Nibe Industrier AB

STO:NIBE B

Earnings Call Transcript 2022-Q4

[Operator]

Ladies and gentlemen, welcome to net year-end report presentation. [Operator Instructions] Today, I'm pleased to present Eric Linquist, CEO; and Hans Backman, CFO. Please begin your meeting.

[Gerteric Lindquist, executive]

Good morning or good afternoon. A good day to all of you out there. Yes. Likewise. Hello, everyone. And we're going to start with a presentation of some slides that we usually do. And just to present the business environment that we have around this at the moment. And you've all seen the report, and we are very pleased, of course, that we had the SEK 40 billion in revenue, which we had set some 4 years ago and giving us the framework of some even up to 7 years in now, we've done sales in 4 years. And of course, according to our growth targets, we would like to double sales every 4 years, and that's a target we've had since beginning of the '90s. And that's why we now continue our journey, saying, well, the next intermediate target is $80 billion. So, it's not the final target whatsoever. And of course, that's also driven by the fact that the market is very, very buoyant, particularly naturally on the sustainability side. And that's the fact that's been driving us exceptionally, of course, 22 and also '21 partly -- and most market segments have been buoyant. We're going to come back on some weaker ones on the Element side eventually here. And for some 5 or 6 quarters, we've had some shortages of components. And of course, that is not totally cured by any means, but we've seen a significant improvement during the fourth quarter. And that's why we were able to also to present the quarter that's relatively decent. And of course, we've been idling with the capacity that has been far larger than what we've been able to invoice due to the fact the shortage again. And quarter 4 represents a typical improvement when you have the capacity and all your components are coming in. Again, the demand is driven naturally by the fact that we have to switch over from gas and oil to a more sustainable world. And that's, of course, emphasized by the Russian invasion of Ukraine. We would like to all of us get more independent from their oil and gas. And ever since the second half of '21, we've been in the process of increasing our investments quite heavily, and we addressed that already 21 in the report, the year-end report, and that has continued during '22. Not that we are short of capacity now, but we have to have a capacity in the coming years to fulfill the demand that we can see. We also had 2 extraordinary you can call it events during the year, and we saw that Russia invaded Ukraine, we rolled out, of course, SEK 114 million on the Russian investment. And we also had a capital gain when we sold Shortest in Switzerland or step down to a minority position. And that means that all in all, we've had a positive one-off effect of some SEK 118 million. That's, of course, affected the operating margin as well. And whereas we said that we had an extraordinary strong demand, we say that we had a strong growth in invoicing or suggesting that, of course, we have not been able to fulfill the total demand by any means. But I think that our customers out there that have now seen a positive sign rather than just listening to promises. But once we have everything in line, we have a phenomenal capacity to grow and to fulfill the demand for the market. And operating margin, of course, has been a lagging history, you can say where we started the year being almost 2% of units behind the previous year. And gradually, we've been taking that back, ending now at roughly the same level as we were prior to running into these shortages. So that's also very pleasing. Of course, it could have been better operating margin had we had all those components are beginning. But one also very pleasing thing is that we are back on the acquisition track. It's been difficult for us to travel, and it's difficult at least to acquire some of the larger entities without meeting people. And of course, we see now that we acquired a relatively large company Italy, Argoclima, -- and we also continued the acquisition of Energy Pacific Energy out in Vancouver and a German company, Elmasari the Element side, that was in October. And as recent as January this year, we also acquired Miles Industries in Vancouver. So it so happens now that Sosewe have 3 entities in British Colombia and Canada. And now the negotiations regarding other acquisitions, they are back to a more where the normal level but more ordinary level than they've been in the past 2 years. And we can just look at the figures. You've seen the growth, of course, for the year, around 30%, which acquired is not so much due to the reasons I just mentioned, whereas the last quarter has a substantial growth of some just south of 40%. And of course, revenue and better productivity, that also drives the operating margin from the '14 up to the 16%. So again, it's a relatively strong quarter, but not at the level where we would have liked it to be, could have been better had we had more components, of course, as mentioned now for the fourth time. But it's pleasing again to see that we could pass the SEK 40 billion. have always been question marks where we have set our targets back in the '90s. Can you really double sales in such a short span of time. And we'd like to be transparent because that's not only a target for the investors and so forth at very much a target for our internal use. So well, now we set off, and we are very determined we're going to meet those targets. One, if you compare it since '93, we've had 1 period and it took 7 years to double sales. And we say, well, it's a little bit extraordinary because there was Lehman Brothers that hit the world so hard. Otherwise, we typically have been able to double