communicate them to the market.
In terms of the net debt or the gearing here, I mean, we have deliberately not set out a finance policy saying that it should never be below or above a certain level. Above rather than below, because we do want to have the opportunity to go after an acquisition when it comes around. We've been up to above, far above the levels where we are today when something interesting has come along and then we have amortized it fairly quickly. So.
I think Gerteric would like to add something here, if I read his body language.
I think you're absolutely correct. I think that if anything is more level-headed now, you know, two years ago everything was the sky was the limit and now everyone realizes, particularly 2024, boy, it's not so good, you know, forever. I think we all are more realistic in all three business areas. It was a phenomenal increase and a phenomenal decrease and now we are back to a more normal level of growth. Of course, we are very much set on continuing to acquire. We have not changed our targets. The target is like before, 10% plus 10% growth. Of course, we can't just wait and wait and wait. Obviously, 2024 perhaps didn't take the wind out of our sales, but it would have been strange if we would have acquired companies at the same time we were cutting down costs and reducing people.
Psychologically, we believe that would have been wrong and price expectations had not come down because a lot of companies or several didn't think it would affect them. I dare to say that in our business or three businesses, all manufacturers were affected. I think it's a more realistic world. Of course, no one is getting younger, including the fellow who's talking. Family companies that are set to eventually divest are coming back and they are looking for, in many cases, industrial buyers. There we have a good fit. It's correct to say that there will be increased activity in acquisitions and also, hopefully, coming back to signing on a dotted line.
Super. Okay, now sounds good. Thanks for that. Already looking forward to Q3. Thanks a lot.
The next question comes from Vivek Midha from Citi . Please go ahead.
Hello, Vivek. Okay, we move forward.
Hello, can you hear me?
Sorry.
The next question comes from Cedar Ekblom from Morgan Stanley. Please go ahead.
Sorry, Vivek, if you can queue up again, we take Cedar first.
Thank you very much, gentlemen. I just wanted to come back to the comment that you made around potential growth in air conditioning. I know that you're not being explicit around it, but to the extent you wanted to grow in that market segment, how should we think about how you would step into that product category? Would it be something that you would look to get into from an M&A perspective, or would you look to try and adjust some of your production footprint, appreciating that there's quite a lot of overlap between a heat pump product and an aircon production? I think that's quite an interesting sort of shift in some of the strategic messaging. I'd like to dig into that a little bit more. Thank you.
Okay. It'll be both. You can say, of course, if you like to really make a heavy entry, then we would most likely have to acquire something, or a few for that matter. Also adaptations. We can just talk about the exhaust air heat pumps that we launched with cooling a year and a half ago. That's not something that we necessarily thought of or felt that was necessary, you know, five years back. Coming back to the climate and coming back to the comfort needs, even in our own country, the northern part of Europe, that became very obvious that we had to do something so that is on the market. I think that answers the question. We will modify our products if they aren't modified already, but also go for acquisitions. It'd be a combination.
Okay. If I could just get a follow up. When you look at the air conditioning market, it does tend to be a little bit more competitive, at least lower margin than heat pumps. How do you think about that from a mixed perspective? Would it be a case of you're attracted to the potential top line growth and that the competitive landscape is not something that would steer you away from that, or do you think that there are specific regions maybe where the competition is less acute? I think there's an interesting growth story there. I just wonder how we think about the mix between margins. Should you grow in that business over time?
I don't think that we're going to abandon our philosophy, you know, being in different segments of the market. Neither do we expect air conditioning to take over everything. Of course, you have to adapt. We are known for being more premium and perhaps also mid-segment oriented, not being in the lower segment. If we categorize them in three levels, I think that the example we made here on exhaust air heat pumps, that's definitely in the premium range. We believe that our customers, loyal installers all around Europe and all around North America, they would like to see us supplying them with products that they could sell under our brand names respectively.
It's pretty much something without diluting our profitability by giving the installer there a broad range of products that they can offer to the customers, selling their confidence to them, and NIBE standing as a guarantor behind those products. I think that's how you should look at it, not getting into a dog fight, if I may call it, price wise.
Very helpful, Carl. Thank you so much. Appreciate the time.
Thank you. We missed something, someone there.
The next question comes from Anders Roslund from Pareto Securities. Please go ahead.
Yes, do you hear me?
Can I hear you, Anders? Absolutely.
Do you hear me?
Yeah.
