Beijer Ref AB (publ) (BEIJB) Earnings Call Transcript & Summary

Welcome to the Beijer Ref Q4 presentation for 2024. [Operator Instructions] Now I will hand the conference over to the CEO, Christopher Norbye; and CFO, Joel Davidsson. Please go ahead.

Hi, everyone. Welcome. Christopher Norbye here together with Joel. So we'll do the normal presentation and then after that, open up for questions. So I think with that, we'll get straight into the presentation for the year and Q4. So maybe just highlighting some highlights from the full year. I think it was a good year, probably not all the tailwinds in the market for 2024. But despite that, we grew 11% with 2% organic growth. So pretty stable year in most of our markets and a positive development together with our acquisitions. Also, of course, as you follow Beijer on a quarterly basis, it's been a good trend on the organic side, of course, with a very good finish and 6% organic growth here in Q4. Margins, stable, 11% growth in EBITDA, very good cash flow for the year, which also sets up the balance sheet and the position to continue our journey with a good acquisition here as we roll on to 2025. Also worth mentioning, of course, the EPS growth of 6%. But in Q3 and Q4, I believe we've been growing on average 16%. So a solid year. Model works well, also 5 acquisitions integrated into the business. So all in all, I would say, a very good year. So based on that, we'll move into what happened in the last quarter a little bit. We grew 15%. So I would say, a very good finish to the year, extremely happy with organic growth. We'll come back to that when we go through the segments and the product areas, continue to have a good effect on the acquisitions, plus 8%. So all in all, a good mix between organic and acquisition here in Q4. So we're very happy and I would say, proud of that development there. On the margin side, good growth of 12% of the EBITA. So well connected with the total growth of the company with a margin of 9.2% in the fourth quarter, which is a solid margin, I would say, in Q4. And I think it's worth mentioning also, I think most of you know it, and you can see it on this slide that we have a seasonal business with the strength in Q2 and Q3. And also the way we're acquiring more and more company on the HVAC segment and in the U.S., there will be more seasonality with higher margins in Q2 and Q3 as that's when the business is very, very active. We did have a couple of negative effects in Q4 that's worth highlighting. We had an FX effect with a strength in the U.S. dollar against the euro in a very short time span. Joel will come back to that a little bit more. We do have a dilution. Also that affects negative in there, as I said, on the acquisition side, which is always more in the Q4 and Q1 quarters. So if you adjust for that, it was a solid margin in the same levels as last year, and it's a good margin for a fourth quarter in an off-season for Beijer Ref. Cash flow, good. It's always good in Q4 and should be good. That's another side of seasonality. Of course, you reduce inventories and you collect all your payments. And despite this is that we've built inventory in the U.S. that we'll come back to. Also a very good EPS, plus 17%, so a fantastic drop-through. And I think we look forward to this also in 2025. We did acquire or close Cool4U here in the beginning of January. So a very nice addition to the business, the leading HVAC company in Hungary. So we'll start -- or we have started to work with it already, and it will be integrated from January 3. And then also finally, a dividend increase of 8%, moving it to SEK 1.40. So I would say the highlight, solid quarter with very good growth. Let's move on to the next slide. We also saw sort of growth here across the different product segments, I would say, with commercial and industrial refrigeration growing 4%. You have the OEM up at 8% and then HVAC also solid at plus 8%. So all in all, we could see this across the board on there. So I mean, it's not any revolution here. It's evolution. It's a solid business with a very good quarter behind us to finish the year. If you go into just trying to paint a little bit of a picture per geographic segment because that's part of how we measure and look at the business. Of course, EMEA, our largest segment and also our most complex segment, going across over 20 countries. And you will always have a mix, but to try and explain the year and the quarter. I think in the year, all in all, it was a solid quarter with very good growth on the Eastern side of Europe, stable in the Nordics and Central and a weak market in Southern Europe driven by France. That's a big market for us. But all in all, keeping margins stable during the year, in an okay year, but not a strong year, mostly related to Southern Europe, which is, of course, a big market for us. In the quarter of Q4, we had a pickup on sales. Continue to be driven by Eastern Europe. What we've seen also over the last couple of quarters is a very much improving situation in South Africa for us, which is a fairly large market and also a positive outlook for 2025 in that region. So continue to do well in those segments, both from an acquisition and a general growth, continue to have some challenges in the Southern European part of the market. The OEM segment continued to have a stable growth, good annual growth. Also, the OEM will also fluctuate between quarters, mostly related to our projects are shipped and not at the end of the quarter. But still a solid underlying performance there. Good growth in commercial and industrial refrigeration in the quarter. The majority of the negative strength in the U.S. dollar was related to the EMEA region, mostly as we buy a lot of products priced in dollars into our European business from Asia. And when you get this fast movement and we will get into it, it's actually a revaluation of the accounts payable that hits you on the P&L. So it is more of a one-off in there, and we'll continue to work with this as we go forward. But it's worth