NIBE Industrier AB (publ) (NIBEB) Earnings Call Transcript & Summary

Ladies and gentlemen, welcome to NIBE Q4 2021 Results Presentation. [Operator Instructions] Today, I am pleased to present Eric Lindquist, CEO; and Hans Backman, CFO. Please begin your meeting.

Thank you. Good morning. Thank you, everyone. Thank you for calling in, and we're going to try to have the same procedure as before, meaning that Hans and I will go through some slides to trying to summarize the year and afterwards, we're going to have the Q&A. And we will try to finish at latest by 12 because we have another assignment here shortly after. So we won't drag too much in our presentation. So we will allow for questions, and hopefully, good answers after that. Well, to summarize 2021, I mean, you've written the report and we call it another stable year. And of course, that's an average summary because the first 3 quarters were certainly very strong. And then the fourth quarter, of course, was really dampened by the difficulties we've had with deliveries and with shortages of material components from our subsuppliers. But nevertheless, we can very clearly see that sustainability is here to stay and that's, of course, driving a very, very important driver for the demand. And also the COVID-19, we had some months there during 2020 in the beginning of the second quarter, where we were suffering. Other than that, demand came back. And it's also been quite clear that pandemic has focused the customers' behavior more in the direction of the home refurbishment. This has also been a favor to us. But that, of course, material and component shortages, we've talked so much about that. I don't have to mention that. They're not alone, but nevertheless, noticing the demand, it's very frustrating to have that shortage. And looking at our target, when we passed the SEK 20 billion mark in '18, then we said, now, we're going to go for the SEK 40 billion. And we sense now that we are past half that distance, and now we are going for the SEK 40 billion. And I think that's pretty much in summary the atmosphere in here. And if you look at the growth, of course, it's has been a steady healthy growth. When we talk about the 13.6%, out of which the organic growth was 11.8%. And that is despite the fact that the Swedish currency has been not in the last quarter, but during the whole year, of course, it's been working against us. And the result is up, operating result in krona, and also the operating margin. And that is, of course, due to strong growth, and we've been able to handle the fixed cost in a good way and also some productivity improvements. But of course, that's not at a level where we would like it to be, again, because of shortages and disruptions in the production. We have completed 2 acquisitions, and that's been done practically without visiting those companies and doing more by teams and e-mail and that's a little bit strange. But we see now that the world is opening up, and it looks fairly prosperous when it comes to potential acquisitions. Just looking at the actual figures, you see them both the quarter and the full year. Of course, we are pleased that we passed the SEK 30 billion because that's always a milestone. And the margin already mentioned. Of course, we see here when we come to the growth that full year is 13.6%, but the last quarter is only 9%. So of course, we've been affected pretty much during the fourth quarter growth-wise. And also, as you can see on the gross margin side, for the full year, we pretty much keep our gross margin from the previous year. But in the fourth quarter, where the price increases are really hitting us and shortages are hitting us that is a pretty bad cocktail for us, and we were able to come up with an operating profit that's roughly the same as last year, but you can also see that the operating margin although for the full year, it's up more than a percentage unit from 13% to 14%, for the quarter, it is really down with a little bit more than a percentage unit. Still a decent high for our level of the operating margin. But of course, we never like to see it's going down. And the 2 coming illustrations here in the bar charts -- they -- when it comes to sales, we don't notice that much of a change from before because we have the third and the fourth quarter as the strongest quarters when it comes to revenue. So we don't see that much of change there. But when we switch over to the profit of the financial items, of course, we see that the final bar there, the Q4 bar is shorter than Q3 or slightly shorter. And that's, of course, an illustration that is not as it should be. And if we walk into the business areas, I mean, Climate Solutions, they've been really working hard. And of course, the organic growth is substantial. And again, good control of the fixed cost, and that's why the operating margin has never been higher than that. But at the same time, that's the business area that's been hit the hardest by the shortages of components. And that doesn't mean that we have slackened when it comes to R&D. We've been very, very aggressive. And during the year, we launched 3 new categories of heat pump exhaust there with propane and air to water with propane and then the ground source with another -- another refrigerant with its relatively low GWP. And for those of you interested in our products, you are most welcome to the exhibition in Stockholm here in April, where you're going to see all 3 new generations of our heat pumps. And of course, as much as we are frustrated by the shortage of components, we are very much convinced that the demand is going to continue. And that's why we are in the middle of a very ambitious investment