Nibe Industrier AB

STO:NIBE B

Earnings Call Transcript 2022-Q1

[Operator]

Ladies and gentlemen, welcome to the NIBE Q1 2022 results presentation. [Operator Instructions] Today, I'm pleased to present Eric Lindquist, CEO; and Hans Backman, CFO. Please begin your meeting.

[Gerteric Lindquist, executive]

Thank you -- good morning, everyone. And thank you for joining us. And as usual, it's the gorgeous day Markaryd today, 17th May, sunshine, 20 degrees is forecasted, and we're going to have our annual shareholders meeting in a little while in these afternoon, so the setting couldn't be any better. And the way we're going to present it is like usual, I start and then Han's going to come in with all the financial details, and then we round up with a number of questions, and hopefully, some good answers as well.

Unfortunately, we are a little bit stressed today. So at latest, we have to be finish by noon. I hope you understand that. So just to dig into report itself, you read it, and we dare to have that headline during a strong start to the year. And of course, we had a growth of some 28% to consider it fairly strong if we are not reporting ourselves too much. And of course, that is help naturally by currencies and price increases Underneath, it's a very steady organic growth could have been much better, of course, have we been able to deliver, and we are using some strong words even the word chaos and reports. And I think that's relying on semiconductors and relying on components using semiconductor I think that was already fairly focused.

We hope, however, that eventually, there is going to be a cure, sort of successfully during the year is remaining. We actually hope so, the semantic guests from our suppliers, whether that is chisel and stones, we only know by the 31st of December. And this increase in order intake of course, in all 3 our business units, that is an indication that we are at a point in history, we can tell you. And we are going from fossil fuel into a more sustainable way of live it, and that's affecting all our 3 business areas very positively. And as a consequence of that, we are investing quite heavily in all 3 business areas. And for those of you who are going to visit Markaryd later on today, you're going to recognize a tremendous change, and the little village where we live, where 3 major constructions are going up on the new Heatron factory, a new digital sensor and a new R&D lab is going to be second to none in the world. It's a bearing project, and there's no -- probably in Markaryd .

We are in [indiscernible] with CTC. And we're also investing in Germany. We are doubling capacity because we are fairly convinced now that the way cannot be hindered, but we're all going to leave eventually oil and gas and go into heat pumps and all other sustainable ways and, should I say, solving this kind of issue. Certainly enough, of course, you all know that we have this war in Ukraine that we also named with very bad words because we think it's totally asinine to -- for anyone who start a war in these days. and all the atrocities that we seeing on TV and listening to and reading about absolutely [indiscernible]. And that's why we have decided to be withdraw closely from Russia. And we have one major operation, you can say with manufacturing and then the smaller one with the sales office, and we have assumed now that to write it down to 0 in value, as there are going to be roughly SEK 114 million .

So of course, that dampens the result in the first quarter, but we all know that down the lane, margin is much healthier than that. And as I said, the organic growth is fairly decent. And of course, we foresee that once deliveries to us and to our sister companies going to be up at par again are going to be continuous very good growth in the future. Our operating margin is somewhat lower, not dramatically, much if we just exclude the SEK 114 million, which we think is of extraordinary kind, and that is that we are lagging when it comes to price increases. We've been hit by phenomenal price increases since actually last fall and no matter how fast you are, you're always going to be a little bit behind.

But we are in good faith, believing that we're going to close the gap as the months go by during the rest of the year. And unfortunately, we haven't been able to really acquire any companies in the first quarter of any significant size anyway. We have all but some small add-ons. But we can assure you that we have a number of should I say, very interesting negotiations going on, and we hope we're going to be able to present those within a relatively short time.

If you dig into the figures themselves, it's already mentioned 28% in growth, and that is very much improved organic growth in combination with the currency and the price increase is only little above 1% that's been acquired, as I explained before. And the operating margin is down to 10.8%. If you would include the SEK 114 million, we will be at 12.1% versus 12.7%. So that's the gap that we have to close during the year, whereby these should be able to have a similar margin for the full year. as we had last year. That's our target anyway if we are not too bold in giving such a forecast.

And then we have a chart that we typically look at. And we see now that net sales in the bar chart is really taking a little bit of a hit upwards. And of course, had we looked at the order intake, it would have been much steeper than that. And that also gives substance to our same in the report when we came out with a full year and we are approaching the SEK 40 billion. We know that, that was questioned a little bit perhaps some years back when we passed the SEK 20 billion, suggesting very boldly that we would run at SEK 40 billion. I believe or we believe that already listening in now plus our employees in the rest of the world, they realize that the SEK 40 billion is truly an intermediate target.

And looking at the other bar chart there with the results, of course, that takes a little bit of a dive or at least not as good looking as the sales part of it. And that is, of course, again, hit by the SEK 114 million there. So there, we are fairly positive about the future. But again, being very dependent on our suppliers.

