Nibe Industrier AB

STO:NIBE B

Earnings Call Transcript 2021-Q1

[Operator]

Ladies and gentlemen, welcome to the NIBE Q1 2021 Results Presentation. [Operator Instructions] Today, I'm pleased to present Eric Lindquist, CEO; and Hans Backman, CFO. Please begin your meeting.

[Gerteric Lindquist, CEO, MD & Director]

Thank you. Good morning, everyone. It's Eric speaking here. Thank you, and Hans is here as well. So we start with our ordinary way of presenting it. I start and then Hans continues, and then we open up for some questions. And I'm sure all of you have read the report and the headline is, we believe it, very correctly so, strong start to the year. And of course, it's very important to be humble when we talk about strong start to the year. We all remember what kind of the first quarter we had last year, particularly in March. And that's why we'd like to remind the readers in the report that although everything looks peach and clean, it's important to remember how everything turned out last year.Nevertheless, our sustainability profile, of course, is very important for us, and it's a line also to report that all 3 business areas benefit from that, which we are very pleased to note. After all these years of preaching, finally, the world is turning more sustainable, which is right up our alley. And we can also note, of course, like we all know that when you don't travel, business-wise or privately, you do other things instead. And it's very obvious that people start to refurbish and renovate their homes, and that's also a benefit to all our 3 business areas.And when we look at the growth, it's been a good underlying organic growth, but it's been a headwind this quarter naturally by the Swedish strong currency. Typically, it's a few percentage up and down. But this particular quarter has been very strong headwind for us. So the underlying organic growth is substantial. That's the result -- or that's the message we like to send. And of course, all 3 business areas and the group consequently have improved the operating result and the operating margin substantially, and that is due to the organic growth, but also through the prudent way of keeping our costs at a reasonable level. We do not travel. We do not exhibit as we did in the past. So that's also naturally an important factor. Not saying that we all of a sudden would just start to spend enormous amount of money again, I think it's a time of reflection. Did we travel efficiently in the past? Did we have all those shows in the most efficient way? So of course, we're going to return to traveling and exhibiting our products in the future. But as bad as it is with the pandemic, it also gives you time to reflect on certain patterns and behaviors that do not necessarily have to be exactly the same as prior to the pandemic.Of course, acquisitions have not been totally hindered, but to get new acquaintances, that is more difficult. We have several negotiations ongoing. But we only completed one so far this year, and we did that just a few days ago, it's in Ovne, was a relatively midsized acquisition written on the Element side, which is very much a technological acquisition, where you, instead of using like ordinary immersion heater or fixed roon heater, here we are talking about cables that you can regulate or use nonregulated cables for heating purposes, which is a sort of a white spot has been in the past. We've been representing other manufacturers in that area, but that's now under our own reins.So just having a quick look at the figures. You've seen them. The growth, of course, is dampened here by the strong currency. Nevertheless, the gross margin is up compared to last year, and it's a substantial growth in operating profit. And the margin is also taking a decent jump from the 10% -- just about 10% up to almost 13%. And if we just leave the figures and look at the -- how ordinary in the bar chart here, we see that 2019 had a very regular development. Quarter-after-quarter, we had a typical growth. Last year, that pattern was broken in the second quarter where it was almost a little bit lower than the first quarter. We believe now, I'm going to come back to that, that pattern is back on track again as far as demand is concerned. Now we had other issues, and I also refer to those. So if we just have a look at the results, we've been able to cater for the shortcomings in the second quarter last year, still produced a better operating profit. And this year, of course, the first quarter is substantially over the first quarter last year.And if we just jump into NIBE Climate Solutions, that business area did not suffer so much in the first quarter last year. So that was riding through almost a whole first 6 months without any major issues. So we had a decent organic growth also first quarter last year. And that continues now, of course, again, hindered by the currency. And the underlying message is naturally the sustainability message. And in Europe, it's really pumping on. It's been a little bit more modest in North America. But as we mentioned in the report, it seems like the new administration is really aiming at coming back. They are back on the Paris Treaty. And they're also acting now in favor of continue the subsidies or tax advantages when you install more sustainable climatization products. And naturally, we've had development in organic growth, the operating margin as well as here the operating result itself, of course, have been very successful. And again, we had a very good cost control. And you see the figures here, a substantial jump in profitability and also with the margin, taking more than 2 percentage up.And NIBE Element, where we had a tougher period last year, the first quarter. And now almost all segments are coming back, more or less, of course, we've announced very much that we are back on the semiconductor side, which is very obvious to all of us that, that industry is really trying to combat the lack of semiconductors. So we supply, of course, the producers or the machines for those factories. So that's quite a bit of a lag that when you start to try the factory up, it starts churn out semiconductors. But