mentioning because it did have a fairly large negative impact here in Q4. Another part that's more structural is the heat pumps. We've seen price pressure in Eastern Europe here in the fourth quarter. We expect that to continue in Q1. And then we're pretty comfortable that this will tail off for us. So we'll highlight that for Q4 and Q1, and then we feel good about that it won't be having a negative effect as we move into the rest of 2025. But also worth mentioning here, a good quarter on sales on heat pumps. So we did have an active Q4 and expect that in Q1 as well. But of course, it's still less than 10% of HVAC sales in EMEA so it's not a big part of our business. We did continue and integrate the GEA Group that acquired early summer and look forward to their summer season. And as you said, Cool4U, is the same thing. And I think that's -- as we talk with seasonality as we continue to add these companies, they are having seasonality focusing on very high activities in Q2 and Q3, while Q4 and Q1 is more muted. So all in all, a solid quarter in EMEA. Then moving over to APAC, I would say, an excellent performance in Q4. both on the growth side and also on the margin side. APAC, of course, have their high season seasonality in Q4 and Q1. It's hot in Australia, New Zealand and those markets. So it's a different measuring stick, I would say, versus the U.S. and EMEA who's in off-season in Q4 and Q1. So very happy to see a good start to the season in APAC, especially driven by Australia. We do have a very good business model there and a strong market position through all the acquisitions we've done over the years. And now we also can see happily the margin expanding, moving up towards the thresholds that we set on a minimum 10%. They did reach 9.8 here in '24 with a good finish to the quarter. So we do see good trends here, said, especially in Australia and have a good market position. Asia is a little bit mixed in their good underlying business, less projects right now. I think worth calling out that we did receive our first CO2-based project in South Korea, acquisition we did about a little more than a year ago. So very happy for that and see how we can continue and build on that. And we did also see expansion on the margin related to good volume growth and also continue to drive more and more spare parts and integrated solution in Australia, working with the model that we successfully have in the U.S. So a good finish to the year from a very good year in the APAC region. Then moving over to North America, another very active year. As you can see, sales growth of 32% and EBITDA growth of 26%. So as you know, we continue to be very active in the market, and we expect that to continue into 2025 and moving forward. So a good finish to the year also on the activity level, especially on the commercial side of the business, light commercial. So a lot of projects active in Q4 driving the volume. On the day-to-day business, it's a little bit harder to judge, it's off season. So most of the work we do in the southern part of the U.S. is maintenance and service. And also when you move up to the northern parts of the U.S. like the acquisition we did in Young Supply, Q4, especially and into Q1, the seasonality activity levels are always much lower because it's so cold, you don't really do any maintenance and service work. And that's why they have more seasonality as we move into Q2 and Q3. And that's when you roll into the margin side of the business, you get quite a big dilution here in Q4 and Q1 from the acquisition side and less in Q2 and Q3. So that was a big impact on the margin. The other part is that last year, we did a very good year-end rebates because we bought a lot of inventory. So we have started to prune it here in '24 and let's see how it plays out in '25. But underlying margin in the U.S., very good. The Heritage platform continued to do extremely well on the margin side. And of course, we expect this to continue. In general, and a worth mentioning, we continue to open and develop branches. We have 2, 3 more coming in here in Q1 and Q2. We are active on the private label side, it will start coming into the portfolio in Q2. And in general, positive. I'm sure there a big question, we're moving into this year on the A2L transition. We expect that to start coming into Q3 and Q4. We have a good inventory position in general. So it's been a nice year and a good finish of the year in the U.S. And of course, worth mentioning we are and going to be active on the acquisition side here again in 2025 for sure in the U.S. So that was a little bit on the business in the fourth quarter. Then on the sales side, you've seen this slide before, nice trend, again, 15% growth, 6% organic. So I think it's a very strong development here as we move through the year. And of course, the history is extremely good. On the margin side, you see it's been a solid year with good margins across the year. which gives us a similar level as last year. And then on the fourth quarter, it's still a solid 9.2% in the quarter and then dilution from acquisitions and some currency bring it down compared to last year. So all in all, in good shape on the margin side. Then if you summarize it, the EBITDA grew 12% and 11% of the year so within our financial targets. And I would say, a good year in a market where we didn't get a lot of tailwinds, but I think also it proves the strength of the business model that in a year like 2024, we'll continue to deliver the type of growth numbers. And of course, it also relates to being a very consolidator in our industry and good underlying trends in the business. And then finally, for me, we will summarize this fourth quarter with pretty good numbers. I still think it's really good numbers. But 15% sales growth, organic of 6%, EBITDA growth of 12% and then I think also a very good finish to the year on the EPS growing 17%. And so I think we're in a very good position to get into the 2025, look forward to this year. And on that last note, I will hand over to Joel.

