NIBE Industrier AB (publ) (STO:NIBE.B)

Earnings Call: Q2 2018

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Aug 17, 2018

Ladies and gentlemen, welcome to the NIVE First Half Year Results Presentation. Today, I'm pleased to present Jert Erik Lindqvist, CEO and Hans Bachmann, CFO. Gentlemen, please begin your meeting. Well, good morning, everyone out there. It's Erik here and Hans, as usual. Absolutely. Good morning to everyone. And we won't change the order. It's like before. We're going to present the results with a few slides and then eventually we're going to open up for questions. And we've said that 50 minutes, we think, would be appropriate to have presented report and also to have answered the questions. So we feel unfriendly mentioning that. So once again, welcome to this session. And of course, we've had a extremely nice and warm summer behind us. And now it's back to more normal weather, we can say, in the Marche Aluit. Still a very brilliant day down here, but we've had some rain. And I think that it's been a very good period, we can say, for us the last month despite that. Of course, stoves have suffered somewhat from the warm weather. Perhaps it hasn't been so inspiring walking into a stove shop when it's been like 30 degrees. But we think that the overall demand has been decent, as we mentioned in the report. And we think that despite the hotspots, as we also geopolitically that we described the previous time, we think that the customers are fairly positive. And of course, the low interest rates all over the world is the main driver when it comes to demand. We also mentioned that sustainability is becoming more and more of a driver when it comes to demand. And I think that's becoming not only the experts sort of issue talking about, but that's something that's steadily growing among all of us that we have to revert to a sustainable way of living all over the world. So I think that's right up our alley when it comes to that kind of living. And if we just talk about the what we have done on our own side, of course, it's been an acquisition driven growth, but also a substantial organic growth, particularly now during the Q2. And we also mentioned that the 1st 6 months, they have been fairly neutral from number of working days and also they've been currency wise, they have been neutral. So the figures we see now, they are as they are. And so there's no hide and seek. And I think it's very good that we can present that in a very open daylight. The results, of course, we have improved both the margin and the results. The growth, of course, is there. It's a good driver. We are very cautious when it comes to the cost control. And we also have, as we always do, a focus on the productivity. And we have also wise from the previous experience, the 1st 6 months and particularly the Q3 last year, where we were not satisfied with our delivery performance. Of course, we were delayed. We could not give accurate delivery messages. So that's why we have built up some stock during the first half year here, both on ready made goods and also on raw material to be able to now fulfill our commitments to the customers out there in the market. But when it comes to acquisitions, it's been fairly evenly spread when it comes to dividing them between the 3 business areas. Of course, we had the brisket, the U. S. Acquisition very early this year and then came the district heating operations from Al Sadal. And then just on the brink of the Q3 here, we acquired a British company producing electric fires, and we're going to come back to what that means. So that's what we've pretty much done on the border scope. And if we just look at the climate solutions more precisely, of course, we had a dip in 'seventeen because we brought on board a couple of larger acquisitions, and we feel now that the performance is steadily improving. We also believe that the acquisition of the district cooling and district heating operations of Rafa Marfelaval It's important to have on board that broadens our scope that is also in line with what we have said regarding commercial buildings, of course, as a major issue when it comes to major cities and towns. So we are fully fledged when it comes to the product assortment. And we as we said, integration continues. And in the reports, when we acquired CCG Group in America and also when we acquired Endotec Group in Sweden, we said we need some 18, 24 months to come up to a satisfying margin. And we feel that we are well on our way fulfilling those promises. And on the Element side, that's, of course, a very nice story to be able to continue to present our success there. I remember for many, many years, during many, many years, we were a little bit radical saying, well, should we really keep on having that? And I think that the comeback of Element is just phenomenal. As we said in some reports earlier, the world is going electrical and that again is right up our rally. And of course, when we combine the elements with the sustainability thinking in our society, anything from hybrid cars to the promotional trains and wind turbines and so forth, and also we are positioned on the global side on the climate control group, then of course, we feel that's a very good match. And again, we made a strategic acquisition, as we mentioned, in America earlier this year, and that positions ourselves very much in the semiconductor industry, which is an industry that we have not had such a strong presence. But again, with the WER going more and more into digital or digitalization, as we call it, Of course, that is again a very important acquisition, builds a platform for that semiconductor industry. On the stock side, we think that the performance as such has been very solid. The market has been, mainly according to the weather, we believe, relatively