sales within 3 to 5 years. And when we now mention the the $80 billion, I guess, that's the way we should look at it. Of course, if a black swan come swimming, no one knows where they're going to be, but we like to double sales in 4 years. And typically, we give ourselves a few more years to do that, but the target is certainly to double as quickly as possible. And when we look at the graphs that we typically show the last 9 quarters, they show a steady growth, accumulated growth, and we can possibly see that in Q4 last year, that was a little bit weaker because then the really shortages of components did affect us. And of course, it's even more pronounced on the profit side where the Q4 is quite strong this year. And Q2, that was also affected by this effect that we just mentioned is anal. Otherwise, it follows a typical pattern, we have a seasonality. We have -- we are strongly during the second half of the year. And typically, the fourth quarter has been the strongest. It's interesting to see over the years that, that is disregarding where we acquire and how many companies we acquired, the fourth quarter almost seems to be the strong as well. Just a few words about the Climate Solutions, a strong growth. And as we said, the sustainability message that is really sunk in. And also, we have a very nice, attractive new assortment that is being appreciated by our customers. improvement in supply chains, again, it's not perfect, but it's better. And we don't blame anyone. We understand perhaps we haven't been -- our industry hasn't been totally clear on telling our suppliers what demand we are seeing in the future or perhaps they haven't totally believed us or our industry that this change is now to take place. But I think that is gradually improving and everyone is trying to keep up with the pace. And also here, we are massively investing in capacity in buildings and machinery and natural people. And that will continue, and we've been very clear and transparent about that ever since the fall of 2021. A -- and operating margin has, of course, improved and that's very obvious that when you have better sales and you can produce more orderly the productivity increases. And we've been forced also to increase our own prices because we've been hit very hard and with very sudden price increases without an evolving really. And we hope that we're coming into a period now that is more, should I say, leveled when it comes to price increases that is leveling out and we come to a more orderly situation. And Hans's going to dig more into the figures. But just for the full year, of course, it's pleasing to see that the growth has also rendered into an operating margin that is a bit better than last year. And Stoves, which sometimes has been said, well, that's a product that's not really needed. It's more of a luxury product. And that has come to a different situation. But now it's a shortage of energy and also the price of energy is extremely high from month to month. So, it's been a very good market or order intake, particularly within wood-burning stoves. And we also spend quite a bit of money on improving those wood-burning stores, particularly on the particle side. So, we can introduce to the market, which we hope we can do relatively soon, even more efficient products since they're going to be used so much more. It's really a second source of heating in many homes and also in many homes actually a first source of heating. So therefore, we also invest in not only in R&D, but also in capacity. And here again, -- the operating margin, of course, has been positively influenced by volume increase and we've been able now towards the end of the year to produce more effectively. And there's also been a price increase that's been lagging. And of course, taking the operating margin up to a little bit better than last year, arriving at 13.7%. And if we come to Element finally, of course, the market segments with the distinct sustainability profile, they've had the same growth or the prosperous situation as pumps and wind and all the other guys. But on the Consumer Goods segment, there, we're seeing a diminishing demand during the year. And that's typical when the economy goes into a slower pace. A more surprising thing was, of course, at the semiconductor industry has been very buoyant for us took a hit during the fourth quarter, and that's not really a market change. That's more of a political issue when the U.S. decided to put export restrictions on equipment to China when it comes to producing semiconductors. And that was not -- we were not prepared for that, of course. And that's why Q4 was a little bit weaker than we had expected. Now of course, that is to swing over to other countries, North America and hopefully also Europe, where we're going to invest quite a bit in semiconductor production. So therefore, if we continue with our investment program -- and for the year, we've been able to have roughly the same operating margin as the year before. But of course, the fourth quarter was slightly weaker, which Han is going to come back to -- and just a few pie charts at the end here before Hans takes over. The distribution of the group sales. I don't necessarily think that, that picture is the right one that we see. I think that's more that's the element side. Perhaps you are coming into your pictures, Hans now. There we are. Thank you. Yes, there we see the distribution of sales, and that's pretty much as it's been before. And when we switch over to distribution of operating profit, of course, that's also typical pie chart as before really since kind of solutions is the largest one and also the air business here with the best margin. And I think with that, Hans, I think we switch over to you and see what you have found in the figures here. We'll be surprised that you haven't been able to dig in even further to the...

