Beijer Ref AB (publ)
STO:BEIJ B
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Beijer Ref AB (publ)
Earnings Call Analysis
Q2-2023 Analysis
Beijer Ref AB (publ)
In a period marked by strategic expansions and acquisitions, the company's sales surged to nearly SEK 9 billion, marking a substantial 46% increase. This impressive top-line growth is attributed mainly to the recent acquisition of Heritage, complemented by an organic growth of about 2%. The acquisition not only spurred sales but will also drive organic growth for the remainder of the year, signaling a robust trajectory for the company's financial health.
The company's EBITDA climbed above SEK 1 billion, a significant 64% increase, buoyed by the acquisition and consistently strong margins, particularly in the EMEA business. Operating cash flow and a remarkable margin of 11.7%—a historical best for the company—reflect a consistent and dedicated effort to improve margins over the past few years. Despite a slight decrease in cash flow, largely due to inventory buildup, positive trends in inventory management indicate stronger cash flows in the upcoming quarters as inventory and accounts receivable are expected to normalize.
The business driven by natural refrigerants, particularly OEM (Original Equipment Manufacturer), exhibited robust growth, backed by strong orders and a solid backlog for the rest of the year. Capacity expansion in this segment signifies confidence in sustained demand, while geographical diversification with active developments in the U.S., Europe, and APAC hints at a comprehensive strategy for growth. The OEM business is not only thriving in current markets but is also witnessing positive trends in emerging markets like Southeast Asia, suggesting a promising future.
Leveraging exclusivity with key suppliers, the company is investing in expanding its distribution network by planning the opening of additional branches and pursuing mergers and acquisitions that align with its regional and supply chain strategies. These investments serve not only immediate growth but also bolster long-term value creation for the company. Moreover, the dialogue with potential acquisition targets indicates expected activities in the latter half of the year, particularly in the U.S.
Despite a challenging start to the quarter, the company experienced a notable increase in activity towards June and July, especially in the robust HVAC market in regions such as Spain and Greece. This uptick has helped offset some of the negative organic growth rates witnessed in Eastern Europe, with stronger performances in Central Europe and the U.K. highlighting diversification and resilience in the face of market volatility.
The company is taking a proactive approach towards inventory management, aiming to resolve excesses in Q3. This initiative, combined with a strong sell-out exceeding purchases from suppliers, is anticipated to result in a stronger cash flow in the latter half of the year. The management's confidence in a significant effect on cash flow starting Q3, reinforced by an actual decrease in purchases, contributes to a positive financial outlook.
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Welcome to the Beijer Ref Q2 presentation for 2023. [Operator Instructions] Now I will hand the conference over to the CEO, Christopher Norbye; and CFO, Ulf Berghult. Please go ahead.
Hi, everyone, Christopher here with Ulf. Good morning. I hope you're all having a nice weather that we have in [indiscernible]. The rain is pouring down, but we're sitting inside, so it doesn't matter. So we'll get started right now. I'll start with the Slide 3, Beijer Ref at a glance. I think you can follow here that the rolling 12 continues to go up in a nice pace. We keep adding markets, employees for different acquisitions in the quarter, the smaller ones. And we'll continue to work with the small customer base as we have. If we move into the next slide, which is the Highlights slide. We are having this as a stable quarter with a very good -- continued good, I would say, profit and margin development as planned for [ more side. ]
Sales almost closing into SEK 9 billion. which is an increase of 46%. So of course, we continue at a very high pace, different mix this quarter were where the acquisition of Heritage is driving a lot of the increase. And organic sales, about 2%, we'll surely come back to that later on. And then the acquisition will continue to drive our organic growth, of course, also for the rest of the year, which feels fantastic and also on the profit side. FX continues to be positive for us. Then comes the EBITDA. Going over SEK 1 billion, so an increase with 64%, driven by, of course, the acquisition side, but also continued good margins, especially driven in the EMEA business. That continues to develop strong, a little bit more muted in APAC, but they're in the off season now, so it doesn't have a major effect on us.