I had just one question regarding Germany. It seems that other competitors, Daikin and Carrier, have also reported very strong German sales. My question is simply what are the main drivers there relative to other parts of Europe? Is it the subsidy program, is it that destocking has come to an end and you see a sort of a one-time up to a certain level and then it's leveling out? What are the trends in Germany explaining the strong outcome there?
It's a mixture that we can judge. First of all, we believe that Germany, or I mean not Germany, but the German market for heat pumps was very much overstocked, perhaps more overstocked than any other market, with the exception possibly of Poland. Those two markets stuck out. We also warned for that when we came out a year ago and say now it's slimming out. We said that Germany is going to take another couple of quarters after the year end. We believe we are pretty much there. That's one thing. The other thing is that the sales of gas boilers as we understand it and as we interpret it, is going down. That is giving a clear sign of customers saying, I like to have a heat pump rather than the gas boiler. That is another trend.
It's a combination of coming from a situation that was on a path to perhaps 300,000 or 400,000 heat pumps and then going down very quickly because of the dramatic increase in inventories. Now that has slimmed out. The market is coming back, perhaps not to the level that everyone anticipated in Germany either, you know, three or four years ago or two or three years ago, but it's certainly coming back. It's a combination of the two. I hope that gives you a little bit better of a feeling for it.
Yeah, thanks. I have just one last question regarding Germany, and that is it seems that electricity taxes may come down there. Is the package or law going to be introduced, but so far nothing is mentioned about electricity for consumers or heat pumps. What do you think about that?
We believe that we are not any forecasting giants or wizards and that of course we have always argued that the electricity prices, they seem to be extremely high and we are a bit spoiled perhaps, or it's more a realistic spread of the spark spread as we call it, between electricity and gas and oil. We believe that that will come down. To forecast any specific time, I think it is dangerous to get us out on that ice. There is of course a steady discussion that you have to make it a little bit less cumbersome for a person to install a heat pump and using electricity than just continuing gas. The pleasing thing is I think I used the source of pleasure here earlier, which was a strong word. The consumers, even if the prices are high, they seem to prefer heat pumps.
I think that's very good because that sets a standard, of course for Germany, but also for Europe. Previously we had a few countries, including our own, where everyone talked about heat pumps. When they start really to talk about that in Germany, that's also a signal to many other countries in Europe, that's a very important factor. To give you a forecast of electricity prices, I think we refrain from answering that more specifically than that.
This is good enough. Thank you very much.
Thank you. Now we return to our friend.
The next question comes from Vivek Midha from Citi . Please go ahead.
Thank you very much. Can you all hear me?
Yes, absolutely. We apologize that you were disconnected. It was not a planned disconnection.
Thank you very much and apologies for the technical issues. I'll just stick to one. It's just a clarification on your comment earlier about making similar margins on, say, lower specification and higher specification products. Should we think about similar gross margins on those different product levels or on the EBIT margin level? Presumably, a lower price point means that you have slightly less fixed cost coverage. How should we think about that comment? Thank you.
All right, how do we answer that in a very specific way? As I said before, we believe that if you would go into other segments of the market like we did now with the heat pump or the exhaust air heat pump with cooling, we did not, of course, add any sales staff to that. What we also said about installers, you don't necessarily need to increase sales staff when you start to sell another assortment because they already have a relationship, they're already handling a larger assortment. I think that we should reason along those lines before. I mean, promise of promise, but that's how we think to couple new products to an already existing sales organization that has the power, the leverage to bring new products on board and not necessarily increasing costs for every million you add in sales.
If you like to add something, Hans is fine. Yeah.
No, it's just along the same lines that you're saying. It's not a matter of replacing existing assortment or having some cannibalism in there. It's more a matter of us being a complete supplier where there is a demand for, let's say, air to air or a lower spec that we should be there.
Okay. Thank you for clarifying. Perhaps I misunderstood the question a little bit, but I hope you are satisfied with that answer, Vivek.
Absolutely. Thank you very much.
Thank you.
There are no more questions, so I hand the word back to Gerteric and Hans for closing comments.
Thank you very much for putting those intelligent questions to us. We hope that we've been able to answer them, if not fully, at least giving you some clarity on the different issues here. With that, we exceeded the timeline by some 10 minutes, but we felt it was appropriate to do that today with the questions coming up. Thank you very much again. We wish you a nice weekend coming up. Personally, I have a little bit of a fever today if you don't recognize my voice. You know, it's wonderful to have grandchildren, but they're also very contagious. I realize. I'm not saying I don't like grandchildren, but they give you, you.
Give you the flu sometimes.
Yeah, with that said, thank you very much.
Thank you.
Bye. Bye.
Bye.