All right. Thank you very much, Christopher, and good morning, everyone. I will jump straight to our EBIT of SEK 756 million, which is up 13% compared to last year. Below EBIT, we start to see some upside from central banks continuing to lower interest rates and our financial net in the quarter of SEK 130 million is down SEK 23 million sequentially from Q3, attributable to lower base rates on the financing portfolio. On the tax side, we recorded tax expense in the quarter of SEK 169 million, which is representing an effective tax rate of 27%. It is some improvement versus last year. And as you see, the effective tax rate in Q4 is slightly higher than that we have in the higher earnings quarters. All in all, resulting in a net profit of SEK 457 million, which is 16% up compared to last year. So if we just moving over to the EPS, that is translating, as Christopher mentioned, to an EPS growth of 17% in the quarter. And if you look at it for the full year, adjusting for items affecting comparability and the same number of shares in EPS for the year is up 6%. Moving over to cash flow. We continue to deliver a strong operational cash flow in Q4, SEK 1.3 billion, supported by a strong operating result and the release of net working capital of approximately SEK 500 million. The net working capital release was primarily driven by a continued effort to reduce our inventory and then seasonally low AR. Inventory levels in the quarter were reduced despite the extra buildup of inventory in the U.S. that we mentioned already last quarter, and it's related to the change to A2L refrigerants. If you -- on the next slide, you see that we have generated a positive operating cash flow throughout the year. And in total for the year, it amounts to SEK 3.5 billion, which is SEK 1 billion ahead of last year, and it's clearly supported by higher EBITA and also more tightly managed net working capital. So all in all, we're very happy about the cash flow that we're generating for the full year. Finally, moving over to net debt and leverage. I mean, the effects of our strong operating cash flow is clearly visible in our balance sheet, where we despite another active M&A year, enter 2025 here with a very strong balance sheet. Our leverage ratio, measured as net debt versus EBITDA, excluding pension and leasing liabilities, has now declined to 1.8% from 2.0% here in Q3. And we closed the year at basically the same level as last year. Net debt increased by SEK 1.3 billion during the year related to the 5 acquisitions that we have closed. And also worth mentioning there, for those of you who have looked into our balance sheet, we had an unusually high cash position at year-end of SEK 3 billion, but it was in anticipation of closing the Cool4U transaction in the first phase of January here. So by that, I will hand back over to Christopher.

Thank you, Joel. So wrapping up 2024. You've seen this in the beginning, a solid year. With good acquisition growth, good total growth. Good trend on the organic side. Very happy how that is developing. Good balance sheet despite all the acquisition we've done for the year. Cash flow is good. The companies are good. It's a good, good year and a very good base to continue our growth journey in '25 and going forward. So -- then try and summarize a little bit fourth quarter. Of course, especially proud of the organic growth across the board. If you look at the regions in the quarter, APAC are on the right trend on margin side, the business model continues to develop well, stable year in EMEA with some also really good acquisition setting up for 2025, good activities on the OEM side, SCM Frigo and Fenagy. And also a positive on the HVAC side, how it's been improving quarter by quarter with stable margins, of course, really looking forward and into the -- especially as we ramp up to Q2 and Q3 in the business. And then the U.S., I mean, an amazing continued development there, 30% plus growth again on top of very active 2023, structure is coming in place. The original platform Heritage is performing excellent, good people across the board, happy with the acquisitions. And also an interesting year as we transition into A2L, but underlying a very good business and opportunities moving forward. So a real nice opportunity for us. Summarize, EPS 17%, hard to complain on that one, growth in dividend and a good cash position as we move into 2025. And also wrapping up the final comments, nothing really changed for '25. We're in good trends. You have transitioning here in EMEA, moving forward in the next 2, 3 years, you have the U.S. coming online more and more this year. APAC continues to develop well. The business model is strong and good initiatives. So we look forward to '25 and wrapping up a strong finish to the year. So I think with that, we'll open up for any questions. Thank you very much for listening.

[Operator Instructions] The next question comes from Gustaf Schwerin from Handelsbanken.

Yes, I have 2. Starting on the growth side. You're posting the largest organic growth in 2 years. It is a bit tricky though, given the comps, of course, but also to understand what has happened to underlying demand given the season here. So when we look at sequentially, where do you think underlying markets have moved across the regions, yes, it's especially interesting for Europe? And then also related to that, when we look at the HVAC shipment data in U.S. for October, November. I mean, obviously, a stocking effect there, but is there also an element of demand improving. Yes, I'll start there.

