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Earnings Call Analysis
Q2-2024 Analysis
Beijer Ref AB (publ)
Beijer Ref is continuing its global expansion, now operating in 45 markets. This global presence allows for a balanced view and mitigates risks associated with market-specific downturns. The company closed the acquisition of Young Supply in the U.S. and is pending an acquisition of a leading HVAC distributor in Hungary, which will enhance their market presence and capabilities.
The company reported a solid financial performance in Q2 2024. Sales grew by 12% year-over-year, driven by a combination of organic growth, acquisitions, and favorable foreign exchange impacts. EBITA increased by 13%, leading to record margins for the company. These positive results are attributed to strong performances across all regions, especially in the U.S. with a 34% growth.
Beijer Ref reported record margins for Q2 2024, which are higher than last year's figures. This strong margin performance is attributed to seasonal effects and efficient cost management. The operating cash flow for Q2 was SEK 354 million, a significant improvement compared to last year's SEK -196 million due to better EBITDA and lower net working capital needs.
Beijer Ref achieved 2% organic growth in Q2. The company saw improved sales across various segments, including HVAC, OEM, and commercial refrigeration. The company is also focusing on transitioning to green refrigerants, which garnered significant orders in the U.S. for CO2 transcritical systems, indicating a promising future.
The U.S. market showed robust growth with sales up by 34%. This growth was driven by favorable weather conditions and new branch openings. Beijer Ref also focuses on private label initiatives and has plans to open additional branches. The integration of Young Supply is expected to bolster the company's presence in the U.S. refrigeration market.
Strategic acquisitions continue to play a significant role in Beijer Ref's growth strategy. The acquisition of Young Supply in the U.S. was highlighted as a strategic fit for expanding refrigeration capabilities. The company is also pursuing opportunities in the HVAC market and has potential future acquisitions in the pipeline.
Moving forward, Beijer Ref expects sustained growth driven by acquisitions and organic expansion. The company plans to maintain strong margins despite ongoing investments in growth and inventory normalization. Looking ahead, the company's strategic focus will involve expanding its product offerings, particularly in green refrigerants, and leveraging synergies from recent acquisitions to bolster financial performance.
Welcome to the Beijer Ref Q2 presentation for 2024. [Operator Instructions] Now I will hand the conference over to CEO, Christopher Norbye; and CFO, Joel Davidsson. Please go ahead.
Hi, everyone, Christopher and Joel here. Welcome to our Q2, and thanks for calling in. So we will move over to the next slide.
So Beijer Ref in brief, I think there's no news here really. We continue to grow, as you can see. We're now in 45 markets around the globe, which will -- which I'll come back to a little bit later on because it's giving us quite a nice balanced view on the world being in so many different places going forward.
So moving into the next slide, highlights for Q2. I would say a very good quarter for Beijer in almost all categories. We're coming back to a nice organic growth after 3 quarters on the negative side and also related to, as we said, the energy situation in Europe a couple of years ago. So I would say coming in as expected, acquisition continues to drive very good value for us, and they continue to develop well. And we continue to have a good pipeline there. So very nice development for us. If you put that all together and our sales grew 12% in the quarter, which we're very happy with.
Then on the side, the margin side continues to be strong. Record margins in the quarter and record margins ever for Beijer Ref. And you can see the trend there looks very good. And it's stable across both EMEA, and the U.S. have come back too and then a very nice trajectory in APAC that we have worked out to develop the margins.
Cash flow, positive in the quarter as we committed to. We continue to balance our inventory. We are usually not a positive cash flow Q2 as it usually is released in Q3, Q4. But we'll continue to have this trend throughout the year as we normalize our inventory levels.
We did close the acquisition of Young Supply in the U.S. We'll come back a little bit to that. And then we have an acquisition pending on the leading HVAC distributor in Hungary that needs to go through the competition authorities, and we'll come back to a little bit later as well.
The next slide. Here, you can see the product groups. We returned to positive on the HVAC side as we're coming with more normal cost there. OEM continues to be strong, especially in the EMEA segment. We'll come back to a couple of key orders that we achieved during the quarter and were extremely positive for us. Then the commercial industrial refrigeration is stable in the quarter. Worth mentioning here is that our focus on the Sinclair, Inventor continues to do very well and continuing to outpace the rest of the growth.