flat. And we also believe that the cities, it's cumbersome to bring up wood or even sometimes they're not connected to gas. So the option of having something in the corner of your living room, making a cozy atmosphere, the alternative of having an electric stove is very obvious. We've got on board a very nice fellow and his company and his team very entrepreneurial. So we believe that they're really going to enhance Stowe's presence also in markets where we have not been so present before. And as we mentioned in previous report, we are now also starting to address the pellet market, which is relatively strong in the southern part of Europe. And we are producing our own now. And I guess it's no secret that if there would be a company for sale in this particular segment, they wouldn't deny that process. So having said that, in more overall terms, I think we can just dig into the figures. And there we have what you've already read this morning. And the growth is about 20% as the target, but it's still up close to 14%. And the organic growth for the 1st 6 months is just south of 7%, which we think is pretty good. And that is, of course, also reflecting the operating margin that is now up from 0.6% to 211%. And also for the running 12 months. And it's also worth mentioning, of course, like you know, sitting around the telephones out there, now we are approaching the strong period of our year for the coming 6 months. So that's an indication. We hope that, as we mentioned, that we are cautiously optimistic also for the rest of the year. If we just dig in very quickly into the Q2, we can see that the overall growth has been decent there. And it's always worth mentioning, when you look into the quarters, we are not so fond of doing that because they are also the difference between working days. In this particular quarter, there's one more working day. It's about a 59 versus the 58. And that is affecting those figures by some 1.6, 1.7 percentage units. So I think it's worth mentioning that we rather look at longer periods when currency and number of working days are less important. Nevertheless, it's been a very healthy organic growth, of course, during the second quarter. And again, the operating margin is up from 11.4% to 11.8 dollars If we look at the graphs that we typically have, of course, we see that dotted line of the $20,000,000,000 which, of course, has been a target and is a target for us. And it's now we have 6 months on a rolling basis. We are approaching the $20,000,000,000 now. But of course, it remains to be seen that we also pass that on a 12 month basis, of course. But when we look at the graphs, it pretty much follows the pattern from before where the Q1 and Q2 are followed by 2 stronger quarters typically. There was not so pronounced 2017 due to the reasons that we mentioned earlier. But the graph is illustrating a right development rethink, and we also know that once we've hit the dotted red line in a solid way, then we also already have the next target just about for us. So there's no rest. We've been resting now for a few days during the hot summer. And now we're back to work, and we are approaching that with a lot of joy. And then again, profit after financial items, of course, that's following even more pronounced the sales, which again is much, much heavier or more extensive during the second half. So the graph, I guess, is more of an illustration that we follow the same pattern as in the past. But the 2 first quarters, they are relatively weak when it comes to gross numbers, and then the 2 months to come are the stronger ones. We also have some pie charts that we typically look at, how we distribute sales or how sales is distributed and also how the operating margin. And there's been no major change. Of course, if we would compare this pie chart with the pie chart like 4 or 5 years ago, Element would have been a much, much smaller part. But now since Element has established itself over the 10% level, it's a healthier picture that we see where all three different three business segments are above a 10%. And if we just swing over to the operating profit, of course, here it's even more pronounced that Climate Solutions is still a bit bigger due to their larger margin. But again, we are very satisfied that the three business areas also solidly placed about the 10. Geographically, just to sum up my session here before Hans comes in, it's again very solid, we think, presence, where the Nordic countries now represent 27%, and we, of course, view the Nordic countries as our home market. And that's where we always should be present and be a very key market leader in all the 3 segments that we're working with and then, of course, rest of Europe and then North America. And so also a pie chart is totally different from what we showed you some years ago. And others, of course, that's predominantly Asia, and there's more element, which Hans is going to come back to that have gained significant ground in that sector. But I think we've grown in a very orderly fashion where we started with the Nordics, continued in the rest of Europe into North America. And now, of course, we like to broaden the geographical scope in a gradual way, in a systematic way even more. So with that, Hans, I think it's your turn. All right. Thank you, Erik. I will just like previous quarters continue with the individual business areas and then we'll look at the balance sheet and some key numbers before we come to the Q and A section. So if we start with Climate Solutions, just as Eric said in the beginning, it's been a continuously improving performance that we've seen from the business area. And of course, there is a strong underlying business cycle. And North America has definitely come back during the year following the reentry, so to speak, of the tax subsidies And