Earnings Call: Q3 2018

Nov 16, 2018

Quarterly report

And gentlemen, welcome to the Nibel Q3 Results Presentation. Today, I'm pleased to present Jad Erik Lindqvist, CEO and Hans Bachmann, CFO. Mr. Lindqvist and Mr. Bachmann, please begin. Thank you. Good morning. It's Eric here. And as usual, I think I've got to start and then Hans is going to kick in a little bit later on. We have some slides to show you. And it's a gorgeous morning here in Marke Route. The sun is shining after several days of very gray fall weather. So it's a nice frame of presenting reports. And the environment is such I mean, the business environment, if you just have a very quick look at that, it's been pretty good demand, but we all know that we are surrounded with several issues regarding the political situation and also the increasing trade barriers. And it's not our style really to complain about those things. It's up to us to sort of maneuver around them or combat them. And so many things, of course, had happened during a year. We have the raw material prices. We have unexpected salary increases in so called low cost countries. And of course, we had changes in product mixes and the weather. And all those things are conditions that we just had to deal with, because the long term target for us is the sustainable and profitable growth. And I think that today we've been describing we've been talking about this, the organic growth in the we've been talking about this the organic growth in the past of an average of 10%, and it's not so easy to arrive there when inflation is virtually nil. And we are now at a situation or a position where we've had a very good solid organic growth for several quarters. And lately, we've also had some help of the currency because of the Swedish weak currency that is the prime reason. And that is, as we believe, something that is enhanced by the way people reason anymore. We are going more sustainable like it or not. I think we all observe the difficulties we are having in nature and weather and such, and that is influencing all of us more or less, we can say. And when we talk about the results, of course, the operating result is up quite a bit. The margin is slightly up as well and all that is due to the growth and the cost control and also the productivity development. We've also acquired some 5 companies during this period, the 1st 9 months. And there's a steady flow of the candidates standing that we are investigating. As we've said before, like 30%, 35% would potentially turn into a signed contract. So you can imagine that we've had quite a number of discussions when we closed 5 acquisitions during the 1st 9 months. But that is not a burden, that is just stating the fact that's how it is. And we're well known in the market for being interested to grow our 3 business areas. And we are very pleased that it's not only us talking to the people, they are coming to us and we feel that our structure, our design, our industrial vision and passion is pretty much appreciated by a number of companies out there. If we were to walk into the different business areas, of course, last year, we had some weakened result due to larger acquisitions. And now we can say that those integration efforts, they are really bearing fruit. And we are continuously improving the performance, both margin wise and, of course, growth wise. And now we have also stepped into the district heating business or the district cooling. And not that there has been a severe fight with that kind of heating or cooling system, but rather than fighting it, we said we're going to join them. And of course, there's a big move to be able to take over the Al Falaval, district heating division and to broaden that in the years to come. And the Ross acquisition, we put our toe in the water earlier last year actually and now we're daring enough to buy the remaining shares. And that, of course, kicks in as of January 1. But that again is really broadening our commercial scope as we've been discussing and talking about and writing about in our reports and now we are there. And then we can say that on the Climate Solutions side as far as the product array, it's there now. It's just for us now to continue to grow the residential business, of course, both with heat pumps and with the district heating and also to grow their commercial business now with ROS as one of the corner pillars. And we've also been promising or not promising only to the external world, but also internally to say that we typically would give a company coming in not necessarily at the right level of a margin and give them like 18 or 24 months to bring it up to the side level at least 10. And I think with the 2 large acquisitions that we've been talking about, the Enatec Group and the CCG Group, I think that we have demonstrated that we can keep that vision alive. When we talk about the element, of course, it's an impressive stable margin, as we say. We also know that the 3rd quarter as Hans going to come into, is coming in slightly lower than we've been used to. And Hans is going to talk about that in a little while. But that's how this being in every market segment, we can say, on the element side. We have now arrived at a level of being very large in all sectors. In some sectors, they have a better margin and some sectors have a lower margin. And of course, it goes up and down. And the overall picture is that it's a very, very interesting market that is now emerging in front of us. Coming from the