Next slide. We'll go in a little bit more in detail. So on the EMEA side, a fairly stable development during the quarter with very good growth in our very focused OEM segment, where we are transitioning into the green refrigerants that we expect to continue to do very well in the future as well.
Worth mentioning in that segment is that we did take 2, we will say, key orders. One, we took a first order in the U.S. on CO2 transcritical systems, and there is a lot of things happening in the pipeline for our solutions in the U.S. And it's also a nice collaboration between our platform in the U.S. and SCM Frigo that will continue to develop there over the years. So it looks very interesting for us to continue the journey that we've done in EU, Australia, New Zealand now into the U.S. So very nice to secure these first orders.
And then I think also worth mentioning our company, Fenagy, who does both cooling and heating solution based on natural refrigerants but more bigger solution, they did the -- won a first breakthrough order on the data center where you connect the data center with the district heating, so you do both the cooling and the heating in our system. So very nice reference order for us and looks interesting for the future.
So happy with EMEA development. I think the only thing about EMEA is that it's been a fantastic weather in our key countries of France, the U.K., the Netherlands, and also those market has been a little bit slower. I mean let's see if it picks up here in Q2. And I say talking a very good development in Eastern Europe and further down south in Europe as the weather has been very strong. And that's why I come back a little bit. The breadth of the number of countries we have in our portfolio balances out much more of the business can still produce a growing business in EMEA despite not having a great start to the summer.
Then moving into APAC. APAC continues to grow, of course, been very active on the acquisition side. Good growth in all of our segments. And I think worth mentioning is the continued improvement of the margins. As you know, in APAC, a lot of acquisitions we do, we do have a lower margin, and then we, through our synergies, developed that, and we'll continue to do that going forward. So happy to see the trajectory. There's a lot of activities, both on purchasing but also on the private label side of the business.
I think worth mentioning is that in a country like Australia, where more and more of the business is banning gas, we see more solutions moving over the ducted heat pump solution. More parts, bigger orders for us. So it's the beginning of a trend, and I expect to see more and more of that as we move through the next couple of years. So very happy with the development in APAC in the second quarter.
Next slide. Moving into the U.S., fantastic growth of 34%. I mean part of the journey that we started on with the U.S. about 1.5 years ago with a fantastic platform on Heritage that continues to develop very well. Plus the opportunity to add add-on acquisition, the latest, Young Supply, nice strategic fit on the refrigeration side. Already a lot of activities on expanding refrigeration in the rest of the platform.
Good activity level in the U.S. Nice -- they will have the opposite of the weather in some countries here with good weather in our key states. So very happy with the U.S. continued development, good margin development as well. Opened a branch here in Q2, will open a couple more in Q3, also launching our private label. So a lot of activities in the U.S. And the platform is developing very, very well for us. So happy with development in the U.S. as well.
Moving on to next slide. So in summary, 12% sales growth, organic growth of 2% and EBITA growth of 13% and EPS increasing by 2%. And Joel will come back to add more detail on that.
Next slide. Here, you can see a little bit more on the breakdown on the organic M&A and FX growth.
Then moving on to the next slide, where you see the sales development continue to have nice growth. And here, you can see also, of course, that we trended over to organic growth again as we expected and good acquisition growth as well and looks -- the acquisition outlook looks good for the rest of the year and into next year as well. So I would say a very good development.
And moving over to the next slide. Here, you can see the quarterly development on EBITA, 13% and also, of course, the margin that's been very strong and continue to be in a nice trajectory for us, as I said before, and year-to-date EBITA growth of 10%, a slight improvement in margin. So in total here is a very stable development for Beijer Ref and in line with our expectations.
And then moving over to the next slide, where you can see the margin development over the last couple of years, and you can see the trend there. Of course, our Q2 is our strongest-margin quarter in general, and you can see that being in line, a little bit better than last year. That was a record year as well. So the seasonality plays into the margin as we sell more when it's hot, and of course, moving into the U.S., they will have the same type of seasonality as well in Europe as well. So a very good trajectory and a good development on the margin side that we're very, very happy with.
So with that slide, I'll turn it over to Joel, and he will say a little bit more details on the financials.