nevertheless, that's a big market for us now and the timing for the acquisition like 2 years ago Therm-X was ideal we can conclude now.Then of course, sustainability, again. The HVAC industry is really having a good time, particularly in Europe, that is. And that's also contributing to NIBE Element's development. And the world is going electric. And of course, the automotive industry, although the regular automotive industry with like combustion engine costs, they don't show such a tremendous development. But the activity in electrifying vehicles, both on the passenger car as well as on the commercial vehicles, that is very, very obvious. So Element has really come back. They improved their operating margin as well as naturally the operating profit. And there, again, as we mentioned so many times, we have such a good cost control, and that is not dictated from our offices here in Markaryd. That's something that's been instilled into these companies over years. So we've sort of been practicing that. And it's very pleasing to see now that we are working together, so we all are presenting such a good result. And you see that here with the operating margin is taking a jump over 10% again. We've been below for some quarters, which is not so pleasing. But we never sort of shivered in a way. We always felt we were coming back, and that's clearly demonstrated again with an improved operating profit and the decent operating margin.And if we then take a quick jump to the Stoves. Perhaps that's the business area that's had the most dramatic growth. We had really a tough period last year when it came to Stoves. There, we had a contraction. And this year, it's booming, and that's including both Europe and North America. And of course, we continue to spend considerable amounts on R&D to be able to match the expectations of the wood burning stove side when it comes to emissions, particularly particles. And hopefully, eventually one day also being able to produce machines without any smoke or without any smell. So that's a tremendous task we have undertaken. But nevertheless, we have the size now where it's natural for one of the market leaders to take on such a challenge. And again, margin has improved, of course, due to the organic growth and the good cost control. It's is very pleasing. And that's demonstrated here. It's almost unreal figures when we look at it here, with the operating margin taking a leap from SEK 50 million in 3 months. The margin in itself from 5.5% to 12%, more than doubling. So of course, again, when you compare yourself to weaker quarters, we remember how it was a quarter, a year ago. Then we were a little bit pale, should I say. And now we had a totally different situation. But nevertheless, we can say that we were able to run through last year without any major issues. We came out with a decent result despite the pandemic. And now we've demonstrated that once, the economy is changing, then we are ready to go in that direction.I promised to mention a few things about what was mentioned in the first page of the report, and that's the different situation in the market right now when it comes to components, delivery times and also price increases. And I think that has taken many of us with surprise. But then again, that's a business condition that we just have to combat. During the first quarter, we've been able to do that. Of course, we all know that there are delays in deliveries of components, not only to us, but to most manufacturers. And how you compensate for that? Well, there always comes a surprise, but you just have to be very flexible in production, and you have to produce when you got the components. And again, a flexible workforce is one very important factor.When it comes to predicting what this is going to mean in the future is for us, shortage, let's say, of the containers and the shortage of the components. Our belief is that everyone is working like crazy to get to a position on the sub-supply side to come to a normal situation, but we -- our estimates that, that will take some months still. And price increases, we've seen a number of manufacturers and sub-suppliers taking the chance of increasing prices. I guess that's the name of the game in the market economy. We, of course, also have to increase our prices accordingly. You also know that we have a fairly modest way of doing things when it comes to price increases. We don't like to burden our customers unnecessarily, but of course, we had to compensate our ourselves, but also absorb possibly some of it through our own productivity. So that is a very clear message that our prices will also increase, but as you call it, in a civilized fashion. And we just hope that the world eventually going to come back to a situation where the supply chains are working as they did prior to the first quarter last year.We have been looking at the pie chart here now, distribution of sales. It's pretty much the same as before when it comes to distribution of sales. And when it comes to the operating profit, there, you see the Climate Solutions is still having like 2/3, but NIBE Element and Stoves have been stepping up a little bit, which is pleasing to see. When it comes to the distribution of group sales, here, we see a change, and that is that the dollar, should I say, weakness is more apparent here. The dollar has weakened more there as double digit compared to last year. And of course, that's also an illustration where the euro has weakened perhaps some 4%, 5%. So that means that the North American part of the pie is a little bit lesser due to the weakening U.S. dollar compared to a year ago. But still, we believe it's a healthy distribution of sales. The Nordic countries, our home market is almost 1/4 of our sales. And there, we have a relatively strong demand and customers with a relatively high income as an average. And we think that's very important that the Nordic country is going to service as our home market since our home country is fairly small. But together, we form a continent up here in the Nordics with some 25 million people.So I think that's very quickly my message. And Hans, you continue, please.