then also we have very nice development in certain countries like the Netherlands, where there is a deliberate aim to phase out fossil fuel, which of course fuels our business. And then not the least, the integration of the Climate Control Group and the Endotech Group are paying off now more and more. So this has led us to reaching this operating margin of 11.7%, up from the 11% of last year. And then we've grown with almost 14%. And as Eric said, the currency has not had any major impact so far this year. So we're looking at a very strong organic growth in the business area, meeting our target there with slightly above 10%. Of course, we're not quite satisfied with the gross margin. The material price increases that we have experienced are still affecting us, although we have started and are continuously trying to compensate for this by raising our prices. If we look at the individual quarter for Climate Solutions, it is a strong quarter for sure where the organic growth has been even higher than during Q1. But also, as Eric mentioned, there's one more working day included in these numbers. But all in all, we've been able to land there a result, which is €80,000,000 above last year and an increase of almost 23% and very close to a 13% operating margin. So all in all, a very strong performance for Climate Solutions. And if we look at the split per geography, it is a picture that is very similar to the one we had last year where roughly onethree is in the Nordics, some 38% are from the rest of Europe and the remaining part is in North America. But as Eric mentioned, we like to mention these pictures because those of you who have followed us during the years know that the pictures look quite different only some years back. So we have now been able to expand into more geographical areas and, in that sense, also broaden our or become more stable should something happen in one part of the world, but still focusing on what we're very good at. Moving on to Element. It is an impressive stable underlying operating margin that we see in this business. It's not so long ago that we were hovering around the 5%, 6%, 7% mark, but now we've been up above 10%, the target, for quite some time. And we've mentioned this 1 off forward a couple of times or several quarters, but that is gone and we're still being able to deliver this operating margin of above 10%. And if you look at this picture, I mean, this is, of course, the first half year. It says Q2 in the individual column there. That's a mistake from our side. However, we have grown with some 20%. A lot of it is through acquisitions, Bridgekey not the least being a very important acquisition in the U. S. But of course, we've made several acquisitions here, most of which we have announced. And then as always, we have some very small but important add ons that contribute as well. All in all, operating profit has increased by some $52,000,000 up 17%. And actually, the Q1 here was slightly weaker than the 2nd quarter, if we move on to that. Again, here, there's one more working day, which, of course, helps. But here, we had an organic growth, which was basically twice as strong as in the Q1. The currency has helped us a little bit more here than in the climate solutions area, but it's been a good underlying performance. And we've also been able to improve our gross margin and the result more than sales. And this is the most global of our business areas. And when we look at the distribution of sales per geography, we have this split, as you can see, between the Nordics, 18% Europe, 35% North America, 35% and then others, 12%. And only a year back, the distribution was slightly different. It was almost onethree in the Nordics or at least some 25 percent 27%. The rest of Europe, some 45% and then a good chunk in North America. But what has grown now, and as Eric mentioned, is the Asian part, which we are expanding and increasing. It used to be more China, but we have moved into several countries in the region over there, giving us an even broader spread of our sales. Last but not least, stoves, solid, stable performance in a relatively flat market. And of course, it's flat also due to the warm summer that we mentioned. We don't think that many people have been thinking about buying a fireplace during this summer, but they might be now during the fall. And of course, this is where it all happens. I mean, the first half of the year is always weaker, and basically, all of it happens in the second quarter sorry, in the second half of the year. The organic growth here has been positive, and we have grown. It's been driven from North America, then also the gas market in the U. K. Has increased, and the rest of the business has been basically stable, you can say. Nevertheless, an operating margin of close to 7%, and it's not so long ago that we could be around the 2%, 3% mark for the first half year. In the Q2, the picture is very similar. The numbers are very small in a way. Of course, from a percentage point of view, the deviation might seem larger, but we earned €23,000,000 in the quarter compared to €31,000,000 last year. It's again everything. I mean everything is going to happen in the second half of the year. And also here, if we look at the geographical spread, and I mentioned it in a way, it's North America that has been partly driving the growth, and that is, of course, the benefit of being global. So we have a nice chunk there of 22% in North America, 26% in the Nordics and the rest in Europe. And it's not so long ago that we were purely Nordic company here. So there's clearly room for further improvement in all these areas. If we jump to the balance sheet, I think there is one item sticking out here, and that is the non financial current assets. And of course, that refers to the inventories basically. We have an