The operating cash and then, of course, margin, 11.7%, best ever. And also -- I mean, I would say a very good development over the last 2, 3 years of systematically working with the margins. And of course, we see that in our gross margin. That's developing well through the initiatives we're doing. And also, as we expected and said, we really like Heritage with the high margins in their business, so continue to support good margin here, and they had a really strong margin quarter in Q2 that I'm sure we'll come back to. Cash flow minus SEK 200 million versus minus SEK 360 million Q2 last year. For us, this is as expected.
We are in the season where we build inventory in Q1, and beginning of Q2, it's already starting to go down. So we see a strong trend on the inventory side. And then the main side affecting cash and negative actually in Q2 is accounts payable. We're not buying any -- we're buying very little products from our suppliers as we are destocking. So of course, that affects the numbers. But because of that, we see -- we know a fairly strong trend on the cash flow as we release inventory and accounts receivable in Q3 and Q4. So we'll come back to that. [indiscernible] we feel very good about the cash flow. It's going actually a little bit better than expected from our side.
Acquisition continues to do well and adding a lot of value for us. And as I said, we closed [indiscernible] than we expect an active Q3 and Q4 as well, both in Europe, APAC and especially in the U.S., which is very exciting for us. And then the EPS went up plus 41%. So all in all, I would say, I mean, a very good quarter for us and setting about nicely for the future as well. If we move over to the next slide. In the quarter, we saw the OEM side, which is our business driven by natural refrigerants, both as [indiscernible], having very good development, a little bit easier comps from there as we were having supply chain issues the last couple of years in that business. But good activities, especially on the [indiscernible] side, on the CO2 based heat pumps with strong orders and the backlog now covering the rest of the year already.
So we expanded our capacity, tripled it to move into new facilities about 2, 3 weeks ago. And we [indiscernible] expanding another 30%. That will be ready by the end of the year. So we feel very good about that segment. And that's stable in -- when we come into the HVAC and commercial refs as we expected. And also remember, in the HVAC and commercial ref side as being a distributor, everyday matters for us as we sell our products through distribution and wholesale. So of course, having a couple of less working days is 3%, 4% trails the organic growth for us, and we knew this coming into the quarter.
EMEA, good growth, mixed picture. But in general, I would say, good activities in the Nordics, in Central Europe, South Europe, it's, of course, now getting harder and harder. It's only development in Eastern Europe, that's weaker, and Italy is picking up, but of course, picking up now as it's been very warm. So in general, a good development, both in sales and the margin side. Moving into North America. I wrote the comments. We'll go over the divisions to see now and the rest. So in general, a good development, and we'll come into details on it. Inventory, we see now peaking and going down, and we're also flushing out accounts receivable and accounts payable, of course, as we not buying anything would have a negative effect in Q2. So we feel strongly about Q3 and Q4. And then added some nice companies. Condex was signed -- is actually closed today. So a nice development there as well in the acquisition side.
Next slide, we'll go in a little bit more on EMEA. Good overall growth. You see the OEM business in Europe being very strong, both from [indiscernible], so it's very positive. And also, of course, positive on the environmental side, we're selling more and more green products of our offering. You see the development, it's mix between regions. But in general, I would say, good growth in most regions in Europe, Eastern Europe is slower, but also comparing to extremely high sales last year. So it's not very -- it's still good activities, but not as strong as last year. But in general, good development in most of our regions. And you can see that the EBITDA continues to improve, driven by strong gross margin development. And also here, we're starting to release inventory that we had during Q3, at the end of the Q2. So we expect good cash flow going forward.
Moving into APAC. It's not a big quarter as they're off season, and they'll start picking up towards end of Q3, Q4 when they move into high season. Continued good growth driven by OEM, which is also positive. A lot of this OEM is developing better and better in Australia and [indiscernible], and we also see trends in Southeast Asia moving into CO2 products. So it's very exciting to us. HVAC is very stable, positive driven from the acquisition, and EBITDA continues to increase with sales, somewhat lower margin, but no, nothing strange, more of a mix shift in the business during the second quarter. Then moving into North America. I would say a solid -- a very solid quarter. I know our growth came in somewhat lower than our plan, but we do have a very high plan in the business. It's still second-best quarter ever in the history of the company.