immersion heater as we once knew the element, coming into the resistors, coming into the thin foil elements of the world, we are now seeing that also in this business area, the world is going truly sustainable. We talk about wind, we talk about trains, we talk about vehicles, electric vehicle, but also the hybrid vehicles And not only for personal purposes, but also the trucks and the construction equipment, they're all going in that direction. And wherever we go, wherever we see that this change is taking place, there's a place for some kind of a resistor or heating element or a system. It's very, very interesting to look at that. So sort of under laying the importance of being truly sustainable, not only on the climate solution that's been so obvious in the past, but the other 2 are just as much working in the same direction. The acquisitions that we have been able to carry out during the year is also interesting. Of course, the brisket in America brought us into a market that has not been so well known or obvious to us, supplying products to the semiconductor industry. That's a very, very advanced industry with very high quality standards. And it's interesting to be challenged as far as living up to those standards. And also when we come to this Turkey, Serbia, the EMIM group that we acquired just recently, that's an interesting part of the Climate Solution product segment where we produce attachable hoses, fittings and also those braided hoses that we know since many, many years, of course. And now we have that under our belt as well. And we also believe that Serbia is a producing to produce in Serbia is also very interesting from a cost structure point of view. We all know that in Poland and Czech Republic and the former Eastern countries there, the salaries are raising very rapidly. And in Serbia, it's still more competitive when it comes to the salary levels. And if we just have a quick look into the stove situation, there, of course, it's been a relatively flat market And one should not really say that we are sorry because we had hot weather. Some of us enjoyed that. But I think everyone also understands that very few of us will walk into a like a stove store in the middle of the summer to look for a stove. So given the weather, we're not that totally disappointed in the development. Here again, just like with the other two divisions, of course, we like to broaden the assortment into the Southern Europe or Mediterranean Europe. There we can say that the pellet stoves are more common, commonly used. It's used almost like a primary heat source because their heating season is relatively short. And that's something that we have to address. We have started to produce our own and there's no secret that we are looking for an acquisition in this field to really make our assortment complete. And also this acquisition in Britain earlier this year, the Evonik fire, when we first started to look at electric fires for stoves, Of course, that's a phenomena that's not so well known in Sweden because wood is so readily available. But then of course, thinking about all the big cities that we have in the world and Europe, where you hardly have any access to a chimney and in big cities where you have restrictions might be, this comes in very handy. And that's growing very quickly and that's also enhancing the electric fires or stoves that we already had when since we acquired Stowex in Britain. And if we just have a quick look at the figures themselves, the growth is quite healthy as we see here the 1st 9 months. And if we say that the acquired growth is 6.5%, we easily see that we are above the 10% now with a little bit of a help of the currency. But now we are in a position where we would like to be, of course, on a continuous basis. The gross margin is slightly down and that is our because of our legacy are not necessarily increasing right away, but rather trying to absorb quite a bit of the price increase by also being more rational, trying to meet it with our own methods. But we must say that the price increase from our suppliers, raw material or components, They've been, of course, a bit on the pricing side. So there's always a possibility for us, of course, to increase prices. That's the easy way out, and we fight a little bit with that. We rather try to absorb and some of it on our own. But I think we've been commenting upon that before that to close that gap, of course, we will not allow our gross margin to erode. So it will be a combination of price increases that are already, of course, working in our favor right now and also enhancing their productivity. So having said that about the gross margin, the operating profit is up some 19% and the margin is slightly higher than the year before. If we just have a quick look at the 3rd quarter, And then we see that there was even more of a growth than the first six, of course, almost 25%. And that's almost reminds us of the stronger quarters we had several years ago and the gross margin still below last year. So there we have to be patient to give it a quarter or 2 more to close that gap. The operating profit is up by 20%, which we think is quite healthy. And the margin, of course, mainly due to the element and stoves are a little bit weaker this quarter on the operating margin side. We have got some 6 10th of a percentage unit. And we are fairly confident that we're going to kind of close that gap as we've already said. And looking quickly at the distribution or some graphs, We