Nibe Industrier AB

STO:NIBE B

Earnings Call Transcript 2020-Q4

[Operator]

Ladies and gentlemen, welcome to the NIBE year-end report. Today, I'm pleased to present Eric Lindquist, CEO; and Hans Backman, CFO. [Operator Instructions] Mr. Lindquist and Mr. Backman, please begin.

[Gerteric Lindquist, CEO, MD & Director]

Good morning. Thank you very much.

[Hans Backman, Chief Financial Officer]

Good morning.

[Gerteric Lindquist, CEO, MD & Director]

We're going to have the usual split between myself and Hans. Now I'll start and then Hans will dig into the financial numbers more precisely. I hope you have a nice winter day out there wherever you are sitting. We have a snowstorm in Markaryd. We've got like 25 to 30 centimeters of snow between 12:00 last night and 9:00 this morning, and it's still snowing. And it has been minus, for 3 consecutive weeks here in Markaryd, which we think is pretty good for business on top of everything. Starting with our business environment for the full year. We all know that it's been a very, very different year, and we are quite pleased to announce that it's been a strong full year for us, despite the COVID-19 that everyone is talking about. I guess we're all exhausted about hearing that COVID-19, we are at -- is call it the situation just to avoid that name. Nevertheless, of course, we benefacted to some point with this large variations in demand from quarter-to-quarter. But in the end, it seems like we have landed fairly successfully. And one driving force behind that is, of course, that sustainability has remained relatively strong even during this pandemic. What has also hit us during the latter part of the year was, of course, the Swedish crown being stronger. So we had some headwinds during the 4 or 5 last months, hindering, of course, the pure organic growth a little bit as we present it typically to you. And when we look at the growth and results and so forth, which have continued to grow like 7% predominantly and actually driven by acquisitions. And our result has also improved, both the operating one and the margin. One thing that we like to describe precisely now, and Hans is going to come back to that, is of course, the SEK 353 million that's disturbing everything. And we've -- all the figures that we're going to present from now onwards, except one slide, they do not include those SEK 353 million. But that's more of a bookkeeping auditing phenomena. When we acquire companies, as we typically do, with one announced initially and then an earn out amount, the result assumptions in the future, we, of course, base the theoretical purchase amount on. And that is being evaluated every year. And now during 2020, we have come to observe that there are some companies that has taken a hit, and that's why the considerations that we have been planned on is going to be a little bit less. And funny enough, that means that the same amount is going to be a plus effect in the profit and loss statement. So that's, of course, not a true operational phenomena. That's why we're taking that apart in the slides that we have ahead of us here now. Acquisitions. You've seen at the first 6 months, we had a number of acquisitions, and later on, it's been a little bit slower. And that doesn't mean that we don't have prospects, but of course, it is a hindrance that we can't see people or can't travel as we've done in the past. But it's important also to note that it's not come to a standstill at all. But it's a little bit more difficult, we can say, to approach new companies particularly. And we once again like to, should I say, appreciate our own management model. It might sound like we pat ourselves on the shoulder, but the decentralized model has proven once again to be very, very valuable and hard to beat. It would be impossible for Hans and myself, and if you are here with us here in Markaryd, to stand and scream to all the 120 companies, you better be cautious. It's impossible. That we have instilled during the years that everyone is running on a very autonomous way, that has proven to be so valuable once again. So we are very appreciative to our management out there and naturally, also the employees. The slide here, that is just showing the fourth quarter and the full year with those SEK 353 million included. So we just skip that. That is just what you see in the report. But there, the true numbers, of course, operationally, that they are on the next slide, where we came out with a decent fourth quarter, SEK 7.7 billion versus the SEK 7.1 billion at prior year quarter 2019. And the year, of course, ended almost SEK 2 billion ahead of last year. A healthy growth, mainly acquired, but nevertheless, the organic growth was still there. But of course, hindered again a little bit by -- quite a bit by the headwinds currency-wise. The gross margin is also on the right side compared to last year both in the quarter and in the full year. And of course, very pleasing to see that we were able to come in on the operating margin well ahead of last year, both in the fourth quarter and in the full year. And you can see that we have been at 13 ever before in our history. We've been between 13 -- prior to 12.9, but I think 13 is record, if we are to say that. So we are quite pleased with the results. Of course, we would have loved a more organic growth. But I look at it sitting here in March, April, May, I guess we all have that experience. It looks pretty pale and what -- where it is still going to end, and now we see that the second half of the year after all was pretty decent. And we just look at the bar chart that we typically look at, we see the same seasonal phenomena that we have had for so many years that every quarter beats the previous one. But we see here, the second quarter is slightly, slightly below the first quarter, and that is very much a pandemic effect. But then it took off again as of mid-June, late June, and the fourth quarter is back almost at full steam. And if we look at the result bar chart, it's the same structure. And there, we see that we were able to cater for the margin for the profit in a pretty decent way. Although the turnover went down, the revenue went down slightly, we were able to present a profit after financial items that is -- it was quite a bit better than the quarter number one. So the graph is just showing that we are very solid in development. Looking very quickly into NIBE Climate Solutions. Of course, there, we have had stable growth, both in revenue and results. As you've seen, we have had some acquisitions or we carried those out and quite successfully. They've all given us certain statures. TIKI Group, of course, is a large water heater producer in Serbia where we haven't been geographically, so we're represented. And now we have a large producer at a cost-efficient platform. Üntes in Turkey. We've been looking at those for a number of years ever since we bought a both Rhoss in Italy because Üntes, they are closely related to Rhoss in Italy. And now we have a good platform in between those 2 companies. Üntes mainly known for ventilation and air conditioning equipment. VEÅ, they are producing boilers, larger boilers for industrial use. We feel that, that could be combined -- or will be combined with our own [ Üntes ] product operation. Nathan Holding came in very handy. Large outlet for heat pumps and underflow heatings