Yes. Both are hard questions to answer. Maybe, of course, that's why you asked them as well on the clarity of the world and where we're going. I think a little bit like this, I always say, let's remember we're talking here in Q4 and Q1. But of course, even if they are smaller quarters, they are important as well. They're not insignificant, right? And if you look across the board, I think in general, you have the sequential improvement, how much comps, how much is the business improving. I think in general, what we've seen and what I usually say that the business has been stable across the board with a slight positive trend, and you can see that, of course, in the numbers. So walking into 2025, I'm more positive than I walked into 2024. And that's based also what we're seeing in the market and what we're hearing, but it's early days, right, in that trend. So if you try and break it down a little bit on the business, in general, you would expect commercial refrigeration to grow the 2%, 3%, 4% depending on the quarters and comps. So there's nothing sticking out there, the OEM business should be plus 10%. It's been there for a while. We'll continue to drive that. So then you look into the HVAC side, it has been a stable market with improving trends, right? We're seeing good trends in Australia, which is a big market for us in the middle of the high season. And we're pretty sure in that region that we're taking market share because we're by far outpacing the growth in the margins. I don't think it's a booming market, but I think it's okay. But with our model, we're driving growth, and that's affecting a good trend in APAC, and we expect that to continue here as we move through there in the Q1. If you try and bring Europe together, I think it's been clear across the year and also the finish to the year, through the acquisition and models we built up in Eastern Europe, we're doing very well and taking market share in that part of the world. Central and Nordics is stable. And then Southern Europe has been weak. And I haven't seen any big trend shifts for that in Q4. But in general, a better market than last year. in Q4. So it's more that the market in Q4 this year is better than last year than any sequential big movements. And as we move in now to Q1, it's more of a continue with that and then ramping up here for the Q2 and Q3. Of course, the upside for us as we move into EMEA and in 2025, is getting some tailwinds in Southern Europe because it is a big market for us. And if we can see some improvements there, that will go a long way of driving organic growth in general. And then moving over to the U.S., I agree, and I know you guys are smart enough to understand the OEM shipment data is very much skewed. It's hard to use it as a reference point. We, as everyone else, have bought everything we can for inventory and on technology to support the first couple of quarters this year. I think it's hard to make any judgment on the OEM side. I would guess that every OEM has sold out all the equipment they could make until the end of the year for that and as you transition now into A2Ls. But in general, where we saw the biggest shift in Q4 versus last year in the U.S. was on the project business and light commercial, family housing, larger projects, that's been active in Q4 and moving into Q1 as well. The underlying day-to-day demand is pretty stable and it's more looking into as we move in there to Q2, Q3 and see how that develops. But trying to summarize a pretty short question with a long answer is somewhere around, yes, it's an improvement versus Q4 last year.

All right. Then secondly, on the EMEA margin, I understand the negative effect of the USD purchasing is probably something like 40 to 50 bps year-over-year. When we think about this going into 2025, I mean the USD hasn't really sold off versus the euro since Q1, I mean, rather the opposite. Is this an effect that we should bear in mind for Q1 and onwards? Or would you handle the price? How is this going to play out? It's a big move now.

Yes, this is Joel. I think we need to separate. I mean, a little bit if you look at currency fluctuations is obviously a normal part of our business. And over time, we manage it through price adjustments. It is, however, different when you get rapid movements like we saw here in Q4 with dollar appreciating 6%, 7% against the euro over a short period of time. And what's happened in that time frame is that you get the time difference and the exchange rate movements between when you receive the goods and when you pay them, you need to adjust -- you don't adjust the inventory for that to actually adjust the accounts payable. So that flows through the P&L immediately. So those type of effects, you only see with short-term movements and they go up and down, of course. But longer time differences in exchange, which we are obviously, as always, working with price to adjust.

So, again, to summarize, and you probably have more questions. No, we don't expect this type of things. I think it's a pretty extreme movement. And the longer-term movement if the dollar goes up or euro down, we, of course, compensate by adjusting pricing in the market in there, but this is more accounting bookings through accounts payable.

The next question comes from Adela Dashian from Jefferies.

I'm actually going to go back to the organic growth question earlier. Maybe you could provide us with some color on -- I know it's still early days, but your assumptions for growth in the North American market in 2025. It does seem like it will be more back-end loaded with the A2L transition. But still in Q4, the trends look fine and good. So how do you see that progressing? And what really are the upsides to the current organic growth that you're experiencing with this regulatory change?