[Hans Backman, executive]

Yes, a little bit. So... Yes. Thank you for that, Erik. I'll take you through the 3 business areas here, slightly more in detail and a few words on the balance sheet and some key figures as well. So, starting out with Climate Solutions, I mean, we had, as you've seen, a very strong Q4. And I think it's an all-time high, as a matter of fact, or at least during my 12 years here. And it's, of course, thanks to the improvements in the supply chain, allowing us to produce and deliver on a much higher level compared to previous quarters, and of course, meeting the demand for these green products, so to speak.So sales in the fourth quarter grew by some 42%, up from EUR 5.5 billion roughly to EUR 7.8 billion with a very good healthy organic growth in there, although we do have some help of currency. But what's not seen in that number or it's not listed separately is, of course, the divested portion from Schulthess, which is like 6 percentages of that. But having this good volume and getting the momentum into our organization, we immediately see improvements in our key figures. And the gross margin jumped up from 34.1% to 35.5%, and the operating profit as such, grew with 76%, landing in at this operating margin of 19.3%. And for the full year, we're quite pleased that we passed the SEK 26 billion in sales for the division. Although we've not -- on a full year basis, been able to come back to the gross margin level yet, although there was this very nice step taken in Q4. But nevertheless, the operating profit increased by 34%, landing the whole business area at 16.6% for the full year. In terms of distribution of sales per geography, there are no major movements, although it is worth to point out that North America has gained a few percentage units again. They have begun growing, although it is Europe that is really pulling. But North America is now up to 21% of that pie chart as opposed to 18 last year. Continuing with Stoves. I mean, Stoves has basically in all markets, shown a strong growth, but especially for the -- on the wood burning side. This previous design product, and Eric mentioned, also a luxury products maybe has now become a security product in a way that very well complements the all electric heat pumps. And also for those who are worried about the energy prices and have access to wood, so to speak. And as a consequence of this strong demand now, the traditional seasonality has, to a large extent, evened out within Nibe stoves. But nevertheless, Q4 was also this year the strongest landing in sales here of SEK 1.2 billion, up with some 37% compared to last year, generating a good operating margin of 40%, also slightly up from last year. And then the growth of the operating profit with even 51% landing the operating margin at 17.4%. And for the full year, we're quite pleased that we were able to just come in above $4 billion in sales, up 31% from last year. but I've not yet been able to fully compensate for the gross margin there either. Also, within this business area, we've had some challenges with supply chain and price increases. And it takes some time to get the effect out of those, and that's what we see started to kick in, in Q4. So all in all, the operating margin came in slightly above last year, they're at 13.7%, up with some 33%. In terms of distribution of sales per geography, it's basically the same picture as last year, with Europe being the largest 49%, excluding the Nordic countries, that is and then the Nordics making up around a quarter and North America also with the quarter, which will increase given the latest acquisition of mines. Then moving on to Element. I mean, Element has performed very well over the year as such. Here, we are just short of reaching the EUR 11 billion in sales, but nevertheless, an increase of almost 30% compared to last year. And then coming in with an operating profit that is up by 28% compared to last year and roughly landing on the same margin as in 2021. But we have, during the year, seen a gradual decline in the white goods sector. And then as Eric mentioned, in Q4, a rather sudden downturn in the semiconductor industry following the U.S. ban on export of such products to China. And this did have an immediate effect, you can say on the results. So, we ended up there with an operating margin of 8.5% compared to 10 of last year, but nevertheless, an increase of some almost 12% compared to last year. So, it's overall been good, although we're, of course, not happy with the 8.5% and had expected more. In terms of sales per geography, it's also a similar picture to last year. It's our most global business area, as many of you know. Then quickly jumping into the balance sheet. I mean, obviously, our total assets, they increase in correlation with our growth in general. So the balance sheet is now up to some SEK 54 billion. And worth mentioning on this page is that the current financial assets being basically the cash has not increased that much. But the reason for that is the line above there, the nonfinancial current assets. I mean due to the supply chain issues, we have been buying components to be ready for production when we get those on board, which are still active. So, we are tying up more in inventory and especially in raw material rather than finished goods as a consequence. And on the equity and liability side, I think it's just nice to see that the equity has increased substantially here with some SEK 7 billion, and we will come back to the equity assets ratio very soon here. So looking at some key figures. I mean, we are continuously investing in our business, both in terms of acquisitions. And as we mentioned here during the call, I mean, we've increased those activities again now when we finally can meet and greet again. And then we've also, of course, increased the investments in our current operations quite substantially, which is a project now you can say that's been ongoing for some year or 2 and which will continue for another couple of years. But nevertheless, interest-bearing liabilities has decreased is now at 40.6%. The net debt-to-EBITDA level is below 1%. And the equity assets ratio is solidly above 52%. So very good prerequisites for further growth, I would say. But of course, as a consequence of stocking up with inventories and also investing in the business. We have an effect on the cash flow because the working capital has increased. It's now at 21%, and that has the effect on the cash flow. So, although we generated a healthy number above last year, we're tying up money in the investments that we make and of course, the working capital. Although I'm not too worried about it given that they will be used in the components or the finished products that we eventually would sell looking at the last key figures, they are overall very solid I mean, we have a return on capital, which is up by more than 2 percentage units. The return on equity is coming closer and closer again to our 20% target level where we have been down for some years due to the emission we made some years back and some acquisition maybe that didn't kick in as anticipated, but it's communicating vessels. So instead, we have this strong equity assets ratio. And then we've been able to improve the net profit per share and the equity per share. So it's overall been a good development. And if we just sum up with the very last picture, that's not only summing up of this year, but it's really summing up our performance ever since we went public in 1997. And -- and if we start by looking at the bottom, we've had a continuously positive trend on the operating margin level and the net margin level, where we've constantly and over the years, been able to increase it step by step in a combination of organic growth and acquisitions having been brought on board. Above that, we have the return on equity, which now is taking a few steps up in the right direction. It started a little bit of a downturn during the time of Lehman Brothers was down on its way up again, then the Schultes acquisition came on board where we paid with shares to a large extent. And then we made the right submission. But now with the strong organic growth on board, again, it's definitely moving in the right direction. -- and mirrored in a way in relation to that is, of course, the equity assets ratio. With the right submission and with a good performance, we have been increasing our equity and the -- that ratio has increased, and we're rather solvent these days, I would say. So it's a good position to be, and I dare to say, for the future growth. And by that, I am done with my part, unless you want to add something, Eric?