I would say a couple of things that's limiting and maybe that's why we're using the words "lower than our plan" is that we're not getting enough products from our main suppliers in HVAC to satisfy that underlying demand. It's mostly related to that new requirement [indiscernible] and how you pair that product and get it approved. And it's clearing out here in Q3 and Q4, but we could have done better with more product supply but still a very solid quarter. The other trend we see and also you're -- still, they're in a very good margin, 15% EBITDA is there are a lot more repairs going on in the U.S. instead of replacing the products, which for us is a good margin business. And of course, it creates a pent-up demand, because if you're repairing a 10-, 12-, 13-year-old system, it will soon need to be replaced anyway. So we see still a positive and we see also that that's the reason we [ vote ] Heritage that they're very strong in the whole repair and maintenance segment as well and they drive good margins. So all in all, very happy with that.
If you look at some of the things that will be happening is that we are now actively going over the different suppliers of private label that will be launched here in the end of the year and also mainly to drive the season next year and having two different product portfolios that we think will be extremely positive for us. It also opens up new product segments that we can go after with our infrastructure. We are planning to open branches as we see the product supply opening up, and we have, I would say, at the moment, 5, 6 locations where we have exclusivity with our key suppliers that we now are actively in discussions to build or to lease and get it up and running. We won't to open 5 or 6 at the same time, but we do have plans to open 3, at least in Q4, and that also will support next year.
So a lot of good things happening in that position. And then finally, M&A. We have a fairly long-reaching discussion with some key companies that we would like to add on to the portfolio that would be in the regions with the right suppliers. So developing positive, and we expect some activities here in Q3 and Q4 in the U.S. So I would say, yes, a solid quarter. And that continues to be very exciting for us for the future. So in summary, you heard these numbers, sales growth, organic growth, 2%; EBITDA, 64%; and a good EPS growth. So we continue to drive both, positive organic but also the acquisition side of our business. I think the next one, financials Q2 sales. We covered as well, SEK 8.6 billion in the quarter from SEK 6 billion, driven by a large part of Heritage as well, but still positive. Organic and FX continues to be positive.
Moving on to the next slide. Sales development continues to be fantastic, of course. I would see 8, 10 quarters with double-digit growth for us. Of course, the organic was lower in this quarter, but also coming into very strong comps. If you look at Q2 last year on [indiscernible] Q2 '21, 34%. And I think I'll say that now, but positive for us is the quarter started weak in April, May across most regions, bad weather, one part, but then June came in strong, and July started well from a sales perspective as well. Moving over to the next slide, EBITDA 64% up and especially very proud of the margin development that we accomplished over the last couple of years, both driven with organic initiatives, volume growth and also good acquisitions supporting our business.
So moving on to EBITDA development. You can see the [ trends ] there on the margin. We have our strongest margin in quarters, of course, in Q2, Q3. And moving into the U.S., they have a similar seasonal effect as we do in Europe with the cooling side being very active in the second and third quarters. So of course, we expect peak sales and peak margins over this time. But if you look at the trends, it's been very, very strong over the last couple of years. And then the slide, EBITDA development. Yes, that continues to be very positive for us. You can see these numbers. I think it's a fantastic development over the last couple of years, of course. I now hand over to Ulf going more in detail on the P&L, and then we'll wrap up with a conclusion and some Q&A.
