Beijer Ref AB (publ)

STO:BEIJ B

Earnings Call Transcript 2022-Q1

[Operator]

Hello, and welcome to the Beijer audiocast with teleconference Q1 2022. [Operator Instructions] Just to remind you, this conference call is being recorded.

Today, I'm pleased to present CEO, Christopher Norbye; and CFO, Ulf Berghult. Yes speakers, Please go ahead.

[Christopher Norbye, executive]

Hello. Welcome, everyone. Christopher together with Ulf. So I would like to present our Q1 numbers and results. So I think we can get started right away, and then we'll finish off with some Q&A. So we can move the slide forward to Slide #3. We can start just seeing -- this is our rolling 12 months up to Q1. I think most relevant. You've seen this slide every time. So we're now in 42 countries. So we continue to grow the business and entering new countries, especially through acquisitions.

But let's move into the next slide. A little bit of the highlights on Slide 4. We call it a good start to the year and a great start to the year. Sales around SEK 4.9 billion, a 31% growth. 16% organic growth. And we'll come back a little bit how that -- where it came from. Acquisition continues to be developing well, adding about 10% -- or actually 10.3% for Q1. And then a positive FX of almost 6% in the quarter.

This leads us then to an EBITA of SEK 407 million, which is a growth of 48%. So we're very happy with the leverage on the higher volume that we're getting to. And also good -- continued good development on our acquisition. And we had then record sales and also absolute EBITDA in Q1. So all in all, a good start to the year, of course, in this very uncertain times.

Cash flow, we'll come back to. This is our heavy season as we're building inventory because we're moving into Q2, Q3. That's our peak season in the European countries, which is a major market. And I think we'll also come back to this year. We have secured more inventory than normal to make sure we can cover both Q2, Q3 as it's a very complex supply chain situation out there that we'll come back to as well. And then finally, EPS growing 50%. So financial, I mean, highlights for the quarter is, I would say, extremely good.

So moving on to the next slide. Here a little bit how it came, that's the growth. We can see on the refrigeration, growing 14% with OEM growing 7%, HVAC 20%, which gives us a total of 16%. So all regions were positive. Continued to grow very fast in East Europe, also together with acquisitions we're doing in that region. HVAC grew 20%. So a strong Q1.

Here, we, of course, also see some of the patterns of some of our bigger customers buying ahead of time as well to secure that they have inventory for the high season. So it's a very good number, but I also think we should look at this a little bit in Q1 and Q2 for us.

And then we also -- as we said last year, we launched the air-to-water heat pumps for Toshiba. They opened their factory in April last year. And we can see a very strong growth coming here, but still on small levels. It's not significant for us yet. And as I said before, we'll come back to you with more guiding on this when it becomes significant for us. But it's a very good start for us, these markets.

And then OEM, we grew 7%. Here, we do have ambition to grow double digits every quarter. And we believe we'll come back to that in Q2. Our natural gas CO2-based solutions for Europe grew 17%, which is the main business here. But we did have shutdowns in our APAC region. And of course, it's summer region for them in Q1. So it did have an impact on us to reduce the number. But all in all, still a very good development.

And then we'll come back to -- the commercial and industrial cooling grew 14%. And we'll come back a little bit. I'm sure -- there are usually questions under refrigerants and how that affects our business. And then we did make 3 acquisitions, one in -- in Eastern Europe, in Croatia and Bosnia and Herzegovina, Deltron, the leading HVAC distributors in those regions. And then 2 smaller ones in Austria, where we're more buying complementary both branches and products, and we'll continue to do that throughout the year. So we are very happy with this first quarter. And as I said, it's very good to get a nice start to the year.

Then moving up a little bit on what's happening out in the world in general. We did talk about the heat pumps, and we'll continue to do that. Of course, the heat pump season, which is positive for us, is strong in Q1 and Q4, which is usually the lower season for us. So it mixes our business very well in a good way to maximize our assets as well.