[Gerteric Lindquist, executive]

Thank you... We're ready for their comprehensive of the question. Yes. -- we are ready... Who... Yes, we hope.

[Operator]

[Operator Instructions] One moment. We're going over to the first question -- and the first question comes from Gustav Osterberg from Carnegie.

[Gustav Österberg, analyst]

Thank you, operator, and hello Trican answer. First, a question on the phenomenally strong margin in Climate Solutions. I mean if we look at the gross margin and the comments that you have on the easing supply chain, I mean, it certainly looks that the strong performance can continue here. I was just wondering if we should expect some larger changes to OpEx as volume increase? Or will higher volumes continue to drive the margin here?

[Hans Backman, executive]

Well, we sort of expected that question. Well, it's very pleasing, of course, to see that we are able to fulfill our promises that we're going to take the business here back to a good level. But we all know that nothing continues forever. Of course, we can say now, we're going to improve that quarter after quarter after quarter. But we can say that the quarters prior to the fourth one have been disappointing to us because we have the capacity, we have had the capacity is all along as far as staffing. So, the margin has really been too low because we have had to have more people on board to be able to cater for what's been lost during perhaps a week when we have had shortages of components to be able to catch up, you have to have more than you really need for the daily production. And of course, that's what we see in the fourth quarter. So I think it's -- compared to last year and compared to the other quarters, of course, it's a major, major improvement is rather where we like to be. It's more of an ordinary situation when you have a good demand and you had a capacity and you get components. But it's saying that again, it's not perfect, but it's much better.

[Gustav Österberg, analyst]

Was that a... Hans, do you want to add anything there?

[Gerteric Lindquist, executive]

No, I think that's fine.

[Gustav Österberg, analyst]

Okay. Perfect. And then just a final question on the demand level. I mean you mentioned the strong invoicing here. Can you say anything about the development of incoming orders or incoming orders higher than sales? Or can you say something about that?

[Hans Backman, executive]

I mean we don't typically comment on that specifically. But as we say, of course, we've not been able to fulfill demand and the transition we are going through now, which we believe is going to continue for many years going from oil and gas into other means of climatizing a home. I mean they're going to be a situation where we, as manufacturers have really to be on our toes to keep up with that. So we, of course, see that the refurbishment market is really growing strongly whereas the new construction due to constraints in the economies, of course, they're going to be lesser. But the refurbishment market is, of course, always not too much larger, even during our ordinary conditions. So I think that's more towards changing from one source of heating or climate passion to another one. And that is there -- that is here to stay, we believe...

[Gerteric Lindquist, executive]

Firmly believe.

[Gustav Österberg, analyst]

Okay. Those were all questions from my end.

[Operator]

And with that, we're going over to our next question. Our next question comes from Karl Bokvist from ABG Sunoco.

[Karl Bokvist, analyst]

And good Frida. My first one is just on if it's possible for you, I understand you really comment on it very explicitly, but just given that you highlight the pricing environment, can you give some color on the split between volume growth and price mix now that it sees that products are now leaving the factories at a higher pace as well?

[Hans Backman, executive]

I mean, now we really talk volume. And that is substantial volume increases now. And I don't think we're going to dwell too much on the split. But I mean, now it is back on a more ordinary level. So, we are pleased to see that. But again, we would have loved to deliver considerably more head with comes. So, this is not the ultimate stage by any means, but it's a good sign. I think once again, we like to underline both to you as investors, but also not least to our customers out there. in all countries where we operate, this is also a good sign to our customers the same really, if not back on track, they show now the capacity. We trust them, they've been promising all these quarters. Now the journey is starting. All right.