in the Netherlands, and the WATERKOTTE in Germany. Of course, again, broadening our presence in Germany, also came in very handy. So that's the business area where we've had pretty good, should I say, market conditions in Europe, the whole -- with some exceptions, the whole year. Whereas, North America has been a little bit different. So net sales, all in all, up some 9%. And the operating margin has taken a considerable jump with some 18%. And there, of course, we are very pleased to announce that the acquired companies, they have really contributed very successfully to that growth. And of course, they came in -- Üntes, for instance, and VEÅ and also Nathan, they had decent margins. And with their home markets increasing, it's been a pleasure to see how they have developed. And all in all, of course, that has taken us up to 15% on the operating margin level. And that's quite a while since we were there. I think it's been 4 or 5 years since we hit that 15%. Some of the acquisitions in the past, they have not helped us immediately. But now we can say, on a combined basis, we're up at the 15% where we have a chance to be, if everything is running decently. And then keep in mind that the market conditions, although we say it was decent, I mean it wasn't the ideal. Of course, Climate Solution has also been hit by the pandemic. Element got hit very early by the virus being so present in Asia. And then, of course, Europe came and later on, North America. And they've been practicing an extremely good management style to compensate for orders being drying up or orders drying up and then compensating with cost and still maintaining the most important functions. And the 2 segments that haven't really been hit that hard are the heat pumps and semiconductors. So of course, they've been carrying the results and the volumes during more or less the whole year. We haven't had that many acquisitions here. We had one in Italy in the middle of the year, but being a sub supplier with all our customers being exposed in such a different varying way, we are very pleased to again announce that we've improved revenue margin and results. I think that's an extraordinary performance from the management and the people in that business area. And of course, we did not hit the 10%. We improved our operating margin from the previous year from 8.9% to 9.1%. And sales is up. Here, we have an organic contraction, but still we demonstrate our strength by coming out with an operating margin that is still above last year, some 6%.And then jumping over to Stoves. Again, I think Stoves were individually hit the hardest in the spring time, where it almost came to standstill during some weeks. But then again, just for the other 2 markets -- or the other 2 business areas, demand picked up. And in this particular business area, we've had 2 factories that have been hit very hard also by the governmental, should I say, rules, saying that we had to close both in Britain -- we had to close in British Columbia in Canada for certain weeks. And then the market came back. And again, the management respectively again proven to be very, very flexible and strong. So I dare to say -- we dare to say that we have not been hurt in any fashion so far by people leaving us. So we having had a lot of layoffs in important staff. Of course, there were some people that were laid off or may -- when demand diminished. We, of course, came out with some few on the operational level. But I dare to say, at year-end, we're up and staying like we were at this time last year. And again, improved revenue, operating result and operating margin. It's almost, I shouldn't say, unbelievable, but it's very impressive to sit and look at the figures as we do here in Markaryd when we all saw the train coming towards us in the early spring. And here, again, the operating margin is -- has improved in 10.5%. And the Stoves, as we said so many times, they haven't had a year, since we got listed some 23 years ago, below 10%. So that in itself is a very good sign of strength. And just in summary, we can say now that we are on a SEK 27 billion level, and we are 2 year into the term heading for SEK 40 billion. And of course, we had a SEK 18 billion, then we arrived at some SEK 22 billion. And then last year of '19 was SEK 25 billion, and now it's SEK 27 billion. So we are very, very determined to hit the SEK 40 billion. And when we see this graph, this graph contains both the Lehman Brothers crisis, the bank, the financial crisis in Sweden '93, and now the pandemic. So anyone looking at this graph has to observe that it's tremendous strength and determination behind our growth. And looking at the development of our profit of the financial items, it's pretty much the same. And there you see, of course, that if we didn't meet -- lead in profitability in 2020 compared to '19. So it's very consistent. And of course, there we had some 21.6% average growth. Whereas, on the revenue side, you might have noticed that we had some 18%. We're not quite at a 20%, but we haven't given up. We are very determined, very positive, and the world is certainly changing towards sustainability. That word is used too much, we believe, but I think we all have gotten signs saying that we have to be cautious with our planet. Otherwise, something bad is going to happen to us, and we feel that we are correctly positioned when it comes to saving the planet. We can't save it, but we can add a little bit to a betterment for a climate and a lesser abuse to the climate. And again, we talked about seasonality. I don't know where we've shown you this graph before, but it's amazing. If you go back, all the years since '97, the seasonality is so consistent. The first quarter is between 21%, 23%. The first 6 months, they add up somewhere around the 45%, 46%. And then the third quarter, accumulated there, we're up around 70% to 72%. And then the fourth quarter is always the strongest. It's the same thing in the -- on the results side, but even more pronounced. Of course, at the first 2 quarters, typically some between 35% and 40%. And then the 2 last quarters during the year, that's where we really make a lot of money. So I think this graph is good. When it comes to analyzing NIBE, it's very, very stable. And although we are so differently presented now geographically and the products are changing or being modified, we still have the same pattern, very interesting to look at that. When we take the 3 business areas and just compare them, where are we. Almost the same pattern as before. Climate Solution, almost 2/3 of sales; NIBE Element, a little bit better than the quarter; and the remaining, NIBE Stoves. And then if we look at the result line on the operating level, of course, with Climate Solutions, NIBE is up 15% operating margin. They represent almost 3/4 of our results, and NIBE Element some 18% and then Stoves, 9%. That picture has pretty much remained the same for a number of years. Here we see that Europe and the Nordics, they have grown slightly. North America has dropped back a little bit. And particularly on the Climate Solutions side, we haven't had that positive development there. So that's one reason. And also, on the Element side, we have some headwinds, particularly in the first 6 months. So I think with that, I hand over to you, Hans. Did I -- now I took 20 minutes. Was that too much?

