Earnings Call: Q2 2021

Aug 19, 2021

Quarterly report

Ladies and gentlemen, welcome to the Geneva Q2 2021 Results Presentation. Throughout the call, all participants will be in listen only mode and afterwards there will be a question and answer session. Today, I'm pleased to present Eric Lindqvist, CEO and Hans Backman, CFO. Please begin your meeting. Yes. Good morning, everyone out there. Good morning from Hans as well. Thank you for joining us. And we're going to proceed as usual By going through the report fairly quickly and then allow for questions. And we would also appreciate if we Could be ready by noon because then we have other engagements due to the report. So with that, we're just going to dive into The slides that we have prepared for you. And although we are not so keen on bragging, I guess, we are At least this time, willing to say that this is a fairly strong 1st 6 months. It is important also to remember that We are comparing ourselves to a relatively weak period last year. It's important to be humble enough to admit that. We were right in the middle of the pandemic a year ago. So of course, the figures are very strong, But we also had, of course, a tailwind when it comes to comparing ourselves to that period. But very pleasing is that all three business areas All developing will have been developing very well and strong during this period. And it's very obvious, as we mentioned so many before, that The innovative trend is really helping us in all three business areas. And also, the COVID effect Has had effect of, should I say, repairing and renovating your home, remaining pretty much at home Where you live rather than traveling. And that has also been a tremendous help in installing heat pumps and Installing wood burning stoves or gas burning stoves for that matter. So there have been a number of factors in our favor. And of course, on top of that, we believe that our product and our assortment is of high caliber, and we're well positioned. So all in all, the outer conditions have helped us, but we also have a very strong own position. And if we look at the growth, it's very pleasing naturally to see that the Your guided growth is back to a very, very pleasant level, which you're going to dig into in a while here. And also the results, of course, when we look at the results, the results that you said, they're very strong And also the margin improvement. One negative effect of the pandemic is, of course, that we haven't been able to Sign that many on the dotted line when it comes to acquisitions, but that doesn't mean that we don't have contact. It's just that It's been a hindrance that we haven't had any physical contacts for quite some time. But of course, there are a number of acquisitions lined up. So we just Feel now that the world is opening up, and we are ready. We're certainly ready when it comes from a financial point of view, and we're also ready when it comes to Which company do you like to team up with? And then the figures themselves, So the growth of the 16.3% the 1st 6 months, and that is quite a bit about 10% organic growth. The gross margin remains healthy. And I guess that's been one issue, of course, with all the Price increases that we have received and all the shortages of products has been a Concerned, but so far we've been able to handle it relatively well. We mentioned in the report, of course, that We have not been able to build up our inventory as we normally do during the 1st 6 months. And so that is, of course, a little bit of Issue as we move forward. And when we have stop and go production, you all know or understand that Productivity is not at its peak, but still we've been able to remain at a fairly healthy gross margin. The operating profit is naturally considerably higher than last year, and you see a little bit star there. And that means that we talk now about all figures excluding the reevaluation of the additional considerations. That's something that we entered last year really. And just to make that very clear, They stem from the fact that when we acquire companies, we typically acquire them in 1 or 2 or 3 tranches, Suggesting that we pay 1 initially one initial amount of money and then eventually, we pay the additional tranches based on performance. During the pandemic period, of course, there have been companies that have not performed 100%. And when we We're at the point of paying, of course. The amounts have come out slightly below what anticipated in business plan. It has not been so obvious in the past. So in that sense, the pandemic has caused us to pay a little bit less. We've been very civilized, I must say. We have not penalized our process, but to some degree, it has lowered the prices of the company. That doesn't mean that the acquisition As such, have been have had any question mark. It's just that all companies have had a slower period. And in this particular period, we talked about €37,000,000 for the 3rd year of last year was a considerable amount for the full year. It was like 3.53 The order figure that we told that here, they are excluding those, just to make that clear clear. The operating margin, considerably higher than Last year is a major step. And of course, the net profit margin is also considerably higher than last year. And we are very stubborn when we talk about the period, Q1 and Q2, but we also understand that we have to comment also on Last quarter. And that has been very strong again with the growth around the 27 percent or 25 percent mark, meaning that the organic growth is around 24%, and that is Still, including the negative effects of The currencies, we all know that both the dollar and the euro had totally different spans a year ago. Yes. There we are a little bit cautious in explaining how much is that. We think we have to There is a combat currencies. We have to combat all difficulties in the market. It shouldn't be The benefit of a disadvantage, we just had to combat whatever happens. And there again, we see that It was, Martin, it's remaining fairly healthy compared to what it was a year ago. We are, of course, very cautious with costs. About what our suppliers, it's we are doing. We can't do anything about that. And as we all know, There have been considerable price increases. The operating profit is, of course, up close to 75% Compared to last year, and that's a considerable jump. And