[Karl Bokvist, analyst]

Yes, understood. And then in Q4, the kind of organic growth, including FX, I mean it's closer to 40%, if we round it a bit. But is there any way to kind of just say roughly how much FX was of that and what the true organic growth was?

[Hans Backman, executive]

Well, I mean, FX is just to make it very, very, should I say, bloods of course, it's single digits. So we talk about our substantial growth here now.

[Karl Bokvist, analyst]

Okay. Understood. And is there any major difference between the FX impact on sales and on profits?

[Hans Backman, executive]

No, no, not really. -- no budget should pay attention to no.

[Karl Bokvist, analyst]

Okay. Those were my questions.

[Operator]

We're going over to our next question. Our next question comes from Victor Tolsten from Danske Bank.

[Viktor Trollsten, analyst]

Thank you, operator, and hello Gerteric and Hans. First, I would like to try to push you a bit on margins. And firstly, on the good, let's call it, gross margin development in the quarter at 33.5% now gross margin. Is this sort of the level where gross margins should be at now when price cost is up to sell? Or is it still inefficiencies and productivity losses in that figure from component shortages?

[Hans Backman, executive]

Well, I think that we've been -- answer that very explicitly is, of course, almost impossible. But I think that in the past, we have been at the better levels. So, we are not totally satisfied where that limit is that I guess we leave that for now. But historic we've been slightly higher.

[Viktor Trollsten, analyst]

Fair answer. And then secondly, in relation to that, on the OpEx cost base, I think that you have been quite explicit the last couple of quarters that you have had the 2 large cost built for significant higher growth. Now growth is obviously back in Q4. But would you say that there is still room to grow on the current cost base? Or are you now in a position where you need to start build OpEx costs in the near future?

[Hans Backman, executive]

No. I think that we still have a fair amount of capacity -- so we are not running out, if you mean now like buildings and machinery, they're going to kick in at a pace that is normal sort of. And where we've had overcapacities, of course, you can say, the machinery has been idling because we've not been able to run 2 shifts. So -- and we've had people on board. So, it's been mainly staff on board that's been, of course, very expensive for us. And we now were able to utilize better during the fourth quarter.

[Viktor Trollsten, analyst]

Okay. That's clear. And then just a final on your new interim target, SEK 80 billion in, as you point out, let's say, around 4 years. I guess just strategically, I mean, historically, growth has been driven by both organic development, but also to a large extent, M&A. Would you say that towards SEK 20 billion, will the growth profile be shifted more towards organic growth this time around?

[Hans Backman, executive]

Well, I mean, the outlook is pretty promising, of course, for organic growth. But to say that we will grow only organically up to SEK 80 billion offers. We have some targets there as well. But hopefully, organic growth is going to be higher than acquisitions. That's when we typically aim at a new target. Of course, we made calculations in the group of each business area, and we find that the organic growth is a great substance in that. But then again, the acquisitions are coming in or the prospects or the possibilities are at a much better level now than just a year ago, not to mention 1.5 years ago when it was sort of very frosty. So that's why we are fairly certain that we can arrive there. But then again, acquisitions, they come in, not randomly, but they come in at a pace, which isn't -- you cannot forecast. But the organic underlying growth, we believe are going to be strong in the coming years.

[Viktor Trollsten, analyst]

Would love to see that forecast, but we will throw it -- and then maybe just a housekeeping, final one for Home I suppose. But elimination of group transactions on the EBIT line was quite substantially higher than it usually SEK 77 million negative. What is that? And is that sort of the new level or...

[Hans Backman, executive]

No, that's not a new level in that respect. I mean it floats somewhere between 20 and 40 on a regular basis, you can say. But typically, in Q4, we make the adjustments for revaluation of contingent liabilities. So small adjustments for what's anticipated for acquisitions going forward. So that's that kicks in -- and that can go in both directions.

[Viktor Trollsten, analyst]

Yes. No... I'll step back... Thank you.

[Operator]

And we are now going over to our next question. Our next question comes from Uma Samlin from Bank of America.

[Uma Samlin, analyst]

Eric Hans. So, I was wondering if you could talk a bit more about your North American strategy in terms of the -- which direction you would like to go, especially now we have seen more policy support from the inflation Reduction Act. Is there any change in your thinking of the product mix, given it's mostly ground source heat from, as I understand? What sort of new areas that you like to do more acquisitions in the North America market.