increase there from the start of the year. Of course, the intangible assets have grown as well, but that's more a result or a natural result of our acquisitions. But the growth in inventories is basically a natural or planned thing as well, Cleared for currency and acquisitions, the increase has been around 25%, and that is very much focused on finished goods being able to deliver now during the fall, which we were not fully able to at this time of year last year because the demand was higher than we were able to meet in terms of production. So it's a lot of finished goods there. But also, as Eric mentioned, some raw material and components, not the least in the element area, to be able to supply our customers with these. And also, as you know, we sell a chunk of the Element products into the Climate Solutions business area. So it's planned in that sense. But then, of course, there are effects, which we will see on a couple of slides later on the cash flow. But if we just first look at the equities and liability side, there's not so much to mention. I think it's positive to see that good performance in terms of profits and profitability, of course, ends up in equity, which we have been able to, of course, increase and keep a good equity assets ratio. The cash flow from the operating activities has increased by some 16% compared to the corresponding period of last year, which, of course, is a nice increase. But then it's eaten up in a way and the change in working capital there, the €1,000,000,000 you see. But again, that is from the buildup in inventory to the vast majority, and it's a planned buildup. And this will then materialize in sales and correspondingly profits during the latter part of the year. So I think we have that fairly much under control, although it sticks out on the page as such. If we go to the next slide, we continue to invest in our operations. I think what we're seeing now for the first time in a couple of years in a way is that we're investing slightly above our depreciations. There is a strong business cycle, and we are investing in our operations and in our factories out there, to meet demand going forward. The other key numbers like net debt, equity assets ratio are all very stable, And there are a few more coming on a couple of later slides. If we look at the next one, I think I mentioned that now enough. It's better to leave room for questions. The working capital is, of course, up there to the 22.7%, but again, a result of the inventory buildup. The key financials are stable. And those of you who have followed us, I think you recognize them very well. The only one that in a way sticks out in relation to our target is the return on equity where we are around the 13.5% mark. We were around the 17.5% before we made the right submission and on an upward trend. So that we made in the end of 2016 has, of course, on the one hand, given us a very good equity assets ratio and the power for making acquisitions, but it hits this key number for a period of time until we get that money rolling. The last row or item on the slide is the closing day share price. But as always, we don't comment upon that. We focus on the development of the business. I don't know if you would like to add anything, Erik, before we open up. I don't dare to mention anything about the share price. Of course, it was a nice situation earlier this summer when we passed CHF 100. So that was, of course, a milestone in our history, but that's as far as I'm going to go commenting that. So I think we open up now for questions. So please shoot. Thank you. And our first question comes from the line of And our first question comes from the line of Max Friedan from Danske Bank. Please go ahead. Your line is open. Yes. Hi, good day. Max Viridian here from Danske. A couple of questions, if I may. The first one is, you talk about investment in new products due to the gas regulation, which is clearly impacting the entire market right now. Could you maybe talk a little bit how this could affect your R and D and also OpEx going forward? Okay. Well, I think that as far as the actual spending, I don't think that they're going to affect us in any dramatic way. Of course, we've been working with other refrigerants for a long, long time. Now it's focused very much since the most dramatic change will take days down 2021. We like to make certain that we have our models ready prior to that. So when we because this didn't happen overnight as it's been known for a couple of years. So I think it's more been the compressor manufacturers and the refrigerant manufacturers that have been lagging a little bit. We are not going to criticize anyone perhaps that did that. But we are, of course, very dependent on both those manufacturers. And we see now that there are solutions underway, which means that we're going to adopt that. And with the amount of money we spend on R and D, I don't think that we're going to change the numbers as such. But of course, to work with different refrigerants and also with the compressors built for those refrigerants. So if I overaccelerate a little bit, there's not going to be any significant change that you need to change your production structure in order to handle this propane based or etcetera? No. And I mean there are propane is 1 alley. There are also a number of other allies possibly possibly entering. So that is correct. Excellent. And then maybe for Hans, on the gross margin, the decline accelerated quite a lot here in Q2. I'm just trying to understand a little bit the underlying drivers behind this. And I presume it's both M and A and maybe even raw material, but maybe you can give some clarification. Well, you said the decline. How did you express your question there on the gross margin? The gross margin, it looks like it the decline accelerated a