Earnings Call: Q4 2017

Feb 16, 2018

Ladies and gentlemen, welcome to the eBay Q4 Results Presentation. Today, I am pleased to present Gertrink Lindqvist, CEO and Hans Backman, CFO. Mr. Linkqvist and Mr. Backman, please begin. Thank you. Good morning. Good morning. This is Eric, and I think that we start with the usual procedure like I present a few general comments and then Hans is going to present more detailed figures. And as we mentioned in the report, the business environment for the year has been, to say the least, quite challenging. But despite that, customers have been fairly demanding. They've been out there buying our products, which is very pleasing. So it's not always coinciding the buying moves with the political situation. And just in general terms, we can say that the growth, of course, more than 20% in 1 year is primarily driven by the acquisitions. But we've also had a stable organic growth. And the results, of course, have improved and are mainly coming from the acquisitions. But it's also been a strict control of the fixed cost naturally and always focus on productivity. As we said as we had said for almost 4 quarters now, of course, it has been influenced the result of larger acquisition, primarily Endotech Group in Britain and also the CCG Group in America that has reduced our operating margins somewhat and also the discontinued subsidies in the U. S. For residential heat pumps. But I'm going to come back to that, which looks a little bit more promising as of a few days back. And acquisition wise, of course, we have acquired some larger ones and some smaller ones. I think it's all in all like 9 acquisitions the last 12 or 13 months. And they're coming in, in a steady stream, I can say. There are several companies for sale out there. It's more a matter of screening it correctly. So we find the right ones, both product wise, chemistry wise and also naturally outlook wise when it comes to how it looks in the future. Very quickly into the figures. When you say $19,000,000,000 we were pleased that we just passed. Of course, it's always an internal challenge and the competition that we're going to arrive at a certain target and the 19,000,000,000 there was, of course, need to arrive at, which is considerably higher than 16,000,000 and also the operating profit being like $350,000,000 more than the previous year. We are quite pleased with that. But there we all see that the operating margin has taken a hit for the reasons that I just mentioned, being like 0.6 percentage units down from the previous year. And Hans is going to come back to the tax and the financial items later on. And the margin there is also the profit margin is slightly lower, which Dan is going to cover. If we just dig into the Climate Solution again, of course, have been some 4 strategic acquisitions, as we mentioned. Netek has already been mentioned. That's more on the residential side. Of course, it's a neighboring in Sweden, only 45 kilometers away. And we see a good potential for them to primarily increase their sales abroad. And then CTC Group in Canada came in the beginning of the year adding some commercial heat pumps to the business unit And Tempeh out in Winnipeg, they're adding to the ventilation competition which are competence that we have in North America, adding to the CCG group. And then we also acquired 45% of ROS in Italy, adding more on the air conditioning side of our knowledge. And it's we mentioned so many times in the report that we are really aiming for the climatization also in larger buildings, and we are gradually building up a knowledge within that sector, and that's where the ROS acquisition should be seen. And of course, acquiring companies like Enotech Group and CCG Group with somewhat lower margin that we are used to. That takes quite a bit of an effort to bring it up to the desired level. And now CCG group has been on board for some 5 quarters, and Enertec has been on board for some 4 quarters. And that means that we've given an internal target of 18 to 24 months. So during the year, they should be up and running at the site levels. And I won't dwell too much more on the operating margin because it's very obvious that it is slightly lower due to the reasons that I just mentioned. We were positively surprised, we must say, that last Friday when the American budget was taken by their Congress, that the tax credits were reinstalled on another full year basis, working retroactively actually as of January 1, 'seventeen. And I think that's very nice that the customers that still bought during last year, they also will be remunerated. So we hope that that give us another bridge into the future, which we believe are firmly going to come also in North America and the U. S, slightly delayed compared to European standards. And we can also mention that also in Ontario and Canada, it's been installed tax credits quite recently. So it looks more promising on that from that side. But in the long run, of course, we have to stand on our own. But as a hint to the customer, it's important to have that. And we've mainly been arguing that since the PV cells had the same tax credit and also the wind, we thought it was fair that also the heat pumps would have a chance to compete on the same level. And just very quickly then on the figures, of course, there again, passing $12,000,000,000 was a landmark for the business unit. And the margin slipped more than 1 percentage unit down. We are not very pleased with that, but we also see that gradually the