If we just then have a quick look at the business area, Climate Solutions. Of course, we see a very good growth in Europe, both in residential and commercial and also a steering interest in North America, but they are certainly behind Europe in that sense. I'm not saying that derogatory is just that they are a little bit behind the development in Europe. And of course, the shortage component is very, very sad. And we apologize as many times today we can that we cannot fulfill our obligations because for those are so many people, so many private individuals, so many house manufacturers, so many contractors that have put their faith in us and we can't deliver. And the only, should I say, positive thing, if it is a consolation is that we are not the only ones, but we want to be a little bit better than everyone else.

So that's why we are very sad that we can't deliver as we would have liked to. And all three sectors or business areas are going through this massive capacity increase. And as I already mentioned, that in the Climate Solutions there, we see a very strong demand for at least this decade coming out. And now we're talking about Europe and eventually also North America. So with that in mind, we dare to invest quite heavily. The margin, again, is slightly weaker than before, even if we add back the SEK 114 million, we would around some 0.3, 0.4 and operating margin weaker than the year before. So again, that's a gap we have to close, and everyone is very determined to do so because we cannot operate as a bank. We are an operating company trying to sell products at a good performance and with a decent profitability and we're going to continue to act like that.

To write off the Russian,[ coal ], operations has been a long, long haul for us, and we must say that we've had pretty good operation in the last couple of years there with the new management and Board, English speaking. And so in that sense, it's sad that we just have to discontinue everything. We try to treat all their employees in a very good manner. They all get their salaries. So nothing's going to taint our, should I say name in Russia, but we cannot live with the atrocities that are going on there. We're going to do it in a very structured way, of course, with all the best legal advise that is possible we can bring it on.

And if you just have a quick look at the figures that represent pretty much what I said, where we had an operating margin of 11% only, but that is like really close to 13.1%, if we add back SEK 114 million. We're a very solid growth there of the business areas close to 30%. If we just jump very quickly over to Stoves there, again, we've demonstrated how the path of this change, and that has been, of course, very much explained by the pandemic until recently, but it's almost like we have forgotten the pandemic now and now it's a new time. And now we are there with much higher energy prices which we, of course, realize now is that a lot of consumers, they invested in Stoves to reduce the effect -- the negative effect of the higher electricity prices or whatever you use for heating your home.

So that's a positive sign also for the Stoves side, but the world is going in a more sustainable direction and there Stoves is also going to play an important role of a secondary heat source in the home. And we are, of course, aware that we would need to -- we are -- we have to reduce the profit growth in the emissions. We would love to get rid of the holders. And almost like the neighbor, of course, with the more anger the older and the environmental institutions, they are pretty much aggravated by the [indiscernible] we are, of course, very much -- we feel very much obliged to solve those issues. That's why we spend quite some money now trying to come out with models that are much, much better when it comes to [indiscernible] emissions and eventually it will also solve the older issue.

And here again, we are expanding quite rapidly in Britain, we are to open up a [indiscernible] new factory here in midyear. That is one example. So it's not only the Climate Solutions side, but all three sectors are expanding quite rapidly. And the operating margin, again, just like with the kind of solution, we have not been able to close that gap, but we are in good faith when it comes to the coming months to do so. And you look at the operating margin, slightly weaker than a year ago despite the growth, illustrating how massive the price increase is for us has been. And if we then quickly jump over to the element, same pattern again, very healthy growth, of course, helped by price increases and the weaker currency.

And the sustainability profile is certainly moving very quickly in the right direction. And also the semi-conductor industry that we all know where we are very much engaged in with our 3 subsidiaries in North America. We're interested to see that development, but also understanding fully the time lag. You don't see a factory of that magnitude built there very quickly. There is going to be some quarters still before the manufactures are up actual speed. And they are again an ambitious investment program and the operating margin slightly below the year before, but still above 10%, which we think is a healthy way of presenting ourselves.

And just some pie charts before Hans kicks in here. it's pretty much the same as before when it comes to sales distribution or revenue distribution when it comes to the EBIT side of it, of course, lacking a little bit of the Climate Solutions at SEK 114 million other than that, the pie charge are very much identical as the previous year. And then the distribution of sales where the Nordic countries which we really consider the whole market of 23% and the rest of Europe, some 47% in North America, about a quarter, and that element of course has substantial sales outside Europe, but that is pretty much restricted to Element. I'm sorry, I took a few more minutes than I should have. I think I hand over to you there. Hans.

[Hans Backman, executive]

Thank you, Eric. No problem at all.

So we'll take a little deep dive into the numbers, a little bit of repetition, I guess, but leaving enough room for questions at the end, of course. So coming back to Climate Solutions. As Eric said, it's been a very strong growth here with the sustainability theme as a main driver. And it really started in connection with the pandemic and has then been reinforced by the war sadly enough, but that has really triggered the need to shift over to more heat pumps and other products that we sell. However, this has also led to the write-down that Eric has mentioned a couple of times.