program, particularly here in [ NIBE ], we produce heat pumps with a new visit the center, a completely new factory for heat pumps and also new innovation center. And also on the Element side, in Sosdala, we are really expanding due to the electrification. We feel that, that is really coming about and also a number of other factors are being expanded or being built elsewhere in Europe and North America. We're also launching or just in the midst of starting the erection of new building in Germany with our heat pump factory down there. So if we just have a quick look at the Climate Solutions, we're past SEK 20 billion. It could have been much more, of course, had things been more cooperative. Now we had a growth of 12.2% and the operating margin is up like trending, and it could have been much better, of course. And I guess I forgot to mention that perhaps during the fourth quarter for the Group because it's a bleak improvement in operating profit. should, of course, be much more percentage-wise, when you grow 10%, you should grow more than 10% the operating margin. Otherwise, there's no sense of growing. Nevertheless, Climate Solutions, they have never been higher than 16.1% on the operating margin. So despite the fact that we've had our issues, we are up on a relatively healthy margin as far as the operating side. Swinging over to NIBE Element. We see that, of course, Element was hit a little bit harder during the beginning of the pandemic. So their figures are now very positive when they're coming back, and we also see that the electrification or the -- and should I say, the sustainability profile is really helping us or are helping us and also the semiconductor industry, that really continues to develop and prosper there beside. All market segments are growing. But particularly when it comes to sustainability and semiconductors, of course, it's almost ironic that the semiconductor industry is booming. And still, most of industries can't get their wafers, but it's just a matter of time as we judge it because it's a tremendous investment program. And we are, of course, delivering to the machine producers to those [ gigantic factors ]. But also here, we have had a shortage in naturally our components, but not to the extent like Climate Solutions. And it's very pleasing to see now that Element is taking a very important step back to a margin that is about 10%. That's been a struggle, as we all know, for many, many years. And so 4 years ago, we were up there and then 2020, we saw with some sadness that we were under 10%, but now we are above again with a 10.4%. And as a subsupplier in a very, very competitive environment, we're very pleased to note that improvement. And then Stoves. It's been a remarkable year also for the Stoves. And whereas we see very clear seasonal patterns typically with Stoves. The last year, we didn't really see any of that pattern. It was like every quarter is very good. And that is, of course, a little bit strange. And perhaps it is due to the pandemic where people are trying to refurbish their home, but they were trying to refurbish a home even during Q2 and beginning of Q3. And of course, here, we also had shortages of material and delivery problems. But again, not to the extent like Climate Solutions. But it has dampened the capacity, particularly during the fourth quarter. We also spend quite a bit of money on R&D, trying to improve even further the combustion or the wood. And their margin also went up from, I shouldn't say, bleak 2020, where we're just above 10%. And it's now it's solidly part around the 13.5%. And that is, of course, a reflection of the growth of 18% or a bit better than 18% and it's even more, of course, if we didn't have that negative currency effect. And it also has resulted in an improvement in result of some 52%, 53%, which is remarkable. So when we wrote the report, we're sitting here in a very -- I mean we're all streetfighters. We all like to be better in every quarter, and we all like to say, well, now we are there, we like to grow. And then, of course, see that we were hindered to the extent and then we brought out this picture and so well, we haven't been so bad after all. I mean we grew, we've been growing since '93, practically without exception but for 2007, just during the pre-Lehman Brothers era. And we haven't quite been able to live up to the 20%, but we are smelling close like 17.9%. And of course, '93, we were announced on the 10% margin. So that means that the growth since then has been just south of 22%. But that gives us comfort when we talk about the SEK 40 billion, so nothing really in the graph here would indicate that that's not possible. On the contrary, it's very much, should I say enhancing the philosophy that we have just a few years before we hit the SEK 40 billion mark. Just a few -- a couple of pie charts before we let Hans continue here. And it's regarding the distribution of sales. And we can say that Europe has been the driving part here, particularly on the sustainability side, where the Nordics fairly stable, and North America has contracted some percentage-wise in this graph compared to full. And here, we have a typo, we apologize for that. But here, we talk about distribution of Group sales. And that's pretty much stable as before, Climate Solutions around 64%, 65%, Element 26% in this graph and Stoves 10%. But then, of course, due to Climate Solutions higher margin on the last pie chart, there you see that the Climate Solutions is representing 72% and NIBE Element some 19% and Stoves 9%. So if we look at it over time, it's pretty much a distribution that we've had. All right. That was the first 15 minutes on, so now you have 14.