Yes. So try and answer that the best I can. I would say, if you look at the ending of the year in the U.S., it's a more positive sentiment than we ended in 2023. Big shifts in the driver of growth here towards the end of the year and also beginning of this year is, if you break down our business there, it's a lot around commercial and projects that's been low for the last couple of years. So we see that as positive, of course, and expect that to be continued good here in Q1 in there. That's how we're seeing more activity on that level. So in general, a little bit more positive mindset in the U.S., but we still need to move here into Q2 and Q3 and see the daily business renovation and housing market and those trends start picking up a little bit, and it's too early to tell around that driver because that would be the final tipping point, excluding the A2L. And then as you transition into the A2L, that will be more a Q3, Q4 transition into that. And the tailwind there is, of course, more related to a price increase there of anything from 7% to 10% on that type of product. There's a lot of things happening in the U.S. this year. But I think if you take the short-term view, right now, you see more activity in the commercial market, the light commercial market in the U.S. for us in general. And then let's see how the housing market and business plays out. Of course, on top of that, we are opening branches. We're expanding refrigeration, also expanding light commercial to some of the acquisitions that we made, et cetera. So we're also doing our own thing to drive growth. And it looks very promising on that side as well. So yes, hopefully, that answers some of your questions.

Yes, I think it does. Going back to the 7% to 8% on the price increases, like how much should we expect that to be the OEMs get the major part of the cake? And then what's left for the distributors and the middle hands, how have you budgeted for that for...

I haven't budgeted for it, but there's not going to be any difference on price increases in the market versus the OEM, absolutely not. We always pass on that price increase.

Got it. And then maybe sticking to the topic of North America and margins. I understand the seasonal fluctuations here with the recent acquisitions. But it seems like your commercial activities will remain pretty on the high end there in 2025. So do you see any room for margin improvement? And if so, will that come entirely from added price, added volumes? Or is there anything else in your business model that could drive already now in coming quarters more efficiency gains and so on?

Yes. I think in general, I would answer it. So it's a little bit trying just to put some color on the dilution side of acquisitions we made so far. They all have a lower margin, but also Young Supply. It's a pretty big acquisition for us. They're based up in Michigan. You really don't do maintenance and service work in Q4 and Q1 because it's too cold. You do it in Alabama and Tennessee because it's too hot to do in the summer time. So that's why an acquisition that, margin picks up a lot in Q2 and Q3 with less dilution, and that's why -- where you see this effect in Q4 and Q1. But we are working with the models and the acquisition. We do expect to continue to improve margins there. So in general, in the U.S. as I said, underlying, we would probably have better margins than we report because we are investing a lot, building new branches, bringing in private label, adding in the organization. So in general, I would probably be more related to we should improve margins on the acquisition and stay stable overall as we're going to continue to invest and drive the business at the good margins. Of course, if you get some of the A2Ls, let's see where that plays out. But of course, we will get good level in the cost with those type of products. But I think that should be more a -- let's see how it plays out towards the end of the year in 2026. So in general, I would say, let's continue and drive growth and keep the margins stable at a good level.

The next question comes from Vivek Midha from Citi.

I have 2 questions, if I may. Firstly, a follow-up on private label and the rollout of Sinclair into APAC and the U.S., so you highlighted that you expect to launch private label in Q2 in North America. So on APAC, what is the time line and how is this progressing? And then more broadly, where do you think you can take private label sales by the end of 2026 for these 2 regions.

Yes. On APAC, I'll answer it in this way. It's not going to be playing out in big numbers. It's a long-term journey in the APAC region. It's smaller numbers. We're actually starting in Southeast Asia. We have a good coverage already in our biggest markets on the OEM side. So we're still debating the strategy around a solution on there. So APAC is a strategic journey on that side with especially Southeast Asia. So it's a case where we internally continue to drive it, but that's going to take some years. And I would say also some direction on how we want to play in that region because if you really want to make a big impact on that journey, you need to go into Australia and New Zealand, and we have not decided to do that yet for other reasons. If you move into the U.S. I would say it's too early for us to judge where it's going to be '26 and '27. So maybe we're planning to have a Capital Markets Day in November, we'll come back to that. We can clarify a little bit more the journey. I think the key for us now is to build it up. We have the product on its way. We're setting up the structure to do it, of course, getting support how we've done it in Europe, and we're also setting out that the customer journey, there's no ambition to cannibalize anything here. It's a new customer group where we can be competitive, especially on the light commercial side, we can drive that much more active with a good product like that. I will be on purpose fairly vague because I also think it's fair. Let's get this up and running in the U.S. And as we see it develop, we'll be a little bit clearer to the market. But I mean it is a very interesting solution for us in the U.S. to go after a completely new market segment where we haven't been active before. But let us be vague right now and come back as it's more up and running and then we can be a little bit clearer on the direction of it.