Nevertheless, sales were up some close to 30%, a very little portion of that has been acquired. There's a portion of positive currency effect in that, but it's not too much. So it really comes down to an organic growth, which then, of course, is a combination of more -- I mean higher sales of pieces and then also our price increase is beginning to kick in. But we've not yet been able to compensate fully on the gross margin level. As you can see, it's down from the 35% to 32.6%, which then lands in at an operating margin of 13% as opposed to 13.4%, if we take away the write-down in Russia. But there is a strong and very healthy underlying demand in the business area.

And if we look at the distribution of sales, it's fairly similar to what we had last year. Nordics being some 27%; Europe, 51%, that was 50% last year. So very small movements. North America, stable at 19%. Then coming over to Stoves. It's an almost unusually strong demand for Q1. We did, however, have the same pattern last year as well, which was very much driven by the pandemic with renovation trend at home. And that has continued in a way, but it's also been reinforced as Eric said, by the ever-increasing energy prices where people are more and more looking for alternatives.

And also, unfortunately, reinforced by the war in the sense that people are also looking for safety, meaning that they are looking for a system that is off grid, which has led to these high sales numbers. So the growth here is 27.6%, up to SEK 900 million from the SEK 705 million, no acquisitions, about 1/5 of currency effect in there and the rest then being organic growth in a number of pieces and price increases on top.

However, also here, there is a challenge in meeting the supply chain issues. So the gross margin is a couple of units lower than where we would like it to be. We have a very good cost control on the overhead side. So we've been able to land in an operating margin, which is at least 11.5% as opposed to 12% last year. And it's not too long ago that the first and the second quarter always were around 7% or 5% even. So it's a shift in that business in a way. In terms of distribution of sales, the Nordics have actually gained some compared to last year, with 29% of that pie chart. They were 26% a year ago. Europe being roughly the same, has gained a little and North America falling a little bit behind.

Moving on to Element. We see a strong growth in most segments, but of course, especially in the HVAC and semi-conductor segments, just like in the two previous quarters really. But also here, we have seen supply chain issues, although not as tough as within Climate Solutions, but nevertheless, being present. Also influenced by the COVID cases that we've seen in different parts of Asia, leading to supply chain issues from over there. Nevertheless, sales have increased by some 23.7%, a proportion of that 1.7% is acquired, a little bit more help from currency here. It's roughly 1/3, but then the rest still a very good organic growth and also here in terms of selling more pieces and also having price increases, which are beginning to kick in.

Gross margin, slightly down from 23.2% to 23.8%, so we've not yet fully been able to compensate through price increases. But we've been -- just as Eric said been able to land the operating margin about 10%, which, as many of you know, has been a goal from our side for a long time to keep the business area above that level. In terms of distribution of sales, it is our most global business area, with a fairly small portion in the Nordics, 15%; then Europe, some 35%; North America, slightly bigger; and then others, mostly being Asia, making up some 13%, a similar picture to previous quarters.

If we then jump into the balance sheet, it is very much an evolution of our business having a total assets of SEK 43.4 billion at the end of the year, we're now up to SEK 45.3 billion. As you can see there, we are continuing to invest, so the tangible assets have come up and so have the inventories, the nonfinancial current assets. That is, of course, a challenge, and we will see it on a couple of slides later here. But given the supply chain issues, we are doing everything to meet the production demand and needing to source products, which then has an effect on cash flow. And you can see also that the cash on this picture is slightly lower than at year-end.

On the equities and liability side, there are not many movements. We've been able to increase equity, long-term liabilities and both the noninterest-bearing and interest-bearing are basically the same. So there are not too many movements there. But when jumping into the cash flow analysis, I guess this is where you see the challenges with the supply chain. We are paying much more to get the products into our production, both in terms of buying them and also transporting them. So the cash flow from operations is slightly lower than compared to the first quarter of last year. But then foremost, we have large negative effect on the change in working capital, very much coming from building inventory and also paying a higher price for the products. So the operating cash flow is minus 600 as opposed to plus 480 of last year, but we've also continued to invest in our operations, as you can see on the line above there 478 compared to 236.

And that's also shown on the next slide where we look into a couple of key financial figures that we've increased our pace in investing in our business. We haven't really come to a start there in the first quarter of last year with [ 236 ] , but it eventually picked up. So it's not that we are stepping up immensely from what we had just a quarter or so ago. but we are in the phase of investing. Nevertheless, interesting bearing liabilities in relation to equity has come down. Net debt to EBITDA is very healthy there at 1.1, and we've been able to even increase our equity assets ratio further to land in about 50% now.

