Nibe Industrier AB

STO:NIBE B

Earnings Call Transcript 2020-Q1

[Operator]

Ladies and gentlemen, welcome to the NIBE Q1 Results Presentation. Today, I'm pleased to present Gerteric Lindquist, CEO; and Hans Backman, CFO. Mr. Lindquist and Mr. Backman, please begin.

[Gerteric Lindquist, CEO, MD & Director]

Thank you very much.

[Hans Backman, Chief Financial Officer]

Thank you.

[Gerteric Lindquist, CEO, MD & Director]

Good morning, everyone, out there, or possibly good afternoon if some will be calling in from a different time zone. And Hans and I are going to follow the same pattern. We won't break the pattern when it comes to presenting the figures. I'll start with a few overall comments, and then Hans will continue with the specifics. And we believe that we'd be available for an hour. You know that we have the annual shareholders' meeting later on today. We also have a Board meeting going on, so we had to interrupt that one. Of course, we understand that you have a number of questions. We'll try to make the first minutes here relatively short and distinct, and then we hand over the questions to you. So having said that, I mean we all know what kind of conditions we have around us. No one of us really have ever experienced what we are going through now. And of course, that's affecting every company, more or less, and our society, not the least, us all as individuals. Nevertheless, it's been a decent start to the year for us. And we believe that one major factor is the fact that we are selling products in all 3 divisions or business areas that have a sustainable profile that's been helping us. There's been very decent growth. And the consequences of the outbreak, so far, has been relatively limited, and we hope we don't sound cynical when we say that. of course, it's a catastrophe to people in general, but when it comes to sales and the result, we've been fairly well hidden from those brutal effects that we see in some other companies. And the result, of course, is very much a reflection of sales and revenue. And we've, of course, been cautious with costs as well. And we work on, as we've always done, working on productivity, trying to invest wisely as we've done before. And we've also been able to continue our acquisition strategy. We have not pulled out of any discussion so far. On the contrary, I think there are many going on about the ones that we have actually signed and [ sealed ]. So if we just look at the very quarter. Of course, a growth of 10%; acquired, 5%, though half is the organic. And of course, we've been helped slightly by the currency there. And the operating margin is following pretty much what we see then on the top line. And with an operating profit coming in, of course, above the last year, the margin is slightly better. So first quarter, overall, is once again fairly decent. And if you look at the graphs that we typically follow when it comes to sales, we see that it's the same pattern where the first quarter is typically the weakest. And then over the year they start to accelerate when it comes to sales. And it's even more pronounced when we talk about the profitability, of course, where the 2 last quarters typically are the strongest ones. And that's following the same pattern as in the past so far. Looking at Climate Solutions very quickly, of course, that's the business area that's been fairly prosperous, we must say, in the first quarter. Of course, we've been hit, particularly in Italy, naturally. Everything has been closed since beginning of March. But overall, we've been able to arrive at a fairly good revenue. And here, we have carried out most of the acquisitions, at least the larger ones, Element, for us. And we've carried out some smaller ones. And all that has led to a better both result and margin operational wise. And if we look at that specifically, we just have a small graph there, where the operating profit is substantially higher than last year, and also the operating margin, which is pleasing so far. Looking at Element, there, of course, we follow our customers and it's a very diverse bouquet of customers we have, everything from the automotive industry or the old-fashioned automotive industry, as we call it, before we entered the electric era. And of course, gas and oil, we all know what happened there. But again, the sustainability idea or profile is really remarkable in that business area as well. And also, very pleasingly, the semiconductor industry that we have entered gradually over the years and then by acquiring Therm-X last fall, has really made us one of the important players as a sub-supplier to that industry, and that's really paying off now. And we can also see that on the operating margin side, that it's slightly better. And of course, the mix is better. Some segments are down naturally, but some are up. And it's good cost awareness, as always, being a sub-supplier. And we've been forced to increase some prices due to circumstances like price increases from our suppliers and also currency effects. But overall, it's been a decent quarter for Element, which we also see in the graph, where the operating profit is slightly better than last year and also the operating margin. Then when we come to Stoves, of course, there, we've been more hit by the situation in the world, particularly in the latter part of the quarter, March and onwards. And here, we don't have that many production units, when we have 5 at the moment. And 3 of them have been sort of partly or fully closed down. Of course, that is hitting this area fairly hard. And on top of that, we continue to invest quite heavily in R&D and on the wood-burning side because we feel that we, as market leader, have to come out with an assortment that is looking after that issue with the particles. And without promising too much, we have some interesting projects going on to be released when they are proven internally. So of course, lower sales and some disadvantages. Currency rates, they have affected the operating result and margin. So there, we, of course, come down from 8.5% to 5.5%. But as always, Stoves, they struggle on, and we are fairly confident with the size that we have that we're going to combat even these difficult times. And having a look at how sales and results are distributed, you can have a look at the traditional pie chart, and it's pretty much the way it's been in the past, where Climate Solution is substantially larger than the other 2, 62%, and Element coming on just south of 30%, and Element, then south of 10% And of course, on the results side, then Climate Solution even more pronounced as a contributor. And Element is just about under its 29% when it comes to sales as far as contributing to the overall revenue. And Stoves, due to their lower margin, only 5%. Geographically, it's pretty much as it was the full year '19. I think that North America is slightly larger here outside Europe. I think we had 75% -- or 65% in the full year, and now it's 64%. But it's very, very stable. So I think that's very quickly what has happened to us during the first quarter. Of course, as we mentioned, we are very cautious when it comes to giving forecast, we're not giving any forecast. But in this particular case, we have addressed the beginning of the second quarter, which we're going to come back to. Just as a sign of respect to shareholders and you following us that we try not to have any hide and seek. Of course, we all know forecast is better than anyone else, but we feel it's fair that, given the conditions, that we try our best to give you as much of a guidance as we possibly can. So with those words, Hans, it's your turn.

