CEO and MD of NIBE Industrier (publ), Gerteric Lindquist, comments on the first half of 2024

First half marked by major adjustments

The action plan is being implemented in response to a large destocking in the distribution chain, persistently high interest rates and historically low housing production. At the same time, we expect a gradual improvement in demand in all three business sectors in the second half of the year.

The Group’s revenue decreased by 16.8% during the period (compared to a growth of 27.6% in the previous year), of which the organic decrease was 22.3% (compared to an organic growth of 22.1% in the previous year). Operating profit adjusted for items affecting comparability decreased by 67.1% during the period compared to the corresponding period in the previous year, and the operating margin decreased from 15.3% to 6.1%. Adjusted profit after net financial items decreased by 82.7%, while the profit margin decreased to 3.0% (14.3%).

Towards more acceptable inventory levels
As at the beginning of the first half of the year, the remainder of the period was also characterised by distributors’ efforts in the distribution chains to reduce their inventory levels, particularly for heat pumps and stoves. This means that order intake at manufacturers remained weak and did not reflect the number of products actually installed by consumers. However, we believe that the inventory adjustments in the distribution chain, which have been ongoing for more than nine months, have now largely been completed in the vast majority of markets. This in turn should mean that manufacturers’ production volumes will better reflect actual consumer demand in the future. However, the German distribution channels are an exception and are expected to need another quarter or two to reach acceptable levels.

Background is known
The steep and rapid increase in interest rates in late 2022 and throughout 2023, particularly in Europe and North America, has had a significant dampening effect on consumers, while new residential and commercial real estate production has slowed considerably. This has had a particularly negative impact on demand for heat pumps and stoves. Some central banks have cut their key interest rates in early summer and the general consensus is that Sweden as well as the rest of Europe and North America are now facing a series of relatively rapid rate cuts. It is reasonable to assume that this will have a positive effect by stimulating general willingness to consume and interest in investing in new real estate production.

Crucial for achieving climate goals
The phase-out of fossil fuels is still too slow to meet the globally agreed climate goals. One of the biggest obstacles in the transition is the lack of political clarity on transition subsidies for the installation of heat pumps and the disproportionately large price difference in several countries between fossil fuels and electricity in terms of price per kilowatt hour.

Positive outlook for semiconductors
The semiconductor industry, which has suffered a major setback, mainly due to US trade sanctions against China, is now seeing some signs of improvement. Several new semiconductor factories are being built, mainly in the US, but also in Europe. This is expected to have a positive effect on equipment manufacturers and their suppliers by the end of the current year.

Our general view
In summary, we estimate that demand from manufacturers has largely bottomed out in the first half of the year and will gradually improve in the second half.

Action plan launched
As previously announced, on March 18th we launched a comprehensive action plan to adapt the business to the prevailing demand. The annual savings are estimated at approximately SEK 750 million and the costs approximately SEK 1,095 million.

Business Area NIBE Climate Solutions has successfully and almost completely implemented its action plan components. The measures taken to streamline the organisation and reduce overheads in both the short and long term have already had an effect on the business operations in the second half of the period. At the same time, we are continuously launching new heat pump models based on environmentally friendly refrigerants and advanced controls to further strengthen our market position. The brand new product programme for commercial ventilation, NIBE Flow, which was developed in-house and launched in April, has been very well received in the market. With this new programme and our complete product programmes in heat pumps and district heating, we can now offer complete system solutions for climate control of commercial buildings.
The stability of the US heat pump market is completely different from the European market. However, here too there is a slight decrease in the number of installations in the single-family segment due to the high interest rates in the first half of the year.
The business area’s ambitious investment program is almost complete, except for some machinery that has been postponed in anticipation of increasing demand.
The sharp and rapid decline in sales in the first half of the year resulted in a significant decline in both operating profit and operating margin. The ongoing action plan, combined with a recovery in demand in Europe in the second half of the year, will enable us to gradually improve operating profit. Our clear ambition is to return to an operating margin level within the historical range of the business area by 2025.
Business area NIBE Element, like NIBE Climate Solutions, is approaching the completion of its action plan. While the market for products for the heat pump segment has experienced a sharp decline, as have products for the rest of the building sector, we see that the electrification of vehicles, together with the rail market, is creating new opportunities for growth. There are also positive signals from the semiconductor industry, which expects an upturn already in the second half of the year. In addition, the wind energy sector expects a recovery in 2025 after a few weak years.
The action plan, combined with increased sales, will gradually improve the operating margin in the second half of the year. Despite some cyclical slowdown in the business area’s sales as a component manufacturer for production customers, our clear ambition is to return to an operating margin level within the historical range of the business area by 2025.

Commercial space NIBE Element is, like NIBE Climate Solutions, almost ready with its action plan. While the market for products for the heat pump segment has experienced a sharp decline, as have products for the rest of the building sector, we see that the electrification of vehicles, together with the rail market, is creating new opportunities for growth. There are also positive signals from the semiconductor industry, which expects a recovery already in the second half of the year. In addition, the wind energy sector expects a recovery in 2025 after a few weak years.
The action plan, combined with increased sales, will gradually improve the operating margin in the second half of the year. Despite some cyclical slowdown in the business area sales as a component manufacturer for manufacturing customers, our clear ambition is to return to an operating margin level within the historical range of the business area by 2025.

Business area NIBE Stoveslike the other two business areas, is in the final phase of implementing the action plan described earlier. As in the case of previous statements, product development and the associated marketing initiatives are exempt from cost-saving measures. A concrete example is the launch of the Contura Zero Emission stove, a groundbreaking innovation that almost completely reduces particle emissions from wood combustion in the stove. The product will be launched on the market to end consumers in autumn 2024.
The action plan includes NIBE Stoves in Europe. A similar action plan was implemented in the North American businesses the previous year to adapt their operations to lower sales volumes.
The decline in turnover has reduced both the operating profit and the operating margin, but with the implemented measures the aim is to gradually improve these already in the second half of this year. Our clear ambition is to return to an operating margin level within the historical range of the business area in 2025.

Investments for the future

The Group’s total investments in the first half of the year amounted to SEK 1,263 million, compared with SEK 2,144 million in the previous year. Of the investments, SEK 29 (726) million related to acquisitions of businesses, meaning that SEK 1,234 (1,382) million consisted of investments in existing businesses. Excluding leases, the depreciation rate was SEK 749 million, compared with SEK 579 million in the corresponding period in the previous year.
Of the SEK 10 billion investment programme decided in 2020, the majority, or just over SEK 8.5 billion, has now been completed. The remaining investments in buildings will be completed in 2024/2025, while further investments in capacity expansion have been postponed in anticipation of an increase in demand.

Markaryd, Sweden, August 16, 2024

Gertjan Lindquist
General Manager and CEO

For questions, please contact:
Fredrik Erlandsson Head of Corporate Communication and Investor relations +46 70 486 63 90
Hans Backman, Financial Director; +46 433-27 30 00