A short view on the working capital, and it really does make sense to look at the working capital, excluding cash and bank as percentage of sales were up to just above 20% as opposed to 14% of last year where we came in at 17.4%. So this is the situation we have where we're sourcing as good as we can to keep the production going, you can say. The 14% is in a way, an ideal number, but falling below that is tough as well because then you have other sorts of issues. So an ideal level for us is somewhere around 14%, 15%, I would say.

And then just coming into the very last picture there on the key financials. Return on capital employed is 14.1%, that is slightly up from last year, and that is then excluding this revaluation of additional purchase price considerations. Otherwise, it would or it's actually even higher, but this is to have it on a comparable level. And also return on equity has slightly increased up to 15.5%. Net profit per share is also slightly up. So I think overall, we're doing quite okay in these very challenging times, but you might have some questions now questioning that. So unless you have anything to add, Eric?

[Gerteric Lindquist, executive]

No, I'm ready for the questions.

[Hans Backman, executive]

Let's go.

[Gerteric Lindquist, executive]

We see there's [indiscernible] sold the first one [indiscernible], right?

[Operator]

Our first question does come from Viktor Trollsten from Danske Bank.

[Viktor Trollsten, analyst]

Just out of curiosity, a number of questions on the Q1 growth figures. I guess if we exclude currency from the growth figure. I guess we're looking at organic growth of, let's say, 21%. Is it possible to split that into volumes and also price i.e., how much were volumes up year-over-year? That's my first.

[Gerteric Lindquist, executive]

Okay. Well, I mean, of course, we can split that. But here, we have a little bit of hide and seek, but we can say that the organic -- true organic growth is solidly above the price effect. And that's why we haven't been able to keep the same margin. So that is -- the organic growth is the major part of it.

[Viktor Trollsten, analyst]

And just so I understand it quickly and true organically in volumes or...

[Gerteric Lindquist, executive]

Yes, exactly. A number of pieces being sold.

[Viktor Trollsten, analyst]

Okay. So we're talking about volumes up, let's say, 15% year-over-year even in these times.

[Gerteric Lindquist, executive]

Well, I mean, it's not like we don't understand your question, but we don't answer that very precisely something we appreciate your question. But I guess we won't be more specific than we were in the previous answer there.

[Viktor Trollsten, analyst]

I think that's helpful. And also -- and forgive me if you don't want to answer it explicit. But you just talking about capacity utilization in operations for the moment. And if we just assume that component shortage would [indiscernible] tomorrow, how much would you be able to lift volumes from here, i.e., what level of capacity utilization are you running at for the moment?

[Gerteric Lindquist, executive]

We assume that for those it's going to be a bottleneck. We could increase it 50%, but that would be at higher cost. Then you have to drive 3 shifts and stuff like that, and that's not ideal. And that's something you should have in reserve. We could increase -- and that's why we invest now because if you don't invest now, and you arrive at the point that you couldn't even cope with the demand even with over time and driving during the weekend, then we will have the famous creek. So hopefully we try to be a little bit on the positive side here, even if the demand would kick in full year, let's say, in 18 or 24 months. But it also takes like 6 quarters to erect a new building. So I think that the timing is good in a sense. Of course, we would have liked to have the construction cost to low as a drawback.

I mean again, the price is also increasing. So, we cannot be isolated on the price increases on the construction side. Maybe [indiscernible] building well or erecting new buildings when the economy is weak. But when the economy is weak, your you sort of your dareness, your ability to go through that, it's a little bit less, wonder what is going to happen. Now we see that the future is bright, even if some very dark clouds in the short perspective with war and everything, but we will certainly change for a different environment. We see all sorts of cores now with temperatures already in May are exceeding all experiences in the past. We believe that is signal enough. This climate change will not secure itself. We have to assist mother Earth here.

[Viktor Trollsten, analyst]

Yes. No, I appreciate the clear answer. And then on the same topic, just my interpretation at least is that you have quite similar communication in regards to component shortage that you have been in Q4, where you mentioned that Q2 could be sort of the inflection point where things will materially normalize. Is that still the case? Or would you say that things have -- were some in the Q4 report.

[Gerteric Lindquist, executive]

No. But we can say that things here had so much improved neither from the fourth quarter compared to the first quarter. And of course, the message that will be conveyed they are very honest and very transparent. We wouldn't convey a message to you guys out there saying now we hope that things going to be better. I mean that's exactly the message we are getting from our suppliers. I mean we don't hope that to assume that there would be either that's the best way to convey the message to users well. We -- it seems like we're going to improve that means that we're going to be fully up at speed in the fourth quarter, we can predict that. But we'll be very surprising at all the assets being done if things wouldn't improve successively over the years here. That's the message we can we get and that I give you in turn.

[Viktor Trollsten, analyst]

Yes, that's clear. And just finally, just to sort of to understand the magnitude of the growth here. I guess you are running on the Q1 number at SEK 35 billion in sales. It sounds like more price is coming. It sounds like component shortage will to some extent is, I guess we could be looking at your target of SEK 40 billion already this year from that perspective.