Then moving into -- some of you have read, some not, but there's an EU proposal to further accelerate the step-down of using F-gases in Europe, where they want to -- it's a proposal around in EU now I believe. The indication is that the decision has been made towards the end of the year. So that would mean that they would further reduce from 30% in 2024 to 24% F-gases and then reduce the 20% in 2030 to 5%. It's a fairly steep acceleration of the F-gases. And we don't see any effect on that right now, but, of course, if this becomes a regulatory law, then we expect that, that will, of course, create even further demand on both the equipment and the refrigerants that we are very strong within.

So on that note, also, we can see that the refrigerants have a positive price trend. That's been going on in the last couple of quarters. It's not massive. I think it's 14% up versus Q1 last year and fairly stable as of Q4. And we can see this right now. The trend is that it keeps creeping up, but not at any fast paces. And that's actually the best way we think also for us. And the market still has a stable pricing here. But it is positive for us.

But maybe compared to -- as you have followed this company for years, in 2018, 2019, Beijer today is a company where the refrigerant is almost -- only 5% of our sales. It does not have a significant impact on us. But of course, it's positive, which is good for us.

So then the final point that I think is on everybody's mind and especially power, on the cost and inflation is that we do see, as last year, prices were coming up. And this year, it's discontinued. So I think we expected a calmer year on the prices, but it is going up. And I think also related to the situation and war we have in -- the horrible situation in Ukraine and Russia. You still have close downs in the harbors. You have Shanghai issues. And all in general, a very unstable situation.

But as you see our numbers in Q1, we have been able to pass it on, on a quick note to the market, and we'll continue and do this also as we move forward. So we're fairly confident on the time line we are now in price increases versus maybe where we were the last summer. So I think it continues to be an issue for all of us, but I think also, as I said before, we do have very strong market position and being able to pass this to our customers in a good way to protect our margins.

Then moving in a little bit more on the financials, summarizing it. Q1, 31% growth on sales, as I said before. And organic growth of 16%, so a very good organic growth. And I know in Q1 last year, we had 7% plus on organic growth. So I would say a very solid quarter on that level. EBITDA, 48%. A very good growth and leverage on our organic growth, improving gross margin. And also acquisition continues to work for us. And then finally, the EPS growing almost 50%, which is, of course, a great number.

We move on to next slide, Slide #9. Here we can see the bridge on the sales, where we have the 16% organic growth, but also helped by FX, almost 6% in Q1. And then the M&A continues to add here double-digit sales for us, which leads us at SEK 4.9 billion for Q1. So for us, a very strong Q1. And we'll come back a little bit more on the regions as we move through this presentation.

Then moving on to the next slide, Slide #10. Here you can see a little bit more the time line of our growth. And here, you saw the -- where we had a big impact in 2020 on the COVID situation, minus 7% in Q2 2020. But since then Q1 2021, we've been growing in good numbers. And here, you will also see, of course, that Q2 last year was a fantastic quarter for us with 34% organic growth. So we're coming into a very tough comparable numbers in Q2 versus Q1, of course. So that will have an impact on our business.

But all in all, you see here that the last 5 quarters has been very positive for us on the total growth, but also on the organic side. And then having a very good year -- start to the year with 16% organic growth.

Then moving on to the next slide. You can see it spread across in all our regions, which is what we're very happy about. Good activity levels in the Nordic, growing 29%. Central Europe also being very positive starting out the year. I mean it's for every region here. And then peaking out in East Europe, but of course, they have acquisition affecting the numbers. But underlying, a very good high activity level in Eastern Europe.

Africa, a region that we are very strong in and the market has been challenging. But here also a good finish to the year for them because it's summer season -- I mean, it's opposite of ours. And I also say very good in APAC, where we have also the summer season, especially Australia and New Zealand here peaking in Q1. And so we're happy with the development in all our regions from a sales perspective.

And then on the EBITDA, we've gone over this. Almost 50% growth in Q1, and also an EBITDA margin that also improved by almost 1%. So both good volume, but also we're happy about moving the EBITDA margin by almost 1% in Q1.