little bit in Q2 compared to Q1. I mean okay. I mean it is a combination, of course, of raw material, as I mentioned, I think, and the continuous activities that we have also on well, I mean the M and A effect, of course, bringing new companies on board, getting them into the group. So I mean, there's not anything special sticking out there in a way. Yes. Because maybe what I was thinking is that the steel prices roughly flat year to date, maybe up a few percentage points, copper prices down close to 20%. And in Q1, you talked about raising prices. I thought that the gross margin would have a slightly different profile here. Of course, this is difficult to assess on a quarterly basis. But am I missing something here? Or is there is my reasoning completely wrong? No. I think that one thing that you perhaps have not really gone into, and we don't like to criticize any manufacturer, but one factor is, of course, that the refrigerants have had a pretty hefty development. And that's not something that we typically follow when it comes to that's not something you buy on the LME or anything. That's something that's been increased due to the supposed, I think, shortage or the change in the market. I guess that has been a surprise, particularly on the climate solution side. So I guess we were not totally prepared for that. But I think that's the individually, that is the sharpest increase. Yes. But on the cooling fluid prices, it's I mean, how big of an if you could help us understand a little bit. I mean, your cellular equipment with the cooling fluids, of course, and I presume that the aftermarket or when you need to replace them because I guess the leak in some products, that's not you, that's the installers. But when you sell your products with cooling fluids, how large part of the total selling price would be represented by cooling fluids, if you could just give a rough estimate? Yes. Well, I think that we would love to do that, but I think we have to be fair. But I can answer it in another way. I think that what happens is, Max, that typically we are prepared for price increases, but since the January 1, and again, I'd like to be modest to humble when it comes to criticizing anyone else, but we haven't had any chance really to react to those price increases. But of course, still, it's not the major part of the product, but it's a substantial increase. And that's what you see here. But I don't think that we're going to talk about our way of calculation. Not that we like to hide anything from you, but I think that's fair to answer that. And of course, we there has been a new price increase from July 1, which is a consequence now of what we're just talking about. And that's the main driver for that price increase. Okay. And going forward here, because it seems like the short is going to continue and the price is going to continue up. And if I look at other players and the ones that are supplying this to you, what they say, how do you feel that you can handle this going forward? Do you feel more prepared now compared to you were at the beginning of the year? Or should if you could maybe guide us if you think you can handle this to be an improvement from here or if it's going to worsen or be more difficult for you? Well, that is to give a forecast again. I think that if you go back, return to 'seventeen, I think we were a little surprised about the increase of prices. And of course, our DNA setup is not really to increase prices too aggressively. We rather like to absorb a little bit on our own working with productivity. And that perhaps made us a slow start, compensating for the typical price increases on steel and copper and what have you. On the refrigerant side, we were not that prepared and they come just with a very, very short notice. So that's one avenue. I feel that in the past, we've always proven that with a combination of own price increases and productivity increases, we will not suffer. From 1 quarter to another, we could possibly have a suffering, but I think that's as much as we can explain during this session here. And just one last comment, and then we'll need to open up for more questions, of course. It's just that I mean, there are also currency effects in these numbers, of course, because when we say that the currency has not had much of an effect so far this year, that is, of course, related to the translation effect, translating the numbers into Swedish currency. Then we have the transaction effects between the companies and the suppliers and customers, so to speak. And they can, of course, or do have an impact. And the krona Swedish krona is, of course, weakened continue to still weaken during the year. Yes. I'll get into those details related to it. It wouldn't take up too much time, I think, on the transaction. Thank you so much for answering my questions. Thank you. Our next question comes from the line of Douglas Lindahl from Kepler Cheuvreux. Please go ahead. Your line is open. Good morning, Adi. Good morning, Hans. So Doris here. Your questions from my side. Coming back to the inventory buildup, what sort of markets can you say is driving this optimism? And what also what indications or firm indications do you have unless you expect a strong growth in H2? I'm just trying to get some sort of sense of how speculative your inventory levels are. That's changed or yes? Well, I think that we've shown you in the past that our sales is typically distributed in a very broad sense, like 45% in the 1st year and 55% in the 2nd year. And that might not sound so great or much of a difference, but if you consider that the first half is built on typically 120 days and the second half is built on 100 days, And the percentage change between 45% and 55% is roughly 22%, 23% percentage units. That means that you have to produce like 20%, 22% more