So I'm going to [indiscernible] on the P&L statement. So I will not repeat what Christopher said already. So we have a very good EBIT. But if you then go down to the net financial income and expense, we have SEK 93 million interest, which is then higher than the previous year, but that's driven by, we have a normal than higher debt. And also then we, of course, the interest rates have had an impact on the cost and also then not due to acquisition, we also have the IFRS 16, the rental or the interest part of that is also a year-on-year increase. Tax is slightly lower in the quarter, driven by that we have some costs associated with the equity raise. That will have a positive impact. But so -- but the underlying tax rate is about 23% in the quarter. And then moving over to the next slide here as we already commented, we have a very nice development on the EPS. So that is a 41% increase from 98% to 139%.
The next page, then the cash flow. It is a nominal seasonal pattern of the cash flow that we build inventory or we then also pay off our payables. And this quarter was slightly more impacted due to that we had -- we bought -- we had a high table in quarter 1, that is then having an impact now in quarter 2. But overall, the cash flow is in line with the seasonal pattern. So a good EBITDA performance. We have also -- Christopher mentioned that we see in the end of the quarter that we are getting the benefit or the impact from the measures that we have taken on the inventories that we see a release of inventory. CapEx, leasing and others that are in line with normal business. And then we have the operating cash flow per quarter. And then you can see the late Q1 and Q2, they are negative. And then Q3, Q4, they should be positive.
So we expect a solid, very good cash generation rest of the year in 2023. If we then move over to the next slide and the net debt development, of course, then it is impacted. So the nominal debt is then coming from last year year-on-year from SEK 6.1 billion to SEK 8.9 billion. But then, of course, an EBITDA is also much, much higher. So -- but we have then a net debt leverage ratio of 2.54%. And then -- but if I exclude leasing and pension, the leasing IFRS 16, that is basically our rental -- the rent contracts in our distribution centers or branches, so there is not kind of a hidden investments. So then we have a leverage of SEK 2.13 million versus last year of SEK 2.50 million. So then I will hand over to Christopher again.
In summary, we continue to grow. We are affected, as I said, I would say, a weak start to the quarter and a couple of less working days in the quarter. So underlying, we still feel positive and the trends in the market also, I would say, very active in both Europe, both in the U.S. and of course, APAC is winter season right now. So we expect that to pick up as we move into the summer season. EBITDA growth driven by acquisition, but also improved margins continue to improve margins also in our underlying business, I would say, strong development continuing on the gross margin to drive our underlying margin according to our plans.
Cash flow as Ulf said, according to the seasonal pattern, but inventory has turned and is going down. We're flushing out AR in Q3, Q4. And of course, as we now buying very little AP is a negative effect in Q2, but of course, that will also improve as we move into Q3, Q4. So we're still good about it. And the U.S., good development, strong margins. So we asked about the underlying trends here as well. So a little bit looking forward, more in the long term, we still really believe in the sustainability electrification, regulation driving it. We see a high figure on the OEM side, and also next year, there's going to be new cuts to call us moving into 2024, and we expect that to continue to drive and be positive for the business.
We see it also in the U.S., we're starting to cut quotas already next year. So very interested on the CO2. We also have soon, hopefully, our first customer on the CO2 in the U.S. as well. So it will be an exciting long-term business for us. The platform in the U.S. we'll continue to invest in and build both, as I said, in our private label opening new branches, and we'll come back shortly to the acquisition side. Cooling, I think everybody is reading it's hot in different places in Europe. And of course, this is a trend that will continue and also trends that we see, cooling growing and also down in Central Europe, U.K. and also the trends in the Nordics, but it's getting warmer. So it supports our long-term business case.
We do have heat waves surrounding Europe right now. So we had a good start to July. So that's promising for us, so positive development. We do continue to have strong funds. We do have less work in [indiscernible] Q3, but we're off to a good start. So that right now is compensating for those challenges. Cash flow, we expect to be strong Q3, Q4 and release a lot of inventory. It's already happening. So it won't change. That's why I'm guiding fairly strongly on that statement. And acquisition will continue to be active here in Q3 and Q4, both in the U.S., but also in APAC and Europe. So pipeline is good, development continues to be strong, and valuations are in line with what we expected. So all in all, the longer-term trends continues to look, I would say, very solid for us. These are my last comments, so we can open up for Q&A.