So if we move over to the next slide, Slide 13. You also see the development here on -- and as I said, on Q1 versus last year and the year before, which is a good trend for us. Here Q1 being almost 1% above last year, and last year was also a good Q1. Q1 2020 was affected by COVID in March. So I will say that's relevant. But here, you can also see we're coming into a very tough comparables in Q2 that was a very good quarter for us last year.

And then also the EBITDA per region. Also here, we see very strong numbers, happy across the board. I think also relevant here is THE APAC that is [ stoking ] out a big Q1. And the peak of their summer season also a good development. And then also a good development in all our acquisitions and the underlying business. So all in all, a very satisfying summer season in the APAC region. And now we move on to summer season here in Europe in Q2 and Q3.

So this was to me. Now I'll hand over to Ulf that will go more in detail on the P&L and balance sheet.

[Ulf Berghult, executive]

Now we're on Page 15. And there, you can see the P&L for the group. Chris took you through down to the EBITDA. And then we have the net financial income, which has been slightly higher than -- on a year-on-year basis. And that is basically impacted by a higher net debt. And also taxes then, of course, slightly higher due to the higher profit. But if you look on the tax rate, that is the same tax rate this quarter as we had in quarter 1 2021. So that's about 25%.

If I move over to the next page, Page 16. Here, you can see the earnings per share. So we continue the positive development. So in the quarter, we had a growth of 49%. And also then for the full year on a rolling 12-month basis versus then full year 2021, we had a growth of 9%.

I move over then to Page 17 on the cash flow. So this is then the movement from -- the comparison with the cash flow of Q1 2021. We had a positive SEK 386 million, and now we have in the quarter minus SEK 295 million. And as you can see then, we have a very good performance in our operations on the EBITDA with plus SEK 149 million. We had a negative development in working capital, which is also then coming -- you saw the same pattern in quarter 4 2021. And that is, as Christopher said, that we are building up to price at the season here. So the main season is in quarter 2 and quarter 3. And we are deliberately then increased service level on the inventory in order to meet -- to have a good delivery service.

Then CapEx is a small movement and leasing is a small movement. And then the other side, we have the delta. So last year, we had plus SEK 127 million and this year SEK 40 million. So that is noncash items, basically.

So we're coming into the Page 18. Then you can see the development over the years. And then you can see then that both Q4 and Q -- Q4 '21 and Q1 '22 that's impacted by the working capital that we deliberately have done in order to increase the service level. You can also see that we had a negative in Q2 '21, which is also then coming up, but we had a very good organic sales development of 24%. And then building up working capital, which then should be then released in Q3 and onwards.

If I turn over to next slide, 19, the net debt development. We have a leverage right now on 2.7%, reported leverage on 2.7%. So if I then exclude IFRS 16, which is basically the rental contract on buildings and then the pension, we have a leverage of 2.3%. So that is on the pure net debt, excluding pension and leasing liabilities.

And then if we also then see that Q4 '21 and Q1 '22 that kind of had a step-up from the previous quarters. And that is basically that we have been very active now on the acquisition side. So in 2021, we closed 10 acquisitions, and then Q1 '22, we have already closed on 3 acquisitions.

And also, there's more information that after closing, we also then secured an additional financing of SEK 1.6 billion, of which SEK 0.6 billion goes into the repay available of our existing facilities. So we are increasing available funds with another SEK 1 billion. In total then, SEK 1.8 billion available facilities.

So then I hand over to Christopher again.

[Christopher Norbye, executive]

Yes. So conclusion. The first point, I think you've seen a couple of times. But we do see the positive long-term trend for us. And of course, the situation here is -- I mean, I was -- the unfortunate situation we are in now, we do see that this will continue and most likely accelerate on driving this electrical solution versus gas-driven solution.

I mentioned a couple of quarters ago that we acquired this Danish company, Fenagy, who make CO2 industrial heat pumps. That's a brand new market for us and a brand new market, I would say, in the world. And a country like Denmark now who have -- long term even having natural gas. So we see a lot of opportunities on the industrial side.

It's just in the starting point as well. But a lot of orders on the industrial CO2-based heat pumps here in the last 6 months, and then the orders start to keep growing. It's also an interesting part of business. We talk about air-to-water heat pumps. We talk about the A/C penetration and also the CO2-based solution that we have in refrigeration, commercial market as well.

