NIBE Industrier’s (publ) CEO and MD, Gerteric Lindquist, comments
on first half year, 2024
First half characterized by large
adjustments
The action plan is being implemented as a
result of major destocking in the distribution chain, continuing
high interest rates and historically low housing production – at
the same time, we expect a gradual improvement in demand in all
three business areas in the second half of the year.
The Group's sales declined by 16.8% during the
period (compared with growth of 27.6% in the previous year), of
which the organic decline was 22.3% (compared with organic growth
of 22,1% in the previous year). Operating profit adjusted for items
affecting comparability declined by 67.1% in the period compared
with the corresponding period in the previous year, and the
operating margin declined from 15.3% to 6.1%. Adjusted profit after
net financial items fell by 82.7%, while the profit margin declined
to 3.0% (14.3%).
Moving towards more acceptable inventory
levels
As in the beginning of the first half of the year, the rest of the
period was also characterized by distributors’ efforts in the
distribution chains to reduce their inventory levels, particularly
for heat pumps and stoves. This means that order intake among
manufacturers remained weak and did not reflect the number of
products actually installed by consumers. However, we believe that
the inventory adjustments in the distribution chain, which have
been going on for more than nine months, are now largely completed
in the vast majority of markets. This, in turn, should mean that
manufacturers’ production volumes will in future better correspond
to actual consumer demand. However, the German distribution
channels are an exception and are expected to need another quarter
or two to come down to acceptable levels.
Background is familiar
The steep and rapid increase in interest rates at the end of 2022
and throughout 2023, particularly in Europe and North America, has
had a significant dampening effect on consumers, while new
production of housing and commercial property has slowed down
considerably. This has mainly had a negative impact on demand for
heat pumps and stoves. Some of the central banks cut their key
interest rates in early summer and the general consensus is that
both Sweden and the rest of Europe and North America now face a
number of relatively rapid interest rate cuts. It is reasonable to
assume that this will have a positive effect by stimulating general
consumption willingness and interest in investing in new production
of property.
Crucial to achieve climate targets
The phase-out of fossil fuels is still progressing too slowly for
the world to be able to achieve established climate targets. One of
the major obstacles in the transition is the lack of political
clarity concerning transition subsidies for the installation of
heat pumps as well as the disproportionately large price difference
in several countries between fossil fuels and electricity in terms
of price per kilowatt hour.
Positive outlook for semiconductors
The semiconductor industry, which has suffered a significant
setback mainly due to US trade sanctions against China, is now
seeing some signs of improvement. Several new semiconductor
manufacturing plants are under construction, mostly in the USA but
also in Europe, which is expected to have a positive effect on
equipment manufacturers and their suppliers towards the end of the
current year.
Our overall view
To summarize, our assessment is that demand at manufacturer level
has largely bottomed out in the first half of the year and will
gradually improve in the second half.
Action plan launched
As previously announced, on March 18 we launched a comprehensive
action plan in order to adapt the business to prevailing demand.
The annual savings are estimated to be around SEK 750 million and
the cost approximately SEK 1,095 million.
Business area NIBE Climate
Solutions has successfully and almost fully implemented
its parts of the action plan. The measures taken to streamline the
organization and reduce overheads in both the short and long term
have already had an effect on operations in the second half of the
period. At the same time, we are continuously launching new heat
pump models based on environmentally friendly refrigerants and
advanced controls in order to further strengthen our market
position. The brand-new product program for commercial property
ventilation, NIBE Flow, developed in-house and launched in April,
has been very well received in the market. With this new program
and our complete product programs in heat pumps and district
heating, we can now provide complete system solutions for
commercial property climate control.
Stability in the US heat pump market has been completely different
from the European market, but it too has seen some reduction in
installations in the single-family home segment due to high
interest rates in the first half of the year.
The business area’s ambitious investment program has almost been
completed, save some machinery equipment that has been postponed
pending an increase in demand.
The sharp and rapid fall in sales in the first half of the year
resulted in a significant decrease in both operating profit and
operating margin. The ongoing action plan, combined with a recovery
in demand in Europe in the second half of the year, will enable us
to gradually improve operating profit. Our clear ambition is to
return to an operating margin level within the business area's
historical range in 2025.
Business area NIBE Element is, like NIBE Climate Solutions,
nearing the completion of its action plan. While the market for
products for the heat pump segment has seen a sharp downturn, as
have products for the rest of the construction industry, we see
that the electrification of vehicles, together with the market for
rail-based transport, is creating new opportunities for growth.
There are also positive signals from the semiconductor industry,
which expects to see an upturn as early as in the second half of
the year. In addition, the wind power industry expects to see a
recovery in 2025 after a couple of weak years.
The action plan, combined with increased sales, will gradually
improve the operating margin in the second half of the year.
Despite some cyclical lag in the business area's sales as a
component manufacturer for production customers, our clear ambition
is to return to an operating margin level within the business
area's historical range during 2025.
Business area NIBE Element is, like
NIBE Climate Solutions, nearing the completion of its action plan.
While the market for products for the heat pump segment has seen a
sharp downturn, as have products for the rest of the construction
industry, we see that the electrification of vehicles, together
with the market for rail-based transport, is creating new
opportunities for growth. There are also positive signals from the
semiconductor industry, which expects to see an upturn as early as
in the second half of the year. In addition, the wind power
industry expects to see a recovery in 2025 after a couple of weak
years.
The action plan, combined with increased sales, will gradually
improve the operating margin in the second half of the year.
Despite some cyclical lag in the business area's sales as a
component manufacturer for producing customers, our clear ambition
is to return to an operating margin level within the business
area's historical range during 2025.
Business area NIBE Stoves, like the
two other business areas, is in the final phase of implementing the
action plan described earlier. As in the case of previous
statements, product development and the respective marketing
initiatives are exempt from cost-cutting measures. A concrete
example is the launch of the Contura Zero Emission stove, a
groundbreaking innovation that almost completely reduces particle
emissions from wood burning in the stove. The product will be
launched to end consumers in the fall of 2024.
The action plan covers NIBE Stoves in Europe. A similar action plan
was carried out in the North American companies in the previous
year in order to adapt their operations to lower sales volumes.
The decline in sales has reduced both operating profit and the
operating margin, but, with the implemented measures, the aim is to
gradually improve them as early as in the second half of this year.
Our clear ambition is to return to an operating margin level within
the business area’s historical range in 2025.
Investments for the future
The Group’s total investments in the first half
of the year amounted to SEK 1,263 million, compared with SEK 2,144
million in the previous year. Of the investments, SEK 29 (726)
million related to acquisitions of operations, which means SEK
1,234 (1,382) million comprised investments in existing operations.
Excluding leases, the depreciation rate was SEK 749 million,
compared with SEK 579 million in the corresponding period in the
previous year.
Of the investment program of SEK 10 billion decided in 2020, the
bulk, or just over SEK 8.5 billion, has now been completed. The
remaining investments in buildings will be completed in 2024/2025,
while further investments in capacity expansion have been postponed
pending an increase in demand.
Markaryd, Sweden,August 16, 2024
Gerteric Lindquist
Managing Director and CEO
For any questions, please
contact:
Fredrik Erlandsson Head of Corporate
Communication and Investor relations +46 70 486 63 90
Hans Backman, CFO; +46 433-27 30 00
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