[Hans Backman, Chief Financial Officer]

Sure. I'll try to be quick and leave some room for questions, of course. So I'll just jump into Climate Solutions. Thank you, Eric. Well, as we said, I mean it's been a very, very different year, of course. Maybe the least for Climate Solutions in the sense that it's been the most stable business area for us. But one thing that the pandemic has shown is the sustainability trend and that it continues, and that people have become more and more aware of this. And when we say people, it's not only the average person like us, so to speak, it's also the politicians having increased incentive programs, both in Europe and in the U.S. where the tax credit was prolonged for another couple of years. So this has led to this business area being fairly stable for the year. I mean we finished off the fourth quarter in a rather stable fashion, although that was also the quarter where the currency hit us the most, the translation effect into Swedish krona. But the quarter as such grew by 9% driven by acquisitions. But as I said, the currency hitting us more than in the quarters before. A stable gross margin, and then an operating profit increasing by close to 23%. And for the full year then, we are seeing a growth in the business area of 9.2%, very -- getting very close to SEK 18 billion in turnover, and on this, generating an operating margin of 15%. And what we've seen underlying that is, of course, that the Nordics have been stable in general, maybe with the exception of Norway, but then that mainland Europe has continued to be very, very good for us. Whereas, North America has been slightly weaker. And that's really what you see on the next slide as well on the pie chart, where North America now represents some 21% of sales. They were up to 27% a year ago. Europe was -- Mainland Europe, there was 42% a year ago, it's now 49%. So also the Nordics playing a slightly smaller role, so to speak, in the average picture. But it's a reflection of Mainland Europe really taking on now the sustainability trend. In terms of profitability over the years, I mean it's a stable trend, you can say. We are far above the 10% operating margin target. And of course, that is the target for the group in general. Once we've reached it for a business area or for a company for that matter, we, of course, do not want to fall behind. At the same time, allowing ourselves to invest, of course, in product development and acquisitions. But here, rather around the 13% to 15% operating margin level than 10%. Jumping quickly over to Element. This is, as you know, our most global business area, both in terms of geography and the exposure to different industries. And as such, it has, of course, been exposed to the pandemic. And as Eric said, starting out in China, then coming to Europe and then over to North America. So it's been a very volatile and shifting demand over the year. HVAC and semiconductor continuously very strong. The volume segment being much weaker, but coming back at the end of the year, not the least in the white space industry with a lot of people obviously spending time at home and either replacing because they're worn out because they want new products. The automotive industry at crossroads, as we've said before, and parts of the industry actually in decline. But having said that, the overall trend of electrification is definitely continuing, which is a positive outlook for the business area in general. It's been here a little bit of a struggle for demand and capacity and staffing in the factories, but I think we've managed that quite well coming out with a solid result. The business area definitely picked up in Q4 and grew by some 4.5%. You may argue that it was all acquired, but again, the currency has been working against us in Q3 and especially, in Q4. Gross margin has come up to 24.2%, and we were able to grow the profit here by some 21%, almost reaching an operating margin just below the 10% mark. And for the full year then, we've grown by some 4.5%. So organically, a decline, as Eric said before, but still keeping the costs very much under control and being able to land in an operating margin of 9.1%. It's been a very good cost control, but then also, as we mentioned in our last report, a very well-timed acquisition through Therm-X, both being a sizable company, and of course, in the currently very attractive semiconductor industry. In terms of distribution of sales, the picture is very much like it was a year before. North America, just around 40% or just below Europe, exactly 1/3. And then the Nordics, around 17%, and others then being Asia, Australia, some 14%. In terms of profitability, this business area has, of course, when we look back ever since '97, not been at the 10% level at all times. It's been a consolidation process for us actually to step-by-step adding on businesses to build a global and Tier 1, Tier 2 supplier. And ever since the restructuring cost was taken in 2005, which is the bar looking or -- yes, going downwards, so to speak, the trend has been on an upward trend. And we were above 10% a couple of years ago, which partly was driven by a one-off business. But the last 2 years, we've been able to pick up again, and I think it's more than possible to reach the 10% and stay there. Last but not least, NIBE Stoves. It's really been a roller coaster ride for our Stoves business area. Q1 started out fairly stable. A slight decline in the latter part of the quarter when the pandemic became more evident. Then with a huge decline in Q2, just to be met by an even stronger recovery in Q3, which then has continued in Q4 with a very strong organic growth. And here, we have had some