Fully understood. And my second question is just a follow-up on your comments around heat pump. Clearly, it's a minor part of the business. But just interested to understand the nature and the magnitude of the pricing pressure you saw in Eastern Europe in heat pumps? And what reasons -- or why you believe this will fade after the first quarter?

Yes. So I think it's nothing, we debated even to mention this. It's trying to tell a fuller picture maybe being more transparent in it. As you said, it is a smaller part of our business. And it's a little bit the way the seasonality works and now we're talking the EMEA side. Here in Q4 and Q1, we expect 10% of HVAC sales to be heat pumps. And then as we move to Q2 and Q3, it drops below 5%, and it's not a relevant thing to talk about in the scheme of things. And especially, we've seen as we built up inventories and all the acquisitions we made in Eastern Europe, it's a very competitive market there as everybody is sitting on excess inventories on there. So we want to play in this market. We still make money on product. We're balancing our inventories. And I think we're in a pretty good position as we move through the first quarter and into the rest of the year to decide a little bit more how we want to play in this market, but we don't expect to see any margin dilution issues in EMEA after we're done with Q1.

The next question comes from Carl Ragnerstam from Nordea.

It's Carl here from Nordea. A few questions here as well. On the inventory buildup in the U.S., I guess moving into first half 2025 here, I guess the market share dynamics might be impacted, I guess, on the [ 410 ] availability. So how do you think that you stand with your inventory of the sort of [ 410 ] products versus some peers or I guess you're more equipped than the mom and pop shops, I guess. But how do you view that the market share potential gain?

We're in a fantastic position. unbelievably good. So we will -- No, it's interesting, I know we're getting to side effects here. But prior -- when we checked around with all the competition, everybody was saying they're not going to buy anything. And then everybody bought as much as they could. So I guess it was a play of card stick in this journey. But we got allocated the percentage that we wanted from our main suppliers. So I mean we're happy on being in -- are we better and worse than others. I think as you're right, you have some smaller competitors that has not had the cash flow possibilities to build this up. And to be honest, If you talk to smaller ones, they've been kind of pissed off because they didn't get priority in this journey as well. But I think as we compete and compare, we'll be in a similar position. So there might be some upside on smaller ones not having the product portfolio. But I think in general, it's -- I don't see -- not -- what I don't know if somebody completely decided a different strategy, then we'll find out on it, right? I think it's public knowledge that Daikin went to A2L pretty aggressively already quarter ago, and that has not been a perfect solution in that journey. So there's been opportunity on market share. It's not a main competitor where we play, but a little bit at least. So I think we can only answer that we're in a good position for this on there. And I think it's also maybe worth mentioning as we move in, in Q2, Q3 on our private label, that's going to be A2L products very well priced. So that's also a nice tool to have in the tool box as we move into that segment with very competitive products as well.

That's very clear. And staying on your main supplier Rheem in the U.S. here, Palomar Rheem is trying to acquire Fujitsu General. What is your main comments on the possibilities for you there on -- I mean to say they are bigger players, right?

Yes. I think it's a good question. It's one of those questions if you are long term because this is only a long-term answer because I think it's going to take some time. But just to understand our relationship, of course, agreement with Paloma is that they informed us before they closed the acquisition, which I think this shows how we're working together. And of course, they want to talk to us, especially Fujitsu in the U.S. We do have good opportunities on the nonducted to work together. We do have a global rebate agreement together with them. We work with Fujitsu quite a lot in Australia, et cetera. So for us, if you take a long-term head, I don't think any it's going to change the next 6 months as they need to close it first. But I can only see positive for us because we have opportunities to further expand our business together with Rheem and Fujitsu and now we have access to the decision-makers in a very good relationship. So I think it's good for us.

Okay. And on the OEM segment, you showed quite healthy organic growth in the quarter. But as you mentioned, below your ambition of plus 10%, it could be volatile between the quarters as we know. How do you look at the project deliveries in the quarter? Was it unusually low? What do you hear from the grocery store side, where they've been struggling with food inflation, rates. So do you see a better investment pace from them entering '25 and we're also approaching, of course, at some point, the end of the regulations, right?

Yes. I think in general, I don't really have a comment on it. It's a pretty solid year. We always say shipments between quarters will shift around if it's plus 8%, plus 15%, plus 12%, in general, it should be growing over 10% per year. And maybe worth mentioning is what we do see is -- and I think I talked about this in Q4 is that the market that's been a headwind in the last couple of years has been food retail, limited investment, people holding back, despite regulation and having a tougher time. And I said that we saw at least quoting activities picking up and orders are also picking up on that segment. So it is following a positive trend quotes and orders into the food retail. So my guess would be that you'll start seeing an improved investment cycle in retail in 2025. I don't want to jinx it, but it looks like that trend is going to be a positive trend for '25.