So long term, we feel that this market is, of course, moving in a very positive direction for us. So I think it's more on how you manage the short-term situation from supply chain uncertainties, the inflation. But for the long term, we're very positive on the position they are in, and then combined also with the acquisition pipeline, to further strengthen. That gives us very good confidence.

Sales, we talked about SEK 4.9 billion, 31% up; EBITDA, 48% up, best quarter. We believe we'll continue to have that in the future. But also very proud of that all regions performing well. All regions are improving across the board, and also the product groups.

Also very good job from the organization. As you know, we pride ourselves that we have a very decentralized organization. And I think also it shows in times like this how fast you move when you have local decision makers supported and coordinated across from us. But these local organizations are adjusting very fast to the environment out there. So I think it also shows the strength of -- and the speed of this type of business model on a situation like this.

Acquisition, we talked about. We did close 3 of them this quarter, and we do have a good pipeline going forward. So we expect that to continue. And then also, we move into the, what we call, Europe peak season, so the majority of our business. And also with a good service level, as Ulf alluded to on inventory, as we decided to just to move fairly quickly both in Q4 and beginning of Q1 on building up stock, especially on HVAC side to support the season. And then we thought it was the right decision. Now we know it's the right decision because, of course, that supply is even more complex today than it was 3 to 6 months ago.

So with that, I think we're finished and open for Q&A.

[Operator]

[Operator Instructions] Our first question comes from Carl Ragnerstam, Nordea.

[Carl Ragnerstam, analyst]

It's Carl here from Nordea. A few questions from my side. Firstly, I wonder in terms of the inventory buildup, as you said, is fairly significant in the quarter. So firstly, could you maybe specify in which segments you are building inventory? And also if we should interpret that as you see a very strong demand currently, and by that, wanted to build the inventory in order to maybe gain market shares from the mom and pop shops?

[Christopher Norbye, executive]

Yes, I would say that the majority of the inventory build is on the HVAC side. And also to explain a little bit why -- and I'll come back to the second part of your question -- is that most of our inventory when it comes to HVAC is a fairly long lead time because the main factories are in Asia. So you both have the production time. You have being on a boat and moving over. So we do always have around 12-week lead times on this type of products. So we do always build the inventory here in Q1 to support then the season in Q2 and Q3.

So I think the biggest difference there is that we're trying to cover most of Q3 as well in inventory, and we usually don't do that, that early on. So I think that's the biggest difference.

If you then relate it to is it because of the bigger demand out there. I think that -- we've still to see how the market develops in Q2 and Q3. We do have effects. If it's 40-degree summer in south of France, then things are extremely high. And if it's somewhere in the middle. So it's still a little bit, of course, uncertain.

We do see -- in Q1, as we said, we grew almost 20% on HVAC. And I also think there's some patterns there from some customers buying ahead of it. So we need to look at Q1, I think, and Q2 together on the HVAC side.

But the underlying development -- the order book on HVAC is very good. So right now, we still see a good trend in this market. And maybe a final touch on the: are we being better situation on the inventory versus the competitors? I think the big competitors are probably in a good position as well. But of course, we see some of the smaller ones having more challenges to -- in this situation on the inventory side. And that's our ambition to take advantage of this. But this is -- mainly we're focused there on the HVAC side.

[Carl Ragnerstam, analyst]

Perfect. Very helpful. And also on the refrigerant prices, as you said, it's fairly limited in relation to group sales. But historically, you have provided some kind of numbers on maybe the EBIT impact from them. Could you -- would you mind to give us some flavor on this in Q1, what the EBIT impact is from the rising prices?

[Christopher Norbye, executive]

I'm sure -- we did it in the past because it was significant. We don't tend to do it now because it's not a significant part of our EBIT development. It's less than 5% of sales, and thereby, it doesn't move the needle enough to be an indicator that we would guide or tell you what the difference would be.