tough actions in the sense that factories were forced to be closed in the U.K. and in Canada. So it's also been a juggling to meet resources and keep staffing in a good fashion. In terms of the numbers, we grew sales by some 11% in Q4. And given that we also here have currency working against us, it's been a very strong fourth quarter, which has made it possible for us to increase profit up by some 12%, reaching operating margin of some 17%. And for the full year, we came in at 10.5%. I saw that in one of the previous picture, it pointed to 11.1% last year, but that was actually a small error in the presentation so we apologize for that. Because last year, we came in at 10.1%. So we beat last year -- this very difficult year, which is very pleasing to see. And it's, of course, been a matter of very good cost control. And then when the demand really kicks in, as it did in Q3 and Q4, that has good effect on our numbers. In terms of sales per geography, picture is exactly the same as a year ago. Europe being close to half and then an even split, you can say, between North America and the Nordic countries. And looking at the profitability over time, this is the only business area that actually always has been above 10%. And it was then very pleasing to see that in this difficult year where our own projections at the beginning of the year pointed somewhere else that we actually were able to meet this. So summing up a little bit then. When we look at the performance between 2016 and 2020, I mean it truly is a robust performance. Being able to increase sales by some 7%, let it be that it came very much from acquisitions, but still being able to achieve this is very pleasing for us. Of course, it's not quite where we have planned to be, but it's a solid performance and especially, on the profitability side where we were able to increase it then without the revaluation that Eric talked about before with some 16%, bringing us to an all-time high operating margin of 13%, which continues all the way down to the net profit, which also increased equally much, you can say. So over these years, we have -- basically, we're very close to have been able to double in sales and utilizing the same business model that we've had all along. And we were really up for a test this year, whether or not we're -- our business model would prevail, and I think it's fair to say that it did. Just a quick look on the balance sheet. I mean the total assets have not changed that much. The one big item we have there, just like every year basically, is the intangible assets, which, of course, is a natural result of us acquiring companies according to all accounting rules and procedures. We, of course, do the impairment tests needed and have very good headroom regarding that. And we also have rather good headroom, so to speak, in our financial current assets, meaning our cash, which puts us in a good position for further acquisitions. The one item that might stick out a bit is on the equity and liability side, and it's the equity which basically is the same as last year. Of course, it's been improved slightly, but not as much as one might have expected given the good performance of the results. And this has to do, again, with currency effects. This comes from -- if you look into the report on the other comprehensive income, this is the exchange differences that we get when we translate our foreign operations into the Swedish krona. It's an inevitable effect that hits us and every industrial company, you can say, with foreign subsidiaries. So the hit, if you like, in Q4 was quite large, SEK 1.5 billion, and on a year-to-date basis, SEK 2.3 billion, which then goes against equity. But we should not forget that in 2019, the effect was close to SEK 800 million-plus, and the year before, SEK 1.2 billion-plus. So it's over these 2 years close to a zero-sum gain. Cash flow, just a quick comment on that, has been very strong, up some 20% from last year. And what really has generated a tremendously good cash flow is the change in working capital. We have come down there from some 18% to slightly below 13% over the year, which has generated some SEK 900 million, which makes the operating cash flow after investments twice as high as a year ago. And this, despite the fact that we have increased our investments over the last couple of years. Now it's fair to say that we might see a little bit low on the working capital given that sales have over exceeded expectations in some parts for the organization in Q4, making our inventories lower than they usually are. And just on the next page -- or next pages, a few comments on the key financials. I think it's fair to say that we are in a good position when it comes to, well, financial stability in general and also when it comes to being able to acquire companies going forward. I mentioned the cash just a little while ago. And if we look at net debt to EBITDA, it's down to 1.1 or the 1.2. That's actually 1.15, if you would use another decimal. The strong equity assets ratio, although it didn't improve that much due to the currency effects, but overall strong. The only item maybe that sticks out a bit is the return on equity, where we still have the target of 20%, but -- which is a result of us, of course, being strong on cash and equity assets ratio. And you saw the working capital there with being just below 13%. So overall, I think it's been a very solid year, and not the least, given the situation that we all have been experienced and still are experiencing. But I'm sure there are questions regarding this. I think, Eric, you explained the SEK 353 million quite well. So unless someone has a question on that, please.