during 100 days versus 120 days, and that's practically impossible. You can do that if the demand is flat. But last year, it was a little bit stronger demand than we anticipated, and we could not fulfill our customers. Of course, eventually be delivered, but when we said like 2 weeks or 3 weeks, we were not able to satisfy that. And we said, okay, this year, we're going to have a combination of inventory and the combination also temporary workers to make certain that we can deliver as we have promised in the past and as we promise every day. It's not only quality, it's not only sustainability, but it's also relying on neither when it comes to delivery performance. And that was very disturbing last year. So when you look at the buildup, you can say it's not very much of a speculation we feel. So we are very solidly convinced that they're going to, of course, be used during the coming months here. So it's seasonality and then supply issues from previously. I know that you've referred us as well. There are. I mean, we are now in a category of products where we use the same supplies as in many instances, the automotive manufacturers and RC occurs, although we feel that we are important customer, the larger ones, the automotive businesses, of course, are so much larger. So we just had to line up to get our components. That's why also we have built up inventories of raw material and components. Okay. Yes. That's fair. So I guess we should expect continued inventory levels at around these levels compared to if we look at it at sort of a percentage of sales? And with regards to price increases, you touched upon the topics, but can you talk a little bit about magnitude of this price increase that you expect to do going forward when talking about raw materials? Well, I mean, we don't really announce. I think we try to be fair. We don't try to overcompensate ourselves. We believe that you have always to remain competitive in the market. It's very transparent when it comes to what kind of price increases have we received and what kind of productivity would our customers expect from us. So I think it's a fair combination, but we, of course, would like to return to a level that we've been at in the past. But then again, we also have to be realistic about things. When we now grow the commercial sector of the climate solution side particularly, they have, of course, a different structure. I mean, in Climate Solutions, if you just mentioned that, they the residential side, of course, has a slightly higher contribution margin, but also a higher cost structure when it comes to marketing. When you talk about the commercial side, let's say, the CCT Group in America being a substantial part of that business territory now, they have a slightly lower contribution margin, but at the same time, a lower administrative and sales portion of their cost structure. So that should also be mentioned, although we don't go into details here. But as we continue to grow, we like to match, of course, our history when it comes to margins, and it came down too far in 2017. But as we now grow the other side of Climate Solutions business, they're going to be a little bit of a deviation, but on the bottom line, it should match up as far as the operating margin. So commercial in the U. S. Is potentially the market which is targeted? Well, of course, not only in the U. S. I think that we mentioned that we would like to grow on the commercial side as much as in Europe. And then now it so happened, of course, that CCD Group in Oklahoma came out for sale. And of course, we've known that company for years years, just like water thermals. And once the opportunity is there, you have to grab it. But of course, in Europe, we are still relatively weak when it comes to the commercial side, and there's no secret, which we also announced, that we would like to grow there. But that should be a balanced growth with the residential growing and with the commercial growing. Okay, great. So just a final question following up on what you ended up, Jaakik. With regards to future M and A or acquisitions, would commercial in Europe be sort of your target market? Or if we talk about both geographically and also with regards to sort of clients? Well, I think that we have no, sort of say, no focuses in a specific corner of the world. I think that you've seen that we've grown very, should I say, orderly over the years. Of course, we wanted to become very solid in the home market, and there we are. That does not mean that there couldn't be interesting acquisitions in the Nordics. But of course, there's a border scope in Europe, in North America and the pie chart that you saw. I don't think that we'd like to go back to a pie chart that would be less evenly distributed as we now saw that Hans and myself did show you a little while ago. So the balance that we have now, we'd rather expand the pie chart than changing the different pieces of the pie. Okay. Thank you very much. Thank you. Our next question comes from the line of Tejedraks Savinovich from Nordea. Please go ahead. Your line is open. Thank you very much. I was wondering if you could maybe elaborate a bit on the comment you state in the report regarding slowing housing and how that squares versus a brighter outlook in the U. S? Okay. Just the housing market in Single housing, you state in the report, has, I mean, slowing growth. Okay. You're talking about now Sweden or which country you're talking about? Yes, Sweden and Sweden specifically. Okay. Well, I think that new construction is important, but I think that it's no secret that the overall market heat pumps, I think it's fairly known now how big that market is. And the new build or the erection of new single houses in Sweden between $13,500,000 $13,500. And if that were to slow down now, that means that 