[Gerteric Lindquist, executive]

Now you're a bit aggressive perhaps. But of course, there is a clear message already and as I said in the report after the full '21 that demand is very strong. And could we -- have we been able to deliver for your assumption would have been more correct, but we don't think that everything is going to be cured, we've already lost a core scenario you can say. This war is not at all where we wanted it to be. Although it's relatively strong, but I mean it's not -- if you ask our customers, they're very disappointed. So we are in a rock and hard block.

[Operator]

[Operator Instructions] And our next question comes from the line of Christoph Osterberg from Hanneke.

[Unknown Analyst]

I have, firstly, a question on sort of delivery capacity. I mean, it's very positive to see the continued high demand levels. the supply chain still seems to be quite constrained. And I was wondering if you look one step further back in the supply chain, what are you seeing in terms of structural investment initiatives from your sub-suppliers?

[Gerteric Lindquist, executive]

They all increased. I mean, it starts with a decision, as we said because it's not only our own control board that we need chips or semiconductor I think all our suppliers of [indiscernible] components, they also use chips, like if you take circulation pumps,or fans or heavier it's not like an ordinary fan anymore, it's like computer-driven suc**r, same thing with the other components because, they do their utmost to increase their capacities in the true manufacturing side of it. But then at the very end, they're also dependent on the semiconductor for their components when they deliver to us. So of course, it's a reflection of how soon industry is going to come out of it becomes -- it may call normal again.

And we all know that since we have an insight also from the Element side, it's a tremendous investment process going on, both in North America and now also in Europe very surprisingly and very nicely to know that the semiconductors are not being outsourced anymore, but we can also foresee a good future in Europe, and we certainly believe that the supply chain is going to be shorter, they have to be short in the future, not only for political reason, but it's too sensitive. And also from a sustainability point of view is not normal to shift a component like around the globe. We have around the globe to use here, to be sustainable here we have to supply components where it can utilize technology as it's a worldwide should i say, utilization that is really flawed.

But as far as production, that has to be more local. And I think everyone has understood that now. We've been trying to withstand the outsourcing idea. We never believed in that, but we have not been able to home source where we call it an in source enough. We've done that in certain components, and there were very successful. I think if over matter fact is going to do the same thing. They're going to produce much more themselves, and have much more produced in the vicinity of where they operate. .

[Unknown Analyst]

Clear. And then moving on to M&A. So we see society opening up across the world now and have been for a couple of quarters, depending on the region, of course. Do you feel that there are still any restrictions in place on travel that limit sort of deal activity? Or do you have any comments on the development on M&A?

[Gerteric Lindquist, executive]

It's totally different now. Just as of yesterday, they opened up the airlines. We don't have to wear mask, whatever we call it anymore. So in Europe and North America, I'd say it's back to normal. In Asia, as we all know, there are some restrictions. But that's not a hindrance anymore, to us. And we shouldn't say too much, but we would be very surprised if you wouldn't see any acquisitions in the near future here now from our side.

[Operator]

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

[Douglas Lindahl, analyst]

A few questions from my side as well. Just on the M&A theme there you seem pretty confident in the pipeline, which is reassuring. I'm guessing we're talking about M&A within Climate, if you could just specify that Climate Solutions, I should say. And also, I'm a bit curious to hear how you think about the M&A landscape now in terms of valuation levels and if you're maybe seeing also more competition from sort of ventilation, air conditioning players wanting to play a bigger role here. Any comments on that would be useful.

[Gerteric Lindquist, executive]

No. You know where we'd like to expand. We like to expand in the commercial equipment, and we also like to broaden our presence, you say, particularly in the southern part of Europe as well as we'd like the broaden our sales on the residential in North America, but perhaps more so in the commercial side. So that way you can foresee acquisitions in the future on the kind of solutions side. And as far as evaluation and prices are concerned good companies, they never really come down. They never come out to say the company is of a good caliber and the owners on the screen and they're very seldom under strain, if they're making money.

They don't get sell because there's a down period in economy, they'd rather wait. So very few moments where you can say, well now we're going to buy a company at a discount. A good company is very solid and it's difficult to get discount. But at the same time, we have never paid ridiculous multiples. We paid, of course, high multiples 3 times when we had acquired listed companies. Those are the only times. Otherwise, we try to be cool headed because we know that if you paid them up, the company is going to suffer from that itself. And if you have a sensible owner, they know that, and that's why they divide the acquisition specifically that we buy one chunk. And then eventually, the true value is going to come out to the previous owners after 3 or 4 or 5 years, and then we've had the assistance of the development of the company.