[Hans Backman, Chief Financial Officer]

All right. Thank you, Eric. I will quickly take you through the business areas a little bit more in detail and then some balance sheet comments as well before we leave room for Q&A.So if we start with Climate Solutions being our biggest business area, the picture from Q4 remains in a way and continues, meaning that where we have the sustainability theme where that has come across that drives sales, which means that the Nordics has been stable in this area for a long time and continues to be so and grow nicely. We're in this phase of replacing heat pumps with heat pumps, you can say, to a large extent. And then Europe, mainland Europe is growing where the sustainability theme is taking off more and more. But whereas North America still is a little bit weaker, although measures are taken, which we think will benefit us going forward. Of course, the oil and gas prices are low there still. In terms of sales, we came in at SEK 4.3 billion, and that's, as you can see, a growth of 6.8%. And seemingly, all of it comes from acquisitions, but the underlying organic growth, as Eric mentioned, was quite healthy actually. It's the headwind when we translate everything into the Swedish currency, that hits us in a way. Gross margin has been improved, up from 33.4% to 35%, and also what's not really displayed here is that the SG&A side has also improved, leading us to a very healthy profit improvement there of some 29% on this growth there of the 6.8%, coming in at a margin of 13.4%, which during my time here, which is close to 10 years now, is an all-time high. In terms of distribution of sales, and Eric touched upon it, and since Climate Solutions is so large, it, of course, has an impact on the whole group. Here, the North American business has declined in relation to a year ago. It was 26% at the time. And Europe was 45%. So that's the major shift here. The Nordics is basically the same. And this is, of course, a result of the currency, but also the fact that Europe has picked up and has grown stronger than North America over the last year.Shifting into Element then. Also here, you can say that the picture from Q4 continues, which means that the growth in HVAC and semiconductor has been strong. But also rail has improved as well as white goods with people spending a lot of time at home and both wearing out their equipment, but also probably wanting to install new equipment. The automotive industry is very interesting in the sense that, just as Eric mentioned, there are numerous projects ongoing here to electrify the business as such, although there is still a large portion of traditional cars, where this is not as evident. Sales came in just above SEK 2 billion, a growth of 5.6%, of which a rather small portion was acquired. Also here, the organic -- underlying organic growth has been quite healthy in a way, but also with a strong headwind from currency. But again, due to the fact that the comparisons to last year have been a little bit weaker. The growth here has come in stronger than Climate, which never was hit as much. Gross margin up slightly. And also here, SG&A has been kept at a very good level, leading to this profit improvement there of some 20.8% -- up to 10.8%. And also, this is an all-time high during my time again at NIBE for a first quarter. In terms of distribution of sales, as you know, NIBE Element is our most global business area. And here, the picture has remained fairly much the same, although the North Europe -- or the European part has also grown, which is more -- a little bit more of a consequence of the exchange rates.And then as we said, I mean, last but not least, Stoves has had a tremendously good development in Q1. Typically, it's Q3 and Q4 where everything happens, and Q1 and Q2 are considerably slower, you can say. But here, clearly, the effect of people working at home and wanting to renovate their homes have had a strong impact. But not only that, actually, we had a slightly