[Hans Backman, Chief Financial Officer]

All right. Thank you, Eric. All right, I will try to take just quickly through the business areas and then a few key numbers as well, so we can open up for questions. So coming back to Climate Solutions, which Eric mentioned then. I mean, the first quarter was very much in line with our expectations, number-wise, that is. I mean the latter part with the effect that is affecting the whole world were, of course, not foreseen. Anyway, the growth was characterized by the continuous green trend that we see increasingly so in many countries. So The Netherlands, Germany, Sweden, they have continuously been strong and also grown nicely. And the total growth there of some 12.3% was a fairly even split between acquired, organic and currency. And what's very pleasing to see is, of course, that the operating profit increased even more by some 16.7%, then generating a margin there of 11.1%, slightly up from last year. And that was, of course, driven by organic growth, which always generates the best payoff, you can say, but also good cost control and improved productivity. And we're quite pleased that we also were able to take on board some 5 acquisitions here during Q1, basically. I mean, Waterkotte, Üntes, TIKI, the Nathan Group and, last but not least, the Swedish company VEÅ. In terms of sales, the picture is pretty much the same as before. North America, slightly less than 1/3; Nordics, the same; and then Mainland Europe, the rest, you can say. Moving on to the Element business area. It was an overall good Q1, with an operating margin reaching 9.5% and slightly beating last year, although on a very thin -- with a thin level, so to speak. But here, we have seen that the growth has clearly been the same as for Climate Solutions, you can say, coming from the HVAC business and what all matters that are connected to sustainability. But then also on top of that, a good portion coming from the semiconductor industry that clearly has come back compared to what it looked like a couple of quarters ago. The growth we see there are some 10.8%. That is, to a large extent, all coming from Therm-X, a semiconductor acquisition in California. So beneath that, it's a mix of currency and organic growth where was actually an organic decline. But nevertheless, it was a good start to the year. And we had to come at some effect of the virus, of course, in China, since we have some production over there within the Element division, but that was relatively limited in the sense that the exposure is not so large. Sales split per geography is also very much in line with the previous quarters, so to speak, where we have the most even split, you can say, between different parts of the world. Stoves, Eric mentioned it. It's, of course, in the area that has been most affected so far. It was already before to extend the business area moving sideways, it has for some time. Eric addressed the particle discussion. We are spending our R&D resources there on trying to solve that issue. But then, of course, it's also a product that is characterized by fashion, and to some extent, also to which extent you have money left over to spend on your own house and so forth. So the start of the year was fair. But then moving into March when the effects of the virus were becoming more known, we saw a decline in the area. And those of you who follow us a bit more in detail know that we have currency effects coming from the operations in Canada and the U.K. So the growth there of negative 3.3% was, of course, compensated slightly for by currency. So the organic growth there was slightly below. Nevertheless, we came in with an operating margin of 5.5%. And as we've said before, it's really in Q3 and Q4 where this business area generates its sales and profit. In terms of geographical spread, not much of a change there either: North America, 23%; Nordics, slightly bigger; and then Mainland Europe, the rest. If we then just quickly move to the balance sheet. The total assets now make up some SEK 40.4 billion, where the intangible assets is the largest asset, so to speak. We mentioned that on the last Q call as well, having made all of our impairment tests and feel rather comfortable with that number also in these times, you can say. We also have a very nice equity assets ratio, which gives us a good stability and a fair amount of cash. Sometimes we've been criticized for sitting on perhaps too much of cash, but I think it's nice to do so. And what doesn't show on the balance sheet is a portion of undrawn credit facilities as well that we have available. And that brings us to talking about cash slightly. So if we just quickly look at the cash flow analysis, we did generate some close to SEK 30 million more than last year. Had a slightly less negative change in working capital. More investments, although they were slightly below depreciations, leaving us then with an operating cash flow of some SEK 360 million, up then almost SEK 70 million from last year. And of course, we've spent money on acquisitions as we typically do. In terms of key financial numbers, again, due to the fact that Q1 was a good start of the year, not very much affected by the situation we have around us. The key figures are, in general, good. We have been able to bring down the interest-bearing liabilities in relation to equity from 60% at year-end, down to 57%. Net debt is basically on the same level, up the small tick there due to the acquisitions, but at a good level, as is the equity assets ratio that I just mentioned. We've also, during this quarter, been able to bring down our working capital some more. That's an ongoing process that we are addressing. And it's a slow one, but we're moving in the right direction and are fairly pleased with where we have reached, although there's always more to do. Then just last but not least, I mean, return on capital employed, slightly, slightly down, but very close to the latest levels, as is return on equity. And of course, it's a matter of the way our balance sheet is structured with a large portion of equity and the stability on that side. So I think, overall, we're well positioned for whatever may come here going forward. And by that, I hand it back to you, Eric, if you want to say something before we open up?