margin is now coming up again and hence going to take more of a comment on that. Looking into heating elements, of course, that's the business area that's come back from a lower operating margin. And the last 2 years, we've been very pleased to see that they are solidly above the 10%, now around the 11% mark rather. And there, we have also acquired some strategic partners over during the year. HT in Italy was, of course, a very important acquisition for us since our coverage in Italy was not really satisfying. And then Gaomer or Gomer in America in December was another very important acquisition more in the process and energy, petrochemical side of the heating element. And then just recently, actually in the beginning of this year, brisk heat that is more concentrated on the heat pads or heat jackets, as we call them, primarily in the semiconductor industry, which is very interesting for us to also participate in industries that are growing just like the automotive industry, going electric, like the rail traffic on trains that's going more and growing more and more. So semiconductor, of course, everything is going digital, and we are now participating even more actively. And then we also have some add on acquisitions that we not necessarily present in press releases, but we have a small acquisition in Holland and Switch Point on the railroad, and we have a Grand Heath in Thailand to be able to meet demands locally. And of course, the organic growth is very impressive. Perhaps we shouldn't judge ourselves, but internally, we are very pleased with the organic growth. And that, again, is a demonstration of that we are participating in sectors that have organic growth far exceeding the GDP that we have in the past viewed as the typical growth ratio for this business unit. And since we have a good spread geographically and we have a good spread product wise and we work very, very determinedly when it comes to productivity, we've been able to keep the margin at a healthy level. I think it's a sub supplier exceeding 10% and not being efficacious and not being brutal to our suppliers. I think it's a decent level to be, and I think that gives respect both among customers and suppliers. And the figures, of course, here again passing €5,000,000,000 is another landmark for this business unit and remaining on the 11% EBIT level. That is also very pleasing internally at least. And then coming to Stoves. Here, we haven't acquired any companies. We acquired a major body for the size of the business area at the end of 'sixteen, and that has taken us some, of course, efforts to coordinate and to bring that on board. It's moving ahead fine. And we are always pleased with the performance that the Stowes is producing. It's between 12% 13% margin and that's the same this year. And we also mentioned in the report that we are focusing now also on the combustion to further improve combustion and also to further reduce the particles. We're already at a level where we have passed the levels for the EU 2022, but we think or believe that as a market leader, we should really lead the industry into even better performances when it comes to combustion and reduction of particles. And then we come to a few perhaps braggish pictures or slides. And when we look at the turnover since 'ninety three, of course, now we are approaching the €20,000,000,000 mark, as we mentioned in the report. And had we said $93,000,000,000 that we were going to approach the $20,000,000,000 It would not have been realistic naturally. But as we've taken it in steps, 4 or 5 years at a time, sometimes 3 years at a time, we've been doubling sales. And then we have instilled a mechanism, a thinking among our employees that growth is absolutely fundamental. Of course, it can't be driven just by Hans and myself. It's driven very much by each individual company in the group and also the mentality is growth driven. And not only the growth, but natural also to make money or to have a decent margin. Anyone can grow, but the trick is to be able to grow and to generate money. So I think that also on that diagram, we can say that we've had 1 year where we slackened a little bit, and I think it was 2,009 there and where we came out or possibly 'eight. And I think that is also something that's an illustration of where we are coming from. Even if times are tougher, we're going to we never surrender, as Doctor. Churchill said or Mr. Churchill said, we're always charging ahead. If something will go a little sour in the market, then we just have to counteract. And we are never fearful of something. We dare to counteract. We dare to act as a market leader. And I think this illustration might be a little braggish, but at the same time, I think that's showing the whole heart of NIBDA. It's not doesn't matter where you're located. As long as you have the right attitude, the right passion and the right ambition, you could do that. And I'm very proud, I must say, of the organization and the people on board. They've been able to contribute to this. And I notice, of course, that some articles are written about myself in the newspapers jokingly saying I've been on board for many, many years. But I'm just one my little pin in this machinery It's actually all the 15,000 people out there working so hard, being so proud, being so determined. That's the whole thing when it comes to neither. It's not a 1 man show at all. And some further graphs, just illustrating our seasonality, that has not changed. If we look at the perhaps I'm