there we have, of course, excluded the EUR 37,000,000. So all in all, the second quarter came out very favorably. And we just I'd like to mention once again that the Q2 last year was perhaps the most dramatic quarter As we have had over the world, as said in many, many, many years, we are very pleased now to note, of course, that vaccines, They've been around now for at least half a year, and that's very pleasing to note that technology and advanced medicine Can produce vaccine so far compared to what it was just a few years ago. I'm old enough to have experienced the polio The pandemic many, many years ago, my parents were petrified until we were getting the first shots. And that took like 20 years before they developed an effective vaccine for polio. And that's Tremendous, should I say, step forward for mankind. If we are a bit philosophical, you know. So then we typically would look at the bar charts, again illustrating How our sales typically develop, we have our strongest quarter typically in the 3rd and 4th quarter, And that pattern is pretty much the same. Even 2020, you can see that it's slacking a little bit here in Q2 2020. But this year, it's very pronounced as it's always been. And the 3rd Q4 typically, if everything goes on right, it should be stronger Without giving the forecast, it's just the pattern that you see here. And on the results side, it's the same thing, even more pronounced When volume is really assisting us, then of course, the profit goes up. And here again, we are calculating the profit in the bars you see Excluding the additional considerations. So nothing is suggesting that we would be in the wrong track as far as these Perhaps our concerns. Just a few comments about the business area, Climate Solution. Of course, it's been very strong and the Particularly note that Europe is growing, GaN, Bassil's OMA when it comes to volume increase. North America is starting to move, but not as positively as in Europe. We've been waiting for this for many, many, many years. We Started with heat pumps, as you all know, from 40 years ago, and it's taken a long, long time. And now we are there with the larger countries in Europe Really moving ahead like Germany now really coming to a very, very strong growth. Netherlands, we talked Britain is just on the brink of starting. France has been going for many years. So we are in the European world seen In a very, very positive atmosphere. And of course, that is influencing the operating margin as well as The operating push out in numbers. And if we just had a quick look, it's been a Good growth there of some 14% there at the period. And the operating margin in the first 6 months has increased from 5.4% to 15.6%. And we all know how difficult it is to increase operating margin even with a percentage unit, not To mention, when you move it upwards like 3% to 17%. And Harm is going to come in more to the Q2, but of course, that has continued Growth wise, even more pronounced than the full period here and also the margin increase. On the Element side, we can say that there we have A feeler or whatever we would like to call it, the thermostat for the whole economy. When the world accelerating, you know that that's In all individual sectors. And we now see that the world is coming back to an accelerating stage, And practically all market segments are moving in the right direction. And we are very positively positioned, Both in Europe and North America and also in Asia anymore. So of course, we have that Tailwind from all the sectors. And we are well positioned with our products. And as I mentioned on the Climate Solution, of course, elements. We are supporting the Sustainability profile companies. And one very obvious sector is also the semiconductor industry. That is a hindrance to many other companies, but they are being a sub supplier to the semiconductor manufacturers In the or the machinery industry, that is, of course, something very, very prosperous at the moment. An industry that we haven't really paid full attention to until 5 or 6 years ago, But now that's the major part of Element's business, and we foresee a good growth pattern for years And again, with the volume development and with the cost control that we maintain and have maintained, Of course, the operating margin has both has increased and the real numbers in operating profit. Just look at have a quick look at that. The sales growth is very impressive if we dare to share it ourselves With some organic growth here around 13% and the jump from 8.3% to 10.7% In operating margin, as you all know, we've been struggling for years to arrive at The 10% and we took a little bit of a dive when we had the most difficult quarters last year due to the pandemic. I'm very proud now to be back on the right track again. And having all these different market segments being very prosperous, And Hans again, going to dig into more of the Q2, which is extraordinary, cancel growth, particularly since Element and for that matter, Stokes, They had relatively weak Q2 last year, whereas Standard Solutions Maintained a during those conditions, a pretty healthy margin after all. So stoves then, when they look at the figures on sales, we have said, boy, what a growth. And that is, of course, a reflection of a good position in the market again and also the trend Of consumers spending more at home, and that is also stating to us that The stove is important in a home. It brings comfort. It brings sort of security and we like to relax. It's a piece of furniture, many factors when it comes to a stove. And we struggle and we And we worked so hard to continue developing even more effective cells and as well be in even more Environment is friendly, particularly when you talk to the depositors. And again, here, number wise, when you look at So it's been a tremendous growth, some 42% organically in the period. And in the Q2, it's beyond 70%, and Arun is going to come back to that. And of course, with a decent margin compared to What we usually have in the 1st and second quarter, it's almost unrealized high figures. And just a few other pie charts before we let Hans get in. How sales It's distributed and that's pretty much like the 4 Climate Solution around almost twothree, and then a little bit better than 25% and Soles slightly below 10%. And then when it comes to distribution of profits, it's