longer and later winter also this year. And what it is called outside that drives sales within NIBE Stoves. So here, we have seen this growth here of some 23%, including a currency headwind and just a little portion coming in from acquisitions. So it's been a very, very strong Q1. Gross margin has been slightly hit. We, of course, continue to spend considerable amounts on R&D for the Stoves that Eric mentioned to bring down particle emissions. But also it's a juggling, of course, to meet demand when it kicks up like this, which has an impact. Nevertheless, results up to SEK 85 million from SEK 32 million, extremely strong for our Stoves business area, coming in at 12% in Q1. And then Stoves distribution of sales is fairly much similar as before with a quarter each in North America and Nordics and the rest and in Mainland Europe.Leaving then the business areas and looking at the balance sheet for the group. There is not so much to comment upon. I mean the changes there are just a consequence or a logical consequence or a natural result of our growth. If we look at the liability side and equity specifically, that has come up from SEK 17.7 billion to SEK 19.1 billion since year-end. If you look, you can ask why hasn't it increased more given where we stood a year ago. But that is, to a large extent, a consequence of the exchange rate differences of transactions from our foreign subsidiaries, which doesn't go over the results, but on the equity. There was some comment in Q4. I think it was -- where it was said that, that had a big negative impact on us, but that is just a simple math exercise when you recalculate or translate it into Swedish currency. And where that hit us by some 1 -- slightly less than SEK 1.5 billion. We're almost up to SEK 0.9 billion now as a result of that. Otherwise, the balance sheet is very stable, you can say.From a cash flow point of view, we have, of course, generated a lot more cash than last year, close to SEK 1.1 billion from operations, up from the SEK 0.8 billion, a slightly more negative change in working capital, although the working capital as such is lower than it was at the corresponding time a year ago. But it is a phase of the year where we are trying to build inventory. We're actually very low now due to the high demand. And yes, so that's a result of that. Then we continue to invest in our operations here. It's slightly lower this quarter, but we are in a phase where we are expanding and have stepped up slightly compared to just a few years ago. So overall, we've generated an operating cash flow of some SEK 480 million, up from SEK 360 million last year.And consequently, the key financial figures are developing well as well. Unappropriated liquid assets is, of course, our cash and cash equivalents, which is at SEK 5.6 billion. So there's definitely room for further acquisitions. The interest-bearing liabilities in relation to equity is coming down. Consistently, you can say, as is the net debt to EBITDA, of course, when there is no large acquisition coming on board. Equity assets ratio is also very strong, catering for a good position to acquire. And then just a few more comments here on the key financials. The working capital is at 14%, as you can see. A fairly low number compared to where we have been before and really in a situation where we need to build some more inventory here to meet the demand. And last but not least, we can just comment upon return on equity. As you know, we have a goal there to reach 20%. And that's, I think, the only key parameter that has not developed as nicely, if you put it like that, as the operating profit, sales growth and so forth. Due to the fact that we have a very strong balance sheet, we've made the right submission some years back. But now given the situation we're in, it's stepped up considerably. And yes, leaves us in a good position for the future, I think. The closing share price, we typically don't comment upon. But we do leave room for a lot of questions.