First, competition from other companies that are always there. And if they're ready to make one go, we are not ready to make the buyer company flat out typically because we don't have the capacity management wise, it's Hans and myself, and we are 6 more. We can send in a swarm of people with that goal, but we just have to do it on our own and rely on the management. So that's our -- you may call it shortcoming, but there's also a very solid way of acquiring a company. If the previous management is on board and if the owners are on board, it's not dramatic as far as the change of ownership. We're going to continue with that philosophy. But if you say, of course, everyone is aware of the fact that we are going into a dramatic change in climatization of private buildings and commercial building. So that's how the market works.

[Douglas Lindahl, analyst]

Yes. Okay. on investments, this, obviously, doubled in Q1 compared to last year, and you flagged that they will remain at high levels for the next few years. But is it possible to give some more specific details on 2022 or maybe just the phasing of the investments over the next few years?

[Gerteric Lindquist, executive]

Well, I don't know if you say 50% to 100% more, I think that's very substantial. And that's a picture of how we are able to engage construction companies to grow with [indiscernible] relatively [indiscernible] to get serious companies building for you. Now here in Markaryd we have a very good contractor, very reliable or we've also been able to get a couple of those in North America, one in Poland and one in Czech Republic, that we've known since before and has good reputation, but it's a competition until high reason. Now we believe that the forecast of interest rates going up, and so forth. And the additional situation, and we can perhaps shorten delivery times a little bit, and we get more contracts, which should be interesting. So it's a difficult way to project, but our risk is more or less described in the word in the report.

[Douglas Lindahl, analyst]

Okay. Understood. On the inventory side, which we've discussed it previously, I was more interested in the sort of the long-term context you are out now and have been doing so for quite some time running inventory to sales at the high level. Do you expect to do so even in sort of a normalized market going forward, looking a few years down the line to better protect yourself for future potential hiccups?

[Gerteric Lindquist, executive]

I mean it's an extraordinary situation than right now. We've never been into it. Of course, we've seen constraints of some kind in the past for the ones that -- typical value for us would be 40% and 50% in working capital. And I don't think that the world in general has ever seen a shortage of constraints that we're going through now with semi-conductors. So that's extraordinary why we have built up inventory that's pure math. I mean, if we look, for some reason, all of us having get a big chunk of components, but there can't be a shortage of those components that we typically can get because then we won't get the product out the door anyway. So we have to prepare the -- reprepare, but that's at the normal condition. We're going to go after the 14%, 15% as soon as we possibly can when the crucial suppliers are back to normal levels. And that's also going to be sustained by more local supply chain, as we mentioned a little while ago here.

[Operator]

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

[Pam Liu, analyst]

I have three, please. The first one is on pricing increase and the dynamics between you and your customers. So in the report, you mentioned that the supply chain challenges have damage your delivery capacity to all your customers. And at the same time, you also introduced price increases that are way above normal. So putting these two together, it seems to suggest that you are able to increase price significantly after you received customers' order while they're waiting for delivery. If that is a correct understanding, could you please give us some more color on how your customers are reacting to that? What do you think is the scope for further price increases while your customers experiencing extended delay in delivery.

And at what point might you see your customers turning to other manufacturers that might be -- offer a slightly quicker delivery or slightly cheaper on the price? The second question is market share. So could you please remind us of your heat pump market share in the key geographies -- have you seen any shift in that recently. The back end is that we noted that a competitor of yours recently reported significant volume growth, including January to March this year. just wondering how impactful that would have been on the competitive landscape? Finally, on investment, you target to double heat pump production capacity in around 4 years. We already know that there is a plan to a production line under construction in Sweden. So could you please tell us a bit more about the others, such as the one you mentioned in the report and any others and their current status, please?

[Gerteric Lindquist, executive]

That is very specific. We really have a good memory. We have to have a good memory to remember all those questions and to answer them [indiscernible]. As far as the production is concerned, if you take investment from a very the exact one. And of course, it's -- we have 2 units here in Sweden than CTC. And that we are going through the same process there as we're going through our [indiscernible] in Germany, so is the European plan. But also where we produce the water heaters, which is part of the heat pump, they were also increased in capacity, particularly in Poland and Czech Republic. So Sweden, Germany, Poland and Czech Republic, predominantly, where we got an increased capacity.

As far as market share, we see that overall, we are keeping up our market share. For some manufacturers, they have been trying to work as a bank and say, well, we got to increase our production and they might have had some supply of the components we are not participating in that game. We feel that no one can be a bank, all manufacturers have to get that cost covered. So we feel quite confident that overall, we are keeping our market share. And as you know, we never, should I say, provide specific market figures per country. And as far as the first question, there was a heavy-duty one regarding, I don't know whether you'd like to fill in there, Hans or I should cater for that as well?

[Hans Backman, executive]

On the pricing increases?