[Operator Instructions] The next question comes from Carl Ragnerstam from Nordea.
It's [indiscernible] from Nordea. A couple of questions. Firstly, you mentioned the weather effects in Europe here. Is it possible to sort of give an indication of the organic pace in April and May compared to June and July, especially in HVAC, which turned negative organically in Q2 here? And also whether it's realistic to maybe expect HVAC to return to positive organic growth already in Q3 here, given the weather effects and also considering the tough comps?
Yes. I think I won't go into that set of detail, but July has built on a good development in June as well where HVAC was positive. So right now, it is trending positive and -- but it's strong comps, but it's high activities, of course, in strong HVAC market like Spain, Greece. Areas also in Eastern Europe and Central Europe continues to be active. So we'll continue monitoring this. I won't get into details for the full quarter, but it started on a positive note there in July.
And also, I mean, on the underlying demand, a bit if you look back to the financial crisis, for instance, you had a certain degree of cyclicality in the business. I mean, on one hand, we have financially constrained consumers. On the other hand, it might be consumer nondiscretionary product subsidy backed as well, to some extent, if you look into the cooling segment in Southern Europe. So what sort of is your view on the underlying demand in the consumer side of the cooling segment currently?
Yes, we are very active, as we said before, in the replacement segment of -- on the HVAC side. Of course, you also work when you do repairs and upgrades, not so much in new construction, because it's a different business model in our view, with lower margins. It's not very attractive to us. So in that area, I mean, you continue to replace some [ breaks ], especially in Southern Europe. I mean you can imagine if it's this hard, you can't really live without HVAC. And I think those are the main underlying drivers for us. And of course, as it's getting hotter like this, what happens long term is that the replacement cycle increases -- or I mean, decreases, you need to replace these type of machines more often as they run out, because running it when it's 40 degrees hot, both in the day and in the evening. So step-by-step, that also increases the market.
And then also, we need to respect. There are uncertainties out there in the market. But right now, I would say our demand is still good. It's very active. It's a couple of less working days, bad start to the quarter and et cetera, and high comps. So I'm still very positive to the activity levels in that segment, both short term and long term. So I mean we never sold more HVAC than we're doing right now, right? So it's still a good market out there, and we see it, of course, even stronger when it gets very, very hot because, I mean, then you really don't have a choice, but you have to exchange it. And then the long-term trends that it's getting hotter, we see very strong growth in the U.K. and Central Europe from lower levels, because more and more people are installing HVAC. The problem you have when you get into heat waves in these type of countries is that you run out of installment capacity. So it's a little bit too late to get your products right now, but it usually drives a good trend for the rest of the year when you have these type of trends.
Okay. Very good. And also, could you perhaps indicate how much less supplier components you have ordered during Q2, and also, for how long will you continue to have significantly lower order of components? And also you seem a bit -- quite confident that you'll release working capital in the second half. What magnitudes are we talking about, would you say, in terms of your capital releases?
We will have -- I think it's -- so it has been quite bullish here [indiscernible]. We are very confident and very -- we will have a strong cash flow, we will release. But to give you the detail, the numbers and like that, but we will release inventory. That is the main focus we aim to do, release inventory. And of course, then that also goes on that. If we don't buy anything, you will -- of course, we will also have a slightly negative impact with that accounts payable. But regardless of that, we will have a strong cash flow or release of working capital.
And then if you think about it, is that inventory is turned and will continue to release every single month in Q3. That's a fact as accounts payable has really turned until we're going to flush out all accounts receivable. I mean, you have a timing lag there of 30 to 60 days, depending on what region you're in. So when we look at those two, AP in Q3 is less of a factor on there. I would expect us to start buying products again towards the end of Q3, beginning of Q4. But right now, we have plenty of inventory to manage the situation, and it's driven by that. Now we have -- lead times are back in most of our regions, the U.S. still some challenges and we expect to be solved in Q3.