[Gerteric Lindquist, CEO, MD & Director]

All right. So again, I apologize for the 11.1% there on the Stove side. It was 10.1% [ last -- was it ] 2019. So I think with that, we have some 25 minutes roughly for questions, and hopefully, some decent answers. Try to be finished by noon. So let's shoot, please.

[Operator]

[Operator Instructions] We have a question from Viktor Trollsten from SEB.

[Viktor Trollsten, Analyst]

Yes. Viktor here. Just firstly, what you're assuming in terms of geographical development within Climate Solutions, you obviously are facing quite a hefty FX headwind, especially in North America. But still excluding that, it seems that organic growth was quite negative in Q4. Could you talk a bit about that development in North America and how that has developed during the quarter?

[Gerteric Lindquist, CEO, MD & Director]

No. I think that, for some reason, it's been fairly decent in Europe, and we can't really say that we have exactly all the answers there. But when you look at the news or watch the news and listen to radio, the close downs, close downs, close downs, everybody is talking about that. But it's surprising to note that when it comes to heat pump installations in Europe, they've been running fairly equally as before. Of course, private individuals or private families are cautious when a person or installer will come, but they do not close their doors, and they're fine. They just leave the utility room, and they can install the heat pump. I think then more dramatic in that sense in North America also on the commercial side. And then perhaps, the close down -- or lockdown has taken -- people have taken that more seriously or they've been more scared. I mean that's the only explanation that we really can give. So it's very pleasing to see that the big markets in Europe, they are moving in the positive direction, despite all the bad news. But in North America, people have been more anxious. I guess that's the 2 answers we can give on that question.

[Viktor Trollsten, Analyst]

No. Okay. No. That's clear. And my second question is on the same topic. Just adjusting for FX also in the Nordics within Climate Solution, it implies a clear improvement in organic growth year-over-year in Q4. But would you say that demand is accelerating in the Nordics from the increasing replacement demand?

[Gerteric Lindquist, CEO, MD & Director]

Well, I think that when it comes to the Swedish market, we saw that the statistics came out from our heat pump association and giving pretty neat improvement there. I think it's important to know that it's one additional company participating there now. So the market is slightly up, but not with the percentage as indicated. I think that the fellow running the heat pump association there, whatever his name is, should have put an exclamation mark, saying, well, due to the following, the market has not really grown, but there is one more company leading figures. But there is certainly -- in Finland and Denmark, we can say that the market is really developing or has been developing well. In Sweden, there's small increase, but not the increase that you saw on the statistical figures. And in Norway, it has contracted. Norway, again, is almost the exception in Europe where they have had a very hard lockdown, and that has taken down sales considerably. So you can say, 2 very positive markets. The whole market is still positive, but not tremendously growth. Norway, very negative. I think that's summary for the Nordics.

[Viktor Trollsten, Analyst]

Okay. No. That's clear. And that relates to Q4, isolated also, I suppose? Not for the full year?

[Gerteric Lindquist, CEO, MD & Director]

Well, I mean it's pretty much the same pattern. Norway closed down very early or locked down, whatever they call it then. Also, we follow -- of course, Finland and Denmark doing the same, but that has not affected the operations in such a way as it has in Norway. They've gone further. They've been much stricter. So there should be no [ difference of ] the year and the quarter.

[Viktor Trollsten, Analyst]

Yes. No. That's clear. And just a final question from me. We have heard recently about refrigerant prices starting to increase, which I guess, triggers some memories back to 2018, where at least, I believe, your profitability took quite a toll from higher purchasing prices. Could you talk a bit about what you're seeing in terms of that, and maybe overall raw material cost inflation? And your expectation on margins for 2021 from that perspective?

[Hans Backman, Chief Financial Officer]

Well, I think that the refrigerants, they might go up a little bit, but I think that it was more of a shock 2018. I think everyone in our industry is now working in a very, very professional and determined way towards a solution where you're going to be well below -- or at least on the level of 675 GWP. So if now the refrigerant will go up a little bit, we do not see the pattern of 3 years ago at all. And of course, we noted that it still goes up, and I think that -- you also have to consider that things have gone down. And we don't have a crystal ball, but we look at it, it's very rational. We shouldn't overreact, we believe. Of course, one -- should I say, 1% or 2% or 3% in price increase, and some say, we are going to increase to 10%. We do not believe that. We think that the company has been suffering on the raw material side, and they're trying to get back. But we do not foresee a dramatic price increase as it looks at right now for the year, if that's what you're asking.

[Operator]

We have a question from Pam Liu from Morgan Stanley.