No, that's fine. I'll try to keep it short allowing for questions. Just before I jump into the individual business areas, I'd just like to highlight that in the report for the fourth quarter, we have an operating income that is twice as high as the one from last year, but that's simply due to currency exchange rate effect, you can say. The Swedish krona has lost quite a lot in value during the last quarter, and that's where that portion ends in the income statement. So the majority of that amount comes from that. Then if we jump into Climate Solutions, just like Eric said here, it's actually a record year, both in terms of sales, profit and margin in absolute values as well as in percentage. And this despite challenges, both with some headwind on currency, but foremost on the supply chain side. Organic sales, they grew with more than 12%, including then a negative currency effect, which has been driven very much by the increasing demand for sustainable solutions. And although Mainland Europe in combination with the Nordics make up the strong portion of the growth, the movements in North America are also moving in the right direction with the Paris Treaty agreement being signed again and also the Clean Energy Act. So the full year, as you saw, I mean, we came in at SEK 3.2 billion in operating profit growth in that of some 20% when sales gained 12%. So quite pleasing to see landing in the margin there on a record of 16.1%. In the fourth quarter, we grew with some 9%, but unfortunately, the profit level did not grow at all that much. It's basically on the same level. And that's very much related to the supply chain issues that we've had, not only having difficulties getting the product, but also paying a phenomenal price for the ones that we have been buying. So that's why the gross margin there has come down about a percentage unit. So that's been the challenge. And that's why this record year could have been even more of a record year, you can say. In terms of distribution of sales, the picture is very similar to the year before. But just like Eric said, North America has lost a little bit because of the growth that we've seen in Europe. So really, it's Mainland Europe. That's up a couple of percentage units now when heat pumps especially are becoming more and more asked for in various European countries. The next slide shows the operating margin ever since we made the IPO and it's, of course, a very strong and stable legacy that we can show for Climate Solutions, being above 10% from the year '99 and where we now are hovering around 15% and even 16% mark. And we've been able to keep this level and improve it despite the strong growth and also acquiring companies and bringing them on board and integrating them. Heading on to Element. Element has seen a very strong growth across the board and especially in HVAC and semiconductor and the so-called post-COVID recovery, I guess, you can call it, is reflected very much in this business area. We are present with our products in so many segments and in so many geographies and the strong demand that's been in these areas are reflected very much in Element. So for the full year, we grew with almost 16%, and again, including a negative currency effect, which is not negligible and an improvement in gross margin. And then the growth in operating margin of almost 33%, bringing the margin up above the 10%, where we have strived to be for quite some time. But it's not been without challenges, of course, because also here, we've seen supply chain challenges and even had some factory closures or partially so due to COVID in Asia, where people have not had the same vaccination rate as we've had in the Western part of the world. But despite that, the sales grew by some 14% in the fourth quarter, and the profit was up with 18%. So also that quarter came in at above 10%, which was very pleasing to see. And reflecting then the way we are represented throughout the world, you see the distribution of sales. This is our most global business area, and there are no big changes here in terms of geographical split of sales. Looking at the same graph here for the development of the operating margin since our IPO, we've been on a constant upward trend since 2005, you can say, where we took a restructuring expense to make some changes. So with a very determined working path here on building and consolidating a business within a broad range of heating elements. We've now managed to become a Tier 1, Tier 2 supplier and break through the 10% operating margin level where we, of course, intend to stay. NIBE Stoves has performed almost exceptionally well during the pandemic. The business area was strongly hit in the second quarter of last year -- or well, 2020, I mean we're talking about '21 now, when the pandemic really hit. But then we covered strongly and which then has continued very nicely ever since and which is a pattern we're not quite used to be seen. It's usually the second half of the year, that is the strongest. But due to this good performance, we have been able to reach slightly above SEK 3 billion in sales, we're up some 18% in sales year-over-year and the profit increased by more than 50%, also with a good