All right. Thank you very much, Christopher, and good morning, everyone. I will jump straight into our reported EBIT, which is just shy of SEK 1.1 billion, up 13% compared to last year. Below EBIT, I have to say, it's a pretty clean quarter in line with expectations, with a net financial expenses of SEK 139 million and a tax expense of SEK 230 million, which is representing an effective tax rate of 24%, all in all, resulting in a net profit of SEK 728 million, which is up 2% compared to last year.
Just coming back to the increase in net financial expenses compared to last year, it's driven by increased debt and higher interest rates, approximately explaining 50-50 each. There is some more positive FX effects last year as well compared to this year in the financial net.
So moving over to next slide, this chart on the EPS. As already mentioned, it's up 2% in the quarter. And adjusted for the same number of shares, the year-to-date number is down 4% so far.
Moving over to our cash flow. Q2 operating cash flow of SEK 354 million, as Christopher said, despite the negative seasonal effect from net working capital, and it's mitigated by a continued controlled buildup of inventory. Buildup of net working capital in the quarter, the SEK 728 million, is primarily driven by AR, of course, for the higher sales in the quarter. Overall, cash flow is SEK 550 million better than last year, driven by improved EBITDA and less net working capital tied up compared to last year.
If we look at the year-to-date numbers, cash flow of SEK 936 million, which is SEK 1.3 billion ahead of last year on approximately SEK 1.2 billion lower additional working capital tied up than compared to last year again. And worth mentioning here as well, our reported inventory is more or less on the same level as last year. But adjusting for the acquisitions we have made and also FX fluctuations, the underlying inventory is down approximately SEK 700 million compared to a year ago.
Next slide, our net debt development. Net debt increased by SEK 1.7 billion compared to Q1, driven by our acquisition-related activities, primarily on Young Supply. On that, net debt in the quarter, adjusted for leasing and pension increased to SEK 2.06 million, up 0.4 turns compared to Q1 and just below same quarter last year.
And with that, I'll hand over back to Christopher for a summary.
Thanks, Joel. We have here a great summary. It's a very strong quarter, no surprises. Good development across our different regions, APAC, EMEA and then the U.S. Of course, very happy with the U.S. development as we can see the platform is developing as we want it to and a lot of opportunities and activities in the U.S. It's going to happen in the future as well. But the foundation is very strong. So happy to report good margins across the board at record levels, which shows the work we're doing is very appreciated both by customer and our initiative is increasingly improving margins.
We continue to work with our inventory to normalize that by the end of the year. So we're in the journey of that, and it's going according to our plan. So everything there is under control. Acquisition that we've done has been fantastic on Young Supply, very strategic for us. We also look forward on the Cool4U as we move through that process. And then the pipeline continues to look positive for us. And also based on an expected good cash flow generation here to Q3 and Q4 to give us good firepower in that process as well.
So all in all, a good summary. We had a record quarter for Beijer Ref, and turning back into organic growth that we're very happy to do as well.
On the long term, I will say, not a lot of big changes. Everything is moving forward on the sustainability, electrification, regulation. You have the F-gas that's accelerating in the EU. We have HVAC, as you know, becoming more and more active on the HVAC also for next year. I think added here, of course, we're very happy on the first CO2 orders in the U.S. and also Fenagy order for the data center. We look forward to be more active in over the next coming years. We talked about the U.S. platform, and our initiatives are going well. And the pipeline looks very good. So all in all, a nice quarter to finish off the first half of the year.
And with that, we'll open up for questions.
The next question comes from Gustaf Schwerin from Handelsbanken.
I'm Gustaf, Handelsbanken. Two questions. I'll start with the APAC margin here, a big jump year-over-year, 200 bps. Clearly better than what I had expected. I mean you've obviously been discussing the potential here over time. I appreciate the comments in the report. Can you elaborate a bit on the initiatives for pricing you're talking about? What exactly does that mean? How much of an impact from that have we seen already? When do you think we get the full impact from all the margin initiatives? And also, is it reasonable to see APAC sort of being a double-digit margin business rolling 12 within, I don't know, next year? Sorry, many questions in one. I'll take that one first.
Yes. So I mean we see -- of course, we see these trends in our internal initiatives and all the different product groups we have. What distorts the margin, of course, a little bit in APAC is as we've been very active on the acquisition side, and also those acquisitions are dilutive on the margin. So it's always hard to look at the external margin while we see the internal development plus the acquisitions. So you had an acquisition that we had very good synergies and work with. That's what's diluted the margin in the beginning. So you see the impact of that coming through now.