[Pam Liu, Equity Analyst]

And the first question is that the German Heat Pump Association posted a 40% increase in volume in 2020. Would you be able to share with us your market share in Germany or the growth you have achieved roughly in the region, particularly given the very positive market backdrop? And then my second question is regarding your M&A focus in 2021. How much would you like to spend? Any specifics on product or geography?

[Hans Backman, Chief Financial Officer]

You didn't ask about my shoe numbers and my shirt size. You need -- should be asked those?

[Gerteric Lindquist, CEO, MD & Director]

Well, market share wise in Germany, they are not disclosed. We are one of the leading ones, and we are following the market well with our brands. So that's the answer to that one. And as far as in acquisitions, of course, neither do we forecast acquisitions. We have very precisely described that 10% is an average per year should be acquisitions and 10% should be organic growth. Of course, 2020, there we arrived almost at 8% through acquisitions. So there, we almost fulfilled our prophecies. But on the organic side, it was lesser naturally and coupled with the currency, what we call, headwind that we've talked about so much now. But we are ready, I mean, Hans said, we have a very strong balance sheet. So we are ready, and we are discussing with a number of potential, of course, targets, if you would like to call it that. So nothing has happened. We are, as before, on our avenue towards the SEK 40 billion. And we are very pleased to know that we have all the ammunition needed for relatively large acquisitions as well. So I think that's all we can answer you on your questions there, okay?

[Pam Liu, Equity Analyst]

Okay. Cool. Yes. And just squeezing one more on the margin sustainability. You already talked about in the previous answers about the -- sort of managing the raw material price impact. And obviously, in this year, the good margin is also a result of productivity and cost control. Do you expect those to continue? Or would you expect some of that to unwind as market pick up throughout the year?

[Gerteric Lindquist, CEO, MD & Director]

No. I mean the productivity and the cost control, that's in our DNA setup. That's something we're always monitoring. And as -- there is always room for improvement. We call it always more and never enough. That's our saying. Whatever you do, you can always do it better. The day you slack in, you start to lose. You should never be satisfied with your productivity. I mean that's the headline of all our companies. And as far as the price increases from our suppliers, we've always said that one should not overreact. Of course, we always have the possibility of increasing our prices, but we like to monitor and observe what our suppliers are doing. I mean they can't just push tremendous amount of price increases upon ourselves without a reason. And we don't necessarily like to push higher prices into our customers' faces unless it's totally necessary. That's why you don't observe a month or 6 weeks. Of course, if prices -- if economy would go up, eventually, we also would have to monitor our prices. Would our budgeted purchase prices not match the actual ones, that's just common sense. And we would love to see the economies starting to spur again. So in that sense, once volume really comes back, it's just name of the game that some suppliers might increase their prices a little bit. And the final producer like ourselves, in this particular case, of course, we kind of benefit from the larger volume. And if that's not sufficient, we might have to monitor prices, but that's not the first thing we're going to jump on. All right?

[Operator]

We have a question from Gustav Österberg from Carnegie.

[Gustav Österberg, Research Analyst]

I have a short question just on pricing. You've detailed a lot here on the cost side, but could you -- you talked a little bit about pricing pressure in the Q3 report as helping margins a bit. Could you elaborate on the origin of that. Is it pricing pressure? Is it still present? Is it related to a higher mix of new models? Or is it changed competitive behavior? Could you give some more flavor on that, please?

[Gerteric Lindquist, CEO, MD & Director]

You're talking now about in general or you're still talking about any particular business area here?

[Gustav Österberg, Research Analyst]

In particular, Climate Solutions, please.

[Gerteric Lindquist, CEO, MD & Director]

Well, I think that then in Europe, given the market, we haven't noticed any real price pressure. It's been fairly civilized, if we can call it. Of course, from time to time, not so much on our side, but we've seen some shortages of the components. We've had some short experiences ourselves when our sub suppliers have been missing out on some components in their turn, but we haven't been suffering that much. And on the price side, we can't say there's a price war on heat pumps. Of course, there are different categories of heat pumps. I mean you're -- there are lesser value-added in some, but that shouldn't be interpreted like the price pressure. Of course, it's like having different car models. Mercedes has many different ranges of prices, and I think it's, again, fairly civilized within the different ranges of the -- or categories of heat pumps.

[Operator]

We have a question from Max Fryden from Danske Bank.

[Max Fryden, Analyst]

I have a follow-up question on Germany though, which we talked about already. So you had a strong market growth, but you also had tax credit application going -- more than doubling. And my question relates to the dynamics in the German market during 2020 and going into 2021, if you can share something on it. And the question is basically, did you see that the restrictions on the COVID-19 pandemic held back to market growth? Or could the installers operate as normal in 2020?