[Gerteric Lindquist, CEO, MD & Director]

No. I think that it's time. I think we start with the questions now. I'm sure you have a number of those. The figures that you've seen in the report, of course, they coincide with what you've seen here now. And I think it's your turn to [indiscernible].

[Operator]

[Operator Instructions] The first question comes from the line of Carl Ragnerstam from Nordea.

[Carl Ragnerstam, Analyst]

It's Carl from Nordea. First of all, on the margin in Climate Solutions, I mean it came in at 11.1%, which seems like the highest margin reported in Q1 for a while. What was the driver behind the margin expansion? I mean, the segment was, as you said, to some extent, impacted by the COVID-19 outbreak, I guess, primarily in Rhoss. So I wonder if you -- if it was driven by favorable product mix, I mean, with S-line launched? Or yes, what else? Could you help me with that?

[Gerteric Lindquist, CEO, MD & Director]

Well, I think we believe that the market as such is fairly prosperous in Europe. And I think that we have not added any substantial fixed costs through, let's say, in Holland and even Germany now, and the demand is kicking in, of course. But our organization is set. So you get a pretty good leverage on that to balance the costs that we, of course, have in Italy sitting there idling. And also in the Nordic region, it's been fairly good. North America, so far, has also been good. But I think we see a pattern when it comes to the virus, you're going to talk about that dreadful thing. It started in Asia, came to Europe and then it also moved over to North America. We hope that we're going to also see the healing process in that order because now it seems like Asia is not being back to normal, it's back again. And we also see some signs in Europe as of right now, whereas in the U.S. and North America, still in a very delicate level, whether they're going to open up or not. So the sustainability profile is a very important thing. We are going in that direction in Europe. We feel that. And of course, we like to have a better presence in Southern Europe, in most instances. In this particular instance, it has been rather helped that we haven't been so much focused on Southern Europe, where they've been hit harder.

[Carl Ragnerstam, Analyst]

All right. Yes, perfect. Also on that note. I mean, maybe a more general question in terms of the short-term demand for your heat pumps in Europe and maybe Germany, in particular. I mean, please correct me if I'm wrong, but historically, we haven't seen a clear correlation between heat pump sales and the oil price movements. But with the sharp oil price drop and given that 1/5 all heating systems in Europe is, I mean, all based in somewhat ways, at least, would you say that it could negatively impact the demand for the consumers' willingness to convert into renewable heating systems or even also by taking into account the subsidies in Germany?

[Gerteric Lindquist, CEO, MD & Director]

Well, I mean, that's a $10 -- $10 million question. But our understanding and our honest feeling is that people are moving away from fossil fuel as much as they can. I think that we've seen the consequences. It's not so much a price issue. Of course, to some extent, it is. But I think politicians in most countries, they realize that we have to do something about pollution and the environment that we live in. And of course, if you go back to just again Holland, I mean, Sweden, we've taken a decision many, many moons ago, doesn't matter how inexpensive the oil turns out to be, there are no oil-burning boilers left in our country. So we hope they're going to be the same thing elsewhere in Europe. And in Holland, they've taken a very strong decision. They're going to go away from fossil fuel. And now with the -- with the German attitude, we believe that they're going to stick with that. We can see that they're going to leave the principle now that they like to get rid of or diminish the use of oil. I mean, it's again difficult to predict totally, but we all assume also that the price of oil, the decline now is very much a result of a political game. Some part is they try to make a, kind of say, an inroad. And we have lesser production costs than the other guys, and we can sort of fatigue them, we believe, in the long run. Of course, oil and gas will arrive at regular prices again. And if you invest in something in your home, you can just invest. Say, well, right now, it's a relatively low price. But what does it look like in a year or 5 years' time? So that's why we believe that the sustainability thinking, again using that word, even more cautious. And what we go through now is also a period of reflections, I believe, personally. Perhaps we really have to change the way we live, the way we are communicating and the way we have been acting in the past. And this is one way to change by using energy more efficiently. And of course, when it comes to water heat, we don't see any reason why that should stop because we use more hot water than ever due to cleanliness now, which is very good. We should always wash our hands. I think it has been pronounced. We were always told by our parents and teachers at school, wash your hands as much as you can, as often or frequently as you can, and it seems like we've forgotten that. And as bad as it is with this particular virus now, seems like we've [ bottomed ] or many other stuff. So we are healthier. I mean, I don't think I can answer you more clearly than that.

[Carl Ragnerstam, Analyst]

Okay. So more or less, you haven't got the response from your salespeople that it's more difficult today to sell a heat pump due to the oil price, that's correct?