But I think in general, our ambition, as we said, on APAC is to underlying it up to the 10% EBITA. I won't give you a timeline on that. But of course, we expect that ambition to start seeing that as we come into 2025. Let's see if it's a full year effect or it's step by step per quarter, but we're moving in the right direction, and the initiative we have should continue to support that. But it's not probably a straight line. It's still step by step, but what we see right now is very promising, as you can see in the reported numbers, of course.
Then just secondly, on the data center, what you mentioned, can you say anything more about it, I don't know, order value, perhaps addressable market as you see it? Yes, anything really.
Yes. It's early days, right? So we won't go into size and where and what it is. It will be more official as we move into Q3. But it's the biggest order that we have received. So it's a big one. And it's more a different type of solution, right, where you are instead of building, I guess, all data centers up north where it's extremely cold. And this is where you connect with the district heating, so you can manage -- leverage both the heating you get, you can release back into the district heating system and the other way around on the cooling side.
So it is a breakthrough order for that type of technology extreme and based on green technology. So it's a green refrigerant in these type of systems. So of course, when you get the first reference order like this, it will be very interesting to see how it moves forward. But there's quite some more of these type of projects in the pipeline. I can't disclose it yet. But I'll give you some more details as this becomes officials in Q3.
The next question comes from Carl Ragnerstam from Nordea.
It's Carl here from Nordea. A couple of questions from my side as well. Firstly, on the U.S., it looks like you grew a few percentage organically in the quarter. Could you help us understand whether this is pricing driven or if you also saw volume uplifts in the U.S.?
And also secondly, could you also give any comments, I mean, whether the quite-high-cooling-degree days during the quarter gave an effect on the underlying volumes in the quarter, whether it might come with a lag effect instead?
Yes, I'll start, and then the cooling days, I'll give you a high-level answer. It's still a combination with art and science, of course, in that process. But yes, we saw a nice volume uptick in the business in the U.S. in the quarter. The price is positive in the U.S., but it's not any big numbers. It's very low single digits, I would say, in the market. But stable market.
We saw activities pick up well. And then, of course, you have the weather, and how much is the weather and the underlying business is, of course, hard to judge. But it's been very hot. And I would assume our customer, the installers is extremely busy at the time. So you would expect a lag in that as well.
But let's see how it develops going forward, but it's been a solid quarter for us. And of course, also very happy that the margins are holding up very well, and the synergies with our acquired business is looking promising as well.
So on the weather side, let's see how it continues to develop. It's still early days. But for us, the U.S. was a positive business here in Q2, which was very good for us.
Okay. That's great to hear. And continuing on pricing in the U.S., you said low single digits. A lot of the OEMs are starting to push out the new products, right, under the A2L regulation here, maybe Q3, Q4. How do you expect the phase-in/phaseout of the new product in second half? And have you received price indications so far? What do you expect the prices to be of the new products from your main supplier?
Yes. So we are right now in the discussion with our main supplier on putting our first orders for the A2L type of product. So we haven't started ordering it yet. So we're working through that together with our partners on what and how much and also balancing the inventory and the portfolio for the current solutions because, of course, after end of this year, they -- I would say, probably in Q4 already, they won't be manufacturing that type of product anymore.
So it's an active discussion. I can't disclose the price increases that we are getting. So I think it's more the market assumption is somewhere, I think, between 10% and 15% or 8% and 15%. And of course, what we are doing is, on our side, working with our partners. So -- but I still see this as starting to transition in 2025 and don't expect any major impacts in 2024.
Okay. So it's -- I mean it might be even 0% to 10%, 15% of the products sold in the U.S. in second half that might be of the new products? Or is it in that range? I'm not sure.
I don't know, Carl. I think the general assumption for us is, yes, we'll start selling it. But the main impact you'll start to see is when you move into season next year, which is Q2, Q3, right? Before that, I don't see you will see a major impact on our numbers from it.