can see this graph that the pattern that we've had for many years, that's very steady. The quarter 4 is typically coming in as the strongest one. So that's what we have ahead of us. And if you go back years years, we have the same pattern where we start with the Q1 relatively modest and then the revenue continues to grow. And it's the same thing on the profit side, on the operating the sales side. Let me have a quick look at that. It's or even profit after finances, you can see that even steeper when it comes to the increase. So I think that's also filling us with some certainty if there is such when it comes to forecasting the result for the full year. We're saying that we are fair confident or positively cautiously positive for the rest of the year. And I think that statement is, of course, coming from only having 6 weeks to the year end with that typical graph and as a backbone. Geographically, we can first look at how it's distributed between our different business areas, and it's pretty steady. Climate Solutions typically will be about 60 elements, then just under 29 and Stowes at 9. This picture, of course, typically will change a little bit when we come to year end because Stowes, they have their or we have the strongest cohort ahead of us when it comes to that division. And on the operating profit side, it's fairly similar as before. Climate Solutions is between twothree 70%, and the 2 others are making up the rest. And again, we assume that those are going to kick out that 6% a little bit before the year is over. So all in all, the balance is kept fairly well between the 3 business areas. And if we look at the geographical split, we were just commenting upon that before we started the conference here. When we look at the picture and people around the table here are pretty much the same as Roberto like 5 or 10 years ago. And we say, okay, that's a healthy picture we see or eye chart that we see ahead of us. The Nordic countries being our home market as we identify that, a solid 25%, 26% where we have a very good foothold. The rest of Europe, some 38%, 39%, and North America, Just a few years back, we were hardly present in North America now, it's about 31%. And also others primarily, of course, represented by the Element Group also in Asia quite a bit. So we think that we have arrived now at a geographical distribution that's quite healthy, and that is also demonstrating a robustness when it comes to result and revenue generation. If there is difficulties or are difficulties in one sector or in one segment in the world, we can also swing over to another one. We don't foresee that everything just going to collapse. But of course, there might be instances in one country, in one region, and hopefully then we can compensate that in other regions. So all in all, that is demonstrating a very healthy backbone of NIIBA. Then I'm going to invite you, Hans, to comment upon in more detail where we are. Okay. Thank you, Erik. So I will jump into Climate Solutions immediately here. As you've seen there on our fee on the chart, we've had a very good growth there of almost 18% during the 1st 9 months, With the currency playing a very small role, so to speak, during the first half, it's a healthy organic growth below the numbers. And of course, this is driven a lot by the construction of single family homes. It's the government decision to, in one way or another, support renewable products like the tax credit in the U. S, but also the political decisions in Norway and the Netherlands to phase out fossil fuel for heating homes and also this general trend that we mentioned a couple of times about an increased awareness and interest in renewable products. So I mean the growth comes from many countries. And very pleasing to see is, of course, that the growth in the operating profit has been above the growth in the sales. So there, we have increased it by 24.4 percent, leading to an operating margin then that is up from 12.5% to 13.2%. The one item sticking out is the gross margin that has come down slightly, and that is what Eric mentioned before. It's a matter of raw material price increases where we have not been quick enough in a way to compensate for those. We're trying to take care of them ourselves, so to speak. But we've also seen a mix change in products selling more commercial, which don't have quite the same operating margin as the ones going through the residential side. And there is also some currency effect. But the cost control has been strong, so the SG and A side has been favorable to us leading to this result. In the Q3, the sales have been even stronger actually, up 25%, and growth in the operating profit has exceeded that with 28.3%. There has been a stronger health of currency in the 3rd quarter. But nevertheless, we have also improved internally, so to speak. So the gross margin has slightly picked up again and the SG and A have been continuously kept under control, leading then to this operating margin, which is up to 15.7% from the 15.3%. So a quite good third quarter. The sales split we've been working on and Erik just commented upon it as well, coming from the Nordic region where we had 85% of not too long ago to now having a very nice split between the Nordic countries in the traditional home market and Mainland Europe and then North America. Switching to the elements business area. There's been an overall good demand here as well, stable and growing but with significant variations per segment. We've grown 