[Gerteric Lindquist, CEO, MD & Director]

Yes. Well, I mean there is -- I -- we believe that, of course, the percentage is important to talk about. But if you compare to the total numbers of heat pumps being installed, it's still not that dramatic. I mean, typically, I think just to give you some sort of reflection on that, we believe that there are some -- just on residential side, some 700,000 heating devices installed per year in Germany. And now the German market is approaching some 130,000 heat pumps or something like that, if the statistics would be fully comprehensive. I mean we are still lagging below 20%. So of course, those installers installing gas-burning boilers and gas -- or oil-burning boilers, they're still there. Of course, they have to be reeducated. And that's the game for -- our task -- all manufacturers. We should not make heat pumps so complicated that it's science in itself. It should be relatively easy to install a heat pump, and that's what we are working on. That's what our colleagues are working on. So it shouldn't require different squad of people installing the heat pumps. It should be, just like in Sweden, there are no oil-burning boilers installed anymore, but there is still approximately the same number of plumbers or installers, and they have been reeducated over the years. And that's what's taking place in Germany as well. Of course, from time to time, you might say, well, I'll call a plumber and he couldn't come for 8 weeks. That's not a new phenomena, that could have happened also in the past.

[Max Fryden, Analyst]

I'll try to make it sort of a leading question, seeing if there will be an acceleration in that growth in 2021, and I -- so...

[Gerteric Lindquist, CEO, MD & Director]

Well, well, I understand that. And I think it's important to -- not to be over optimistic. We've been waiting for Germany, and we've been, should I say, talking to analysts and investors for some 25 years, talking about the excellence of the heat pumps and that Germany one day would arrive at some 120,000, 130,000, and then arriving up to some 180,000, 200,000. And of course, that's the target that we have. But considering that the new constructions in Germany of the residential homes -- and we just take it with a pinch of salt here, it's like 90,000, 100,000 homes per year. And if they were to be equipped with a heat pump 100%, then you have 100,000. So they would be included in the 700,000 roughly per year. And we don't foresee that the new construction going to be terribly much larger. So it's a matter of how do you attract the present owners or the vast majority then of owners of gas boilers and oil boilers. That's the name of the game. How do you come in there and convince them now you're going to buy heat pump rather than buying another gas-burning boiler. And that's going to take time. That's why we are very optimistic, very optimistic about Germany, but we are also realistic. We don't say, well, in 5 years, we've got these -- none of the gas boilers installed that. We don't believe that. It took a long time here in Sweden to go through that process, but we see that at least 1/3 of the market are going to be heat pumps in the foreseeable future. I guess that's more precise than that. I think it's difficult to beat.

[Max Fryden, Analyst]

No. That's optimistic. So it's more than 200,000 then. But then again, having half of the market with gas, I mean the lowest gas prices in Europe.

[Gerteric Lindquist, CEO, MD & Director]

Yes. I mean here -- yes, that's a strange thing. As we talk about sustainability, everyone is talking about sustainability, everyone talks about saving the climate. But then all of a sudden, we start to say, but then gas prices are low. So then all of a sudden, the consumer or everyone forgets that -- well, why are people still buying gas then because when we should try to avoid it, we should go electrical when everyone is saying -- politicians. And all of a sudden, your return very primitively, not yourself, but let's say, a lot of people return very primitively to say well, but now gas prices are down, so that should be difficult for heat pumps. Where we could dwell for hours on why prices on gas and oil are extremely low. Why are they allow to sell that devastating media to private consumers? It's just selling alcohol for SEK 1 a liter, knowing that it's very bad for you. And there you have a much higher price on liquor to -- trying to make it livable, but -- and we don't understand really how people reason or politicians reason in many instances. It should be so clear to everyone, we should just stay out of the gas and oil, period. And now they -- in some countries, they try to even boost it. I'm talking about the Nordstream now, which is a big political debate. How could that phenomena take place in a -- and talking about Paris Treaty and everything. I started preaching now, Max, I'm sorry.

[Max Fryden, Analyst]

Yes, you are. I don't want to interrupt, but maybe we should give the floor for another question. I just want to -- one last one quickly, if I may. It's -- I mean all your competitors, all the good ones at least are German or Austrian. Have you seen any increased competition here in terms of either existing players on price or sort of mid market, lower end peers coming into your premium segment in the German market? Just quickly, if you can.

[Gerteric Lindquist, CEO, MD & Director]

No. I think that, in many ways, I think Northern European players are, if we dare to say that Germany and Sweden would be in that category, I think we're all looking for quality and people like for -- like to acquire or buy long-lasting equipment. I think that we have the same philosophy in that sense. So we think it's good to have German competitors, if we put it that way. They bought the Permian and they bought [ IBC ], and we bought CTC. So we have a very solid platform and they have a solid platform. We bought Alpha-InnoTec in Germany, and we have the 3 main contenders there. Plus, of course, [indiscernible] therefore. And now we have NIBE, we have our Alpha-InnoTec, and we have WATERKOTTE. So I think that we're all up there fighting with each other. But then, again, if I may use the word, in a civilized way.

[Operator]

We have questions from Jacob Edler from Handlesbanken.