Again, Climate Solutions is dominating with a little bit better than 70%, relevant in 2021 and still some 80 It's an 8%, I'm sorry. Of course, we are going to see that pattern to change a little bit, particularly on stoves I mean, the best course is during the second half of the year. And the last Graph or pie chart on my side before Han steps in is how the sales is distributed. And we can see that Europe The gain here is almost 46%, and Nordic is on 24% with our home market. In North America, although it has grown in real numbers, Now Europe and Nordic have gone faster. And of course, we've also had some currency headwind there. So that's pretty much a quick overview of hand selling. I hand it over to you now to Present the business areas more in detail and also the balance sheet. All right. Thank you, Eric. Yes, we will do the same procedure As last quarter, and it's actually amazing how quickly a quarter or summer passes. It feels like yesterday that we were presenting Q1. And talking about Q1 and Q2, really, the pattern is very much the same in terms of development, With the exception that Eric mentioned that the comparables for Q2 are quite different given that Q2 was It was such a weak quarter last year. That was, however, not fully the case for Climate Solutions, Which managed to take care of that or yes, come through the pandemic in a decent way. It is again Mainland Europe and the Nordics that have been the drivers with North America lately picking up, but not At all being where the European side is, so to speak. In terms of sales, we came in at EUR 9,500,000,000 Up 14% from last year that Eric mentioned, which then also contains a considerable amount of negative currency Effect in there. And then a small help from acquisitions on top. But such a good organic growth generates a good Gross margin up more than 2 units from last year. And then, of course, together with the good cost control, Landing in a margin at as high as 15.6%, which on a 12 month rolling basis Right now brings us up to $16,400,000,000 and sales, which are just below $20,000,000,000 for the business area alone. Taking a quick look at the quarter as such, it was, of course, a good quarter with the organic growth We have 26 well, 20.6% and just a small help from acquisitions. And then again, a negative currency effect there from the Swedish kroner. But nevertheless, A good very good growth, bringing us to a gross margin of 36%, which means that we've been able to cope with the supply of materials Fairly well, although it is a daily struggle and we are, of course, facing price increases just like anyone else. But I've also become better in trying to Compensate ourselves for that through own price increases. So in the quarter, we landed in a margin at 17.3%, Up from the 13.6%. So a very strong quarter for the business area. In terms of distribution of sales, It is just as Eric mentioned that Europe and the Nordics have gained more than North America, although North American Total numbers also have grown, but where we now came in at 51% share for euros, we were at 47% a year ago, And the Nordics jumped up 1% of Q1, if you can say. And then the remainder there is North America, Where we had 24% of sales a year ago. Coming to NIIBA Elements then, they have shown a very strong demand in all markets and segments really, Although it is the HVAC related segments and the semiconductor that have been the strongest. But the whole electrification that is going on, so It's a good driver. And within automotive, there are numerous interesting projects In the direction of electrification. But as I said, it's a general trend, it's okay. But also here, we've been, of course, fighting raw material price increases and just getting the deliveries into the factories. When we landed in sales here, we came in just below SEK 4,100,000,000, which is up almost 15% From last year. And this is the most global business area, the one that's most affected by the currencies. So the underlying organic growth is, of course, even higher. And here, despite the Challenges with material and also personnel for that matter getting people on board to manufacture everything. The gross margin jumped up to 23.4 Percent. And also here with the good cost control on the SG and A side, we came in at a margin of 10.7 Which for the last past 12 months then brings it up to 10.3 percent up from the 9.1 percent that we landed in as Full year 2020. And in Q2, if we take a look at that, This is where the it becomes evident that the comparables to last year are relatively easy, so to speak, Landing in the sales there at close to €2,100,000,000 an increase of 25%. The underlying organic growth was even higher than that given the currency again. But last Year, in the Q2, we had a drop of 15%. Gross margin, again, healthy at 23.5 And a very healthy growth in the operating profit as such, up close to 90% and making it possible for us to land the margin, which 3.7 percentage units higher than last year. In terms of distribution of sales, There have also been slight movements, not so much, but the picture is in a way fairly stable. But Europe has gained a little coming up to 33 And then moving on to stoves. As we said initially, this is where we're seeing really an unusually Strong growth for the first half of the year. As most of you know, this is our most seasonal business where Most of sales and profit is generated in the second half. So what we see here is really unprecedented for us in a way. It's been across the board in all companies and geographies. So for the first half year, we We're able to grow sales by 43%, again, affected slightly negatively by the Swedish currency. And also here, of course, it's been a struggle to get material on board and to be able to meet the demand. But so far, we've been able to manage that and also land in a decent gross profit. And in general, I mean, an organic growth gives the best Yes, effect on the numbers. So there the gross margin came up to 36.9%, up more than 3 units. And the profit as such, I mean, it's up 400%, but up from €33,000,000 to 167,000,000 And an operating margin of 11.9%, which is higher than we landed in the whole last year. And as Eric indicated, the quarter as such for Stokes, we fell off our shares ourselves almost being Organic growth rates here of 70% and just a very small portion which was acquired. But then