80% of the slowdown are going to be going to hit the heat pumps. So let's say that 80% is used because this is heating, we typically say, would be the remaining 20. So that means that in very broad terms, 10,000 heat pumps would be used for new construction. If that goes slows down with some 10%, that means 1,000 heat pumps and or 800 rather, if the whole market slows down. And then as I talk about 15% or at least like 1200 deep pumps mathematically. But that's out of a market, say, between $45,000 $50,000 So we should not ignore that. But in relative terms, new construction new construction is a clear minority, has always been in a mature market. It was many, many years ago when the new construction was the leading one. That was like 30 years ago when heat pumps as a phenomenon was established. So new construction is always leading the race, but in Sweden, which is a relatively mature market for heat pumps, refurbishment market is far, far larger. All right. Thank you very much. And could you also mention a bit on the Netherlands, which you point out as a growing market and how will you tackle this and in terms of potential, how does it stack up for you guys? Well, I think we I don't know how we should answer the question. But of course, when the politicians come out so determinedly and so clearly saying that now we're going to abandon certain things from a certain day, it's just like the refrigerants that we talked about previously, of course, that is affecting things much prior to that definite date. The refrigerants are supposed to be only 20% of what they were some 2,030, but they were 2015. And now when the politicians are saying around 2,030, fossil fuel is going to be gone. Of course, the market reaction is such that they don't wait until 2029. They start already now. And we are, of course, very present in the Dutch market, both with a subsidiary from Sweden here, from Niede, but also our German company is very, very present in Holland. So we are attacking or servicing the market from 2 sources, you can say. I don't know whether I answered your question there, but I hope there was Yes, we are locally based. Yes, we are locally based. Export from here, so to speak. We are there. We are Dutch. Holland is our oldest market, if I say. We were we got established there in 1963, even before we to sell into Denmark, Finland and Norway. So if we can talk about any home market in Europe, it's Holland. Very good. And then just one more for me. You have acquired some assets in the ventilation space. And maybe if you could walk us through your thinking here in terms of what is the end game, which geographies are interesting and what kind of size are you looking to gain in terms of ventilation Well, you talk about the Italian venture? Yes, yes. Yes. No, of course, I mean, we have walked into that venture with their clear aim of entering this market and we felt that ROS is technologically a very solid company. They have been together with another group in Italy, which did not fit so well. And we just wanted to build that platform and find our sort of position there before we start to buy into the majority. So that is definitely a platform for us where we now start to grow the commercial side of the business on Climate Solutions. Okay? Okay. Thank you very much. Thank you. Our next question comes from the line of Daniel Lindqvist from Handels Please go ahead. Your line is open. So just one quick question on the copper price development and the element business and the dynamics in price adjustments to customers and because I think it's not only burdening with the raw materials for once. Well, I think that when it comes to larger customers, you're talking about specifically on the elements side, it's such a way that there we typically have a contract. We have contracts with the customers where we they have a tipping point. So we need to gain or lose when the price go up. We have contracts, we're saying, well, nickel, copper and stuff like that should not influence the margin in a negative way. When it comes to smaller quantities, more what we call like the industrial side, there, of course, we have the possibility to sometimes gain a little bit because there we are the stronger part. But the bulk, it's pretty much, I should have, framed in already. So the customers know when the copper price goes up, okay, we should not be unfairly treated. And if it goes down, we should not gain unfairly. Okay. So the gross margin development or improvement is from other effects than from the in Element and from the copper? Yes. Okay, perfect. So no further questions from my side. Thank you. Thank you. Our next question comes from the line of Olof Larssonmer from DNB. Please go ahead. Your line is open. Hans, I'm here to Erik. One question from my side. Could you please elaborate a bit on the impact on the Pernales and the inventory build in Q2? And is there a risk that this could have a negative impact on EBIT during the second half of this year? Well, I think that there is of course, there's some of course, the cost have been absorbed. That is correct. But I don't think that you have to worry about that if I speak in very broad terms. That's something we've done in the past. We know how to handle that. Of course, there have been some cost absorption, but we manage that on the other cost side. So you do not have to worry about that. That sounds good, Erik. Have a nice weekend. Thank you very much. All right. Thank you. I hope we don't cut things short, but we appreciate you calling in. We hope they've been able to answer your questions in an orderly fashion. We know that some answers are not satisfying, but you also are we understand and we believe that we cannot open up our calculation book. So thank you once again and have a nice weekend. Thank you.

• Quarterly report