improvement in gross margin. But also here, even in this segment, there have also been supply chain issues, which have dampened the development in Q4, where we actually saw a slight decline in growth. But then Q4 of last year was also very, very strong. So the comparables were a bit tough. But we were able to keep the gross margin, but they'd not quite land in the operating margin where we wanted to be, some 1.5 units below, but as Eric said and which we've said in previous calls, we also keep a good spend on R&D projects within this area to bring out the next generation of stoves to meet the environmental needs, so to speak, that are out there. Distribution of sales here is very similar to before. We're very strong in Europe. It's Mainland Europe that is half of the sales are there, then slightly above a quarter in the Nordics and then with a good foothold in North America. And this is the business area where we have always been able to be above 10% in operating margin since the IPO, even though it was a very close call in 2019 just before the pandemic hit and when the world was talking about a possible recession. So it's been a very stable area for us. And talking about stability and if we move into the balance sheet, it is a very stable balance sheet. And the development we've seen there during the year is a natural development of our growth, you can say. The one item possibly sticking out is that we've been building inventory now during the year to try to cope with the supply chain issues. Otherwise, equity has grown very strongly, and then we will come to some key figures later showing the equity to asset ratio. But this building of inventory has, of course, had an effect on the cash flow. We've generated some SEK 600 million more of cash flow this year compared to last. But most of that or more -- much more than that has been consumed in the change in working capital. Now we came from a very, very low level last year where we sold out basically everything we had. And like I said, we've been trying to build some inventory here to be able to deliver. But of course, it has an effect on the cash flow. And then we'll continue to invest in our current operations. Eric mentioned some of the projects that we have, which are quite necessary to meet the demand going forward. So all in all, the change in liquid assets was just below 0, you can say. But in terms of financial figures, it is a very stable picture that we show. I mean, the interest-bearing liabilities to equity are well below 50%. The net debt to EBITDA is actually below 1, if you would use the decimals and the equity assets ratio is around 50%. So we're well equipped, I would say, for future growth through acquisitions. The next slide is on the working capital. I mean, it landed in at 17.4%, excluding cash and bank, up from the 12.9%. And I would rather say that maybe some around 15% is a more sustainable level, 15%, 16%, somewhere around there. And then some last key financial figures. Return on equity has possibly been the key figure where we have not met the expectations or our own goals for that matter, either of 20%. But we're up now to 17.2%, up from the 14.5% last year and clearly moving in the right direction. And return on capital employed has also improved. The closing share price is there, of course, which we typically don't comment upon. But where we stand today is still up from where we were about a year ago. And then just 2 more slides very quickly here before we open up for the Q&A. The next slide here shows it's really summing up not only 2021, but also our financial performance ever since the IPO in '97, where the equity has been well above the targeted 30% for quite some time. And now as I've mentioned before, is basically 50%. But whereas the return on equity has -- ever since the acquisition of the Schulthess Group in 2011 been below. But it was also an acquisition that we paid with shares. And after that, we made a rights submission. And you can really see how equity and -- yes, equity and the return on equity, they correlate very much. I mean it's communicating vessels. When the equity assets ratio was down to close to 30%, we had a very high return on equity. And then when equity has been higher, the return on equity has been a bit lower. But the margins have been constantly improving, I would say, since more than 10 years, stepping up slowly but very steadily, giving us the position that we have today. And the last picture is really to substantiate the growth target that we have of reaching the SEK 40 billion, which Eric mentioned which we launched in 2018 coming from a turnover of SEK 20 billion and saying we're going to double to SEK 40 billion can, of course, sound very ambitious and almost braggish, but if we look at our history and the way we have been able to grow for many, many years, we have, as a matter of fact, been able to double in sales roughly every fourth year. And we have said that we would allow ourselves a couple of more years if times will become very tough. But the performance right now gives us confidence that we are well positioned to meet the SEK 40 billion, and by that, unless you have something to add and complement Eric...