[Gerteric Lindquist, CEO, MD & Director]

Yes. Thank you, Hans. I think it's time for you guys out there to shoot at us now. We've had the advantage of keeping you listening for 30 minutes. And we just have courtesy, please, we have also a Board meeting going on. So we thought that it would be appropriate if we could return to that around noon at latest. It's also sad today to note that we also have our Annual Shareholders Meeting, and there's no presence, as we all know. And typically, there are a lot of facilities here, and it's like examination day typically with some 1,100, 1,200 people coming, and it's a decent weather today outside. It's not totally sunny, but it's pleasantly warm and it's abandoned. We are going to be like 8 of us at the shareholders' meeting. So we are really looking forward to next year when we can have people here again. But that shouldn't overshadow the figures, but the whole of village of Markaryd would look forward typically to this particular day, and now it's just an ordinary day without any spectacular views and visitors.So thank you for that. We are ready for the questions. Is anyone there?

[Operator]

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

[Carl Ragnerstam, Analyst]

It's Carl from Nordea. A couple of questions from my side. First of all, you mentioned, of course, both pricing as well as the component discussion on your session here. So just if I got you correctly, do you expect increase in shortages when entering Q2? And would you say that it will have a material impact on the component side firstly?

[Gerteric Lindquist, CEO, MD & Director]

Yes. Well, I mean, of course, we expect price increases, but we can't really judge whether they're going to be any shortages. We've seen, should I say, delivery performance hasn't been as regular as in the past. But so far, we've been able to produce as before, but with some hindrances. So if you're delayed with 2 days, well, then you have to compensate that over time or working on Saturday. So that's how we are trying to combat that. We can't really predict what's going to happen in June and July. We just hope that everyone is struggling and doing their best to come to their feet again. Because obviously, we've been sort of pulling down on our resources too much, and let people go obviously and didn't expect the demand to come back that fast. But we do not send the warnings whole world is going to collapse. But we think it's appropriate to inform you as analysts and shareholders that it's a little bit cumbersome to get things to work.

[Carl Ragnerstam, Analyst]

Okay. Perfect. And on the raw material side, the pricing side, have you so far implemented price increases during Q1? And do you plan to influence price increases during Q2 as well, given maybe the raw material side or the never-ending raw material price increases? And also, would you say that the vast majority of the price increases will be done through internal efficiency? Or what's the split between internal efficiency and the price increases, would you say?

[Gerteric Lindquist, CEO, MD & Director]

Well, I mean we don't hand that out. It's just out of courtesy, we believe that if you just push on what you get, there's no room for efficiency. And of course, we also question price increases from our suppliers. They can't just say, we're never going to increase price over 4.5%. So what's the reason for that? Just like our customers, say, why would you increase prices with so and so many percentage units. So that's what we are saying. As a manufacturer, you also have a responsibility to improve productivity and do things better, not just because of the price increase, but that's why we preach you all the time in our report as continuous work that we improve our productivity to be able to counteract price increases. But of course, we are not a bank, and everyone has to understand that, both our suppliers as well as our customers. We have to mitigate naturally what's coming to us and what we put forward to our customers. So of course, the price increase is the easy way out, but there also could be consequences. You can -- you have to reason around that. That's what we are saying.

[Carl Ragnerstam, Analyst]

And in the very short term, would you say that we should expect the lag effect between when you implement, to some extent, price increases and when you have implemented internal efficiency measures, which could, of course, negatively impact gross margins in the short term?

[Gerteric Lindquist, CEO, MD & Director]

I think those questions are impossible to answer. Of course, I mean, we have the sum of the pulse all the time. I mean every day and every week, we monitor, of course, the prices coming in, changes and stuff like that. Well, how should we counteract? So I mean we don't check prices once a quarter, and we do that continuously. So I think that we have a pretty good way, a rational way of following price increases and monitoring those accordingly, eventually also increasing our own prices. Of course, there's no lag in that sense. Of course, you can't increase prices every month from a practical point of view, but I think that we have a pretty good hand on that.

[Carl Ragnerstam, Analyst]

Yes. And the final one from my side is regarding Climate Solutions and the organic growth. You mentioned Netherlands, you mentioned Germany, Sweden are performing well. Could you give us some flavor on the current market development in Germany? What kind of growth pace we are currently seeing there? And also, could you perhaps try to compare your performance with competitors working with alternative solutions are performing, including hybrid pumps and gas solutions and so on?

[Gerteric Lindquist, CEO, MD & Director]

No, there is a good healthy growth in Germany, and we follow that as a business area. And of course, that's been the whole idea that we have established ourselves very solidly over a number of years. We got started in Germany in '92 when heat pumps was hardly known. And eventually, that was through an importing company. And then, of course, since 2002, we had our own subsidiary for me NIBE brand name, and that's outside Hanover. And then, of course, we acquired Alpha-InnoTec through a strange maneuver in a way some people might have said, by acquiring Schulthess in Switzerland and then getting a position in Germany also production-wise. And Alpha-InnoTec was acquired like 10 years ago. And then knowing that it would be very important also for our Enertech Group in Sweden to have a platform. We also acquired WATERKOTTE, which is one of the leading oldest companies on heat pumps in Germany. So we believe that we are very solidly established in Germany with 2 entities producing in Germany and ourselves producing here. So of course, we follow the market very closely. So we are very pleased to note the growth, and we follow that one. Of course, we like to be even bigger, but it's a pretty good struggle out there by everyone now.

[Carl Ragnerstam, Analyst]

Perfect. And how do you perform compared to other alternative solutions, would you say, the hybrid solutions and so on?