23 over 23% where 15% has come from acquisitions, leaving the rest to an organic growth and helped slightly by currency. Here, the gross margin has been stable up to the 1st 9 months, and we have increased our operating profit there with some 14.9%. Now what we did have in the first quarter or first half year actually of last year was this were these one off projects that we have mentioned a couple of times. So that could explain the reason, therefore, the operating margin is coming down slightly. But that also leads us into the Q3, which has had an effect on the margin, of course, for the 1st 9 months as well. The quarter as such was lower than last year. We did grow sales quite substantially by some 30%, which half basically came from acquisitions. So the rest was a very good organic growth but also a help, so to speak, by currency. But what we see here is a shift in product mix influencing us, moving slightly or increasing the volume business and having some less sales in systems where the margin is typically higher. There's also been less sales or a reduction in the semi to the semiconductor industry in the same way that Atlas Copco talked about in their report some weeks ago. Also, automotive has slightly been down. So it's this mix change, but it's in a way a coincident that all of these things occur in 1 quarter. It's, of course, also coupled with what Eric said initially there with wage and salary increases in especially the Eastern countries where we have a lot of production and also here raw material price increases and some customs and tariffs even if we don't try to complain about this. But that has an explanation. But it's a mix change and a bit of a coincidental effect, everything coming into the Q3. Looking at the sales split. This is again, which we have mentioned several times, the business area which is the most global one and with the most or the largest split between different geographies where we've come also from the Nordics moving into Europe, North America, but where the Asian business is taking a larger and larger portion. Last but not least, we have our Stoves business area, stable, moving a bit sideways in terms of growth, 1.1% coming from the Evonik and Friars acquisition that Eric mentioned, a very nice add on that fits the business very well. The rest being organic growth helped by currency, you can say. In this business area, the gross margin is stable and the business area as such is very stable and run-in a good fashion. But what we have seen is an effect of the very long warm period that we've had is that demand has not kicked in quite as it typically does when the weather is a bit colder. And we still have an organization that is tailored to slightly larger volumes in a way. So that has led to the operating margin then coming down from the 9.8% to the 8.2%. Percent. In the Q3, the stoves business grew by some 8.8 percent, where the you see the larger effect there of the avionic fires, you can see. This was also helped by currency, the growth the organic growth, but again with a stable gross margin and keeping the operating margin above the 10%. The distribution of sales here, again, much of an European business, but thanks to the SPI acquisition that we made some time ago in Canada, we have a very good base for the North American business. Then jumping into balance sheet, I would say that there is one item that might be sticking out there and that is the non financial current assets, which of course means the mainly the inventory and the receivables. They have increased from the beginning of the year, and that is, of course, a logic or a logical consequence of us growing so much. At the same time, we have been building inventories in order to meet the demand. And we were especially aware of the situation that we were in about a year ago when we were not able to meet the demand and we're lacking products, raw material and to some extent even personnel. So this year, we have deliberately been both staffing up and also producing more products to have on stock now for this season. But that also involves securing some raw material components because there has been such a surge in demand from various industries. So that's really the reason for the increase in the non financial current assets. On the liability side of the balance sheet, there's not so much to comment. It's, of course, pleasing to see that equity has increased substantially, a result of us generating a healthy profit. But of course, the buildup in inventory and the increase in receivables does have an effect on the working capital. So the cash flow itself from operations has increased by over 20%. But right now, it's sitting, so to speak, in inventory and waiting to be sold in a way. And of course, that has kicked in and started already in Q3. We typically build inventory during Q1 and Q2. The investments, they have been basically been kept on the same level and below depreciation. And if we just look at some key financial numbers there, I think it's pleasing to see that interest bearing liabilities in relation to equity have constantly come down now for some time as well as the net debt in relation to EBITDA. And of course, we have a quite strong balance sheet with an equity assets ratio now about 46%, which much comes from the rights submission we did in 2016, which makes us ready for continued acquisitions, I would say. And just very quickly looking at the working capital, including cash, it's basically on the same level