[Gerteric Lindquist, CEO, MD & Director]

I tell you, if I would be a politician, I would answer that in 5 minutes without saying anything, but you are just like a journalist, you like to have a yes or no on that question. And I think you've got my response, right, a little while ago.

[Carl Ragnerstam, Analyst]

Yes. Okay. Perfect. Yes, it's no problem. Okay. And regarding the outlook, you're right that Q2 seems quite manageable given the start of the quarter. Should we interpret that as you see more or less unchanged demand from Climate Solutions in the beginning of Q2 compared with the Q1 pace? Or is it just a slight dip? Or how should we look at that?

[Gerteric Lindquist, CEO, MD & Director]

Yes. I think that what we have indicated there is as much information you're going to get because we don't really know. But we will say that after 1 month, of course, we had a result now, we call it manageable. And we'd like to give a very correct picture. We don't like to dramatize or paint it in very pink colors. And when we say that is manageable, I think that's as clear as you're going to get, because we have a group that is well spread. We have a group positioned in products geographically and so forth. So we hope that we're going to be -- go through this quarter in a manageable way. Of course, we're going to be hit, just like all other businesses. And we find it's fair making an unusual statement at this time, rather than just have hide and seek. But I think it's important that we don't give you more information than anyone else. And I hope we don't sound too sad, but we won't give any further guidance on that.

[Operator]

The next question comes from the line of Fredrik Moregard from Pareto Securities.

[Fredrik Moregard, Analyst]

First of all, could you tell us something about what you're seeing in the construction markets across Europe and North America and how they've been impacted by the virus outbreak? Have you seen a lot of site closures, depending on the geography? Or have projects been postponed to a large degree?

[Gerteric Lindquist, CEO, MD & Director]

We don't have the total picture there, of course. I think that, in general, the construction industry, if you talk in broader terms, what is in process, I think it seems like they continue. And it's the same thing, if we take the industry where we have the housing or in singular homes in Sweden, I think they continue to finish those homes. And what -- order take on, I mean, construction, both on the commercial and residential side, it's more like quarters down the road. I think that it takes more to close a site that's already in operation. But then it means that you possibly run out of money and stuff like that. And it's always difficult to judge the commercial side because there you also have -- always have the possibility to stop. Whereas on the residential side, those -- the visibility there is very short. And if you -- the renovation market, the refurbishment market is, of course, by far the largest sector. And if something breaks down, you replace that, whether it's your water heater, whether it's the heat pump. But of course, if you are on a site where you're going to build like 250 apartments and you run out of money, well, of course, then you might not be able to finish that. But we are relatively seen less exposed. Now of course, we are trying to increase our market share on the commercial side, but it has not arrived at a level yet that is really, in this particular context, that high. We would like it to be much stronger, of course, but we haven't arrived there yet.

[Fredrik Moregard, Analyst]

Okay. Sure. And for the -- yes, sorry?

[Gerteric Lindquist, CEO, MD & Director]

No, I think that's trying to answer your question. Of course, you can see, and I mean, of course, construction sites in countries where they have closed down almost everything, there we are affected. But it seems like the countries where we have COVID last up here in the Nordics, except Norway, where they've been a bit more dramatic. And in Germany and in Holland and in Eastern Europe, they have been having a more pragmatic view. And then we'll see how -- what happens in North America, whether they're going to continue to be fairly strict, whether they're going to try to open up as you do here now. And that's our forecast. They got to follow suit in a way that Asia closed, opened. Europe, closed, try to open. And that will happen also in North America. But to predict that for month or week, it's impossible.

[Fredrik Moregard, Analyst]

Sure. But a pretty good geographical exposure this far in commercial then, I guess, with regards to lockdowns. And talking about renovation, are you seeing any changes with regards to willingness of consumers of letting service personnel into their homes and so on or the ability of service personnel to move around freely and to install your pieces at various sites? Can you give some color on that?

[Gerteric Lindquist, CEO, MD & Director]

Well, I mean there are many facets here. But one thing is, of course, that when people are at home, it facilitates opening up the door for the installer. And then, of course, you don't have to follow the installer to the utility room, which is very much appreciated by the installer in many cases. We've heard, typically, the homeowner would look over the shoulder and say, well, why did you do that? And what have you -- why haven't you done that? So I think that opening up the home in an organized way and then keeping distance has been working pretty good so far. And of course, we are not allowing a crowd of people when you install a heat pump. The way our heat pumps are built, they are built in modules. So one installer can even take it down because you can split it up in 2 sections. You can take it down to the basement. Of course, the homeowner has opened up the door for you, but then he or she retreats to the living room. And when it's finished, they lock the door again. So installers, they -- I believe that they've been lesser affected due to this.

[Fredrik Moregard, Analyst]

Okay. Very helpful. Just lastly, you said that your acquisition pipeline was very little affected by the virus outbreak so far. But I guess you had to make some changes with regards to how you conduct due diligence and so on. I was just curious if you could tell us something a bit more, what changes you've had to make to adapt to current circumstances.