Okay. That is very clear. And also in Europe, coming back a bit to the weather effect as you also mentioned. They're quite unfavorable in your main markets during the quarter, I mean, seemingly improving a bit in June, July. Did you see any correlation in your volumes with the weather in Europe? Obviously, developed quite well anyway, but is it hampering the volumes? Or did it hamper the volumes during the quarter? And could you also see a pickup now that it's improving a bit, once again, I guess, the speculations? But any flavor would be helpful.
Yes. I think what we're seeing is, of course, you have an effect if you have these heat waves and very hot weather. And what we've seen the highest activities has been Eastern Europe, Greece and Southern Italy and southern parts of Spain, where it's been very hot. So that's been a good development.
Then you had big countries for us like France, U.K., Holland and et cetera. It's been raining. I think June was the rainiest month. So I don't know, somebody told me 100 years, but I want to try and avoid to be a weather expert in this job. And that's why I come back a little bit to the breadth of our presence makes us less -- gives our portfolio more balance. Some are up. Some are down. But of course, we would look forward to see our big markets picking up again. And I think it's, right now, too early to tell. We're in July, and let's see how it develops. But I don't see any big changes right now compared to how we've been trending in Q1 -- in Q2.
Okay. Very clear. And also on the new stores you're launching in -- or branches you're launching in the U.S. When you launch a new branch, I mean -- firstly, how many have you launched and also in what regions you're trying to fill the white spots?
And secondly, when you open a new store, is it typically smaller ones, less than SEK 100 million in sales? Or you're also targeting launching new stores, which could be mid- to large size as well?
Yes. I think it's -- short term, you don't get an impact of it, but we usually have -- the ones we open now is in Tennessee with Ed's Supply. We have one more there coming up this quarter and one more in the new Young Supply. But it takes -- you need -- usually, we don't disclose. I mean we do this all the time in EMEA and APAC, and it's nothing we talk about.
But in the U.S., of course, a lot of interest in a new platform where we will expand probably 3 to 5 branches per year for the coming years. So -- but you'll start seeing it coming in the numbers as you move into usually year 2 and 3 of the branches. So you, step by step, build it up. So I mean in the beginning, it's dilutive, and then it's an investment that you can grow the business. So -- but of course, these branches, depending on location, could be sales anywhere from $10 million to $15 million per branch.
The next question comes from Adela Dashian from Jefferies.
A follow-up question on the margin. I mean I know that you are continuously investing into the business, especially in the U.S. So the potential for margins to have been higher in any quarter were probably large. Could you give us your view on the cost base as you're moving into the second half of the year? Would you say that the elevated costs are still very much so present? Is it coming down? Is it being reaccelerated? And what kind of impact should we expect that to have, if we say volumes are even higher in the second half versus in -- versus what it was last year?
Yes. I think what we're looking at is continue to have stable margins throughout the year compared to last year. I mean it's been a strong development, but we do have acquisitions that we're working with and new coming in as well going forward. So I mean that's our base scenario, is a stable margin despite the investments we're doing going forward as well. So no significant changes we would expect on the margin side.
Maybe I can ask then on next year, do you still need to make these investments? Or will you feel more or less not filled?
No. We'll continue to invest in the growth. I mean we have the whole private label initiatives we're driving now in the U.S. We have the e-commerce development that we're going to do. But our job is always to be able to improve the business through synergies and acquisitions and also the other initiative we can do these type of investments to drive the growth long term. So we expect that to continue as we move into 2025 as well, but should have a positive impact on the growth side, of course.
Makes sense. And then just following up on the data center order that you received. I understand that you don't want to comment specifically on the order size and so, but could you say anything about where -- is it a European order? I would assume then because Fenagy is mostly Europe. And is it from a hyperscaler or a colocator operator?
Yes. I can give you one information. It is in Europe. If I let Fenagy go in the U.S., we'll be -- no, we do not -- we need to take it step by step even if it's growing very fast. It's in Europe, and it is -- I don't know the definition, but it's a big contract and order and a massive size.
So -- but again, I think I'm mentioning because we've been working on this type of solution for quite some time. And of course, it's also always a challenge with new technology that you need to prove yourselves to get into these type of segments. And it's a natural refrigerant, and it's both the cooling and healing with district heating. So it's a very, I would say, impressive solution. But we'll give you some more input when it comes official in Q3 on the details of it, and then we can discuss it a little bit further.