jumping too quickly here now. I'm jumping into the picture of our performance when it comes to the years that we have been listed. And that's showing that we are steady about the 10% market. Of course, the equity ratio is somewhat lower than it was in the past since we had that injection of capital in the end of 'sixteen. But it also means that we are very solid when it comes to further acquisitions and whatever is going to happen in the future. So now we have an equity ratio, of course, far above 40%, really about 45%. And that's not our aim to remain there. Our aim to utilize the capital that we have on board, but this graph is just to show that when we went public 21 years ago, we promised the shareholders to really be about 10%, and we kept that pretty much over the years. And the equity ratio, I guess, commented upon. And of course, the return on equity is a function of the equity as such. But that's the that's our legacy. Okay. Hans, should you possibly dig into the next pictures here? Or should I comment a few things over? Yes. Okay. So I think we've been driven more or less into the situation that we also comment in Q4. You remember that we very seldom commented upon the one particular quarter. But I guess that we have to adhere to the rules. So the 4th quarter is slightly better than the previous quarter in a sense that our operating margin is now improving compared to what it was the previous quarters. And again, an illustration there, but slightly moving up when it comes to margin compared to where we were last year, not quite fulfilling the previous year. But again, you have heard about the reasons. And we can also say it's a general comment that not that we like to increase our prices more than necessary, but we have been somewhat lagging in our price increases. They are in place, but not necessarily have they had full momentum even at the during the Q4. So I think that most companies have been living in an environment that has not been sort of painted with inflationary marks. But now I think it's more a situation where we see some increases or some dramatic increases in some appearance, and we will have to compensate some of that with our own price increases. But we worked very hard and determined to also increase productivity and try to absorb as much as possible internally. And a few more graphs beforehand comes in. It's the quarterly sales, and we see that the seasonality remains. The Q4 is always the strongest quarter. We've been trying over the years to counteract saying, well, couldn't you possibly buy stoves or heat pumps early in the year, but it seems like you buy barbecues in the springtime and you buy stoves in the fall and so forth. So we just have to live with that. And we just have to be able to counteract when it comes to the product delivery performance. And we must say that during the Q4, if you ask any market, there might have been some smaller disturbances. We were just on the verge not being able to deliver everything because of a decent demand. Profit after financial items, they're pretty much showing the same pattern, and it's even more perhaps pronounced quarter to quarter. And it's been the same practically the last 25, 30 years, which we're going to show you in a few graphs possibly in a little while here. So if we just look at the distribution of sales, that is just to rationalize all the figures earlier shown. Then of course, Climate Solution is well above the 62, and the 60 26 and 20 are the 2 other business areas. And on the result level, it's slightly more pronounced where Climate Solutions at 66 and now Element is up at 23 and Stokes is 11. And geographical distribution, we talked about that a lot in the past. Of course, we were so dependent on Sweden and the Nordics in the past. Eventually, we grew into Europe, and now we also have a healthy portion outside. So you can say it's like the Nordic, onethree, well, a little bit than onethree and then rest of Europe, slightly more than onethree and then outside Europe as such, it's like another onethree. And that gives us also a stability and a robust structure, both for expansion but also for sudden occurrences in the market to counteract. We are very pleased to have this distribution. Now it's more a matter of growing all these sectors, not necessarily changing the balance, but rather having, of course, this pie chart to grow. And I promised this diagram. I think it's just phenomenal if you look at it. The Q1, at least now I said 30, 35 years. But since we've listed, we can say that typically we are between 20% to 21%, 22% when it comes to the Q1. And then it goes up to some 45% and then it's some 70%. And then the NAS quarter stands for some 30% of the total sales. Could be some deviations from year to year when we've had an acquisition earlier in the year like last year when Anatek came on board. But they are very transparent when it comes to where we sell and how we sell per quarter year after year. And then having a look at the result, it's the same again. The Q1 is typically quite weak and then it adds on. And the last quarter is always more than 30% of the total profitability for the year. So I think it's fairly easy to follow us. It doesn't change from year to year. We have no reason to hide anything. This is a guidance more to those who are following us that it's very not very perhaps, but it's transparent. It's relatively easy to follow our development. With that said, Hans, it's your turn. Okay. Thank you. Yes, and when it comes to following