[Gerteric Lindquist, CEO, MD & Director]

I mean, when it comes to financial and legal due diligence, that's all -- that's typically carried out in data rooms anymore. And of course, the companies that we -- VEÅ, for instance, that we acquired now, of course, we have known that company for 5 years perhaps. So it's not a new acquaintance and the same thing with Waterkotte who we've known for 25 years. So we know it's just that now they come out to the market. And of course, we have, in some instances, like the people in Sweden, we met. At Waterkotte, we were able to meet just shortly before they closed down in Germany and then we've communicated over the Cisco system, over the Teams system. So it's been fairly good. But of course, when you also open up a totally new avenue, they're going to be a hindrance. People that you've never met before, you need that chemistry when you meet the company or the management or the owners for the first time, that cannot be substituted. But as we said so many times before, we had a pipeline with a number of companies that we've known for a long time that we would like to potentially acquire. So I don't think they or we don't think there'll be a shortage of candidates. Then, of course, we also have a chance now to see how well they perform during such a period like we have now. What we typically look at, when it comes to acquisition, is how did people react during '08 and '09, 2008 and '09? How did the company respectively perform during those years? And that's telling you pretty much how they -- what kind of pattern they have when it comes to reacting, sales dropping, with cost structure and things like that. And this terrible era is also going to tell us how reactive companies are and how durable they are. So we are fairly positive that we're going to continue to drive acquisitions. But they will be somewhat different and totally new acquaintances. Of course, they're going to be a little bit more cumbersome if someone said well, now, this company is for sale. But we will find a way around that as well.

[Operator]

[Operator Instructions] The next question comes from the line of Marcela Klang from Handelsbanken.

[Marcela Klang, Analyst]

And congratulation, Eric and Hans, on the impressive performance so far this year. I have a few questions. You mentioned growth when it comes to Climate Solutions in Germany and the U.S. How about the adoption ratio, penetration ratio in these countries? How far have we come in Germany? Is it more than 50%, 60% of new houses that choose a heat pump these days?

[Gerteric Lindquist, CEO, MD & Director]

Yes, I think that you mentioned the correct figure there, around the 60%. And we anticipate that to increase, I mean, without -- chisel it out to the very last figure. They're building like 90,000, 95,000 homes per year in Germany. And of course, so it's another 40% to chew on there. But we also feel now that the new subsidy put in place are also going to help on the renovation side because that' that's the majority. Of course, typically a year of a normal kind, we talk about on top of those 100,000, 90,000 homes being built, perhaps another 600,000 heating installations, primarily gas and oil. And of course, that's the interesting part, to eat away from that. And we believe that that's the main idea behind the subsidies, because the new construction has, almost by their own, taking itself up to the 60%, whereas refurbishment is more, of course, vulnerable to prices. And if oil and gas in the past have been down there, well, we continue. But now it's a different story. People are more aware of the shortcomings or disadvantage with fossil fuels and also now the possibilities to the help that you get from the government, and that's substantial. So the penetration is still, if you'd say, number of units in the country, I mean, we've just started. And -- but it's very interesting to see that a country like Germany now is moving in this direction. And we've been waiting for that for the last 10, 15 years. And now, I mean, we thought that, that would have started already 10 years ago or -- but then the accident came or issue in Japan. And then they decided to almost penalize electricity, which has been a hindrance in Germany for the expansion of heat pumps. And that has changed now.

[Marcela Klang, Analyst]

And how about the U.S.? What is the adoption or penetration ratio there? Is it -- I guess, that there -- it's depending on how you're looking at the market. Which states are the most interesting for you and for the acceptable market? What is the penetration ratio for heat pumps?

[Gerteric Lindquist, CEO, MD & Director]

It's a very low penetration, as you correctly say. But we feel also there that, although on a federal level, of course, they always question whether they should have any to do with the Paris Treaty and stuff like that. But on a state level, we find a lot of support and also subsidies. And predominantly then on the -- on the coastlines like New York, for instance, and all the coastline further down, even down to Florida, and there, we talk more about inexpensive air conditioning. And also on the West Coast. Whereas Midland, there are more pockets you can say. And of course, the further north you go, the better it is. The further south you go in Mainland, still very hooked after the regular air conditioning.

[Marcela Klang, Analyst]

Yes. You also mentioned early in the presentation that you would like to increase your presence in the Southern Europe. What countries do you mean specifically? Because I know that you have not been present in France, for example, because of some competitors and so on. Have you changed your mind regarding France? Or are you referring to any other markets?

[Gerteric Lindquist, CEO, MD & Director]

No. I mean, we are in France, but we acquired a company, that was 7 years ago, and we've had done -- we acquired some smaller company. Now we are starting to accelerate. But of course, France is the largest heat pump market in Europe. But we have adapted this ripple-on-the-water market strategy. So we've been expanding to our neighbor countries first. And then, of course, in the past, we also had a disadvantage, not speaking French, and now we have more people on board. So France is definitely a market that is in our map as well as Italy because Italy is really the main country, you can say, when it comes to air conditioning. And which, of course, heat pumps, despite its name, is exactly performing air conditioning plus heating naturally. So Italy, both from a technological point of view and also from a market point of view is very interesting. So France and Italy, definitely. Spain, it's more hidden away from us. Element is fairly strong in Spain, whereas Stoves and Climate Solution, we are, to a lesser degree, present there. Okay?