But of course, it's better to have a positive than negative that it's been for a couple of years to that. But it's not a significant part of the EBIT with less than 5% of sales. And I think also that it's because Beijer Ref has grown so much over the last couple of years, also on the HVAC side, so we have a different mix today. And of course, the price changes are not as critical as they were some years back. So it's not something that we would guide, and also to be fair, guide on the other side as well if it moves in the other direction because it won't move the needle enough on the EBIT side.

[Carl Ragnerstam, analyst]

Okay. Fair enough. And also, you are pushing more on products. Could you maybe update us how it's progressing with maybe regards to Sinclair, Inventor? And also, what portion of HVAC sales is currently coming from owned products and -- on a run rate basis, maybe? And also what's your midterm ambitions?

[Christopher Norbye, executive]

Yes. Maybe we can come back to that type of more strategic question later on. I think that the main -- we see here on where we're pushing is on the HVAC side, with especially Sinclair as we have communicated before that is our private label that we're launching now to run in our markets on the HVAC side. Of course, the Inventor brand is mainly our strong brand and the acquisition made in Greece less than a year ago, and they will continue to focus on the markets they're active on today.

So I would say that the Sinclair, except for their own sales in Eastern Europe now, is being launched and being prepped and has an inventory around in our countries here in Europe. So let's come back maybe in a couple of quarters' time and I can be more direct on how the sales is going from building it up to also launching it now in the key markets as we move into the high season. But it has a very good growth rate for us. And of course, Sinclair is one of the main products in our Eastern Europe business, and you can see very good growth rates there. So it's moving positive for us.

[Carl Ragnerstam, analyst]

Perfect. And the final one from my side is on the OEM side. You grew 7% organically. What would you say was the impact from component issues? If you add them back, what could the organic growth had been? Or if you could give any flavor on that?

[Christopher Norbye, executive]

Yes. I don't have it directly. I think it's -- as we said in our numbers, that we had 17% growth in SCM Frigo, which is our CO2-based solutions for the world. And I would say that also -- of course, the APAC region had the summer season. That's why they affected it negatively. But I will continue and put on guide that we should continue to grow that double digits going forward, and that should not change.

[Carl Ragnerstam, analyst]

But a tough component situation in the very short term. I guess it will continue on.

[Christopher Norbye, executive]

Yes, it continues. And as we had called between here and we keep saying and said that we didn't see any significant improvement in the supply chain. And now I think everybody is coming back to that view. So it continues to be tough, but we'll still manage through it. So -- but it continues to be very uncertain and very -- especially -- I think, as everybody says, lead times is one issue.

The other issue is that the delivery dates are not correct, right? So I think that the uncertainty when you will get the product is a big problem as the long lead times. And that will continue as we -- we understand it's for the foreseeable future.

Now we're not -- just to be clear, we're not affected in our industry with any supply chain out of -- in places like Russia and Ukraine. None of our components or suppliers are coming from there. So our situation is still related to more the shortage in the market, the Chinese supply chain and the logistics challenges. So for us, I think it's very similar to what it's been in the last 12 months.

[Operator]

Our next question is coming from Viktor Trollsten, Danske Bank.

[Viktor Trollsten, analyst]

Firstly, on price. How much of the 16% organic growth now in Q1 is coming from price? And are you raising prices more in any particular segment? That's the first, please.

[Christopher Norbye, executive]

Yes. No, we will not guide exactly on our price number. And it's also a very complex question in the sense of it's such a diverse business and project sales to day-to-day customers. So it's more -- when we look at it, the majority of our growth is organic side, but pricing is a bigger part of it now than has been historically when pricing was related to basic inflation. So I would still see this as -- a big majority is organic, but pricing is a larger part of it than has been historically.

Then if you go into the segments, I think we have a more -- I would say, faster price movement is more on the commercial refrigeration because it's a more daily moving product type. For example, if our biggest supplier raises prices on compressors, it's usually moving into the market in the next couple of weeks because it's not a product where our customers buy and hold stock. They come into our stores every day to buy these type of products. It's a very fast-moving product. While on the other, OEM and HVAC, you have other type of supply chains, where both from the supplier came to us and also to the market. I would say that the lags there are more months than weeks.