[Gerteric Lindquist, CEO, MD & Director]

Well, we mean hybrid when you compare -- when you combine a gas burner to -- yes, we don't have that. We work strictly with heat pumps. I mean if you're going to convey a sustainable message, it's difficult to combine it with a gas burning boiler.

[Carl Ragnerstam, Analyst]

How you compare to competitors working with the hybrid solutions? If they are gaining market shares?

[Gerteric Lindquist, CEO, MD & Director]

Yes. Of course, we never produced any gas burning boilers. So that's why we have no answer there. We are not positioned there.

[Operator]

Our next question comes from the line of Douglas Lindahl from Kepler Cheuvreux.

[Douglas Lindahl, Analyst]

Congratulations a strong report today and 2 questions from my side. Eric, you began this call by mentioning that you had a few M&A discussions ongoing. Is it possible to add some more color to that, potentially, geographies? And then more importantly, within -- with business areas and niches, would you say? Any comments on that would be very interesting. I'll start with that.

[Gerteric Lindquist, CEO, MD & Director]

I think that, as we said so many times before, we don't put priority on any specific business area. Of course, we have just talked to -- thinking about the smallest business there. I mean we still lack wood pellets. So that's a very obvious chunk that we would like to add. And still, we are relatively small in North America. So that's another thing we are looking at. On the Element side, of course, now we've seen how important it is to broaden your scope, coming from an immersion heat situation like 25 years ago. We moved -- we just -- we're sensing our way the market perhaps we need thick film. Perhaps we need thin film. Perhaps been resistors. And now we are into cables. And those components supply the semiconductor industry that opens up new avenues. I mean into medical industry, into the space industry-specific components, both in Europe and in North America. So having -- not having left, but understanding that the element market, as we see today, is much broader than it's just heating, putting an element on a cooker or putting a drying element in a washing machine. This is much broader. And particularly now, and the world is getting even more electrical, there are so many possible acquisitions all over naturally Europe and North America, but also in Asia. It's overwhelming. We've been -- it's fantastic. And when it comes to Climate Solutions, naturally, I mean, there, we also believe that the organic growth is interesting, but still, we are relatively small in just Mediterranean area in the southern part of Europe, of course. That is a very important area for us to grow. On commercial side in Europe, we still could be much, much larger. That's a very obvious area to grow and also on the commercial side in North America. So in all 3 sectors, we have very interesting avenues, but there is a hindrance. We must say that a new company, I mean, it's fine to sit in front of a screen and try to present yourself. But nothing seem seize meeting a person in-person. And then discussing eye to eye, having a meal together and just detecting those very important signals, what kind of individuals they have in front of you. And that is particularly important for us that run a business that is so autonomous. And so we just pray and hope that we're going to get out of this deadlock sitting in front of computers, so we can meet people again. We have a number of names, very interesting such. But when it comes to large acquisitions, we would rather have chances to meet people just rather than buying people -- buying companies online. Like a Heat Trace in Britain now is 100 million or 10 million sterling or quid. So this GBP 112 million, okay, that's done totally online. Then of course, we know the people because we've been selling their equipment for years. That again, facilitates that particular acquisition, but it's awkward. So that's the only -- I mean Hans is showing a balance sheet that's pumped up with both cash and we have a tremendous line of credit. So we're just ready to go. Just like to vaccination to come to a perfection, so people can get out and meet us again.

[Douglas Lindahl, Analyst]

Yes. So on the Climate Solutions? No, that's a very good answer. But on the Climate Solutions side, it's Mediterranean and also commercial in North America generally, you would say on Climate Solutions.

[Gerteric Lindquist, CEO, MD & Director]

Yes.

[Douglas Lindahl, Analyst]

Okay. And coming back to North America, you right here in the report, you comment about the U.S. Clean Energy Act proposal that was recently put forward. Just so I understand that, is this considered to be materially more positive than the previous tax credit, would you say? And would this sort of make heat pumps really competitive relative to gas in the U.S.? Any comment on that would be helpful.