[Marcela Klang, Analyst]

So is it correct to say that now after the acquisition that are more towards the ventilation and ACs, which is Rhoss, that you are more ready for the Southern markets in Europe when you combine the [ lion's share ]?

[Gerteric Lindquist, CEO, MD & Director]

Well, I mean, you know how it is. Once you have established a platform in a new country, then you should get to know that country in a different fashion. Before, if you go back to North America, we started very, very cautiously some 12 years ago. But once you're there, it's not only that company with the products that they sell, but that's also an intelligence platform for the rest of our business. And of course, now having HT in Italy, for instance, is a very successful company in the -- on the Element side. Having Rhoss in Codroipo, now we have 2 platforms from which we can analyze how should we go to the market in a different way. Also in France, we have now NIBE France that we would like to be 5x bigger. But now we had a crew down there that, together with us, can analyze the market and/or the other acquisitions on how should we go about it. We have French people employed that are up here on the R&D side. So we do it step by step. So we will not spread ourselves too thin. They never going to attack 10 new markets. But if we could make Italy and France into our home market, that's another 130 million people that would be representing like Scandinavia and Germany and Holland together. All right?

[Marcela Klang, Analyst]

What products are you especially targeting France with? Is it air, water or any kind of combinations with air conditioning [indiscernible] preferences in different -- in this country?

[Gerteric Lindquist, CEO, MD & Director]

Yes. No. I mean, it's the same idea, of course, with some modification. That's why it's important to have technicians on board. You can't really come to France or to any other country exactly with the assortment that you have. You have to modify it. But it will be both geo, air to water and exhaust there. So it will be the broad range. But right now, of course, the air to water is, by far, the largest market. But there again, the air condition with air to water is relatively expensive when you air condition with a geothermal setup. Then it's not for free, but it's much, much more economical. So that's what we also try to drive, to show or demonstrate the advantages with a pure thermal installation for a year around very, very efficient way of climatizing your home.

[Marcela Klang, Analyst]

And the drilling infrastructure, drillers, is it a similar situation in France compared to Germany, that it's relatively more expensive than in Sweden? Or is the ground in France more suitable for geothermal than in...

[Gerteric Lindquist, CEO, MD & Director]

Well, I think it's -- the price is very much dependent on the volume. Once you start to install like we've done here in Sweden for so many years, or in Switzerland or other countries, even in Holland now when the market is growing rapidly, of course, the drilling prices are coming down due to more drillers coming in. When you start, it's typically drillers that would drill water wells rather than energy wells. So the market is functioning.

[Marcela Klang, Analyst]

Sounds good. And when it comes to commercial side, which are the markets that you are targeting? Is it the usual suspect where you are already strong on the residential side, like just Sweden and Germany? Or are you targeting any specific markets on the commercial side?

[Gerteric Lindquist, CEO, MD & Director]

Well, I think that you see now that we started with Italy, and we also have a very good partner now in Turkey. And of course, Rhoss, they have a subsidiary in Germany. So where we are, of course, it's easier to relatively seen to expand where you are already established. So we will not jump to any exotic continent all of a sudden. We are now in North America established, and we are in Europe. Not so strong in Southern Europe and we like to enhance that further, actually. So that's what Climate Solutions should do commercially. It's a phenomenal market if we could address that in a good way. I think we all have experience that when as soon as you come a bit further south, walking into an office, the most difficult way is to open up a window when you try to get a little bit of a comfortable situation in an office rather than climatize it in a proper way. I'm not criticizing any country by saying that, but the market is certainly there. And when you have a name in the residential side, of course, it's relatively seen again easier to also establish yourself on the commercial side.

[Marcela Klang, Analyst]

And then a final question for me. When it comes to M&A, are the sellers more likely to sell right now affected by the coronavirus outbreak? Maybe worried about future demand and so on?

[Gerteric Lindquist, CEO, MD & Director]

Well, I think I'm referring to what I said before, durable companies or resilient companies, whatever you call it, or having a resilience, they are -- they would never sell at a low price because they know that they can weather out or toughen out a quarter or 2 or even a year or 2. But typically, the prices are not coming down. But what a situation like this or a period like this can demonstrate is that they are very durable and then you're also willing to pay a price that pleases the seller. But as you noticed, we do not, in most instances, buy 100%. So we want the management to stay on board, very often meaning also the owners, to demonstrate to us that they believe in the future. And I think if anything is changing during these years or these quarters to come when it comes to the virus situation is that we will try to stay away from buying 100% of the company. It's even more important than before that we have this 50%, 65% initial tranche and then for the management and owners to remain on board. I think that's what you're going to see, but we cannot foresee we're going to slow down our rate in acquisitions. So again, a good company, good management always have their values in tougher times.

[Marcela Klang, Analyst]

And then maybe a really final question from me, if I may. Are you affected by any April shutdown?