us, I would just like to state that the company, Ross, is not part of the consolidation. I think that has been the case in 1 or the other analysis that has been made. But we neither have the majority nor the chairmanship of that company even though we have an option going forward. But at this current state, we don't have the controlling stake, so to speak, to consolidate, just to be clear on that. And then before we jump into Climate Solutions, I would just also like to comment upon the group's results here following on what Eric said and the U. S. Tax reform. And as you can see in the report, we have come down to a tax rate for the group for this year of 21.95 percent roughly as opposed to 26.5% of last year. But that is unfortunately not the level where we will be going forward because that is, of course, an effect, first, a onetime effect of the U. S. Tax reform where we have revalued net of the deferred tax assets and liabilities given these SEK 58.7 1,000,000 in a positive effect on tax. And that's all taken in Q4. So I mean even Q4 was very low from a tax point of view. It was below 18%. But going forward, it will rather be a couple of percentage units below where we've been before. So as opposed to 26.5, we should roughly end up at 24.5. It, of course, also depends on how well the U. S. Market for us develops because if that geography, so to speak, continues to generate good profits, the tax rate over there is still higher than it is here. So that will have an effect. But that's just a comment on the tax. I hope I was clear there. Coming back then to Climate Solutions. If we just quickly look at the Q4, we came in at €3,400,000,000 sales. What might look a bit strange there is that we grew with 10.5%, which is not strange, but that the acquired part was even bigger than that. So that means there was something deducting the growth rate, and that was currency. I mean, we had a positive currency effect up until midyear, you can say, and then it went the other way following the weakness or the weakening Swedish krona. So we had a weak or a negative effect of the weak Swedish krona there. And of course, another portion of that is organic growth, but there was a slight positive organic growth also in Q4. What has affected us continuously throughout the year and Q4 was no exception is the slightly lower gross margin, though, and for the reasons that Eric mentioned before, mainly integrating the new companies but also seeing some effects of raw material increases where we did not compensate ourselves fully. Nevertheless, we managed to increase our result there from $465,000,000 to $523,000,000 ending up at an operating margin and slightly better actually than last year. But for the full year, you see the effect of these reasons that I mentioned, the newly acquired companies and to some extent, the raw material prices there, leading us to an operating margin of 13.3% as opposed to 14.6%. Percent. But it was indeed a landmark to come up with sales above 12,000,000,000 And in terms of organic growth, I mean we had a very good organic growth in Europe for sure and the Nordics specifically, compensating well for the fallback, you can say, in North America following the seizing there of the tax credit, but which now has come back. So that should be a positive thing for the future. In terms of the sales split for geography, we have a very good balance now also within Climate Solutions. It used to be the Element division having this. But with basically having onethree, onethree, onethree in our major markets, the Nordics, Mainland Europe and North America, which gives us a good balance if something goes sour, so to speak. So this year, clearly, Europe has compensated for the slightly weaker development in North America or more than slightly, you can say. Whereas not too long ago, the U. S. Was doing tremendous well, helping up some of the European markets. So we're very pleased with this split if we dare to put these words in our own minds. Then jumping over to the Element division. As Erik said, I mean, we have continued this trip here of being able to deliver operating margins above 10%, which has taken quite some time to achieve. So the whole year landed there at basically the same operating margin as last year. But also here, a landmark change coming through $5,000,000,000 of sales. So we had a growth there of 20% on sales and $19,100,000,000 on profit. And as Eric also mentioned, the organic growth here was clearly above the GDPs in the various regions where we are active. So it was a very good combination of organic and acquired growth generating a good profitability level. The currency effect at the end of the year came out at plusminus0. The 4th quarter was really no exception. It also showed a very good organic growth. The acquired part was higher, but it was good organic growth, whereas here, the currency did pull us down. As I mentioned before, it was the latter part of the year where we had this negative effect. Also here, however, we saw further or more some effects of the increased purchase prices where we now have come back or are coming back more and more with price increases. But it was pleasing to see also in the Q4 that I mean, we did come in lower than last year, but we have been able to hold up the business fairly well despite the one off project that we have mentioned before, which now definitely is gone. In terms of geographies, this is the business area, as we've mentioned a couple of times before, which is the most global