as before. But excluding that portion, we have an increase coming again then from the inventories and the receivables, which we are now working on reducing them for the remainder of the year. But summing up and looking at the key the last key financial numbers, I think we have seen a very good development in basically all of them. Return on capital employed has increased, return on equity, net profit per share and equity per share. So all in all, I would say it's been a good quarter, a good 1st 9 months with a healthy balance sheet. And by that, I'm done with my part. That's what you're saying. All right. We won't comment on the share price, but just there for your information. And I think now we will allow, of course, questions for some 15, 20 minutes. So I think it's just for you out there to shoot. Thank you. The first question comes from the line of Patrick Saviyanovich from Nordea. Please go ahead. Thank you very much. Could you tell us what the FX impact is on the group in the quarter in percentage terms on sales? Well, I mean, as you know For Q3 specifically? Yes. Well, we understand the question. We haven't ever specifically answered that neither when it's a headwind or when it's now tailwind. So I think you just have to say that, of course, the true organic growth is far above the currency effect, if we if you can add that to the fact. We have decided to say that to inform that it's our task to meet the course if there are currencies or if there's a headwind as we say and tailwind is now. But that's up to us really to curtail that as good as you possibly can. So that's the only answer we can give there. And could you tell us about the reasons behind the accelerated growth in Climate Solutions in Q3? I mean, which countries are driving this growth? Does it come specifically for the U. S? Because it seems it's really taken off now in Q3. I think it's well, it's much better, of course, in the U. S. Than last year. But it's also, as Hans mentioned here, the substantial growth in Europe. And where the politicians also say that now we're going to go in this direction. It in Holland or in Norway as examples, when they say they're going to phase it out and they decide the year. Already that very moment, people start to reconsider what they were going to do prior to that. Same thing with subsidies. If you say that in June next year, subsidy is going to occur. People stop buying and then they start buying June next year. Same thing with what they have stated now in Norway and the Netherlands, for instance, okay. They're going to phase out oil and they're going to eventually phase out gas many years ahead of us, so at least in Holland. But that's a clear signal to the customer, okay, if I ever going to sell my house, okay, how should it be equipped? So that's very good. And in Sweden, of course, the new construction is slowing down somewhat, but then we also have a bulk of heat pumps out there that has to be renewed and replaced, not necessarily only when they break down, if they do, but also because they are much more advanced from a control point of view, from a sound point of view and from a performance point of view when inverters rather than they are often on machines that were sold like 15, 20 years ago. So I think it's overall, as we try to explain, a decent demand. Not saying that we always can present organic growth of this magnitude, but I think we are comparing perhaps the quarter in all fairness last year might not have been the strongest one. So I think that's a very quick answer to your question there. Okay. Many thanks. And finally, you're writing in some point in the reports about an information campaign in the U. S. That you say is going to be quite large. What kind of cost is associated with this? And what kind of results do you think this could bring in? Well, we just wanted to the signal here is that we really like to live without subsidies. And of course, last year, we tried to convince the politicians and that's not easy for a company in the Marcaroog in Sweden to tell politicians in Washington what to do. But I think that the avenue that we had chosen at that time telling that it would be fair if the PV collectors would have the same subsidies as the heat pumps and they listened to that. I'm not saying that it was only us, but of course, there was a, if you call it, campaign that turned out successfully. I think that with an hour 3 years ahead of us or 3.5 years ahead of us, where the demand most likely going to be relatively good, we think it's wise to invest a bit of that good revenue or and also result naturally into the future. So if the subsidies would not be prolonged that we have spent money wisely, not only keeping the money here, but also saying now we're going to try to educate the public as such. Of course, we will not go wild in the sense that we're going to spend all made profit in that, but it's more of a statement saying that we are there to stay and we are there to grow the market. It's a continent and we have the greatest respect for that, but we see how important it is that the public is also trained and informed about the advantages. And we've done the same thing in Europe. We were spending and we spent a lot of money during the years to convince and convey the message to the public. So that's more the message rather than saying now we're going to come down in margin. That's not the message at all. It is that we will not be so rigid that we're going to utilize these coming 3 