[Hans Backman, executive]

So, we believe that the conditions for round source geothermal heat pumps are much, much better than, of course, with the IRA at kicking in, which is a very strange abbreviation to start with, but that's where it is. So -- and if you're going to broaden our assortment, that's always in discussion of we fee now with a 12-month trade horizon that we've gotten from the administration, of course, the whole industry will have a good solid platform to expand from. So that's the way we look at it. And of course, acquisitions, we would like to continue to acquire companies in North America, just like we continue to do or will continue to do in Europe. We are not finished by any means. So of course, out of those different categories of products, we like to build further gaps or add on geographic presence. So, no difference really between Europe and the U.S. in that respect. It is just that U.S. is a continent like Europe, and there, we talk more about states and here with all our countries. But it's a gigantic continent, I get you include Canada and Mexico. Then, of course, the population exceeds Europe. So we have to look at it as a continent, not only as a country. Okay?

[Uma Samlin, analyst]

No. That's very helpful. But I guess that means that you are not really at the present interesting going into the source air source market in the U.S.

[Hans Backman, executive]

Well, we are presenting the European models to one of our companies, and we're going to just put out towers in the water there. So, one of our companies, they are launching that have launched it very successfully. But before we really blow the trumpets, I guess we'd like to see how that is going. So that is a correct observation. At the air to water and heat pump assortment that's being introduced by one of our companies over there.

[Uma Samlin, analyst]

Okay. That's really helpful. I guess my next question is in terms of the market demand in Europe, if we come back here, especially in Germany, have you seen any changes in the demand patterns following the lower gas prices and especially given the gas break the price break that we have seen in the past few months, what is sort of your anticipation of the market demands running up to the sort of the positive change in Germany with a 65% renewable content for heating unit in 2024. So, I just would like to hear your thinking on that.

[Hans Backman, executive]

You... Thinking on pricing or what our thinking of what?

[Uma Samlin, analyst]

Just on the general market demand. No. I mean the lower gas prices that we have seen in the past few months and you're not... Yes.

[Hans Backman, executive]

Well, we believe that the market is going to continue to grow substantially as it's done now. And the gas prices, of course, some people might say, well, we'd like to install another gas burning device despite all the surroundings, and we couldn't exclude that. But I think that if you've been looking at -- if you look at the conditions in Europe long term, there is no way back. So, we are not too concerned about that. We are very firm in our understanding the market. Germany has to change. They've been dragging their feet, excuse me if I'm insulting anyone. That's very important that they change not only for their own sake, but also for the sake of Europe because that's so important that they also set a standard center not only be France, which is the largest market, but all the other smaller countries as well. Germany has a good goal. So, the demand is going to be substantial also in the future, even if the gas prices will come down temporarily. All right.

[Uma Samlin, analyst]

Yes. Sorry, just the last one, I guess, perhaps a more housekeeping question. Given the sort of significant easing in supply chain, how long do you expect it would take for you to go back to the pre-pandemic delivery time, perhaps like 2 to 4 weeks?

[Hans Backman, executive]

Well, I don't know whether we like to give that promise like this. I think that we'd rather comment on them once we are there. So, we don't come out on the wrong foot with our customers. Of course, we are working towards that target. It's -- we don't like to make anyone disappointed. We like to work on those improvements that we see now clearly. But we're going to come back to that question once we are there.

[Uma Samlin, analyst]

Alright, thank very much. That's all from me.

[Operator]

We are now going over to the next question. And the next question comes from Douglas Lindahl from DNB Markets.

[Douglas Lindahl, analyst]

Yes. Hello, Eric and Hans, congratulations to a strong report. A few questions from my side as well. Starting off with your $80 billion sales target, would you have a specific number for Climate Solution in mind, other?

[Hans Backman, executive]

Yes. We have specific targets for all 3 business areas. And that's very clear. But I mean, we haven't pronounced it precisely. But I mean, you saw the structure here, and we certainly don't expect Climate Solution to diminish their part of the pie chart. Of course, tangibility drive is so strong. So there's -- should I say, the likelihood of that increasing is, of course, on the wall, but not saying now we're going to arrive exactly there. We have an internal target for that very clearly. But perhaps you shouldn't pronounce that today.

[Douglas Lindahl, analyst]

No, I mean just the reason for me asking is because I believe...