So I think it moves very different between our different segments. But we see that in general -- as I said on the call, that we are fairly aligned on the price increases. And we do also have more structured discussion with our suppliers on how we manage timings together than maybe what was last year, even if that almost sounds counterintuitive at this stage.

[Viktor Trollsten, analyst]

Okay. And it sounds like you're offsetting, let's say, the cost inflation on your side. And I guess, listening to other HVAC suppliers, it sounds like prices are up 6% to 8% in the quarter, for the year it is 9%. Just for -- for you, in Beijer Ref, you highlighted previously the potential with price management as a focus area. And I guess what I'm after is that in this environment, are you able to accelerate that? And more importantly, how sticky would you say that your current price increases are in an environment when raw mats, logistics roll over? Would you say that this is sticky price increases?

[Christopher Norbye, executive]

Yes, I would say that, that, again, it's a little bit that you allude to that -- it's a different type of business we're in, right? And let's go back again to the refrigeration component business. That's more sales than aftermarket business. The daily running with hundreds of thousands of customers. So more an aftermarket service business. And of course, there, I would say, it's very sticky. It's products you need to replace and fix your products.

Then you look more to the HVAC, and HVAC is a more structured market. There, you have to follow together with the leaders in certain countries, and where we are stronger. And then I'd say: "These are the list price increases that you probably could see in the markets." Then you always have a negotiation and net price list and other things. But at the moment, everybody is moving in the same direction on here on the price side. So right now, I would say it's sticky. And you can see that in our numbers as well.

[Viktor Trollsten, analyst]

Okay. So I guess if that is correct, then when -- or maybe I should say if raw mats and logistics rolled over, then we should see quite nice margin uptick, it sounds like, if you can pick to current prices. But let's see that in the future...

[Christopher Norbye, executive]

Let's -- if one plus one plus one plus one adds up, yes. But I think it's too early to make that assumption. But I think you know that.

[Viktor Trollsten, analyst]

Yes, yes. And then on the inventory buildup, if I interpret you correctly, it sounds like by year-end maybe inventory levels should be normalized. Just putting that into context of your current gearing, net debt-EBITDA of 2.7%, do you see that as a limit to, let's say, your acquisitive growth ahead?

[Ulf Berghult, executive]

No. No, I don't think -- no, we don't see it like that, because, again, we have to say that we are entering out the peak season. So again, we -- from a seasonal pattern point of view, the inventory will transfer over to account receivable in Q2. And then we will have -- we need to pay the accounts payable. So it's a part to fund for account payable. And then -- but then we should have a positive cash flow coming in, in Q3 and Q4.

But again, also then that -- depending on how the situation looks -- we also have the main thing next year. There, we need to see how to handle that. But theoretically, we should have a good cash flow in releasing working capital in Q3 and Q4. But we don't see a limitation on the M&A side.

[Viktor Trollsten, analyst]

Okay. No brilliant. And then just finally on my side, on the air-water pump side, where you mentioned that's a growth area in the report. Could you just briefly update on your current position and how you're able to grow in that area?

[Christopher Norbye, executive]

Yes. So the reason -- in a way I try and keep this a little bit -- not new, but it's still -- it's not like the refrigerant side of business. When we talk about that, we'll not have an opinion, because this is a very fast-growing segment for us. But it's too small today to make that it's driving any big part of the business for us.

But what we can see is that especially on -- and I think I said that before, on Toshiba side, where we have the exclusive distribution in the biggest markets in Europe. And they built the factory in Poland in April. And now we launched it in 2, 3 of the biggest markets in Southern Europe. We've seen extreme demand and fast growth and keeping up with that.

So our expectation is that we'll grow into this the next couple of years, and then I will guide more to make the difference for us. But at this moment, the short term, it's a nice add-on. But it's not driving our numbers yet. So I think we'll come back more and more to this as we make the bigger impact on our business as we launch it also in more countries in Europe when the product supply chain is ready.