So in -- now here in Q2 and Q3, we are flushing that out. So of course, our sellout is much stronger than what we're buying in from our suppliers. And not that it's part of your question, but we do have a lot of discussion with our suppliers, because we're trying to guide them as well how we're going to move in towards the end of the year, because the demand out there is still strong. But because of the supply chain issues, we don't need inventory right now, and we stopped and turned that already in Q2. So that's why we're bullish. We have -- we also expect continued good margin plus a good working capital release, so both in Q3 and Q4.
Sounds very good. And the final one from my side, if I may. Very good to hear that you're starting to open a few branches in the U.S. I'm a bit curious to know what payback times do you have on opening a branch and also especially if you compare it to the incremental returns you're getting from acquiring a few units or one unit?
Yes. I would say that the payoff time is in these type of branches would be less than a year, and then you start building value because on the HVAC side -- and these regions are -- we have exclusivity for the product. Those are the ones we start with, which means that nobody -- or selling the product here that we have exclusivity. So it's a good payback in this platform we have compared to buying up weak competitors when you say 1 or 2 branches. But of course, on top of that, we'll continue. We have some good add-on acquisitions in our regions, but they're, of course, much larger than opening a couple of branches.
The next question comes from Karl Bokvist from ABG Sundal Collier. Please go ahead.
Yes. So just first question there on your comment that you saw a stronger end to the quarter than the first part of the quarter. Just to make it clear and understand it, that excludes the effects from seasonality?
Yes, absolutely. It's more comparing to last year. So of course, June will be higher than May, and May will be higher than April with seasonality. So it's more comparing to last year.
Okay. Good. And then on the -- let's call it, it's a profitability side of it now when you lower the inventories here, I take it the products are still in high demand. But do you -- could there be any risk of margin impact or anything as you sell from inventory due to varying dynamics or that you want potential price discussions and so on. And if I may also follow-up on the cost side, have you seen any notable impact from lower freight rates?
So my first question and your first answer, I mean the two go a little bit hand-in-hand. They do connect, of course. But because if you add those two to work with, we don't see a margin impact of flushing out the inventory. I mean we already started it, and we turned the inventory already. So most of our inventory still in our fresh products coming in the last 3 to 6 months anyway. So there are some of our businesses where you, for example, Toshiba works a lot when they pay their own freight. Most of our business is included in the business and the ref side, we buy most of it from Europe, the U.S. [indiscernible] in the U.S. So pockets will have a positive impact of it. So all in all, when you package that together, we continue to see a stable development as we flush out the inventory.
All right. Good. And then on the HVAC market in the U.S., at least based on some data points on HVAC shipments, it seems like the end of the quarter might have marked a bit of the trough. And I'm just curious if you see the same thing or if it differs between resi, commercial, product mix and product categories and so on.
Yes. I think it's timing. It's hard. I mean in the U.S., July has started well and above the trends we had in June. I don't think that connects too much to that data, to be honest. And I think it continues to be -- our installers are fully busy, but it's a little bit more mixed on repair versus replacement, as I said in my call, which, of course, drives margin for us to pent up demand, but you have a lower sales value in exchanging the compressor versus the whole system. For us, it's probably been a good mix anyway, because we're missing products on top of that. So I think it's early days to follow those trends. But I think that we -- commercially still very active. That -- we don't see any weakness at all on that side. And on the new construction it's actually -- it's a small part, it's less than 5% of our business, but our key customers there are not down as much as we expected, to be honest. But I think it's a little bit early to say. But in the meantime, I think it's developing fairly stable with good profit in there, and it will probably turn sooner than later in the U.S. as well.
Understood. My final one is just on the -- or anything you can say on the earnings contribution from the acquired units. And yes, we, of course, can track Heritage, but it's possible to say anything about profitability in the other businesses that have contributed to the acquired growth?
I think, well -- I mean, well, if you see you break it up, so EMEA continues to drive a big growth both on the margin side to us, and then you have the U.S. and you see APAC, and I think that's all that we disclosed. But underlying, I would say, in the underlying, this is excluding Heritage, it continues to be a strong gross margin development that still supports an increase in EBITDA. So it continues to develop in a good way.