last year, this was the business area where we had the largest negative effect. We lost some 18.5%. But as a result of the good organic growth, gross margin jumped 10 percentage units. And The operating profit jumped several 1000%. It's amazing numbers anyway. Operating profit then at 11.9 And just a quick look at distribution of sales. It is really Europe and the Nordics that have or Europe that Gains here and taking a larger share of the pie chart. The other ones with just minor movements, you can say. But then of course, the business area, as we also indicated, It's positively driven by the COVID effect, if one can say that, in the sense that people have spent a lot of time at home renovating their Homes and houses. Coming quickly to the balance sheet. There are not so many movements here really. It's It's going to be a consequence of the performance. The thing we did during the early parts of Q2 was to issue another bond, Replacing 2 short term loans that we took to we can turn replace 2 bonds that were up for Replacements will be a year ago during the pandemic when it wasn't possible to issue bonds, but the financing has just rolled on under Very good conditions, you can say. We'll jump the liability side. It's purely a consequence, as I said, On the performance, no major movements. Looking at the cash flow, I mean the operating activities have generated a very good cash flow, Up from $1,500,000,000 up well, up from $1,500,000,000 up to $2,400,000,000 almost. Yes. But where we've had a change in working capital of close to $1,000,000,000 negative we've seen. And that's not so much that we have been mismanaging working Capital in any way, it's just that the drop last year was so much larger coming down from the 2019 level where we had working capital of around 20%, Which came down to 15%, and it's around the 15% mark where we have paid. And then we have continued to invest in our current operations, Slightly more than we have been over the last years given the expansion plans that we have. So overall, a very healthy cash flow after all. And then just looking at some key financial figures, we have a large portion of cash Ready for the acquisitions that Eric mentioned and where we are in discussions with several parties as always in a way. Interest bearing liabilities have come down further. Net debt is at 1.1 and a healthy equity asset ratio. I think we're very well positioned for both many midsized acquisitions, you can say, and larger that, that would come across. Working capital, what I mentioned there was 15.5 percent last year, 15.6 percent. And we landed in actually the full year 12.9%. And of course, that generates good results on the numbers. But it is also a very low number for us, Reflecting actually the situation we're in with a very high demand and a need to meet that demand. So our stock levels are Actually lower than what we think is would be the ideal position to meet the demand for the fall. Last but not least, a few more key figures and then we open up for the Q and A. Return on capital employed, return on equity, both have come up quite substantially now. Return on equity is at 17.3. It's an old target we've had to meet the 2020. Would we consider the revaluation Considerations that we talked about, we will be close to 19% actually. And that's in a way the official number, That is not something that we follow since it was not generated in the normal sense, you can see. But nevertheless, these are moving in the right direction as well. Light net profit has come up from €0.45 to €0.76 per share. Equity per share is also increasing. I think overall a very strong results. Thank you. All right. I guess we are ready for questions. That's 28 minutes for those. Thank The first question comes from the line of Karl Wainersdamm from Nordea. Please go ahead. Your line is open. Hi, it's Karl here from Nordea. A couple of questions from my side. Firstly, I mean, first, in terms of The organic growth in Climate Solutions, obviously, quite impressive. Could you give some flavors on the Current growth rates in some selected markets, I guess, Germany is performing well, Netherlands and so on. But could you give us some flavor on the by market Performance? Yes. Well, I mean, they are, of course, Netherlands, they've been growing tremendously over 3 or 4 years now, and they still grow very healthy. Germany now would be perhaps the quickest growing market. Some figures would indicate that they're up at 40% growth. That's even quicker than Netherlands at the moment. So that's of course up from relatively Low levels. It's not like a mature market like Switzerland or Sweden. That would be totally different. The Swedish market will grow With some 35%, that would be a tremendous growth. So it's very pleasing to see that customers Really, really not to change. Of course, there are subsidies in place. I mean, we talk about subsidies. There's a long history, I can tell you about that. We are really trying to introduce heat pumps to combat the bad, should I say, results or the consequence Burning fossil fuel. And some argue that we get subsidies in real terms. Of course, The gas and oil are incorrectly priced because they are not priced according to the damage they do when they're in the combustion. So that's why heat pumps are compensated for that at the customer level. That's a philosophical question. Yes, I guess so. And could you gave some flavor, but if you could elaborate On the U. S, you said that the development is still a bit slow, but you have seen a pickup. Is it correct? Yes, that's true. And of course, we have the new administration in now. And as you all see, he has been busy doing other things Another part of the world. But of course, it's a clear sign that they are now going to go in a more sustainable direction. And we are. I mean, there's no other way. It's just that just as we mentioned a few minutes ago here, Why haven't we changed sooner in Europe? Why are we sitting now doing all the changes and talking about it? We should have changed from fossil fuels 25, 30 years ago. We've seen the signals. There's no way back. There's no way back For the U. S, it's either. It's just that consumers have to be educated. And I think that in Europe, at least, we've been educated every quarter more or less or like 4 times an hour by all this The floodings and all the fires and