I think we open up for questions now. Thank you. That was very perfect. Another 15 minutes, okay?

[Operator Instructions] Our first question comes from the line of Carl Ragnerstam from Nordea.

It's Carl here from Nordea. A few questions from my side. Firstly, on the component issues, which you sort of guide could ease from Q2 and onwards. So have you seen a slightly better situation already? Or do you base it on the fact that you hear from your suppliers? And also, I think you've tried to use different components, new suppliers et cetera. Is it giving results or maybe it takes a bit of time to change components et cetera?

The first issue, I mean, that's correct. We hear from our suppliers and a number of them that will improve from Q2 and onwards. And that's what we dare to state here because it's not only one supplier. We just hope that is true. I mean there's no scientific answer, but we don't get the picture that it's going to go on forever. So that's a correct understanding. And as far as changing components, I mean, it's one thing to change steel or steel supplier. But I mean, components they are tested, let's say, in a heat pump, in a refrigerant circuit. You can't really do that very quickly. So there are some components you can change, but not the very vital ones, it takes a long, long time to do that. And that's one of the difficult situation we are in that there's some very vital parts that we have shortages of and it's not easy to find a new supplier and even if it would find a new supplier, of course, we have to test that. We can't just put it in. And I think that would be even worse if we now make shortcuts putting in components without testing process because then we could run into quality issues. And it is the last thing we would like to see as a result of this. All right?

Yes. Perfect. Very helpful. Also, on the order growth, you said that you see an unprecedented demand situation at least. Is it possible to put it in numbers so we could get more flavor and a better picture on the sort of the organic growth pace when component issues ease.

Well, I mean, that I understand your question, but we don't go out for to quantify that. It is just that we know is just like if you look at the hybrid or the electric vehicle situation. I mean that's a very I dare to say, at least from my perspective, very surprising that things are catching on that quickly. And we see it's not the same pattern percentage-wise exactly. Obviously, the same pattern people are understanding that something is happening and they like to change. And that is, of course, also should I say, assisted by governments and authorities willingness to support that. So that's a remarkable should I say order impact. We don't typically talk about that because we have very short delivery times, of course, it kept pumping in. And that's an illustration to us that customers out there, they like to change. So it's not that we are [ tight dreaming ] or saying something just for the sake of it in report. It is very substantial. But at the same time, the stats side is, of course, we also have delayed orders to an extent that we haven't done before. So that's only positive. Okay?

And the final one from my side is you mentioned that you've had raw material headwinds during Q4 that you implemented price increases throughout the quarter. Should we expect them to start materializing in Q1, Q2? Or will it take time for it to sort of work through your backlog?

Well, no, I think that we will see improvement there. But again, it's not a fixed target. The price increase, they continue. It's not like, of course, we are catering for price increases that hit us until a certain point, then you have to give notice for your customers. But then sales price increases, considerable ones, quite considerable ones are coming up in some supplies also this year. So it's very difficult to say, well, now we are ahead of something. We've always got to lag a little bit because when we get a price increase, of course, weeks or sometimes months before we can implement them. So it's more a time lag than a difficulty of implementing of course. I mean we are no bank. So we had to put forward the price increase when they hit us of which we cannot absorb productivity wise and being more effective, which we always try to do, we don't try to be just an echo of our subsupplier but also try to improve our sales. But now of course, the price increases that the market is hit by not only us, but in general, no one can absorb that by productivity and there's always going to be a lag in our performance. But of course, we are very eagerly working on trying to improve our prices every month. Okay?

Perfect. Very helpful.

Our next question comes from the line of Douglas Lindahl from DNB Markets.

I have a few. I prefer to take them one by one. I hope that's okay with you. My first question is for Hans. Just a clarification on the other operating income in the quarter. You already touched upon it. But is the entire SEK 220 million coming from FX gains? Or is there anything else in there? And I guess you would -- going forward, I guess, you would expect that number to come down to historical levels. So how should we think about that? That's my first question.

Yes. The vast majority of that line item, you can say is currency effects, especially in relation to the Swedish Krona. Then, of course, if we would have some one-off things like a gain of sale of an asset that would also land in there. But the majority and continuous number that lands in there is currency in transaction.

Okay. And in this quarter, were there any gains from sale of assets?

A very small portion, but really negligible.

Okay. And my second question is on the Pacific Energy, the acquisition within stoves, which at least to me have been flying a bit under the radar, but it seems that you have intentions to go through with that and acquire the residual or additional 40% of the company. When -- can you give some sort of timing on when you expect to consolidate this?