[Gerteric Lindquist, CEO, MD & Director]

Well, I mean, there, you touched upon 2 very important issues. If we just continue to say that if you go for the most inexpensive one, then I think that we're never going to leave gas. Because if they lower the price of gas, I said, well, it's still a bit more -- is less expensive than a heat pump. We believe that the subsidies that were put in place prior to this suggested program were sufficient. But the problem is when you have a situation there, it's 1 or 2 or 3 or 4 years. The advantage of this suggested act is that we're going to run for 10 years, which means that you also have the time to build up an infrastructure around it. We know when we started to sell heat pumps in Germany, drilling rigs, just to establish those takes quite a while. And if you only have a window open, run 2 or 3 years, well, should we really invest in that. So the advantage is, of course, the certainty, the level puts it in the same category as the PV panels, which is very good. And the subsidy also put it in the same category as we cost to install a complete HVAC unit with water heat and everything in a regular installation. And that, of course, comes to savings and comes to sustainability outlook. And we believe that we're going to have the same attitude in North America as we've had in Europe recently when gas is more and more questioned, so it's not only a price matter. And that's why we always mentioned, a price would be the issue, then we would never be able to curb the carbon dioxide emissions. There has to be other reasons around that, and we have to all assist ourselves in that movement. I'm not a fundamentalist, don't take me wrong there. But it's not only a price issue. And if this program passes the Senate, we believe it will be a tremendous existence for a longer-term program and infrastructure improvement around heat pumps in North America.

[Douglas Lindahl, Analyst]

I guess, the U.S. is clearly in Europe in on the theme that you're highlighting there that it's not only about price. The U.S. seems to be clearly quite a lot about price still, but that might change here. That's very helpful. Would the longer time frame now also sort of indicate that it would make more sense to do investments in the U.S. as well, I mean, organic investments in your business?

[Gerteric Lindquist, CEO, MD & Director]

Well, I mean, we rather would -- not rather, but we are fairly well established. When it comes to heat pumps with our 3 brands in North America or in the U.S. and one brand in Canada. So we actually have 4 manufacturers. So not necessarily believe we -- that we need a fifth one, but rather stable market conditions.

[Operator]

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

[Pam Liu, Equity Analyst]

I have 2 questions, please. Number one, in Climate Solutions, it seems that the organic growth in North America is behind the other regions. So could you please tell us a bit more about the reasons here? And this is because we have seen peers operating in the North America residential HVAC space, reporting stronger demand. So is there anything specific that you are facing, particularly in that market? My second question would be that, I understand that you're in the process to migrating your refrigerant used in the heat pumps to R29 -- R-290 with a lower global warming potential. I'm just wondering whether there's any future margin impact. So are these refrigerants more expensive than it was you have before? And how do we think about margin going forward?

[Gerteric Lindquist, CEO, MD & Director]

Okay. The North American growth, the uncertainty of the present program continuing. Of course, there is a hindrance to the North America heat pump market. And there's no sort of secret at the present administration. It's more aligned with the European way of thinking when it comes to curbing carbon dioxide emissions. I'm not criticizing anyone in the past. We are just observing, and we believe and we see that the present administration has a totally different attitude, also demonstrated by joining the Paris Treaty again. And they also understand that it takes more than 1 or 2 or 3 years' programs, it takes a longer period to really again, allow the infrastructure to prosper. And that's why the North American or the U.S. market has been sort of a little bit lagging. And of course, during the pandemic situation here, it hasn't been any help either. Because you don't change a market under those conditions. And we felt that it was underway, but then, of course, the American Society and for that matter, the Canadian, they've been suffering tremendously by being locked down. So we see a positive trend. Of course, the bill going to pass to Senate now. That's very important. We believe that since -- with a vague or slim majority, I mean, it's 50-50, but the Vice President having the ultimate vote, we believe that they can get that pass. And although several Republicans also being positive because we have managed to get a Schulthess program in place by negotiating with both the parties in Washington some years ago. When it comes to the refrigerants, the -- we thought that going through the -- now everyone knows, the 290 was going to be a little bit of a market gimmick for us, demonstrating that we are mastering that now. So we weren't really -- typically, we don't release. Our product releases through our annual report to our quarter reports. It's been such a tremendous pressure there. You have to do it now. We think that's overreacting. Nevertheless, we do not believe that that's -- I mean propane is relatively seen less expensive than all the other refrigerants because they are chemical blends that require naturally a chemical company to come out with that with those margins. So propane is less expensive. The difficulty, the challenges, of course, at certain blending conditions, it's flammable and explosive. That's why you have to be very, very cautious, both in production and during the actual running period at the consumer level. So that's why we are -- we've been cautious about launching those products, but they are coming in a long, long role now. So we don't see any disadvantages. I mean, then again, the refrigerant part and the heat pump is not that phenomenal. So it won't be a, should I say, price hindrance or margin hindrance, but can we expect a tremendous improvement, but it will be a slight improvement. But particularly, the message that we provided the market with heat pumps with a GWP, that's below 10. That's a very, very strong market to message to be cover. I'm sorry. Was it too lengthy of an answer?