So we're more building up the organization to drive it, and we have a fantastic product in Toshiba, one of the leading, of course, brands within these segments. So I want to keep this up: it's still in early days. But of course, you look at all the trends and the regulation of this, this will be a bigger part of our portfolio long term.

[Viktor Trollsten, analyst]

Okay. So short term, just growing with Toshiba, if you want? And then maybe long term, look at the strategic opportunities?

[Christopher Norbye, executive]

Yes.

[Operator]

[Operator Instructions] Our next question comes from Andreas Brock, Coeli.

[Andreas Brock, analyst]

Andreas here, Coeli Global. My question is to you, Ulf. First of all, welcome on board. Good to have you back in a very public role. I look forward to talking to you. And my first [ question to you ] is, what are you going to be focused on for the next 12 months? What are your focus areas in this role?

[Ulf Berghult, executive]

It's more -- it's basically learn to -- yes, first of all, learn to -- make sure that we have the balance sheet and then the financing in order to continue this growth, both organically and then from operating working capital, but also then from a funding point of view then to make sure that we can continue the M&A story. And also then to basically come in to see what we can do that we can drive the efficiency -- in term of the efficiency within my area as well, so from a treasury tax and also from accounting point of view.

But it's a well-run company, I must say. It's lean and mean. But it's a well-run company. But there are some opportunities. But basically learn to make sure that we can continue to drive growth.

[Andreas Brock, analyst]

Actually, it is an amazing company. And just a final question. When you think of net debt to EBITDA, you very -- your calculations, you did ex-pensions, et cetera. You're down to 2.3%. In your experience, what's the feeling for -- I mean this is a less cyclical kind of business than a Trelleborg, et cetera. I mean it doesn't have -- it has smoothness with the -- and et cetera. Is it possible to -- is the 3.5% net debt to EBITDA, is that the ceiling with this kind of business?

[Ulf Berghult, executive]

Again, let me come back. But again, it is -- as I say, it's not a heavy CapEx company. And also the way you see the -- if you've seen the numbers now, it's a [ fine ] company. And the way we handle the COVID -- the pandemic was also very, very good even from an EBIT point of view and also from a cash flow of view.

And so -- and basically, we are coming up working capital in SEK 5 billion. Of that, SEK 5 billion is inventory, SEK 5 billion. And it's -- and we have a very tight control of it. So let's see how much we can drive the efficiency on the working capital, particularly on inventory. But let me come back on where we see -- because we are in the planning or talking about how to go next on targets. And then -- but we are not ready there yet. So let us come back to that later on this year.

[Operator]

Our next question comes from Karl Bokvist, ABG Sundal Collier.

[Karl Bokvist, analyst]

So just my first one. I believe a quarter back, you commented on a possibility that the supply chain situation could improve towards the -- halfway through this year? And is this still something you believe could happen based on what you're hearing from your different parties in the supply chain?

[Christopher Norbye, executive]

No, I don't recall that I made that comment. If I did, maybe it was in a different context. Now I see, as I said a little bit before to Karl, is that we're less affected right now at least from the situation that has developed since the last Q4 report. But from a supply chain, we don't see a big mess still now on the logistics side, except for the cost. But those has been stable and on a high level also since Q4.

So it continues to be the main issues around the electronics side in our products on HVAC, compressors, condensers. And I would say that you still get similar answers from your big suppliers. But they're not reliable yet. And that's a little bit also why we built this inventory ahead of time, because lead times in factories and running out of components continues to be, I would say, on a complex level.

And also, as I said to that question before, on the HVAC side and also heat pump side, it's okay as we have the factory in Poland. It's been more on the OEM side, especially the CO2-based products we have out of our stores in Italy. That's more component heavy and more electronics and more specified in the sense of, if we run out of a specified steering control, you cannot run the product. And that I see continues to be hit and minds on delivery times from our suppliers to put the components on.

I would say if I -- I stated before that I saw it has improved. I would say it's on the same level as it's been for the last 12 months. And I think we need to see more moving into Q3, Q4 if we see improvements on it.

[Karl Bokvist, analyst]

Yes. Understood. It might have -- the improvement comment might have been an impression from my side. But okay. So still managing the situation in a fairly good way at least given the...