Well, we -- I mean during the first half of the year.

During H1. Okay.

Yes.

And on the topic of M&A within stoves, you've done a few now or including Pacific Energy. Do you expect to continue to do acquisitions here? And can you maybe comment on the M&A pipeline within Climate Solutions as well?

No. As we said, the -- we've been hindered by the pandemic, no question. We carried out a few in 2020, as you remember, but they were sort of instigated or started the processes have started during '19 and even some of them in '18. Sometimes it's not just a matter of the quarter. And then we were able to materialize [ all others ] and a few others there independently. But now of course, we have to work out a order book commoditization again. And during the last quarters of course, we've seen quite a bit of an interest in selling or companies coming to the market. So we take that as a good sign. And we -- as Han mentioned, we are certainly ready within all 3 business areas. I mean, financially we are strong, adds too much money in a way. And that's also a danger if you would try to spend too much just because we have money we're going to be as courses as you've always been when it comes to using our money. But I think that we also know is over the years that we are always -- almost without exception contacted when interest in companies are coming to the market, which we take as a pleasing attitude that we are out there and we are being appreciated as a potential owner. So having the financial means and also being recognized among sellers, it's a strong sign that currently acquisition speed will increase actually within all the 3 areas.

Okay. So the M&A pipeline within all 3 business areas is growing basically -- and no sort of strategic decision to do M&A within Stoves specifically. what's the logic behind doing acquisitions in those generally you choose?

No, no, no. I think that the target for the SEK 40 billion, there we have a very, should I say, relatively detailed shipping out train, how to ride there. So if we ever would decide to do anything contrary to what we said in our target, we would tell the market.

And you already commented a bit on it,, but on pricing, is it possible to give some sort of indication on what price hike levels you are implementing currently? Is it mid-single digit, high single digit? Or do you want to give some sort of indication on that?

I guess you can call our wholesale, they would indicate, of course, that we don't increase with double-digit figures, but it's in the mid you can just call our customers. And I'm sure they will give you details on that, but I'm giving that...

Our next question comes from the line of Pam Liu from Morgan Stanley.

I have 3 questions, please. Number one is on production capacity for heat pumps. So could you please comment on the current capacity utilization rate? And for the expansion that is currently underway in Markaryd, what is the percentage capacity increase that will be achieved by completion? And when will that be? And then for the capacity expansion you are planning to do in Poland and Germany, are these both for heat pumps and roughly when will we expect them to come upon running? The #2 question is on regional explosion and M&A. So I think North America still looks a bit weaker compared to the Nordic and Europe in Climate Solutions. So could you please again talk about what are the improvement measures you are taking over there? Or if I may, would you ever consider potentially divest North America and double down in Europe, perhaps with acquisitions because the European market is growing very strongly and that I believe there are still markets over here that you could potentially strengthen your presence with M&A? And my final question is purely accounting. I believe at some point in 2022, there could be a deconsolidation of the washing machine businesses out of Climate Solutions. I'm just wondering whether we are still expecting that in 2022?

Very rapid questions. You're very efficient. I think we should speak faster as well. When it comes to production capacity, there's no lateral capacity at the moment and for the immediate future. I mean our facilities can be used even further. There have been some issues rather on the raw material side, as I said before. And if there are shortages of operators, that you can hire on a permanent basis, then we have a fairly well-established system now where you can rent people, if I call it or where you have those companies where you have them on a temporary basis. So I think that combined, if we could get components and material, we can increase capacity substantially. Of course, when you build a new factory, then you don't think about increasing capacity with some 20%, then you typically take a bolder step. I say that anyone increasing capacity, at least looks at a 50% increase in capacity with the possibility of also extending that investment possible to arrive at 100%. But we also have to be modest enough that now everything looks very prosperous. But I think that's our thinking. When we take a step forward, typically increase with at least 50%, but also having a chance of continuing the expansion relatively easy if the demand would continue to be stronger than anticipated. I think that's the thinking behind that in Germany is just the same thinking and it's a heat pump factory going up with the finance in the tech there. So the second question, whether we would abandon North America, I don't understand really understood the question whether we would pull out of North America. And I think that will be totally insane to do that. The fact that -- they are not walking for use of having the same pace at the moment, doesn't mean that North America won't go sustainable. I think that once they decide, they go very fast typically. So I think it's taking -- if you look at it, we think that Europe has been dragging their feet for a long time. Just recently that Europe has really woken up, you can say, and I would not criticize deals at all have now occurs due to the Paris treaty that we always sort of blessed here in Europe, politicians understand that to fulfill that, you have to do something quite different on what you've done before. And I guess that's what we see. And as far as divesting of Schulthess, it looks like that will materialize. We have no other signs on that. But we're going to come back, of course, with very precise date for that. But as you correctly say, that's the first chance, [ the Helvetica ] has a chance to take over the majority. And the performance of the company is still very solid. So we have no reason to believe that, that will not be materialized. Okay?