The next question comes from Dan Johansson from SEB.

I had 2 more here. Maybe starting a bit on the U.S. I know there's been a lot of discussions on this topic already, but I'll phrase it another way, maybe with the new presidency, there are a lot of discussions about a lot of different things, of course, including potential tariffs. But how does that change the dynamics in the market, the competitive situation, does it at all? And also how it's influencing your plans when you're building your U.S. platform. I guess it's early stage still, but some initial thoughts on this topic would be interesting to hear.

Yes. So supposedly, I was at in -- day this morning, and I made a statement, 4 years for us is a very short time. So we don't care, I'm just kidding a little bit. No. But if you look at the administration now and our business, I mean I was on a call with our U.S. management team. And they were actually yesterday in Washington meeting the Republican senators and the government on what's happening in the market. My statement in general is that we're working with the majority of our products is products that's critical and needed for your day-to-day life in the U.S. So we don't see any legislation or changes that will change our business model. If you look at the thing having this year on A2L, that will not change. It's already legislated law. So that will happen. The OEMs have started making it. The OEMs are also positive moving in this direction. So A2L transition, what happened this year, the normal product we sell and all that. So the boring answer is, if you look at that part of the business, I think the most critical for us to be honest, it's more a U.S. national saying that we want activity on the housing market, not building houses, but buying and selling existing housing, renovation and that type of market. That's, of course, also a little bit related to the interest rates. So those are more indirect components that will affect our business. But in general, we're pretty positive that we're going through a couple of down years in that area and things will start picking up even with this government. So no, I don't see anything that would change that. I know I sometimes maybe answer that question as well, get questions on tariffs on there and what happens if there is a tariff. And maybe just to set it in perspective for our business, we work in the U.S., right, with U.S.-based suppliers. I mean it's anything from Rheem, Carrier, Trane, Lennox, Daikin. A lot of the residential equipment that we work with and every OEM in the U.S. has manufacturing in Mexico, a mix of U.S. and Mexico. And if there is a tariff on the product, prices will go up immediately. And our guys now taking the American hat on, they would love it. It will be a very nice P&L development for us on there. And of course, in there, I think long term is that the right thing, don't know. But from a business point of view, we don't see anything changing our business model in the U.S. with this type of government.

Okay. Maybe finishing with one more specific question on Fenagy. I see in the report, you continue to expand the production area towards 5,000 square meter. Just to get a feeling on how far can that take you? I mean the development there has been fantastic, can you double sales now? Or do you need further expansion if this positive development continues in Fenagy? And maybe same question on Frigo, how are you there in terms of production and delivery capacity as of now?

Yes. No, I mean, the -- I don't know if you call it any more expansion in Fenagy down the road, for sure. So we're more looking at -- now we're expanding in areas we can and then we're looking down the road to significantly expand it in -- not in '25 or '26, but probably '27, '28. So this will support and help us step by step in that journey, but there will be a bigger expansion in Fenagy coming in the long term. SCM Frigo is good. We expanded 5,000 square meters last year. We can continue and double the capacity there. We're adding another shift in the new area we're in. The new area is built for the CO2-based heat pumps that we just launched here in Q4. So there's a lot of interesting activities there. But there, we do have ability to ramp up on people and shifts, while in Fenagy, it will be -- long term, in my view, a bigger expansion, similar to the SCM Frigo we did in 2021. So good challenges to have.

Yes. I guess it's a positive thing to have.

Yes.

The next question comes from Karl Bokvist from ABG Sundal Collier.

My first question is on this M&A dilution from acquiring these companies. Historically, you've talked about integrating them and being able to extract synergies fairly quickly. So this dilutive effect from the currently acquired companies, how fast do you think we can see this headwind on margins diminish?

Yes. I think it's already slightly improving. I think as we get a short time horizon here now in Q4 -- in Q4 and Q1 is still better performance in the acquisition in the U.S. in Q4 than the Q4 we bought them. But their seasonality is higher, as I explained before that -- and that's why you saw a much less dilution in Q3 and Q2. So they are improving already, but the seasonality will be there in Q4 and Q1 because activity levels and repair maintenance is so much lower, as I explained in the ice cold weather in Michigan. You do have to explain band-aid repairment in the winter time, and then you come back in the summertime. So I would say that you'll step-by-step reduce dilution over the next 24 months in this acquisition, but we'll continue to do more. But they will and are improving step by step in the business.