[Gerteric Lindquist, executive]

Yes, the price increases, I mean there, of course, we are -- when it comes to price increases, you can be at northy as you want, but the consequences are not easy to foresee. I think that when we started to increase prices or for it looked quite dramatic because [indiscernible] what's going on now. 8 months down the road, I think as everyone is sort of tranquilized by the fact that the price increases are occurring everywhere including everything. And I think it's been explained so many times in media and through customers and through manufacturers that they have to increase prices. It is [indiscernible], of course, it is [indiscernible] by the consumer. And of course, there's going to be demand on the salary increases and that stuff. And whether we have heard any earlier relationships, well, we don't know.

I mean that really comes at the courses ahead of it. But the general rule is that all customers at the end, they want good, healthy providers of support in the future. So even if we might be viewed a little bit northy when it comes to price increases, we believe that we're going to sustain this storm remaining a very healthy company. And that's what counts when we're going to come out of this a tremendous tornado of price increases. And we do not foresee that we're going to continue to focus or to see price increases or [indiscernible] in the future because already now the economy is cooling off with -- and I guess that's why the banks would like to see, the national banks, anything compared to our year, they like to cool off things. And that means that the price increase is going to also cool down to what degree we don't know, but it will not be as it's been until now. Again, that's specific as we possibly can be in three questions. .

[Operator]

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

[Karl Bokvist, analyst]

And my first one is just on the very strong Q1 set of numbers overall. We usually have a kind of seasonality effect in play here. But of course, we have a lot of other different factors affecting this -- just out of curiosity with how you look at the year, do you think that the kind of regular seasonality with the kind of step up between quarters might not really be the case this time around given that we -- as you mentioned, you have such a strong order backlog and you're just waiting to have the delivery capacity.

[Gerteric Lindquist, executive]

And I mean our seasonality pattern is also different. We were selling Stoves since '65 and we've never seen such a change in pattern as we saw during the pandemic. And then we are in pandemic at the end -- towards the end of it, we said, well, we do not foresee really that that's happening going to change, as you might. And people aware -- people are going to go back to their normal behavior. It's a different structure now when people feel that they need a secondary source of heating due to uncertainties in the price level of energy. And as much as we forecasted a decrease in raw material prices, we do not foresee a decrease in energy prices because there's going to be a shortage of gas and oil to be substituted the electricity of all sorts of sources and that means that it could be hydro, it will be wind turbines. It could be nuclear. They are going to be tough to substitute that. It means that energy price is going to be high and you're going to see different patterns of Stoves.

And on timely solution, of course, there, we said many times that the market is going to double or triple over the coming years here. And it's a matter of how much the producers can really produce rather than coming to the seasonal pattern, eventually, of course, we're going to arrive there, but we foresee that new construction will not change so much. Perhaps even it's going to go down, the interest rates are going up. But the refurbishment is certainly going to go up. Now you typically change your boiler when it's broken down, we believe that in the future, you might change it even if it's not broken down because you like to get rid of the cost of fuel. So in that sense, the patterns for the future, we don't really see that. And of course, it's been a very clear pattern when it comes to the storing towards the fall. But with such a demand as we see now, I think it's more a capacity issue or the combined aggregate level with all our all producers, including, I mean, our colleagues as well. I don't know whether we answered that question, tried to.

[Karl Bokvist, analyst]

No. Thank you for that answer. And I think I understand it. Just a follow-up on what you touched upon earlier with competitive dynamics. I mean in most other industries, it seems like there's been a kind of a maybe let's call it gentlemen's agreement that all people understand that, okay, we need to increase prices. Do you see that there's a handful of heat pump manufacturers perhaps that are willing to sacrifice margins in order to gain a bit of a stronger foothold? Or is there a single one that's kind of hampering the profitability for the entire industry?

[Gerteric Lindquist, executive]

All are increasing price. But there might be a few instances where they have delayed them to get some market share, but in the long run, you can't buy market share by lower prices. That's when someone else haven't been able to deliver or you hit the certain spot in the market. In the long run, you're going to invest in a product gonna last for 20 years. And you're going to have that when you sell your home eventually you don't like to invest in something crappy product that eventually is going to break down just when it has a steady home.

We believe that -- and with all respect to oil and gas industry, they have a good reputation of quality. And I mean we couldn't, shouldn't substitute the present way of heating where they [indiscernible] method, we should see to see that, that also had a sustainability message that you shouldn't let this have to change your boiler that frequently as you did in the past. So heat pump should last longer than a gas burning boiler or an oil burning boiler did. But it's not only that you save energy that you reduce CO2, but if you also have a longer life span.

[Karl Bokvist, analyst]

Understood. My final one is just the potential bottlenecks related to installation ability, what's the latest there? And do you feel that you and the other competing manufacturers have any ability to support the training and the deployment of more installers thereby driving heat pump adoption?

[Gerteric Lindquist, executive]

Well, very [indiscernible] short picture for us. And our experience is that if an industry continues to grow with some 17%, 20% year after year, it's pretty much maximum what the installers and the whole industry can absorb because that means that you double organically every 4 years. And of course, installers are -- they are a substantial part of the whole transition period in the transition process that we're into. They have to be trained. And of course, they are fully aware of the fact that they're going through the transition.