[Hans Backman, executive]

We understand that. But we can promise you want to 80 billion is not there because it's a guess work. Just like the 40 of the 20 or the 10 or the 5 or the 2.5 and so forth during the last 30 years, -- we always had a calculation behind them. It's not like blindfolding in sort of giving a promise that we can live up to. They are very, very tense targets. And of course, as I said, we said a while ago, black swans are coming. We did not expect Lehman Brothers. Neither one of us did expect the pandemic. Neither one did expect the war in Ukraine. And despite that, we've been able to have a steady growth. But they can hinder us events like that can hinder us for a year or 2 because we understand that things are happening. It's not perfect over time. We have had the bank crisis in Scandinavia 929 and the tool. We had an IT crisis 2000, Leven and so forth. They're always going to be something hindrance, but that doesn't take away our targets and the real is in the target, but we can't do miracles if the word is totally black.

[Douglas Lindahl, analyst]

Yes. No, I understand. And just on the heat pump theme, it would be interesting to hear how you feel you're performing in Europe's largest markets, France, Germany, as an example, just if you feel like you're taking market share there? Or what's the situation? _

[Hans Backman, executive]

I think that market share -- I think that there's been some people, we've gained somewhere and others have gained some where if you've had products, it's more -- it's been more of a game. Have you had a certain component, you've been able to deliver certain categories of heat pumps. But I think we've all been suffering, particularly European manufacturers. Perhaps the Asian manufacturers have been more reliable on other sources than we've had. So, I think that's pretty much the answer we can give you.

[Douglas Lindahl, analyst]

The Asian manufacturers may be having better availability of semis and therefore, maybe gain some market...

[Hans Backman, executive]

Well, in the short term.

[Douglas Lindahl, analyst]

In the short term...

[Hans Backman, executive]

Not necessarily. Will that be the case long term.

[Douglas Lindahl, analyst]

Now, I understand. I understand. And maybe a final one, just a clarification question, Hans, on the M&A number you showed there in these slides. That does not include the negative impact from Schulthess, right?

[Hans Backman, executive]

No, we haven't separated that out on a specific line... So that's included in... The organic... Well, in the growth number, so to speak. So you need to deduct like 6 percentage... It means the organic growth is basically higher than it would be a few number there.

[Operator]

All right. And we are going over to the next question. Our next question comes from Christian Hinderer from Goldman Sachs.

[Christian Hinderer, analyst]

Christian Hinderer from Goldman Sachs. I have 3 questions, if I may, and maybe we can take them in turn. Firstly, I wanted to clarify if possible to comment on refurbishment versus new construction. I wonder whether demand for the latter is still growing today and how you see those 2 demand drivers developing through the year ahead?

[Hans Backman, executive]

Well, overall picture is typically that new construction is between 15% and 17% and refurbishment would be the remainder of this 85% to 87%, 88%. And -- so that's a proportion. It's not like the new construction is the largest one. But when you set into the new market historically, new construction has been very important because that's the standard. Now the standard has been set. So now we're talking about much more renovation or refurbishments and not only when a product breaks down, but you also are ready to change our product prior to its live length because you like to change from oil and gas on to the new one, even if the present one hasn't broken down. So I think that's the overall answer to that.

[Christian Hinderer, analyst]

That's clear. Can I ask about the -- you've not commented on the quantum of the historic price uplift through the year, but maybe we can touch on your approach and indeed operational processes for how we should think about any price changes going forward?

[Hans Backman, executive]

Well, I think that we -- historically, we've had inflation of some -- between 1% and 2% and some years 0. And we've been trying to beat that, not saying where that we've been trying to say, well, if it goes up with 2 possibly, we can absorb half of it, not being always parallel to the inflation. And now, of course, inflation has been almost double digit. So that's, I guess, what the market has been hit by price-wise. And it's been very much so selling low material and components. But now, of course, with inflation being high, the demand for salary increases naturally will also come in a different fashion. They have been relatively seen I shouldn't say, I'm not in negotiation with the labor union here, but they've been fairly modest so far, which has been very constructive, but we can expect, I guess, salary increases both on white collar staff and on blue kind of staff to compensate for the inflation. But we believe that they are -- or we not only believe they are a smaller portion of the calculation of the price structure. So we hope to come back to a more, say, civilized level of price increases due to that. Is that a decent answer to you?

[Christian Hinderer, analyst]

That's helpful. Maybe just a more broad question. As I understand it, one of the barriers to gross, albeit, obviously, growth has been very strong within heat pumps, particularly is the availability of installers. I just wonder if you have any comment there in terms of differences by market, and I mean region, therefore, and whether there are any specific actions that you're doing as a business to help tackle that potential bottleneck?