Makes sense. Another question then on the acquisitions. I would assume that most of the pipeline is still in the U.S. What's your view on that going forward? Should we still see, on average, 1 or maybe 2 acquisitions per quarter going forward? Or yes, what's your view on that?
Yes. It's hard to make that kind of statement, right? It's always -- it moves a little bit erratical even if we do have a pipeline that would support that type of statement. And it's not -- to be clear, as I said before, it will not only be the U.S. So we still have a good pipeline across the globe. So we're still focusing on that. And we would expect to be active here in the second half of the year as well.
Still bolt-ons? Or are you also considering platform acquisitions?
So you can't see me now. I'm looking at my CFO and see how much money he will give me. No, I'm just kidding. No, it's not only -- it's a mix, but if Young Supply is an add-on or bolt-on, of course, they're usually a bit bigger in the U.S. than they are in Europe. But it's a mix between midsized and small-sized acquisition that we are focusing on right now.
The next question comes from Karl Bokvist from ABG Sundal Collier.
Many questions have been asked already. I'm just curious on if you can give us an update on how large share of refrigeration is now in North America now when you've closed Young Supply and what it could be towards -- I mean, once it's -- once we get a few quarters with it.
Yes. If I do the back-of-the-napkin analysis, if you're okay with that, Karl.
Sure.
I would say it would be around somewhere between 12% and 15% refrigeration. And our first ambition was to grow it to 20%. But we, right now, as we put Young Supply into the mix, we're right now, analyzing the entire playbook on which branches, how, which suppliers we're getting access to products now that they did not have before, not only because of Beijer Ref but also because of Young Supply and their platform.
So I think we can be a little bit clearer when we put that playbook in place, and we can see the speed on how it will transition here over the next 6 months. But we can come back with a clearer target on there when we see the development, but there's a lot of activities in there.
And a lot of -- it's a lot of interest on how we build that up now because we have the infrastructure. And also remember, the reason we like the refrigeration is probably not just -- not like a standalone business, but it's the combination with HVAC and all the tight branch network we have, we are very competitive and also with a supplier network in there. So we do have a competitive advantage that we can leverage, I would say, over the next 5 years in the U.S. for sure. So let me come back a little bit more after we've seen where we end up in our suppliers.
Understood. And sticking on refrigeration side, we've seen some news of refrigerant prices picking up again in certain categories. A couple of years ago, this was a very lucrative side of the business for you. So just curious if you've also seen for refrigerants that you're selling that it's been a good market. And if possible, if -- how much of your sale of refrigerants that you currently have in your group?
Yes. And I know when you look at Beijer Ref before my time, I think it was '18 and '19, you had -- when we went through the sort of regulation, price has gone up 2, 3x. And I can't remember top of my head, refrigerants, that was 15%-plus of sales of Beijer, so that made impact. Today, it's less than 5%. I would say it's less than 2%, 3%.
So I agree, prices continues to increase, but maybe at a speed of 10%-plus per year, but it's not a major impact on us, which I think is pretty good because we've grown so much in other segments. Then I would expect also part of the volumes will be down as the market on heat pumps and all the refrigerants that we're selling to those are being balanced out. So all in all, not a major impact on the business so far.
[Operator Instructions] There are no more questions at this time. So I hand the conference back to the speakers for any closing comments.
Thank you, and thanks to everyone for calling in, and I wish you have...
Sorry, Christopher. Sorry, jumping in here. We've got 2 more questions now at the last second. So David, go ahead then.
The next question comes from Robert Redin from Carnegie.
Yes. I just had a question. I read in the report that you said your private label brands, Sinclair, Inventor and Freddox had strong double-digit growth in the quarter. So that seems to be continuing to contribute to organic growth. Could you say something about the process there? Where -- what's the plans for the next couple of quarters? Are you rolling out in more regions? And if possible, how big has that business become for you?
Yes. So it's the biggest in -- or it has scale in our EMEA platform on there as we -- especially rolling out Sinclair in more countries in Southern Europe as part of our platform. We're also looking to launch it in our APAC platform, have not done that yet, and we're just about -- we're about to launch it in the U.S. in there.
So I think the -- in the EMEA region, that is about 20% of HVAC sales on the brands. And then APAC and U.S. is just starting the journey. So right now it doesn't have an impact on our business, but it looks very promising to have this mid-tier product to also work with that type of customer because we don't see any cannibalization with premium customer and mid-tier. It's 2 different segments.