But clearly, it takes time to be reeducated it to be comfortable, take a good job, but the final side, when you meet the target individual priority in consumer. It's a challenge for all -- I mean everything from the top suppliers, to the manufacturers, to the distribution, to the installers. We all have to grow. And it's very positive. It's something we never been through before. We've been preaching this message for 40 years. It isn't about the now with the relator now we're breaking through we can do alone before. We can't carry on these measures on our own. We need the support from EU. You need the support from our colleagues in the rest of Europe to build this industry truly sustainable and long-lasting with a good reputation.

Yes. Well, it's 12:00. Should we have the one short final question if we are not seen impolite?

[Operator]

We are going to close. Our last question does come from the line of Uma Samlin from Bank of America.

[Uma Samlin, analyst]

Very strong results. My question first is on organic growth that can you please tell us a bit more about have you seen like stronger growth towards the end of the quarter driven by the war in Ukraine? And as you said, we answer the first question, does that mean that most of the quarters organic growth was driven by volume into our price.

[Gerteric Lindquist, executive]

Well, of course, the war in Ukraine, sad enough, has alerted people -- and everyone is concerned about, I think, and not everyone, but many people are concerned about what will it look like in the coming winter. Would there be a shortage of gas, if some of sort of the current one as or oil for that matter. So it has in I'd say, effective positively the demand. Even our concern about is, but that's just sort of on top of the already existing very positive order intake. But I mean, we all read about the shortage possibly to come next winter. And we all human beings and everyone wants to or not everyone again. But a lot of people wanted today protect themselves and their families.

[Uma Samlin, analyst]

And just the last one, just really quick. Have you seen any impact on the supply chain in terms of the China lockdowns, especially on the semi side?

[Hans Backman, executive]

Impact on the supply chain due to the Chinese lockdown.

[Gerteric Lindquist, executive]

And we are not immediately. We haven't -- but I'm sure that there are constraints out there would be very strange otherwise. We are not so dependent directly on the Chinese suppliers. But of course, there has to be some hindrance also in our supply chain. But not that it's been specifically announced, the overriding issue has still been the semiconductor industry. And that's not typically supply from China. That's more Taiwan and other countries.

We appreciate that. We see one more question there was at [indiscernible] what is the last person that have been, okay, then we should be, of course, civilized now to allow you to put that question. I'm sorry, cutting it off too quickly. Please go ahead.

[Unknown Analyst]

Sorry, can you hear me?

[Gerteric Lindquist, executive]

Yes.

[Unknown Analyst]

I just wanted to peel the onion just a little bit on the component shortage. If you could just talk a little bit about how you're approaching this internally? Are you trying to change which components are used across your portfolio? Are you pushing more centralized sourcing across the portfolio? And any other initiatives you're sort of embarking upon to solve this problem? And then just a related question would be just to kind of understand the extent of the issue. What is the lead time today in your markets, in your main markets if you wanted to order heat pump?

[Gerteric Lindquist, executive]

It depends on, on the last question. It would be 2 months to 5 months, I'd say, in the standard 2 to 5 months, depending on which model you're asking for. As far as how do we monitor things like this, it's like we try to buy semiconductors, and we can reprogram if you know what I mean. So we have a squad of engineers trying to reprogram into the capacity that we would like them to be. Some functions we cannot reprogram. We also try, of course, to find new suppliers, but the new suppliers, they are typically smaller, and it takes a long time to justify and to verify the performance of the components.

I mean it's very, very delicate to bring in a new supply just because you have a shortage of the well established one. Of course, we would like to do that. But at the same time, we have to consider quality. We have to consider the sustainability method [indiscernible] and it comes across. And we can't say well now we found that our suppliers, it's very delicate. And we touched upon it before, once we get deliveries, we have to have capacity with other materials. That's why we keep such a large stock, so that shouldn't be hinderance once we get the crucial component. And that's in short the answer that I think will be viable to your questions.

[Operator]

And we now hand back to our speakers for any closing comments.

[Gerteric Lindquist, executive]

Well, thank you for calling in and we hope it's not too much hide and seek. Some issues we can't really -- we can't answer that. I mean that we have to keep some figures for ourselves. We are totally transparent in many aspects. We had no reason to hurt any investor, to hurt anyone. It's just that we always have colleagues if I may call them out there and they are not so constrained as we are. And we know that our report that came out this morning has been digested to dug into and analyzed back and forth, and we don't mind that because it's not easy to copy our way of doing things, but at the same time, we can't really convey or release all information that we have. So we appreciate your interest in the way you talk to it.

[Hans Backman, executive]

Thank you very much. .

[Gerteric Lindquist, executive]

Thank you.

[Operator]

This now concludes our conference. Thank you all for attending. You may now disconnect your lines.