of the ones we have, with a good spread of both products and countries throughout the world, giving us a balance to compensate if something is not developing as good as before, so to speak. And we're also able to follow our customers where they are out in the world. Then last but not least, Nideast Stoves. Also, Derek mentioned, it's a stable business, constantly delivering good profits. We came in at the 12.3% mark there. Operating margin down from 12.7% last year. So of course, we're not in a way pleased with that, but the overall performance of the business area is still very good, and a lot of focus has been put on the major and very strategic acquisition that we made by bringing FPI on board. And that has, of course, contributed very much to the growth there of 26.6% versus last year. Also here, we've had some negative currency effect for the full year, mainly coming from the British pound following the business we have through Stovacs. The quarter as such came in at close to $750,000,000 up from $680,000,000 last year with a combination of well, mostly acquired growth but also organic growth and a slightly negative currency effect. Gross margin down a little also here. Again, the raw material prices had an influence. But overall, a profit margin there of 17.4% as opposed to 17.9% last year. And here, through the acquisition of FPI more than a year ago, I mean, we have a very broader split of sales now between the geographies. But of course, there is room for more improvement. And as we've said, the FPI is really the basis for our North American focus now. Then just jumping over to an income statement for the group looking back over 5 years. I think the headline there is a very good description. It's a very robust performance. And since up until 2017, we have more than doubled sales from the €9,800,000,000 up to the €19,000,000,000 and been able to maintain the profitability levels there, both on net profit and operating margin profit. And although I've been around now for 6 years, I'm still newly employed compared to many people here, but this gives me, as a CFO, a very good confidence in the business and that we're able to take steps going forward to grow from here as well. And of course, an important part of this being able to grow is that we have a stable balance sheet. And if we look at this, if we just compare the last 2 years, 'sixteen and 'seventeen, I mean, they are very stable. There was a slightly larger change taking place in 2015, both following the acquisitions we made around that time, but of course, also as a result of the rights emission. But really, the balance sheet very much reflects our growth, both organically and through acquisitions. And on the Equity and Liability side, you see the effect of the rights submission of $3,000,000,000 that we made in 2016. You see the equity takes a jump from $7,400,000,000 up to 12.1 dollars But over this 5 year period, we have more than doubled the equity there from $5,600,000,000 up to 12.8 And I think the relations of the key financial figures, which we will see in a moment, are quite good. And an important part of this, as we also typically mention, is our cash flow. I mean generating a healthy cash flow is key for us to keep the balance sheet in order and the interest bearing liabilities especially. So we were able to generate some $2,300,000,000 of operating cash flow. Then we had a change in working capital of 184 percent, landing then at the 2.1 percent, which is you see on the picture. And that was a considerable improvement from last year where we generated €2,000,000,000 and had a negative working cash flow effect of €2.74 Then we have invested some more this year with the 536 as opposed to 412. We are expanding and investing in both factories and machinery, but still we're keeping investment levels below the depreciation level. Typically, we are around 75% to 85% of depreciation in investments. So the operating cash flow landed at close to 1.6%, up from 1 point 3 5% last year. And looking then just at a few key financial numbers. I mean, you see the depreciations that I mentioned from the previous picture. But really, the 3 last ones are some that we follow closer. The interest bearing liabilities in relation to equity, they have come down here from 120 almost in 2014 down to 70% despite the acquisitions that we've made. And of course, the rights submission had a good effect on this, but also the cash flow that I mentioned before. And the net debt to EBITDA is now at 1.9. And if you include one more decimal, it would be 1.86 I think. So that's also below the relation or the ratio that the bond takers, so to speak, would like to have. And also the equity assets ratio is very solid in a way, 45.8%, 46% roughly. And as Eric mentioned, it's not so that we have an ambition to increase this for the sake of increasing it. It's rather a matter of having a sound balance sheet for which gives room for further acquisitions. And then over the years, looking at the last pieces of key financial figures here, net profit per share has constantly increased here. It was at 1.86x in 2013, moving up a step every year and this year for 2017 as we're concluding upon Kenin at the 3.38 percent. And of course, also the equity per share has increased. And what we typically follow as well is, of course, the working capital. Now the picture you see here is, of course, a little hard to analyze in the sense that it includes I mean, it's a snapshot picture of what it looked like at year end at each