[Jacob Edler, Analyst]

I just have 2 quick ones here. Firstly, you clearly described that the earnings have been boosted by the revaluation of these earn-outs. Are you able to give some flavor of -- to which acquisitions these primarily are related to? And then my second one is just a general question on costs. Is this a sustainable cost level going forward? Have you been able to take out some costs here permanently during the pandemic? And where do you anticipate that costs will return to more normal pre-COVID levels?

[Gerteric Lindquist, CEO, MD & Director]

Absolutely.

[Hans Backman, Chief Financial Officer]

Yes. I can jump in and take the first question. I mean we don't disclose the individual companies in this. But the revaluation that we do of these additional purchase prices, I mean that's really done on a yearly basis. And typically, they come out with much smaller numbers, which doesn't lead to us having to disclose them separately. And since it was such a big number this time, we said -- for fairness reasons, we would like to display it with and without. I think what's triggered it a little bit more this year was the COVID in a way, where an owner had a put option, which was utilized when the market looked rather dark, so to speak, which led to this. With hindsight, I think that, that owner would like to stay onboard. That's as far as we go.

[Gerteric Lindquist, CEO, MD & Director]

Yes. And on the cost level, just the second question, I mean we can combine our thoughts here. I mean it's like communicating vessels. If the order intake is a little bit less. Of course, you say, you start to look at your costs. Of course, we've been traveling less. We have been anticipating lesser in -- with shows and stuff like that, but we have also sold less. I mean the organic growth is not tremendously high. So of course, we haven't really skinned ourselves, saying now we have the same [ manager ] we can present a decent result. I think we live very naturally, not damaging ourselves for a long-term target. We know where we have to be in a certain number of years, and then there is a milestone of SEK 40 billion. If we would slacking now in R&D, and if we were slacking in marketing, I mean it would be devastating for the long-term growth. But of course, there is a correlation between lesser sales and then you are a bit cautious with costs. So I guess there's nothing strange with that.

[Operator]

We have a question from Karl Bokvist from ABG Sundal Collier.

[Karl Bokvist, Analyst]

Yes. Karl Bokvist. One question from me, really. You have air water exhaust there. Given the ramp-up of the different markets out there, the speed of technological development, would you in the future consider entering the air-to-air segment? Or is this -- it will continue to be and will -- remains a lower price point market? And it's more focused on price rather than quality and reliability compared to the kind of usual product segments where you are in currently?

[Hans Backman, Chief Financial Officer]

Yes. It's a market that's been, I shouldn't say, bastardized, but perhaps, I already mentioned the word. It has been a lot of actors in there, and it's difficult to really penetrate that market in a profitable and successful way. That's what we consider not producing that category of product, but we wouldn't exclude any possibility of that kind. But of course, the drawback on the air-to-air, which is -- I mean perhaps, I shouldn't criticize it, but it's a relatively expensive device when you use it for air conditioning. So talking about sustainability again and saving energy, that's a little bit of a question mark. And as you say, it's also a device that you do not need to cool your home with completely. Whereas, you have single units in the living room or in the hallway. So it's a little bit of a different concept where we talk more about hydronic systems or ducted systems. If you talk about North America, heating and cooling your home, your whole home at the same time. So it's more like solitary devices that they represent. But we wouldn't exclude that, but not -- it's not a high, high priority on that.

[Karl Bokvist, Analyst]

Understood. Just on that subject, I mean are there similar segment differences in the commercial space where you have actively decided to focus on this particular part of a commercial market rather than others where you see it's a bit more commoditized, in lack of other words?

[Hans Backman, Chief Financial Officer]

No. I think that in the commercial market, you should -- I mean there is more the customer categories. What we are in right now is, of course, apartment buildings and hotels in North America. We are not so strong in hospitals, for instance. So -- but that doesn't mean that we exclude that. It's just that the profile of the CCG in Oklahoma, they have not been particularly, so to say, pointing out hospitals. There are other categories of the producers, but that's more a marketing philosophy and not so much of a pricing difference. But of course, to say that we would be 100% supporting all segments within commercial, ventilation and air conditioning, that would not be true, but we haven't stayed away. It's more that you have to concentrate on some of them to be successful here.

[Gerteric Lindquist, CEO, MD & Director]

Yes. Well, we appreciate all the questions. I hope that we haven't had any hide-and-seek game. Some questions, of course, we could answer, but we don't want to answer. And we hope that we've been clear -- as clear as we possibly can be. It's always very educating to get your questions, and it's a nice challenge to have you out there. And please continue to call in and to -- challenging us with your questions. And with that said, Hans?

[Hans Backman, Chief Financial Officer]

Well, thank you very much, and look forward to speaking to you again on the next quarterly call.

[Gerteric Lindquist, CEO, MD & Director]

Exactly. Next time, it's May. We hope that the snow storm has stopped a few hours before then. So you all have a good day, and thank you again.

[Hans Backman, Chief Financial Officer]

Thank you. Bye-bye.

[Gerteric Lindquist, CEO, MD & Director]

Bye-bye.