years to a maximum, but rather use the profit made in a wise way. Okay. Thank you very much. The next question comes from the line of Max Frieden from Danske Bank. Please go ahead. Yes. Thank you. I have a couple of questions. The first one is on Climate Solutions. If you look at Sweden, in discussions before, you mentioned that sort of the replacement market is going to offset new sales and that the market might be flat. Now you see such a substantial increase in sales already here. And if you look at the vast majority, some 40,000 heat pumps or so that were sold 20 years ago, Do you believe that you may have misjudged that and that you can actually see net positive market growth in Sweden from the replacement market? Well, I think that I've tried to say before, we are not so negative to this market. A heat pump, just like boilers in the past, that's something you if it would break down, if you would have a failure, of course, you replace that. It's not like a couch or chair that you in a strange situation, you would not necessarily need to change that. But here or a piece any kind of piece of furniture, just to make an example, We believe that people are more willing to change the let's say, the ground source heat pump for other reasons than just a failure because we all know that we can change a compressor fairly easily in a heat pump. But there are so many other factors just like the automotive industry, of course, Volvo and Mercedes, they were fighting years ago about having a car that would last like 23, 24 years. And no one wants to have a car that's that old anymore. And that's why the Japanese manufacturers, for example, came in and they brought a different thinking. We believe that also with heat pumps, it's a much more advanced vehicle anymore, if I may use the word, where you have the controls, you have the sound, you have all the capabilities anymore of being linked to a system, the smart home. So that's the reason why we feel that people are willing to change over. And of course, once you've done this tremendous and many things or relatively large investment in energy reform of ground source heat pump, The drilling is done, the installation is done to change the heat pump as such. As I wouldn't say, it's a minor investment, but relatively seen, it's a more modest investment, of course. That's why we are fairly positive. Good to hear. On if you take the new build market versus the replacement market, Is it possible for you to quantify if you have a larger share, in your view, on newbuild versus replacement? Is that a valid question that you can answer? Well, I think that when it comes to newbuild, of course, there we talk about some depending on where you read or get the figures, some 1300,000 homes being erected a year like this. And perhaps district heating would have some 20%, 25% depending on where you build those houses. So let's say that there would be like 10,000 heat pumps there out of some 50,000 at full year. So that market represents some 20%. That is pretty much how it is in most countries once you are established. 15%, 20% would be new construction, 80%, 85% would be replacement. And that's the proportion that we feel comfortable with, even if there will be a drop in this market, let's say, 25% to make a very negative picture on new construction. That would affect in broader terms the numbers with 2,500, whereas that would be compensated by the other segment, if I may call it, the refurbishment market by growing some 6% 5%, 6%. So that's the portion that what I'm talking about more in numbers. Yes, that's much more clear. Thank you. And then just a question on or 2 more questions on the margin. Raw material input costs, you mentioned here, still not been able to close the gap, so to speak. A lot of other industrial companies saying that they're starting to close that bridge in Q3 and expecting it to be sort of neutral or on par in start of 2019. Could you agree with that statement? Or are there some other movements here that we need to take into account? Well, our legacy is not really to increase prices too much. I mean, that might sound naive and a boy scout attitude or a girl scout attitude. But I think we deal with our supplies normally in a way that, as I said, now we try to improve our productivity and you also have to participate in that change. Now, of course, we've seen increases in price that have been more in a world market level than we have had those, of course, refrigerants increasing tremendously. So of course, our position has been fulfilled in a way that we are not too hasty, as they say in some books, don't oh, oh, don't be too hasty. To increase the price, it's relatively easy, but you also have to do things on your own. So that's I should restart that we're saying that, of course, we can close that gap, but it has to be done in a civilized and in business like manner. Yes, I absolutely understand that. Do you believe that that gap has been more closed in Q3 compared to Q2? Yes, well, first, I understand your question perfectly well. Yes, I know when I hear you. That's fine. I mean, that's weapon or that's the tool, of course, that we have in our hand at any given moment. But we also like to balance the gross profit with the growth. I mean, not we are for the steady growth pattern, and it's important that we show our customers respect and not that we always refer to what we have been exposed to. But do that in an either way. I think that's the best way to explain it to