Okay. That's very helpful. Just to come back to my first question, I think, could you -- I know you talked about the potential magnitude of capacity expansion, but what about the time line? So when do we expect to see these capacities already been put into production?

Well, I don't know whether we like to disclose that, but of course, the factory has to be erected, and our factory is typically erected in 4 quarters to 5 quarters, then it has to be filled with equipment and stuff like that. I guess that's as far as going to be going to go because I think here we're getting also into a competitive information that we like to have a little bit of closer to our share.

Our next question comes from the line of Karl Bokvist from ABG Sundal Collier.

I just wanted to follow up on the prior question, my line is a bit at fault here. But when it comes to production capacity and CapEx, I think over the past few years, you've had an investment pace in relation to revenue a bit above 4%. Should we assume that it's kind of a normal investment pace as part of the business going forward or that we should expect a bit of a -- perhaps a higher investment pace in relation to revenue or something like that?

Well, I mean, we typically talk about in relation to depreciation. And of course, we will be above that. We've been suggesting that for a longer time and last year, we were -- was at SEK 100 million over. And I think that when you reg that many buildings, almost parallel like the innovation center and the business center, new -- a complete new factory at Markaryd, a new factory in Germany. And we have also in Poland and Czech Republic, doing also major investments in North America. That will be the, of course, more investments per year for the coming 2 years to 3 years. So not that we're going to run out of money. But we feel it's appropriate to do that now. We feel very certain that the market is there. Of course, there are going to be hiccups. We don't know politically what's going to happen in Europe. But those are things that we just have to counteract. We cannot do -- we think that the timing is proper right now or is ideal to do the investments because we are certain that Europe cannot go back when it comes to sustainability. And North America is also very prosperous coming back. The problem over there is the low unemployment rate. There's no question that both Europe and North America are also bringing back production from Asia, and that is, again, enhancing the demand for own capacity here. We never believe in outsourcing, as you know. And I think that in that sense, our foreboding has been correct. And a lot of companies now struggling with their supply chain, and we believe that the fact that the state remain where we were, although, of course, we have invested also to some point in Asia, we never gave up the idea of producing in North America and Europe. And we see they're going to be both a supply chain merit, but also going to be a, should I say, an issue that's important for the consumer being more comfortable with the fact that things are produced closer to where they're going to be used. So there's also a sustainability profile of our company.

Understood. And then just 2 questions on whether or not do you see any variations by region when it comes to the supply chain dynamics, a big ever direction whether or not there is a region in particular that stands out on the challenging side and a region that has fared a bit better perhaps mainly if we talk about Climate Solutions. I understand Element has a bit more related to Asia, for example.

Should we say I think that we can't really say that the idea, as you know, is that for the situation, of course, the wafers or semiconductors is not only our own control boards and stuff like that. But practically, all advanced components that we use, let's talk about a circulation pump. I mean, they also need controls because they are not like in the old days with a altering current, now they are direct current, which means that they have to be monitored in terms of different way. So everyone is affected by that. And we also know that when economy is coming back, there is a -- in many countries, a lack of labor force. I don't see any country that is free from that. All countries that we are here, people are concerned about the labor force, even if you go to countries like in the Eastern Europe, like were so popular 15, 20 years ago. Now they don't have the adequate number of employees. So they bring them in from even further east. So I think that the shortage of people is another issue that is hitting all countries that of course, leads perhaps to a little bit more inflation. I mean we are no economists in that sense. But in the long run, we believe that you can't use waves, you have to pay people decently, and they have to be very loyal to the company because otherwise, every one that there is any quality, it is a quality product, perhaps I sound like a labor union leader, but we believe that to be truly sustainable, you cannot abuse people's ability to possibility to make money, they have to provide for their families. So that took me on a long route and [ wrap back away ] from your question. No country is better or worse. I think we are in the same boat as we can judge it. We have problem with components and material and there's also a shortage of people working in the factories. And that is also without almost exception. And that perhaps the U.S. would be hit the hardest because they are down now on unemployment rate or some less than 4%. Perhaps that I don't have that many people on for or that many people out in the workforce like we have in Europe, but that is, of course, a major concern not only to producing companies, but politicians, where we're going to land as far as inflation is concerned. It was a long answer Karl, but you led me astray with that.