So long -- we'll continue and roll this out in EMEA, but the focus is also how we build it up in APAC and now the U.S. regions.
All right. But do you think that level, the share of this in HVAC Europe for EMEA, is that the level it will be at? Or will it go higher? Or...
No, I think it will continue to go higher, but I don't think it's going to be -- I mean, at 20%, I think, is a good level. Maybe it'll go to 25%, but it's not going to go up to 50%. That's not our ambition. But it's a good brand to have, and it's a good growth driver for us, plus it's a good margin development.
So I think it's more that -- it will continue to outpace the growth in the rest of the product portfolio. But I think EMEA still is starting to be at a good level. And I think the opportunities for us to grow that is more in the U.S. and APAC, and from a small base, it doesn't make a difference.
Perfect. And on refrigeration or Freddox, right, is that still more early days than on the HVAC side?
Yes. The reason I don't mention too much is that journey will take step by step because it's a much more complex portfolio. So it's growing very fast, but from very small levels. So it doesn't come through in the numbers yet. So we have those initiatives. We will look at it. We're launching it in APAC now as well. And down the road, we'll look at it for the U.S. as well. And so -- but that's more a long-term investment for side -- that side of the business. So...
The next question comes from Brijesh Siya from HSBC.
I have a question about the heating market. I know it's a small business for you. But just looking at the opportunity size there, given the market is now in a weak position and many producers are now kind of jumping into the European heat pump market and they're trying to build a distribution network, I just wanted to understand from you, how do you see that market as an opportunity for you going forward? Do you see a much more kind of players coming in and you, as a prime distribution, to be -- to help them build their network for them? So that's my first question. I may come to the second one later.
Yes. I think it's for us -- it's, of course, a nice opportunity. We are being approached by new players to leverage our distribution network, of course. So it's interesting discussions both on the product side, the pricing side, et cetera. But for us, we're also very happy with the partners we do have in our channels. So I don't see any big transformative changes for us in that way.
But I'm not too concerned that new players are coming in either in the channel. So I think that's more an OEM challenge or opportunity, however you want to see it. So for us -- but we do maintain discussions with new players and especially if they have interesting product that we're missing in our pipeline or innovation going forward that we see for us, then we will see if there's something we can do together.
Understood. And when you look at the heating distribution and cooling distribution, does that need to be separate? Or you can do both the heating and cooling solution to one distribution network?
No, it's normally 2 networks where, I mean, the heating -- big heating is all the plumbing and everything around it while the cooling side is the electrical side of the business. So when we talk about in our networks, you have -- like always, you have some convergence of 20%, 30% to 40% of those channels. And that's where we play. So we do not play in the big plumbing segment. And at least right now, we don't have any intentions to do that either.
Understood. And just lastly, on the destocking, anything you have noticed whether that's over? Or -- I mean, I know last time, you commented that it's more like looking like your Q3, Q4 story, but anything you have pointed -- or seen in the market?
No, I haven't seen any change in behavior there that's worth mentioning.
The next question comes from Adela Dashian from Jefferies.
Just one follow-up for me on data centers. It's a very key topic right now. Would it be fair to assume that the only segment in which you could see more data center orders coming through would be OEM for the time being given that the rest of your exposure is mostly aftermarket sales where the service opportunities within the data center market aren't as prevalent in the near to midterm?
Yes. As I said before, I know that we discussed it, we do access in certain areas the market because with all the companies we bought in Eastern Europe, for example, have a wider scope in their business that also moves into these areas. But also in that same token, I don't want to overplay that hand. It is a business for us, but it won't change the world for Beijer Ref at this moment with a business model we have.
But of course, the Fenagy situation could be substantial for us going forward. But let's see, it's the first one, but usually that's the hardest one to be in. And I would say our solution is pretty unique. Nobody else was bidding with our solution on -- based on natural refrigerants, and of course, we believe that's the future. But let's see. Let's get some more concrete fact before I start tooting my horn on this.
There are no more questions at this time. So I hand the conference back to the speakers for any closing comments.
All right. Let's try and do this again. I hope you all have a very hot summer, and we'll continue to drive the business from here. Thank you very much for a good discussion and good questions, and have a good break whenever it comes to you. Thank you.
Thank you very much.