you. Okay. I'm satisfied with that. I'll let someone else in. Thank you. Thank you. The next question comes from the line of Clara Jonsson from SEB. Please go ahead. Yes. Hi, Erik and Hans. My first question has to do with the mix effect on for Climate Solutions that you mentioned. You mentioned some negative mix effects from you increasing sales of commercial products instead of residential. Is this only related to your recently acquired units? Or are you also increasing sales of commercial products organically more than residential? I think it's a signal that, of course, we have not consolidated RAS as yet. That is to come in the next quarter. But I think what Hans was saying is that when you enter that market, that's more project driven, but at the same time, it's a corresponding lower cost level on the sales cost side. So I think that's more said to explain the slightly lower gross margin there. It doesn't really it shouldn't really affect the EBIT line. All right. So that's I think that's what we said before. All right. And then I have another question on the Netherlands. We know that it's very positive development there. Could you say something about the magnitude of how much that is helping organic growth for you right now? Well, we don't really hand out those. But I mean, since we mentioned that South Korea has been there first, that is an important driver. Still that market occurs compared to many other markets is not that gigantic. We're starting from a relatively small or modest level. But it's a country with some 16,000,000, 17,000,000 people. And of course, the potential is very, very interesting that when you see that just in a few years time of an ever bad decision came, how quickly the public is reacting. And I think right now, it's more of a hindrance when it comes to installation capacity and people have to change over installers. They've been used to installing gas boilers for the last 40 years. And now they have to be very professional when it comes to a totally different installation method than previously. And you have to reach Google, you have to look for people, knowledge about refrigerants and things like that. So it's not only there now, everything is before, but you're going to install that. It should transition period range. That's very interesting. Yes. All right. Thanks for that. And then my last question, you've already answered, but I'm trying to understand if I got it right. So as I understand it, it will take a few more quarters before you will be able to compensate for the raw material headwinds you're experiencing in full. Is that correctly understood? Okay. I think that is I think they read it fairly correctly, yes. Yes. All right. Thank you so much. Thank you. The next question comes from the line of Jan Vukulevskiy from Handelsbanken. Please go ahead. Hi. Just a quick question on Element. The mix effect that you were explaining from increased volumes in sales from increased volume sales and less sales from systems, is that a tamper effect or just a Q3 effect? Yes. That's we are represented in every sector, we can say as before. And just to illustrate, of course, it's selling to, let's say, the train industry when you equip different cards with our equipment, and that is pausing in between 1 project or 2. And instead, you start to increase the white goods sector with heating elements. Of course, you have a difference in margin there as an example. It doesn't mean that the train sector is in a lesser and doesn't mean that the white goods sector is going bananas. But as Hans said in this particular quarter, we had some clinical instances at that time. So we are not concerned about that in the long run. That happens, and I think that's why we don't like it too dramatic. Okay. So it wouldn't be as any surprise if the product mix came back to the original level in the next quarter? Well, of course. I mean, I think we've talked about Zane is a long term journey here. And we've been, as you know, working very hard to establish the Aniva Element Group above the 10% EBIT line. And we are confident that we're going to be able to be there. And we also have to register and allow and understand that from quarter to quarter, it could be variances. But there weren't that many years ago where no one thought that we ever would be able to establish ourselves as a sub supplier above the 10% level. And there we are, and we are very, very determined we're going to remain there. Okay. Thank you, Dorit. Thank you. The next question comes from the line of Kai Bockqvist from ABG. Please go ahead. Thank you very much. My first question concerns regulation and subsidies. Have you seen any changes in subsidies in any country either during this quarter? Or do you expect any changes to come here in the near term either on the positive or negative side? Thank you. No. We can't say that we've seen anything during this quarter. And as far as forecasting, I mean, it's fading now for the 3rd time. I think we don't necessarily like subsidies. But of course, let's say in Germany, we'd like a statement from the politicians saying now we're going to go truly sustainable rather than continue with oil and coal and stuff like that. So just a statement of never going to go in that direction would be tremendously helpful. But it's not the helpful. But it's not to say that they're negative in Germany, but I think that's the big nation that we're waiting for. We are there. We are well so. We're so well positioned to our 2 brands. So