Understood. And then on the inventory situation, we've talked about it a little here. But I mean, if we exclude the A2L buildup, which is, of course, a strategic decision here ahead of a market change. But if we exclude the A2L products, how is the kind of balance between those, let's call it legacy products and A2L because usually, we do see a quite significant reduction quarter-on-quarter in the inventories in Q4 versus Q3.

Yes. So if you look at the inventory, I mean, we are down in the quarter compared to Q3 with approximately SEK 300 million then including the buildup of A2Ls or the buildup in the U.S., which is a few hundred million. So the difference is, I think we have proceeded progress as normal on the inventory levels. And you should also bear in mind that we last year at the same time, we came in from even higher inventory levels. So I think we have continued to manage it down in a good way in the quarter here.

Okay. Sorry, Joel, could you just clarify the SEK 300 million reduction, if we just look at reported figures, the inventory level was quite stable. But do you say that excluding A2L, it would have been down SEK 300 million. Did I hear you correctly?

No, no. It's down SEK 300 million organically. The A2L is roughly up to SEK 300 million. And then the balance sheet, you have FX movements and so on, which is the explanation that you can't do the math perfectly that you tried to do. So cash flow-wise, which is the relevant metric here, inventory levels organically is down SEK 300 million, including that we bought roughly SEK 300 million more of inventory in the U.S. related to the A2L change.

Understood. And my final one, Christopher, we talked a little bit about growth in North America, but could you give some indication of the organic growth in the region considering that we are seeing a kind of pickup on the shipment side, of course? And I understand it, as we talked about, it's difficult to make a direct comparison.

So 0% to 100%.

No.

We are debating to everybody on the call here now to start disclosing that as we start the new year and Q1 and going forward too, because it is becoming more and more relevant for you and for our owners and everyone else in there. But I would describe it in this way, that if you look at the 6%, the U.S. was above 6%. So the U.S. was positive to the growth journey. So high single digits in the U.S. for the end of the quarter.

The next question comes from Emil Zaar from Danske Bank.

I'm just curious if you could potentially quantify the FX effect or give us just some more color on it, as you already mentioned with the USD stronger? And also then, if you could give some detailed information about your contracts, if they are price classed within them. And specifically any conditions that might lead to price adjustments in regards to FX.

So in the mass, I tried to address this before here. But the actual impact in the quarter is roughly half of the drop -- explaining half of the drop in the EMEA margin on there. So -- and I mean, in terms of price adjustments, it's -- I mean, you manage this in different ways. I mean, obviously, for some flows, we are selling and continue to sell in dollars. Some flows, you have shorter time projects and so on, where you are very fast in adjusting prices. And then on part of the business, obviously, you wait and see because you don't want to change prices up and down every month here. But that's the normal course of business. And obviously, we are doing, as always, our best to defend our margin and working with price increases proactively. So from that perspective, there is nothing different in what we are -- how we are operating normally. It's just that the effects through rapid change as we move through the P&L in a different manner as if you don't book it in the inventory, you revalue the accounts payable. So you get an immediate effect.

And I think just to add, because this to me, it's a lot of an accounting thing, and I don't like accounting things. But anyway, real life is, of course, when this happens, we also negotiate with our suppliers in Asia. We're getting better pricing and other rebates to manage this because this will be more of a U.S. dollar profit in an Asian country. So it's in accounting, we need to call it out because it's there, it's real this quarter. But if you turn around and if you have a long-term raise with the dollar that we see now, we need to compensate that with the price increases in the market, better prices from our suppliers of both -- and we've been doing that for many years. So yes.

[Operator Instructions] The next question comes from [ Bhavin Thacker ] from Bloomberg Intelligence.

I just had one question about pricing development in 2025 that you expect. You said like heat pumps may face like a temporary decline through 1Q. But what outside of that, how do you see pricing development outside heat pumps, especially in HVAC, excluding North America?

No. We see on the HVAC side, of course, you're already in the season in the APAC region, we'll move in, in the season here in EMEA starting in April, May. The normal journey is pricing adjustments coming into March and April on there. I think we see a fairly stable pricing development in general. We have some pricing initiatives on our side of the area. But from a supplier point of view, I would adjust the comment as stable across the board. So hopefully, we have some upside because we feel in some areas, we have some pricing power that we could leverage in that area. But in general, a stable pricing environment if you exclude the U.S.

There are no more questions at this time. So I hand the conference back to the speakers for any closing comments.

Thanks, as always for listening in. Thanks for good discussion and questions. And hopefully, we could give you a good picture. Maybe to wrap up, last couple of words. Good finish to the year, good trends. So yes, it looks interesting here moving into '25. I'm sure we'll be seeing and hearing for most of you in this year. But in general, I think a solid '24 and a good finish. So with that, thank you all for being online.