time, and that includes part acquisitions, full balance sheet, only half an income statement and so forth. But the trend is still that we're moving down here. The working capital, excluding cash, came in at 16.3%. And on a like for like basis, when we make our internal comparisons without effect of currency, without effect of acquisitions, we have been able to bring it down. And only this year, we were able to release some SEK 150,000,000, SEK 180,000,000, thanks to a tighter or smaller working capital. So I think overall, the balance sheet is looks fair and gives us the fundamental for further growth. And that is really the topic for the next slide because we're very close to the current intermediate target, which stated that we should be able to reach €20,000,000,000 of sales at the latest by 2020. With having landed this year or 2017 on 'nineteen, we're not too far away. But as I said, that's an intermediate target, which was a very ambitious one when it was set. But I think we have ambition beyond that, Erik. Well, I mean, thank you for allowing me to comment upon that. I think it's very important to be transparent when it comes to targets. We've been transparent every day, every quarter since we went public and now approaching the frequency. And of course, it's very important Internally, perhaps by or the foremost, since we are not supposed to calm down or anything, we see the potential, of course, the possibility of arriving at $20,000,000,000 prior to the year 2020. And then it's important to say, okay, what's the next target? And that is $40,000,000,000 And again, coming back to what I said previously, it would have been impossible, dollars 93,000,000 to say, now we're going to arrive at $40,000,000,000 But having had this voyage of a continuous growth, the whole DNA setup is built around continuous growth, both organically and, of course, through acquisitions. So nothing has changed, and that's why we are saying to investors, to internal people, to potential companies out there potentially joining us. We are very much charging ahead with a solid aim of arriving at 40,000,000,000 dollars no later than 7 years after the arrival at $20,000,000,000 And I guess I should explain why we mentioned that. Typically, of course, if you double sales solidly or you add 20% every year, then you double sales in 4 years. But now we had the experience with Lehman Brothers coming across, so they delayed the process. That took us 7 years. But typically, the voyage has taken us, let's say, 3 to 5 years with that exception. That's why we mentioned now 4 to 7. There's a little bit of a to stick out your neck, but at the same time, it's not something we just have been dreaming about. The market is there. The companies are there. We have a different setup. We are more experienced but still humble when it comes to our company personality, and we just put up a few words here. Hans has mentioned and I've mentioned before, financially, very strong. And the chances for us for the opportunities out there are it's not unlimited. They're very, very big. But we have to remain. We have to keep our company personality because that's the whole thing. It's built on us working as a team, going to work every day, having fun and not saying, Oh, boy, now I have to go to work again. Of course, we can have a headache a day or 2 during the year, but it's joyful, tremendous joy to participate in this voyage. And again, did we have another bragging picture here? Yes, perhaps this is the one that we just explaining in figures what I just mentioned. Of course, now we are at the brown or reddish level there at $19,000,000,000 and free most of all. And of course, you can have a forecast, you can have a foresee what's going to happen, but it seems realistic to arrive there prior to 2020. And then the target is $40,000,000,000 And I think we have all chances to arrive there, as said before, if we just stick together, stick to our values and continue to love NIIBA. So with that said, please add some questions to this, if there could be any questions after this. And our first question comes from the line of Ola Farshner from DNB Markets. Please go ahead. Your line is now open. Yes. Good morning, Hans and Mete Erik. A couple of questions from my side. Firstly, if you could please elaborate a little bit about the development on the U. S. Residential hoof pump market, how much was the market down in 2017 and the tax incentive, how large will they do in 2018? And would it also be possible to if you could quantify the group sales exposure towards this market? Well, okay. Well, I mean, it was, of course, down considerably, as you know. I don't know whether any figures have really been released regarding this. So we don't like to have a hide and seek, but of course, it was a substantial decrease during 'seventeen. And whether it is going to bounce back so quickly now, whether tax credits are installed, we don't know. Of course, the market was perhaps a little bit exhausted. That's why I'm a little bit hesitant to say it was down or up. I think that when we look at the markets 'sixteen and 'seventeen, I think they should be viewed together rather than looking at 16 individual and 17 individually. And the reason is, of course, that some people were speculating, dealers, private investors and our private consumers, well, we better utilize. Now you never know whether that's going to be discontinued or not. So 'sixteen, there we had an overconsumption and 'seventeen was, of course, again exhausted