everything, that's not normal. I mean, that's a great concern to us. Of course, That has to come in other parts of the world as well, particularly in democracies, in other countries where Dictatorship more or less. Of course, they can continue to suppress people. But in the long run, We can't accept floodings and fires and unreasonable temperatures and an increase of water When the Arctic ices are melting. So we believe that we are well positioned. Of course, we would have liked to see quicker growth in North America, but we believe that we acquired those companies at a very good moment Because once the market starts to move, everything is going to be so much more expensive. It's just like in Germany, of course. We acquired a company there 11 years ago. And why do you do that? You have the NEDA there now. And on a combined level, and now we also have Bartokoff on board together with our China Tech and Nibel has been there for many years. It's a tremendous foothold we have. So once the flames are In front of your door, it's a little bit late to react. We feel that North American ongoing this direction won't perhaps be So pronounced in the coming 1 or 2 or 3 quarters, but they certainly go in the same direction as Europe is going right now. Perfect. Very helpful. Just two more quick questions. So on the cost inflations Or the raw material cost inflation, you obviously presented a quite good gross margin, as you mentioned. But would you say that you managed to offset it through price increases or primarily through internal efficiencies, Have you seen the full impact of the price increases? Or is it more to come? Well, it's difficult, Tim. And We don't know whether there are any manufacturers of steel or copper listening into this call here. So we wouldn't like to motivate them and say, well, you can increase prices. We were not prepared for these price increases. We've been surprised and we are surprised. And the indications are that Some of the price increases will continue, and we have to combat that by a combination of being more efficient internally And also increasing our prices. Increasing our prices, we are fairly cautious doing that, but of course, we've We've been forced to do that. And that's exactly how we're going to react during the remainder part of the year. If we are hit with price increases, we have to some extent compensate ourselves by increasing our loan prices. There are 2 factors there, what you can do internally and what you cannot compensate fully internally, of course, you have to compensate You sell by price increases because we are not a bank. We are producing units that should produce Profits in a reasonable manner. As Laurence mentioned and I mentioned initially, it It's a very, very cumbersome period. Perhaps it's we indicate that we've been able to go through this and that's true. But of course, our productivity could have been better had it been those stock and gold situations. And of course, the price increases in some You know, materials like Steven, I just mentioned that's unheard of. And You can't just sit there and take that in the long run. So we don't unfortunately, we don't think it's over, But perhaps we passed the peak, if I dare to say that. It's difficult to say, but There are still indications of some components and shortages, but we hope that the further we walk into the forest, as the Same goes. I mean, the closer you get to the other side. As far as shipments are concerned, of course, there's been a shortage of containers, that's an indication that They have to produce more containers. And when there is a tremendous price increase of components or material, Of course, that's in the market economy, everyone with some kind of common sense of that. That's the market for me, and they're going to increase prices production. So hopefully, we go towards a situation where it's going to be more balanced. But You don't think they're going to be in the coming weeks or coming months. It's going to be cumbersome for the remainder part of this year, I believe. I have one final one from my side. Sorry for that. You're picking up the whole question here. Yes. Okay. I'll get back in line. Let's take it off No, no, no, no. Don't you ever take that one. I'm joking with you. Take that one. Yes. I guess it might be a difficult question. But in terms of the EU renovation wave and the fit for 55, I mean, we have seen your trade association, European Heat Pump saying that you need to quadruple the installed base in order to reach The EU target, I mean, what's your view on that? I think you could just sort of just give a view on your organic profile and how it might look like in the coming Sort of 3 to 5 years. What's yes, it might be a difficult question. No, I think it's difficult. There's more math. If we talk about every year, some in the past, some 7,000,000 or plusminus 7,000,000 boilers Of all categories been sold, if you are to replace those, that's on an annual basis. And there are some 250 1,000,000 dwellings or individual homes in Europe. So I mean, if you're going to change that, We talk about perhaps heat pumps today being having a penetration in Europe of some 5%, 6%. I'm talking broad numbers here. It's going to be a phenomenal for volume increase. But everything takes time, not only producing the heat You have to install them, and you have to have all sorts of logistics looking after this. But we are very positive. As I said Now as I've said many times, we are disappointed that it hasn't gone quicker. Now we see the flames. Now we see the Driving in front of our doors. Now we have to do something. Oh, boy. And we are a little bit too late. And that's why everything has to go Quickly now. So we understand that we have increased our capacities Like all our colleagues in this facility, Horace is a sector, But we see no other solution. You cannot continue to use gas or oil or even coal. That's just one way. We have to replace what we've got out there. It's going to be a phenomenal challenge to do that as quickly as possible, but also with the quality That's an essence because consumers don't like to have a faulty product in their Utility room in the basement. And neither do they want to have an installation as such That's not done professionally. So the whole sector has to develop together. All right. Perfect. Thank you. Thank you. The next question comes