[Christopher Norbye, executive]

Yes, that's what I keep saying in my team that we have a lot of issues and complaints, but we still managed to grow double digits. So I guess they're doing something right.

[Karl Bokvist, analyst]

Yes. And then just -- as you touched upon here, the new lockdowns towards the end of the quarter in Asia and that you were a bit preemptive here in making sure the inventory was already shipped and everything like that. But do you feel that given the way you look at the demand and the season, could there be a risk that you might need to order another batch of products from Asia, which could be impacted by lockdowns we've seen early this year?

[Christopher Norbye, executive]

Yes. I would say that -- I mean, when we look at our inventory -- and it's mainly, as I said before, on the HVAC side, where you have this also very long lead times on ordering boats and moving it over across to Europe as now the high season is in Europe in Q2, Q3.

I think we're more looking at that if it's a very strong season -- you will always have like a mix issue, right? You might run out of certain products, parts or groups because you're still estimating and you have to -- you bring in all the big runners.

So I think that could still happen. But all in general, I have a hard time seeing that -- we have brought in what we thought we could to protect the Q2 and Q3 season. But we still need products for closing out the Q3. But it's on boats. It's been ordered. And we still see -- it's not what I would say on the HVAC. It's been running -- beaten throughout the supply chain issue, with longer lead times. But you can adjust the longer lead times. That we have. And the transportation has been okay, but very expensive. So I think we still see that being an okay situation and what we see right now.

But then I think like everybody else. You put a caveat on -- let's keep in touch and let's see how the world develops moving forward. But I think the short answer is that we see ourselves in an okay situation. And you can see that, of course, in our inventory buildup as well in our balance sheet and on the cash flow.

[Karl Bokvist, analyst]

Understood. And then just 2 other questions. The heat pump venture with Toshiba, is it possible that you can obtain other kinds of these exclusive partnerships with some of your other larger key clients? Or have they already committed with similar kind of arrangements with competitors?

And the second one is just on the e-commerce side, which has been growing very strongly. Do you think there is a possibility or potential to have a positive effect on profitability from higher e-commerce sales? Or will that be compensated for by other types of costs?

[Christopher Norbye, executive]

Yes. On the -- the reason I mentioned on the heat pump on Toshiba because that's the only one that I would say that has -- you can start seeing increased or significant volumes within a limited scope still because it's been moving for the last 9 months.

But of course, in our other exclusives that we have with Mitsubishi Heavy, in the countries we have there, we have the products within Sinclair and Inventor. So we absolutely have exclusivity on that product portfolio as well. But there, we still have -- need to launch it, focus on it and drive it. So that's why I mostly mentioned Toshiba because it's already running. But on those products, brands, yes, we have the exclusivity for those products as well.

[Karl Bokvist, analyst]

All right. Yes. Sorry. The e-commerce side, it's growing very strong.

[Christopher Norbye, executive]

Yes. The e-commerce side, yes. I think we had maybe a view or somebody else who had a discussion on how big of a -- it's running now at -- I think Q1, it was 10.2% of our sales on e-commerce. It continues to pick up and being a significant part of our sales.

But we don't see it as much as -- we're not skipping a distributor or a wholesaler or somebody, going and having a double margin or whatever. I think some companies try and do -- or do. So for us, it's more that we make life much easier and better for our installers on availability, on ordering when they want it and deliver on when they want it to create a better value and efficiency for our customers.

So the margin driver we see on the e-commerce is positive because we give less discounts in that channel than in the physical one. So there will be a positive margin, but not something it's going to change the world for us.

[Operator]

[Operator Instructions] We have no further questions. Yes speakers, back to you.

[Christopher Norbye, executive]

Okay. Thank you, everyone. And of course, me and Ulf will be available going forward here if there's any more question or comments. So thanks for calling in, and thanks for the good questions.

[Ulf Berghult, executive]

Thank you very much.

[Christopher Norbye, executive]

Thank you.

[Operator]

Thank you. Ladies and gentlemen, this now concludes our conference call. Thank you all for attending. You may now disconnect.