of that fact. I'd say if you compare the 2 years in a fair way, perhaps it took it down to some 20%. That's as much as I think I can comment on that. Now with the coming back, of course, all our strategy from the very beginning has been to not only rely on geothermal, but rather to have the whole assortment of heat pumps and not only to rely on residential but also rely on the commercial. But that's why CCT came on board. So of course, with the tax credit now being installed, that gives us, as I said before, a bridge into the future where we have time also to broaden the assortment and to widen the knowledge of this technology, which isn't so well known in North America as it is in Europe. That was a political answer, but I think that's as far as I can go now. And regarding new business exposure to U. S. Residential market, would it decide to assume some percent of group sales? Or is that too much? Well, I think that when we acquired Waterfurnace, I think that you know that turnover was some $120,000,000 if I recall it. Yes. Right. And they, of course, the majority is was by far the residential. C2D, it has a minor part where they are €280,000,000 So I think that the equation is fairly clear. Yes. Thank you on that question. And secondly, if I remember correctly, you had a quite positive impact from calendar in Q1 2017. And given that some part of this is now in Q2 this year, have you made some calculations on that? And how that will affect your sales in Q1? The number of working days, if they deviate like 3 or whatever it was like last year from the previous year 'sixteen, I think perhaps 1 or 3 days 1 or 2 one day up or down. That's one thing. But if there is a I mean, when we talk about the growth of the 4% and then you have 60 days versus 63 days, then you talk about 5% deviation, of course, that is influencing a quarter. I mean, there's one thing where we had a growth of organic year 10% percent, in the good old days, as we would say, then it didn't play that much of a role, but it should be considered. Yes. And finally, from my side, you elaborate a bit on this with your target of €40,000,000,000 in sales. But would you say that a portion of €1,000,000,000 bigger, and twice the size competitor now, do you expect how do you expect the business to evolve in terms of new product areas, etcetera? If you could please elaborate a bit on that. Well, I think that we're going to grow all our segments, And that is saying that when you look at the $40,000,000,000 I don't think that we're going to change much of the structure itself. We don't going to bring on any change or also any like automotive. That's not that. But of course, going into more of the commercial side of climate solution, that's no secret. And on the element side, I think it's also important to know and to recognize as we broaden the assortment, the market is also growing like those heat jackets that we just entered on the with the textile base. There, we had we haven't been in that sector. And all of a sudden, we are a large player there, and there's more to be done. So it's a moving target at the same time. Now we identify perhaps the market is $50,000,000,000 or $55,000,000,000 but that could well be $70,000,000,000 when we as we grow into that with a wider range. But our competence is, of course, within the Stokes and the Element and the Climate Solutions. When we took a step in Britain, on the Stokes side, it was gas was added. And of course, that's broadened the assortment. So I think that's how we should view it. Our next question comes from the line of Max Friedan from Danske Bank. Please go ahead. Your line is now open. Yes. Hi, good day. I think you can also this is Max Friedian from Danske. I just want to follow-up on the previous questions in the U. S, but rather focus on the margin development. It seems to have been developing slightly weak in your expectations throughout the year, and now it looks to be substantially better here in Q4. Was there anything special that you want to highlight? And I'm focusing here on the U. S. Primarily. On the margin in the U. S, I don't know whether we see that. I think it is like on the margin as such, of course, when we entered 'seventeen, the CCG group had been on board only 4 months, and it took us it's taken us gradually some time to improve things there. And then Enertec came aboard January February 1 last year. So of course, that took down the margin. And then as I said, there was an overhang, it's like in 'seventeen from the heat pumps situation in North America, but then it weakened during the Q2 primarily. And of course, now we've been restructuring or shall I say, we've been taking away cost in the residential side of heat pump organizations in North America. We've quite been working with the 2 larger entities very intensively, and that is starting to show. And we've taken some hits on the raw material prices. We have not been so quick as we possibly should have been. And I think that we are going into a situation at the Q4 where we see that our work is more is crowned with some success, if not complete success. Okay? That's very clear. And secondly, on the topic again, just to get this right, the margins in the Water Furnace are still above the Climate Control Group and the Enertec in U. S. Despite the substantial fall yields in the residential market? Yes. Too much into detail. Water furnace has a phenomenal endurance when it comes to margin. So of course, sales has taken a tremendous hit or a hard hit, but they have also