that's something we would like to hear and see. At the same time, I think it's moving in our direction in the sense that there is this debate ongoing the whole time of becoming more renewable and not the least in Germany, it's talking about these diesel in various cities where they are prohibiting people to take their diesel cars into the town. So hopefully, it's just a matter of time. Okay. Thank you. And because from my understanding there is some subsidies going on in Norway that are about to end next year, unless I'm mistaken. Have you seen anything regarding this? No, Ann. No, I mean, they like to replace all their oil burning boilers. And to our understanding, it's still some 80, 9000 of those out there. So I think that once this movement is going, even if the subsidies were to be taken away, now that country is going truly sustainable. I think that's it's more like Sweden now and more like Switzerland. They are going so quickly also into electric cars and they are very cautious about nature. So I think those oil burners and oil boilers, oil burning boilers, they're going to be replaced one way or the other. Okay. And my second last question is to Armin, if we look at SG and A to sales, do you still see that you have a possibility to improve productivity there? I mean, if you will be able to keep reducing that ratio to sales, so to say? I mean, that's our mission, of course, to increase productivity. Since we have chosen this path on not always moving to the country where you have the lowest salaries, but rather believing that you have to have a presence more or less in every country. We remain in Sweden where production was sort of doomed years ago. We are here. We are producing in Norway. We are producing in Germany. We are producing in Eastern European countries. And of course, it's up to us as a management to always react to cost increases. That's our one of our number one priorities, increase productivity. And that's a project that's never finalized. New products come about, new technologies come about, that's what we have to use and address. So it's a steady ongoing process. So of course, you're always going to connect neither with productivity. It's never forgotten in our group here. And as new companies are coming on board, that's the first thing we do, we go in and analyze from a production point of view, how well is the time used in the factory? What can we do about it relatively easy? And how can we invest to become more efficient? Understand. Okay, sorry. That's fine. I think that's all. We just wanted to inform that we've been running now for some 57 minutes. Could we allow for perhaps one more question from someone? Sure. The last question comes from the line of Antone de Naringa from Grow Rancher. Please go ahead. Good morning, ladies and gentlemen. Thanks very much. A couple of questions really. I mean one relates to the hello? We are here. Sorry, I was getting We just changed our batteries and our hearing aids. Two questions. One was just on the financing charge in the 3rd quarter. Was down quite nicely, but the average side rate was also down. Just wondering whether there's any benefits of mark to markets on derivatives gains on FX or whatever that benefited that quarter in which perhaps we won't see going forward. The second question was just on the tax rate. 3rd quarter looks like it's come in at 20%, which I think was below the sort of 24%, 24.5%, I thought was guidance for the full year. Again, was that a sort of function of 1 offs? Or was that a sort of based on the sort of improving mix in the tax regions, which maybe isn't sustainable therefore going forward? Yes. It's Hans here. If we talk about the finance charge, as you mentioned there, that's there are 2 effects in there you can say. 1 is, of course, FX effect. And I mean, they come and go in both directions in a way. So that has had one impact. The other one is also that we issued a bond here earlier this year replacing another funding, which brought down the financing cost. So those are the two factors influencing that number. Is it possible to quantify the FX impact in that quarter? We don't give out those detailed numbers. Okay, fine. And on the tax rate? The tax rate, yes, they have come down. They have typically been around 23%, now coming down to 20%. That's a consequence well of various things. But I mean one is we have been profitable in Sweden where we have a low profit fairly low tax rate in comparison to some other countries, so that weighs heavier. And then also in the U. S, I mean, we are constantly coming down in tax rate there given the changes that have been implemented by the current government to bring down the corporate tax rate. So they weighed heavier before the tax cost over there compared to now. So for our sort of modeling, we probably can start to sort of edge that tax assumption into the 4th quarter and perhaps near the 20% now. Is that something you'd agree with? Somewhere around there. Okay. Many thanks for that. All right. Thank you. So thank you for all these interesting questions. I really hope that it wasn't too much of a hide and seek. We try to keep a balance with what we present here and what we supply to the to all the shareholders. That's why it has to be a balance. But we appreciate all your questions, and we like to arm wrestle a little bit with you. And we look forward to talking to you again mid February, if not earlier. Thank you very much, and you have a nice weekend now. Thank you. Bye bye.