from the line of Douglas Lindahl from Kepler Cheuvreux. Please go ahead. Your line is open. Hello, Teitur and I will ask a few questions from my side as well. First of all, congratulations to a strong report. But coming back to margins, I wanted to I guess it's a difficult question, but I wanted to give or see if there's some sort of possibility to So if you can give some indication on by how much the underlying gross margins in Climate Solutions improves over time as your mix change And you sell more and more of your latest heat pumps. And this is, of course, assuming raw materials are stable and comparing it to your older products in Climate Solutions? That's my first question. Thanks. That was a heck of a question. Thank you. I'm sorry for that. No, no, no, no, no. Of course, we try to come up with products all the time that is less costly. But that is a balancing act because we don't like to come out with products that are full to you or have a lower quality. As you will indicate now, we are just on the brink of introducing New families on oxygen concentrates are based on different refrigerants and particularly ongoing from The ones we have today to the propane ones. There, of course, there is a saving there and the refrigerant as such. But compresses, they are about the same. So we can't say that we're going to be in these gigantic Leach as far as being on the raw material side. But then, of course, we have The volume is not set always for the benefit. When you buy more CE, you buy more compressors, what have you, Expansion that occurs, volume means something. But perhaps more importantly more important is The productivity, when you can go for longer series, of course, the productivity will increase. That's very substantial. That's why The raw material shortages that we're talking about here, they're not only cost as you know, cost increases, But also productivity decreases, because there's been this stop and go. And that is cumbersome resolved. But we've been fighting and we are fighting now to have a healthy margin. And the Climate Solutions, we've had a our legacy is between 13% and 15%. 13, when the economy is struggling in general and around the 15 mark when the economy is more, They're very friendly to us. So where we are now is pretty much coming back to where we were a few years ago before we had all these Difficult surroundings in the world with pandemics and stuff like that. And also demand, I mean demand is picking up now and We mentioned you know to call the line you sound here. Totally different situation. When the Paris treaty was signed, it was almost like no one understood what really was signed. Of course, there's individuals That's signed and it's on a line. They understood what it meant. But perhaps not everyone understood And in general, what does it mean to us? It's a tremendous change you are standing in front of. We can't play as a society. That's a move. Okay. I don't know whether I answered the question. No, I guess it's a difficult question to answer, but I guess you're constantly trying to lift gross margins by new product introduction as well. But coming back Yes. In order to specify new products, it's always the cost Effect is always there for the cost factor. Could we do that less expensive without compromising quality, without compromising on performance? So just coming back a bit more to the short term, I see that you're right in the report that you Expect now that markets open up to have more marketing activities in Europe and North America. And I guess a bit more detailed question Hans, is it possible to give some sort of indication on how by how much marketing costs will come up in the more short term? That's also, I mean, a difficult question. I mean, We have, of course, made savings here in 2 areas. You can see it's marketing costs and also traveling costs. And traveling is, to some extent, related to marketing. I mean, we're also looking at new ways to reach out to the customers. So I think you saw in our Q report there, we have this truck Driving around Europe now in various locations, which is a very cost efficient way, but also a good way to reach out To the customer and meeting them where they are rather than everyone coming to a huge exhibition. So we're also contemplating new ways of doing this. So probably, we will not come back to the old levels, neither on not exhibition costs, More traveling, but of course, they will increase from where we are today. But giving any numbers on that would be impossible. It's a little bit too early, Sam. If you look at those big exhibition fairs like Frankfurt or Nordragen, They are not fully backed either with their whole activity. I think that this pandemic has given us the perspective In that sense, that fares without criticizing the organizers of fares, because that That's an old way you're marketing your product. But before the digital era, you had to go and then we have to look Product now any new product can be exposed in the 10th of a second. And you can really evaluate that product. And the trailers that Hans was talking about, now you can be generous enough to go to Hamburg and say, we're going to be in Hamburg for 3 days, please come and board here in Stoller Rather than them traveling to Frankfurt, and how many would travel to Frankfurt? And there they have to divide their time between us and At least 200 other exhibitors from tubing to valves and what have you, It's so inefficient. And traveling, as Hans has mentioned, I think we've been traveling so extensively just to mention Hans and myself. We have not been turned by necessarily, Right. And when you look at it over out of 2 25 days, it's easily been gone for 100 days That's about 50% of the working days. And you really have to consider, was that so efficient? I mean, we really have to look ourselves in the mirror. And we will not come back to that, particularly not so regularly or regular Business meetings with companies already on board. The different thing with acquisitions. There, you have to have critical meetings. I think we've as bad as the pandemic has been, it has also changed or will change the pattern for traveling And marketing products. Definitely. Yes. It's clearly a new reality for everyone. But on that, your remarks There, Jack. On M and A, it was interesting to hear. You mentioned it a bit, but what can you say about