very quick pattern of reacting. Okay. I'll take with me. It's phenomenal. And just a question for Hans because I lost you there on the line. You mentioned the U. S. Tax reform and just a clarification. The effective tax rate in 2016 was 26.5% and now it was 22% here. Is this representative going forward? Or was there a onetime item there as well? Yes. No, it's not representative going forward. That's what I was trying to say because the whole net effect that we have to make as a result of the tax reform coming from the balance sheet on the deferred tax assets and liabilities, that was all taken in Q4. So I mean that's where we had the positive effect of $58,700,000 bringing down the tax rate to $22,000,000 We would rather be at $24,000,000 maybe, dollars 25,000,000 24, 25, that's very clear. Yes. And it depends on how much the U. S. Portion of the business will be for the group. But you don't have any substantial tax deductions or anything currently in the U. S? That was this change of €59,000,000 Yes. Yes. Okay. Thank you. Thank you. Our next question comes from the line of Marcela Klein from Handelsbanken. Please go ahead. Your line is now open. Thank you. A couple of questions from me. The newly restated geotax credit in the U. S, is it exactly the same extent of this compared to the previous year subsidies looking at your products? And what kind of discount do customers actually get in the U. S. Using this? It's exactly the same. It's a 30% tax reduction for residential installations. And it's actually also a 10% tax reduction on commercial installation, just as before, just as it was until December 30 2016. Thank you. And then if I may, a curious question, Jeterik. Obviously, you have impressive 30 years behind you as Niebeth's CEO. Do you see yourself as leading Niebeth towards the 40 $1,000,000,000 sales target? If I didn't have that thinking, I wouldn't announce it. But health permits, of course, that is always the question. But the other folks around me, the Board and my colleagues, of course, they have to tell me and my wife, Eric, you have to always get out of it. And as much as I love this company, I would never be a hindrance for the growth or the success. As long as I can judge myself. That's how it is. When you start to think about things, then you are worn down. You're going to get worn down. If I start to think perhaps I should leave, I think that I should leave that in the very moment a week later because then you start just like so many other things that you start to think negatively. All right. Thank you. Our next question comes from Anthony Galerang from Witwatersrand. Please go ahead. Your line is now open. Good morning. Thank you for taking questions. I had a couple of questions you could help with. First, perhaps if you could just help me understand some of the movements in depreciation and your selling costs in the Q4. Depreciation dropped 50 basis points relative to sales, and selling dropped by 160 basis points relative to sales. And secondly, on the outlook into the Q1, you'll be cycling against some fairly strong comparatives into the Q1 versus last year. You're getting some of the sort of U. S. GA tax credit benefits as well. I'm just trying to sort of get a feel of whether or not the comparative issue weighs down, what we should be expecting in terms of organic revenue growth in the Q1 and how much that will be offset by the tailwind from the tax credits? Thank you. Okay. Well, the second question, that's it doesn't take me a long time to answer that. I mean, we I can't really give you for natural reasons any forecast for the Q1. And as I said a while ago, quarter wise, we never give any forecast for the quarter. I think you have to view us as a long term growth mechanism or organism very determinedly going forward. And if some quarters or if a quarter would be a little bit sour, That doesn't mean that we're going to change our attitude. So when we say now that we are cautiously optimistic, that is, of course, for the full year, not necessarily counting 1 or 2 quarters to come. And perhaps I'm playing hide and seek, you think, but that's I think it's how that's as precise as I can be when it comes to the second question. The first question, I'd be very happy to hand over to Hans if you understood fully that. I didn't quite catch it. If you could repeat that, please. Sure. The 4th quarter, if you look at your depreciation and your selling costs, you essentially clawed back over 200 basis points of margins from the reduction or the non movement in those in the period. So perhaps you could just explain what happened in that Q4 to lead to those movements and to what extent that provides an indication of those items moving forward into the current year? Okay. Well, I apologize for not being able to answer that myself. I just have to But Hans, I'm sure, are going to dig into or if you don't if you But Hans, I'm sure we're going to dig into it. Or if you don't if we were prepared for that question, we just send you an e mail and respond to that issue, if that's all right. We can do that. I apologize that I just had to leave. Thank you very much. All the best. Yes. And I think we will come back to that question to you instead because Eric had to leave now, as he said, and we will be happy to answer questions on the next telco. But if there is anything, we're also able to reach here. Thank you, everyone. Thank you. And that concludes today's presentation. Thank you all for attending. You may now disconnect your lines.