[Hans Backman, executive]

Yes. Well, I mean, where do we start? We believe that the market is working when plumbers or installers or whatever like to call them, when they see that one market is diminishing, they're very quick to adapt. And all manufacturers, including ourselves, they're offering broad and efficient educational programs. I think in the past, why there haven't been so many installers engaged in heat pump installations been that there have been question mark. Is that something that's here to last? Or should we continue to install the then prevailing product. Once the understanding is there now that's definitely going to be a change. We believe that the install is going to be very quick to adapt. And as I said a little while ago, we are there to educate and our colleagues in this industry that are also there to educate. And also the products have become easier to install, we are all driving towards a lesser complicated assortment of products. And so we've been able to develop that over the years where you don't have to be scientists install a heat pump. Perhaps that's been more of a situation in the past where not everyone fully understood what a heat pump was. But I think now is totally different. Well, we do not neglect the fact that installers have to be educated, but they're also living in the market. And our experience is that they are very quick to adapt... All right. We are coming to the end of the session, right, are we?

[Pam Liu, analyst]

I have 3 really short ones, and I'll ask them one by one, please. The first one is [indisernible] solutions for Q4. Sales momentum in the Nordic has been very strong this quarter, and that's particularly so given there's very good to M&A or FX. So, could you please help us understand more about the drivers there? And how do we think about this into 2023? That's the first one.

[Hans Backman, executive]

Well, you have you talk so fast. I don't know whether I had my hearing aid correctly to -- what was -- could you repeat that a little bit slower, please?

[Pam Liu, analyst]

Sure. The Q4 comes solution, the sales momentum in Nordic is very strong. Just wanted to know if you can help us understand the drivers. Is there a sudden increase of the notice pump market? Or is that because pricing has been so strong because of your market share?

[Hans Backman, executive]

No. We -- it's a demand there. I think that it's sinking in into every household, how dramatic price increases have been, and we've not been able to fulfill as we say, our delivery promises before. So, I guess that's more of a natural quarter when it comes to us delivering.

[Pam Liu, analyst]

Okay. And my second question is in element regarding the U.S.-China trade relationship impact on the semi industry. Now obviously, that is not within anyone's control. But I'm just wondering what are the actions you're planning to take that you think could help your business mitigate that impact? And how long will that take?

[Hans Backman, executive]

Well, that's impossible to say, but the administration in U.S., as you know, they are very eager to help the semiconductor manufacturers to start to produce in North America. All day, I mean, they have signed a treated her Canada, U.S. and Mexico, and they're also very eager to start to produce in Europe. So, we can't do so much about that than just following our customers since we are a Tier 2 producer. We do not, of course, supply the factories. We supply the manufacturers of machinery to the factors. So, since we believe that, that market is going to come back, we will not take or cut down on administrative staff or R&D like that because all of a sudden it just going to take off again. The industry as such has been cyclical also in the past and is cyclical. So of course, we are constantly developing new products for this industry, which is relatively new to us. It wasn't done until some 7 or 8 years ago, but we really started to get into this. So, we do not, by any means, have a full assortment, yes. So, to mitigate to some extent is, of course, to broaden our offering, which is not complete, but we are working on that. I guess that's as much as we can say on that question.

[Pam Liu, analyst]

Yes. That's very helpful. And the final one, in some of the markets that you operate in the heat pump space, we have seen a push towards some lower cost heat pumps. So, for example, a U.K. energy suppliers said confident that they can make a heat pump similar -- at a similar cost as a gas water and the Head of the Dutch heat pump Association recently said that he still think it's a wealth consumer that are buying heat pump today. So I'm just wondering, are you putting some R&D focus towards lower-cost heat pumps? Or would you say that's even possible without compromising the energy performance.

[Hans Backman, executive]

Well, I think that when there are shortages of products. anything is being delivered, if I may blunt about it. When we talk about inexpensive products or that's -- of course, you can always specify a product to a lesser level. You do not need perhaps all the defense stuff on a heat pump, but we believe that it's been a little bit of a chaotic situation where the energy prices have been just been phenomenal and people have been scared, we have to get something. We do not necessarily believe that, that pattern will continue. We believe they're going to be more realistic and there are always going to be products at a lower price level. We hope that it won't be at the price of lower quality because that would sort of not run, but that would give him pumps a lesser popular stamp, if you like it. So, we are very concerned that quality will not be linked to a lower price, but rather that the quality being maintained, but it will be lesser features on the heat pump. And of course, we can respond there. All right?

[Pam Liu, analyst]

Yes.

[Operator]

Thank you very much. There are no further questions at this time. Please go ahead.

[Gerteric Lindquist, executive]

Thank you for calling in or whatever you do when you sit there. It's interesting. And as we always end up saying, it's no hires. We cannot answer all questions specifically. We have the answer, but we have to protect ourselves a little bit from our life colleagues in the 3 respective industries that do not have the same obligation rot. So, it's really challenging. It is nice to have you -- and of course, we're going to continue to pump as the headlines read here in Sweden. Thank you very much.

[Hans Backman, executive]

Thank you very much.

[Operator]

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