your M and A pipeline in terms of geographies technologies you're most interested in, are you looking at large acquisitions or bolt on mainly? Smaller The whole caboodle, I should say, everything. So I mean, we always have minimum 10 to 12 discussions going on. Of course, we have our wish list at Christmas with gifts. It's orders like that. So it hasn't slackened. It's just that some companies have said, we can't really participate now. We have to come back when things are more clear again, Fine. We accept that, of course. So we expect that to accelerate. And as far as technologies, we are not going to change. We have our 3, Should I say business areas? But it's interesting to see for Element, for instance, how we've been able to enter now the semiconductor Industry through 3 acquisitions than in North America, heat and Briskies and Thermics. And how quickly that develops and how important it is to have your eyes open in such a field. And the same thing with Climate Solutions and Solves naturally. We are always looking at newer, New twists on what we already have, coupled with naturally geographic coverage. And And if there are other interesting people that we would like to bring on board, providing specific businesses. When you get new management on board, I mean, they cross fertilize our organization in such a nice fashion. So there are all aspects on that. So we are not saying that we're only going to expand in Europe, now we're all going to expand in North America. We are large enough, and we have a coverage and surveillance enough to be able to be in each respective market. And we also are, of course, approached by M and A advisers in most instances When acquisitions are coming up. So we don't see that we're going to lose out or it could be somewhat good on life either. We wouldn't say that. It could be such an instance. But in general, we are very generously invited. And yes, please no, and we I think we also have the financial strength here to look at bolt on acquisitions, as you mentioned, but also larger ones. I mean, we could take on board fairly large ones purely on our own, but if we reduce our share, there's not much of a limit in a way. All the results. Yes. And I don't think that we've been better positioned for many, many years than we are now, both from a cash point of view, from all The banks would like to help us and also using our shares on the same results. We are ready. Okay. Thank you very much for those answers. Thank you. The next question comes from Pam Liu from Morgan Stanley. Please go ahead. Your line is open. Thank you very much. Question number 1, please. Could you please share with us how you think about capacity planning and CapEx investment? I know that your guidance has been equal or just over the depreciation rate for quite a while. So I'm just wondering whether that sufficient for you in order to meet the strong demand that you are seeing and hopefully will sustain? The number 2 question is thinking about Germany sorry, the German market for Climate Solutions, I know that the local manufacturer, Waven, have said that their heat pump business grew by 50% last year. They doubled their capacity and well over 50% growth this year. So could you please share with us how do you think about your potential upside in this market? What are your plans, strategies to gain more market share? And again, what could be the bottlenecks such as production or installation capacity, etcetera? Very similarly, finally, in the U. S, could you please give us some examples of the strategies, the initiatives your team has implemented in order to drive demand as the market has recovered? Thank you very much. That's Right. I'm surprised that you didn't have more questions. There's only 3 easy ones. Anyway, investments, of course, There we're going to see an increase in investments, not only in the heat pump production, but also in the other areas. Of course, we are increasing our production capacity, for instance, now with products for the semiconductor industry. That's a major field for us. And we've been alerting the market by suggesting that there'll be an increase in investment. The exact numbers, of course, we will not release, but you shouldn't be surprised to the market because we've said that for Several quarters. Exactly. The guidance has been there, yes. And in Germany, of course, we are in such a Whenever the German market grows, we're going to participate at the same rate at least Because we have a very, very strong foothold in Germany with our 3 brands. We have the greatest respect for all our colleagues in the industry, But we are so well positioned. So we are respecting our competitors, but we have no anxiety whatsoever when it comes to that. In the U. S, of course, there we have very much focused on the geothermal Side of it due to the fact that, that is the most economical way of also climatize your home Rather than using electricity just in a regular air to air situation or a regular A carrier or whatever you call it, air conditioning equipment. So there, we are very persistent when it comes to Utilizing the ground source by, of course, having a tremendous saving on heating, but even more so when it comes to the cooling side. All right. Yes. Thank you very much. Thank you. You're welcome. We have 3 more questions. You've done right, so 3 more minutes. Thank you. The next question comes from the line of Gustaf Osterberg from Carnegie. Please go ahead. Your line is open. Good morning, it's Erik and Hans. I just have a quick question. You talked about the strong foothold in Germany. And then you also mentioned that markets like France and the UK are seeing better momentum. Could you please tell us a little bit more about You're foothold in these markets perhaps compared to Germany then? Well, in France, we are not so strong. Yes, we have a subsidiary since 7 or 8 years, but we are not so strong there. In Britain, we feel well positioned or better positioned. So of course, we there haven't been any acquisitions to talk about in Britain. So there you have to more rely on your own presence and building up an organization and growing organically. So in France, we acquired a company some years ago, and that's what we're building our efforts around. But there, of course, we have particularly one strong French manufacturer. But that's also a focus area naturally