The next question comes from Andreas Brock from Coeli Global.
Gentlemen, sorry to add on questions on the U.S. I was just wondering the EPA, you have issued a final rule of 40% cut of HFC refrigerants from 2024. So we finally have something. And I was just wondering how -- will that have an impact on how you think about your U.S. business, the kind of private labels you want to introduce, the acquisitions you want to make, et cetera?
Yes, it plays in actually a lot, but it's not so much because the 40%, because it wouldn't matter if it's 30%, 50% or 60%. We knew it was coming, and there's still a lot to go. But of course, you played in on the product portfolio in -- on private label and HVAC that we're working. It's going to be natural refrigerants as we move into 2024. So the whole product portfolio is changing in the U.S. relating to all these requirements. But of course, we like the Refrigeration segment. So we are working on expanding that. Also on the acquisitions and that we're working with that they are more heavy on the refrigeration side, so we can drive that, because it will continue to -- prices are increasing on that, and that will continue in the U.S. as we had in the Europe. So that does affect our strategy, but not to be overconfident, we already knew this, and we were planning for it. So it is part of our plan, but it was from the beginning as well.
Fair enough. Just a final question then. On the supply issues on the product availability in the U.S., I was slightly surprised by that. I wasn't expecting that. I was just wondering perhaps you kind of say if it's Daikin or whoever it is. But in general, who are the suppliers of the Heritage distribution business? Who are the main suppliers?
Yes. I don't want to hang as a main supplier out. But I would say that our strategic supply will continue. We're exclusive, and we'll continue to be. And we're working very closely with them. And they are doing everything. It's a little bit of hand-to-mouth type of structure right now. But the main reason for this is that the supplier is actually the only one who has completely tooled out for a new product portfolio of the [ Series ] 15, while the other suppliers are using the old one and just bringing a more expensive model in there. We believe that our supplier is doing the right thing for the long term and already has these problems behind them while they might -- the other ones might get it in front of them. So it's more that they decided completely retool their product portfolio, and there's been some consequences of that.
The next question comes from Douglas Lindahl from DNB Markets.
I wanted to come back to the organic growth in HVAC. It seems like you mentioned a bit of a mixed picture in your presentation, but really the only market that seems to be negatively organically in this quarter seems to be Eastern Europe. Other markets seems to be doing pretty well if I understood you correctly. Can you give some sort of indication on what sort of organic growth rates we're seeing in Eastern Europe negative, obviously, and what you're seeing in other markets like in Central Europe? Just an example would be useful.
Yes. [indiscernible] to that type of detail. But I think you'll see that Eastern Europe last year was growing not single, not double, but if you add a couple of higher numbers to that. So if you look at the long-term trend, Eastern Europe is still way above 2021 and et cetera, but it was really boosted last year. And now I think they're flushing out that activity level. So I won't get into detail, but it's negative on -- over double digits, and it is a big market for us. But we also see trends here now in Poland and other areas that's starting to flush out and pick up.
While as I said, Southern Europe here in June, July is very good. Central Europe is good. I think the Nordics were flattish or slightly positive. It's not a huge -- it doesn't affect our numbers in a huge way. So that's why all in all, we see U.K. extremely good, continues and been growing the last 3, 4 years at very good levels and continue this year as well. And there is a clear trend, more and more people are driving penetration of AC. So if you look at that picture, it still pretty solid out there on the HVAC side, to be honest.
So despite the increasingly tough comps here moving into Q2 and Q3, it seems like you are confident in positive organic growth?
No.
And based on what you see now in June, July?
Yes, based on what I've seen in June, July, yes.
The next question comes from Daniel Johansson from Pantechnicon Advisors LLP.
The next question comes from Karl Bokvist from ABG Sundal Collier.