[Gerteric Lindquist, CEO, MD & Director]

Any what?

[Marcela Klang, Analyst]

Any shutdowns during April in your factories?

[Gerteric Lindquist, CEO, MD & Director]

Yes. They are -- of course, in Italy, they are just opening up in May. So Rhoss has been totally shut down for weeks. And HT on the Element side has been totally closed down. Also in Britain and now they -- on the Stoves side, they've been totally closed down. Stoves [indiscernible] and also [indiscernible] up in the Birmingham region. And FPI in Vancouver, they've also been -- they are trying to open up a little bit now. So we have not been totally successful staying out of the course. But what I was trying to explain before that we are larger in other territories where they haven't had that shutdown.

[Marcela Klang, Analyst]

And approximately how big share of your production has been shut down for these 1.5 months?

[Gerteric Lindquist, CEO, MD & Director]

I don't know whether we -- but I mean, I think we mentioned that on Stoves, for instance, 3 out of the 5 production sites have been closed and also beginning of May, but now they start to open up again. That's what you see in the figures here on the March that's been tough for us. Then in Sweden and Poland, we've been open. So we've been fortunate there. So I think Stoves has been hit the hardest so far. Element has been able to gradually move the closures from Asia to Europe and then to North America. And now it's, of course, starting to look a little bit better in Asia and also in Europe, whereas North America is still cumbersome for Element. And it's also political. There's a dilemma between Mexico and America, how much they can continue to produce in Mexico, and you might have heard as well.

[Operator]

The next question comes from the line of [ Ena Christensen ] from [indiscernible] AB.

[Unknown Analyst]

Yes. First, admiration for -- you're delivering again from Markaryd as we used to. Very impressive. I have -- you are expanding acquisition. My understanding is, just like you said, Eric, that you buy 50%, 60% upfront, and then you buy [indiscernible] later on. Do you have a fixed purchase price for the portion you buy or straightaway?

[Gerteric Lindquist, CEO, MD & Director]

No, no, no. I mean, without disclosing exactly how we work, we don't like to come in, in most instances, to buy 100%. Because we don't -- structural management is not built up like that. We don't have a score. It's Hans and myself and Christel and 4 more individuals on NIBE Industrier. I mean, we cannot manage a new acquisition. We have to totally rely on the present management, same thing with business area directors. Klas Dahlberg has one controller, Niklas has one controller and Christer has one controller. So you can say, all in all, we are 13 individuals. So if we are put up against some of this, we're going to have that object, we're just going to pay whatever it takes to go buy 100%. Then of course, we don't have a chance because we can't take that risk. But if you have a seller that's willing to remain on board, like with the percentage that we talked about, then, of course, we are willing to sign a deal with them saying that we have to have a formula based on performance. But certainly, within 3 or 4 or 5 years, there is a put and call option and then we're going to buy the remaining part, and both sides would have the possibility to call for that. And then, of course, it's a strict formula, typically based on the performance during the coming years. So it's certainly a variable price, not a fixed price.

[Unknown Analyst]

Sorry, I think my question was unclear. The portion you buy upfront, the 50%, is that price fixed?

[Gerteric Lindquist, CEO, MD & Director]

Yes. Of course.

[Unknown Analyst]

So the variable price would be on the rest or...

[Gerteric Lindquist, CEO, MD & Director]

Yes, yes.

[Hans Backman, Chief Financial Officer]

Yes.

[Unknown Analyst]

Okay. Then I'm with you. Then I have, if I may, another question. You are paying out SEK 700 million dividend. Is the dividend still up? The decision today, but the Board suggested that you pay SEK 1.40 per share. Is that correct?

[Gerteric Lindquist, CEO, MD & Director]

No, no, that's not correct. Our suggestion in the communication that came out on the 14th or 12th of February, there we suggested SEK 1.40. But given the conditions now in the world, we said that we're going to postpone that or delay that. We will not ask the shareholders today to vote for SEK 1.40. And we say, well, if conditions are such that it seems viable later on this year, then we're going to call for extraordinary shareholders meeting. But we'll wait and see. We like to toughen this out on our own. We don't like to take a chance by, should I say, weakening our balance sheet unnecessarily although it's fairly strong, but living in small and you are typically very cautious when it comes to things like that.

[Unknown Analyst]

Okay. If I may have one last question because I'm not coming to Markaryd today. But I hope that the average age of the management will be 1 year older next year.

[Gerteric Lindquist, CEO, MD & Director]

Yes, that's a delicate question. Well, I mean, we have not surrendered so far, and we just hope that we're going to continue. And prices, they are up mostly, wash our hands and use alcohol. So we certainly hope so.

[Operator]

The next question comes from the line of Karl Bokvist from ABG.

[Karl Bokvist, Analyst]

Yes. I won't be able to make it to Markaryd either. But just out of interest here, you mentioned the S series product line partly driving good sales, I can imagine. Just out of interest here, have you seen any sort of negative effects by the fact that you perhaps won't be able to attend larger fairs and exhibitions and those sorts of selling events here during the start of the year?