[Pam Liu, Equity Analyst]

No, That's perfect. It's very clear. Thank you.

[Operator]

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

[Fredrik Moregard, Analyst]

So just thinking about the component shortages that you are experiencing and commenting about. I mean, clearly, all manufacturing companies are facing similar issues as you are. Also, I would assume that companies will more global supply chains are more vulnerable to these sort of issues. I was just hoping maybe you could compare or give some comments on your sourcing structure, your supply chain versus some of your competitors in the Nordics and perhaps in the Central and Northern Europe areas, particularly within solutions, just how you compare with those? And if it could be perhaps an opportunity for you to gain some share if they are even more exposed than you are?

[Gerteric Lindquist, CEO, MD & Director]

Well, that's a question. That's a high kind of a question. It is impossible really to answer it. But there, I mean you can fill in Hans. But we, of course, will ship value added, meaning that we try to produce as much as possible in-house, like immersion heaters, like heater changes, like all the steel cabinets and things like that. Nevertheless, even if you have value added, I mean, you don't have a mine. So I mean, to really have value add, you need a mine, and then you need a steel work and then you get the steel heated. But of course, we can say that we shortened the supply chain by having our own production of practically all steel constructions or sheet metal constructions in heat pump in water heater and also on the element side, all the cabinets and stuff like that. So we don't have to rely on a sub-supplier on a third level. First comes to mine and comes to steel work, then comes who is producing cabinets for you. We do that. Had we had that also to be bought outside, of course, there would have been another insecurity added. It's the same thing with heat exchanges. Of course, again, mine, steel works, stainless steel, we don't produce that, but we produce the heat exchanger. Meaning that, that, takes away one level of uncertainty. But we are not invulnerable whatever you like to call that or invincible. Of course, we're going to have difficulties. But our way of thinking, that is, we believe, an advantage. But then to put it very bluntly, I mean we do not, for instance, as an heat pump manufacturer, we do not produce compressors. So there, we have, of course, compared to other manufacturers that -- where they produce compressors. Of course, there, we have a shortcoming. And we have to combat to that and are combating that by having several suppliers. And Hans, you can fill in?

[Hans Backman, Chief Financial Officer]

Yes. If I just fill in, I think we also believe very much in the business model that we have with our to a large extent, independent companies, managing a lot of these operations on their own. We're not dependent on one huge factory, upon which everything stands and falls. It's rather a number of companies solving these solutions, locally, you can say. Then of course, our people work together in the background in supply chain matters, purchasing and so forth. But if one company face, so to speak, or has a problem, the other one might not. So I think that also brings a balance into the system in a way, although we're not invulnerable, as Eric says, and anything can happen, of course.

[Operator]

We have no more questions from the line. I'll hand it back to our speakers.

[Gerteric Lindquist, CEO, MD & Director]

Well, you're so polite. Thank you very much. It's just about move. We're going to continue. And we're going to look after the Annual Shareholders Meeting as well. Hopefully, the dividend is going to arrive at some of your bank accounts accordingly around the 21st of May or something like that, we might -- on 26th, I hear some whispering here. We're going to end up with some more shares. Today's number, multiply would full. So that's also a change. A pleasure always to present the report to you and also to receive the questions. I mean, we really hope that you don't think that we are naughty by not answering all the details. I mean, we could be more detailed, but we think it's fair for all shareholders and people out there to, of course, to get fair information, but we cannot totally, should I say, undress ourselves. Thank you very much again. You have a nice day now.

[Hans Backman, Chief Financial Officer]

Thank you. Bye-bye.