I just wanted to a quick follow-up really on you -- well, I can't recall really how many times you referenced the word "cash flow" now of this conference call. But just to understand the kind of timing of it based on how you see payment to dates and so on, will you see a notable improvement already in the third quarter? Or will it be tilted towards the 4?
No, no, you will see a positive cash flow in quarter 3.
You will see -- let me what you call, accelerate my conservative CFO. You will see a significant effect in Q3 as well.
We have different [indiscernible].
But the reason I'm saying this, so -- we know it's important. It's important for us as well. But we follow this on a daily basis on there. And when you see it start turning, you see the accounts payable, AR, we know. I mean, we do hundreds of thousands of transactions, so AR always flows in and et cetera. So we do feel good about where we ended June and how June -- July started, and we know we haven't bought anything or very little that it will [indiscernible] and that's the reason we -- you will see a significant effect in Q3 as well.
All right. And then finally, if this might perhaps be something you will highlight during the Capital Markets Day, but is there any way you can disclose a rough amount of how large part of your business is attributable to heat pumps?
Yes. We will discuss that. But to be honest, in Q2 and Q3, it decreases quite a lot. Number one, it's not the season really, and we are extremely focused on the cooling side. And the customer base we have also works, mix that moves into that. So I think right now, it wouldn't be hugely relevant question, but we'll disclose it more when coming to November and how we see the future in that market of there. But Q2, Q3 gets very focused on the cooling side.
The next question comes from Daniel Johansson from Pantechnicon Advisors LLP.
I want to come back to the inventories. And I guess looking back, it's been a while since they started going up basically. And based on your policies, I was just wondering if you've had any inventory write-downs over the past couple of years?
No.
There have been none whatsoever?
No, [indiscernible] and we have our policies like that, but we have not had any one kind of a major one-off or something like that. So it's a normal course of business.
And I mean the [indiscernible], we reserve in the way according to our policies, and it's reserved. Mostly even if it is reserved, it's still something that will be flushed out. And it's a little bit, we got these questions before. But if you look at our portfolio, it's very little. I mean, close to none that becomes obsolescence in the portfolio of there. So -- but of course, we follow the policies, but I think it's more that we are conservative versus being on the other side of the fence.
And I guess there was a previous question asking if the inventory reduction would have a negative impact because of underutilization, I guess. But could it be the other way around that it will have a positive impact because you bought it a while ago, while prices were lower?
Yes, [indiscernible] just to maybe clarify, when you look at our inventory, the main that's been going up and growing is on the HVAC side. The ref components are step-by-step flushing out. And as you said, we don't manufacture these ourselves. So we don't get under or over utilization. That's for our suppliers to work out. But I would say even if the inventory is high, it already turned most of the product. The fast runners have turned a couple of times anyway. So I don't see either we said we see prices stable in the market, both from buying and selling. So the positive twist [indiscernible] through the freights coming down, but it's not a main component of our business. So I still think that we'll continue to have a stable margin development. That's my main scenario.
[Operator Instructions] There are no more questions at this time. So I hand the conference back to the speakers for any closing comments.
So two closing comments. It's not related to the Q2. I think we covered that, and I think you can hear that we're pretty happy with it. Now one is that we'll have a Capital Markets Day at November 30. We'll send out invites after the summary you can go in, I think, on our website starting this afternoon or evening too. It's going to be in Stockholm. On there -- and there, we're going to cover a little bit more in detail, both as from the heat pump, but also our CO2 developments. We'll have the U.S. as well to go more in detail. So we think we'll also bring some products, so you can feel them, look at them and feel them.
So we think it will be a good day and also we're going to be clear on our financial targets. So we look forward to that. And hopefully, we'll see most of you there as well. And then the final comment is, I hope you have a nice summer when it comes to you. I don't know how many more companies you have to cover. And thank you for this quarter and look forward to catch up after the summer as well. And if there's anything you need clarification on one-on-one, just give us a call and let us know, and I'm sure we can solve that as well. Thank you very much.
Okay. Thank you. Bye-bye.