[Gerteric Lindquist, CEO, MD & Director]

Well, now I got to surprise you. I think that the fairs in a way, they are a little bit old-fashioned. And we've been discussing that many -- of course, we're going to attend some fairs also in the future. But already prior to this dilemma that we're going through now, we've been questioning fairs and I hope no one is a fair organizer around the telephones here. But in the past, of course, you didn't get that many chances to look at new products. Now when a producer is launching new products or a new product, everything is available on the homepage. There you really have time to go through all the details and then you call the R&D department or the product management, and you get a much better view. Shows now, we've seen to our disappointment, is more that you go there and you come into the booth and you spend 10 minutes and then you go, you continue to another one. It's almost like -- it's a little bit of, shouldn't say circus, but it's a little bit of a hardly more than it was before. And you don't have the sufficient time to spend with the installers. So we believe that you have to market products in a different fashion in the future, where, of course, exhibitions, to some point, is going to continue. But we cannot say that we have seen any diminishing order intake due to the fact that we, for instance, canceled [indiscernible], canceled other shows.

[Karl Bokvist, Analyst]

Understandable. And just a few more questions here. Speaking about products as well, do you have any sense of -- in terms of, mainly perhaps heat pumps, but the products that you sell on an annual basis, how large share of those products are recently launched once -- I mean, they've been launched within the recent year or the past 2 to 3 years? And how much share of products are perhaps 5 or 5 years older or anything like that?

[Gerteric Lindquist, CEO, MD & Director]

Well, I think that, that split, we don't have or perhaps not willing to totally disclose. But we can say that the R&D speed, R&D development speed is quicker and quicker. And demand is developing quicker and quicker. So the -- each generation has a shorter lifespan than it did in the past, and that's particularly driven by the control situation. The artificial intelligence and the communication and stuff like that, that is going very, very quickly. Whereas on the mechanical side, it's -- I shouldn't say old fashioned but a compressor is a compressor. And of course, we have new refrigerants and stuff like that. But it's going quicker and quicker. And to be successful, you have to have a very good blend of products that work and has been working when you launch a new generation. You cannot compromise on quality. You cannot come to the market with a generation after a successful one saying that now we have a new successful one. That will be proven over time. So you have to allow yourself proper testing before you launch it. And that's the cumbersome part in it. We believe that we are fairly efficient when it comes to bringing products up to a certain point, but then they have to be out in the market at least for a full season. And in some instances, 2 seasons, and that's the cumbersome part of it. But coming to the -- staying in the market with a 10-year-old product, that's history.

[Karl Bokvist, Analyst]

Understood. Final one here from me, perhaps a bit more tilted towards you, Hans. Has to do with now that we -- you perhaps have a slightly better view of the upcoming quarter and so on. If you were to do your own sort of internal stress testing here, and let's say you have group, either group or segments organic declines of either 10%, 20%, 30%, how do you yourself feel that one should look at the margin profile in case of such quick demand shortfall?

[Hans Backman, Chief Financial Officer]

I think we have a fairly good picture of that, well to the extent that you can, when you do your own modeling and not knowing really what the environment looks like. But of course, we have different scenarios. But I think to disclose that now would not really be the proper thing to do.

[Karl Bokvist, Analyst]

Yes. Understood, understood.

[Hans Backman, Chief Financial Officer]

Yes.

[Gerteric Lindquist, CEO, MD & Director]

But I think just to fill in, it is important to have those stress tests all the time. And I'm very pleased to have Hans and his team around, so they do that very elegantly. So we are prepared. I mean, we're just not sitting here not estimating what could happen. We know what it means going through dilemmas. We've been through the bank crisis '92, '93; the IT crisis, 2000; and the Lehman Brother, '08 and '09. And now we are here. And we know how important it is to keep a good balance sheet always. And as the last comment from my side, I -- of course, you addressed Hans and myself being successful. I'd say, if anything, it's our model that's been successful. This organization built on more than 100 individual managements all over the world giving full responsibility. I dare to say that we would never ever have been able to do what we have done during the first quarter had we been trying to steer it from here, the decentralized organization. It's a tremendous advantage when it comes to austerity times. We might carry a little bit too much of a cost burden in good times, but times we're going through now, we have certainly an advantage.

[Operator]

There are no further questions at the moment. That question has been withdrawn.

[Gerteric Lindquist, CEO, MD & Director]

Okay. All right. Okay. Okay. I hope we didn't sound impolite. But thank you for putting all the questions. We hope that we've given some answers without being unfair to people that didn't call in. We'll try to charge on in our best ability, and we hope to talk to you soon again in August then. And now, in 5 hours, we have our annual shareholders meeting. They're going to be different, but we're going to try our best to make it as good as possible. But of course, so -- and there's so many people coming this year. Typically, it's a party time in Markaryd where all the gardens are manicured. They are, but -- so not so many people showing up this year. So thank you once again, and have a nice day [ in safe waters ].

[Hans Backman, Chief Financial Officer]

Thank you, everyone.

[Gerteric Lindquist, CEO, MD & Director]

Thank you.

[Operator]

Thank you. This now concludes our presentation. Thank you all for attending. You may now disconnect.