for us. It is just that we concentrated on the Dutch speaking companies Many, many years ago, Austria and Switzerland and Germany and of course also made the Holland since we've been active there for so many years. So there, of course, we had our Stronger split footholds in the Dutch countries and in Holland. At Britain, we are strong. In France, we are relatively seeing a little bit weaker Well, no, more of a newcomer. Great. Thank you very much. Thank you. Thank you. The next question comes from the line of Karl Buchtqvist from ABG. Please go ahead. Your line is open. Thank you. Hello, Yatirik, hello Hans. Hopefully, these people will be quite quick. The first one, do you think that Seasonality will be normal this year, I. E. Q1, smaller, Q2, a bit larger than Q3 and so on. Or has anything happened during this year that might have disturbed the normal seasonality pattern in terms of sales? Then the second one, just as you mentioned, the optimized refrigerants. So you're mainly talking about propane or any other forms that you've been able to successfully Implementing into your heat pump portfolio. And then just finally, we talked a lot about Germany and those countries in terms of Efforts made to accelerate demand. I was just thinking you mentioned Eastern Europe. Are there have you seen any similar sort of government initiatives to Promote these products. Thank you. Okay. The first question was quickly again. Seasonality. Yes, of course. I mean, we try to answer that question by saying that the first The Q2 last year, the reversal were relatively weak, and now it's coming back. So it's almost like the demand From last year spilling over to this year, and it continues a little bit. So I don't think that we're going to see But it's pronounced perhaps happened as we've seen in the past. Because on the stove side, for instance, of course, we expect growth, but With the tremendous growth now we've had this question, with the de installation capacity to continue that As pronounced as it has been in the past. So it's very difficult to really Predict Climate Solutions came through Q2 last year relatively well. So we expect that to continue, but we will be a little bit more humble about the tremendously strong development for Elements themselves, whether that would be able to accelerate that again during 3 and 4. I think we have to be more humble there without being negative. Refrigerants, of course, we are aiming at Just like EU suggested that we should grow towards 1 or 2 or 3. And with the propane, you are down to a very low GWP. And on the ground source heat pumps, you are looking at other refrigerants, bringing it down considerably. The present level is like 675 and 6 80 GW3, and I think there was a compromise. We are not satisfied with that. We are trying to arrive, In general, below that in all our products. Not necessarily for propane, that's one thing, but We have other refrigerants that would have a slightly higher GWP, but considerably lower than the 675. And the final question you said about Germany and East Europe. Yes, of course. I mean, Poland and Czech Republic, The whole Eastern Corridor, they are I mean, is it as old fashion perhaps to talk about Eastern Corridor? Because that's like 30 years The goal now since they came aboard in an hour of their new vehicle partners, as you just said, told about the Eastern corridor of Europe, As eager as we are to get going and they're also subsidizing heat pumps. And they are part of Europe, and they've also signed the Paris Treaty. There's no write back then either. Understood. Thank you for that. Thank you. The final question comes from Emmanuel Janssen from Danske Bank. Please go ahead. Your line is open. Thank you very much. Hello, Jatrik and Hans. I will not take too much of the time before you're meeting. Just a quick question. You're talking about internal efficiency work combined with careful cost control. Are these margins sustainable ahead, you think? And could you give us some flavor of the different measures you have been doing recently? You mentioned, for example, less marketing costs, etcetera. But could you give us some more flavor of Both efficiency measures. Well, I mean, I think that On the white collar side, you cannot naturally expand that as quickly as the volume goes up. There are so many other ways of marketing the product. And you can't have if you had like 250 salesman before, We don't necessarily believe that you could have 500 salesmen if you increase volume 100%. They have also to be more efficient. They have also to use other tools of marketing and selling the product. So that's one very blunt example How do we look at that? So of course, the volume increase should not be followed by the same amount of increase in fixed costs. That's because in production, you do it differently. There you look at productivity, you measure And you go through investments and you try to minimize the manual time. And the same thing on the right corner side or fixed cost side. You cannot allow yourself to expand the fixed cost at the same rate as the volume increase. So and that's, of course, a arm wrestling all the time. So I think that's the best answer to that right now. And I can just add on. It's not that we're driving, as I put it, global projects on cost reduction that are steered from the headquarters. This is very much linked to the business model where our companies are very well aware of the targets they have. They're very targeted driven, in fact. So initiatives are taken on a company by company basis, knowing what they need to achieve. And just as Eric said, it's very much linked The growth rates we have are not expanding our organization in the same pace. So It's down on a very local level. Yes, perfect. Thank you, Arce. A very clear answer. Thank you for that. Thank you. Thank you. We have no further questions. So I will pass back for any closing comments. Well, we'd just like to thank you all for participating and calling in and putting all these questions. Some questions, of course, from a tactical point of view, we didn't answer fully, I would like to be transparent as possible. We always look forward to this session. Always interesting to hear your questions and we will talk to Xavi no sooner than in November again. Absolutely. Another quarter will quickly go by. That's right. Thank you very much. Thank you.