All right. Hopefully, my final one is -- can be -- is a bit more brief, but I understand you don't disclose margins by -- on this level, but the demand from semiconductors within Element, would it be fair to assume that by growing quite nicely in this segment. It has also been quite a positive contributor to why margins are up year-over-year?

Yes. It's, of course, in a segment that's growing and advanced segment that's growing provides a better margin. So that is correct. I would like to mention that it's tremendously better. But of course, it's a very advanced sector where quality deliver performance and also engineering abilities are very much appreciated. So that is a better margin segment. Correct.

Our next question comes from the line of Phil Buller from Berenberg.

On the topic of M&A, it makes a lot of sense that the acquisition profile has slowed a bit, I guess, given the pandemic, and it's obviously very good to hear that you're being sensible with deploying capital and not playing city multiples. But how should we think about the importance of this returns metric over your revenue target as I guess a lot of these assets, arguably including your own shares are expensive, but arguably still seen as good value. So I guess I'm asking if this portion around pricing of assets might come with a greater cost, perhaps from a technology standpoint. I am wondering if you feel like you could lose ground competitively by being more cautious to protect returns and perhaps we might just need to swallow some activity rich M&A to prevent peers from gaining ground.

How do we answer that question? Of course, we understand that we are not alone in the world. Of course, we have to be modern I say. But we also see how quickly things can change. And I don't think that we would be very happy paying a phenomenal price or phenomenal multiple. Perhaps we have to move a little bit from what we've been used to. But I think it's important that we don't change our DNA setup. The way we work must continue. That's the way we've been fostered and trained. And we understand the world but also now when possible interest rates are going up. I mean that we don't really know how they're going to affect a lot of industries in general. We did almost tranquilize by low interest, doesn't take much interesting increase to make it squeaking a little bit. And we don't like to be in a situation where we are concerned or worried about something that we acquired. So we understand that some companies might be a little bit more expensive, but then also has to be high-quality companies, and you should never buy anything that it's very peak. But history tells a lot if the history suggests that they are very, very solid, of course, it's a premium for that. All right?

Yes. And just last one quickly for me on pricing. Has there been any evidence from your sales channels at all in terms of demand destruction from all the price ups? I appreciate the backlog has painted a very different picture and imply very good demand. But that also feels a little at odds with the typical rules of thumb regarding price elasticity. And that's not unique to you guys. Everyone in the industry and in many sectors are increasing price dramatically, but that doesn't appear to as yet be any suggestion that things may slow down as a result of it. So it's difficult to get an understanding of the underlying demand environment. I guess, I was wondering if there was any anecdotal feedback from the ground in terms of volume impacts from the rising in price?

No. We don't have that impact. But your question is very valid. Of course, one day, I mean, if everything just continues to go up, either demand will slacken or there'll be higher salaries because someone has to pay for if it's a truck, a car or a heat pump or whatever it is. And so -- but we don't have that indication now. But your question is very legitimate. Okay?

Our final question comes from the line of Gustav Osterberg from Carnegie.

I think I've been in the queue for a while, and I've had sort of similar questions to the last speaker here. So no further questions from me, and thank you very much for presenting today.

All right. That was very quick. We were able to answer or...

Yes. Or we exhausted the folks out there. So thank you very much. I hope we haven't had too much hide and seek, some, of course, questions we couldn't ask -- we can answer them. But for tactical reasons, I guess we are a little bit more, let's say, protective to our own company here. All right. So the hour is gone. We appreciate everything and now we revert to new tasks. Have a nice day out there. Bye-bye.

Thank you.