First half of the year marked by major adjustments
The action plan is being implemented against the backdrop of massive inventory reductions in the distribution chain, persistently 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 revenue decreased by 16.8% in the reporting period (compared to growth of 27.6% in the previous year), of which the organic decline was 22.3% (compared to organic growth of 22.1% in the previous year). Adjusted operating profit decreased by 67.1% in the reporting period compared to the corresponding period last year, and the operating margin decreased from 15.3% to 6.1%. Adjusted profit after financial result decreased by 82.7%, while the profit margin decreased to 3.0% (14.3%).
Towards more acceptable inventory levels
As was the case at the beginning of the first half of the year, the rest of the period was marked by efforts by dealers in the distribution chains to reduce their inventories, particularly for heat pumps and stoves. This means that orders received by manufacturers remained weak and did not reflect the number of products actually installed by consumers. However, we expect that the inventory adjustments in the distribution chain, which have been ongoing for more than nine months, are now largely complete in the vast majority of markets. This in turn should mean that manufacturers’ production volumes will better match actual consumer demand in the future. However, the German distribution channels are an exception and will probably need another quarter or two to reach an acceptable level.
Background is known
The sharp and rapid rise in interest rates in late 2022 and throughout 2023, particularly in Europe and North America, had a significant dampening effect on consumers, while residential and commercial real estate production slowed significantly. This had a particularly negative impact on demand for heat pumps and stoves. Some central banks cut their key interest rates in early summer, and there is a general consensus that both Sweden and the rest of Europe and North America are now facing a series of relatively rapid rate cuts. This is expected to have a positive effect by stimulating general consumer spending and interest in investing in the production of new real estate.
Crucial to achieving climate goals
The phase-out of fossil fuels is still progressing too slowly for the world to achieve its climate goals. The biggest obstacles to the energy transition include the lack of political clarity on transitional subsidies for the installation of heat pumps and the disproportionately large price difference between fossil fuels and electricity in several countries, measured in terms of the price per kilowatt hour.
Positive outlook for semiconductors
The semiconductor industry, which suffered a significant setback mainly due to the US trade sanctions against China, is now seeing signs of improvement. Several new semiconductor manufacturing plants are under construction, mainly in the US but also in Europe, which is expected to have a positive impact on device manufacturers and their suppliers towards the end of the current year.
Our overall view
In summary, our assessment is that demand at the manufacturer level largely bottomed out in the first half of the year and will gradually recover in the second half of the year.
Action plan launched
As previously announced, on 18 March we launched a comprehensive action plan to adapt the business to prevailing demand. Annual savings are estimated at approximately SEK 750 million and costs at approximately SEK 1,095 million.
NIBE Climate Solutions business area has successfully and almost completely implemented its parts of the action plan. The measures to streamline the organisation and reduce overheads both in the short and long term have already had an impact 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 modern controls to further strengthen our market position. The brand new product range for ventilation of commercial buildings, NIBE Flow, which we developed ourselves and launched in April, has been very well received by the market. With this new programme and our complete product ranges for heat pumps and district heating, we can now offer complete system solutions for air conditioning of commercial buildings.
The stability of the US heat pump market differs fundamentally from that of the European market. However, there was also a certain decline in installations in the single-family home segment due to high interest rates in the first half of the year.
The business unit’s ambitious investment program is almost complete, with the exception of some machinery equipment whose completion has been postponed due to increasing demand.
The sharp and rapid decline in sales in the first half of the year led to a significant decline in both operating profit and operating margin. The ongoing action plan, as well as a recovery in demand in Europe in the second half of the year, will enable us to gradually improve operating profit. Our clear objective is to return to an operating margin level in the historical range of the business area in 2025.
The NIBE Element business area, like NIBE Climate Solutions, is close to completing its action plan. While the market for products for the heat pump segment and for the rest of the construction industry is experiencing a sharp decline, we see that the electrification of vehicles, together with the rail transport market, is creating new growth opportunities. There are also positive signals from the semiconductor industry, which is already expecting an upturn in the second half of the year. In addition, the wind power industry is expecting a recovery in 2025 after a few weak years.
The action plan, together with higher sales, will gradually improve the operating margin in the second half of the year. Despite a certain cyclical lag in the division’s sales as a component manufacturer for production customers, our clear objective is to return to an operating margin level in the division’s historical range in 2025.
NIBE Element business area is, like NIBE Climate Solutions, close to completing its action plan. While the market for products for the heat pump segment and for the rest of the construction industry is experiencing a sharp decline, we see that the electrification of vehicles, together with the rail transport market, is creating new growth opportunities. There are also positive signals from the semiconductor industry, which is expecting an upturn as early as the second half of the year. In addition, the wind power industry is expecting a recovery in 2025 after a few weak years.
The action plan, together with higher sales, will gradually improve the operating margin in the second half of the year. Despite a certain cyclical lag in the division’s sales as a component manufacturer for manufacturing customers, our clear objective is to return to an operating margin level in the division’s historical range in 2025.
NIBE Stoves business areais, like the other two business areas, in the final stages of implementing the action plan described above. As in previous statements, product development and related marketing initiatives are exempt from cost-cutting measures. A concrete example is the launch of the Contura Zero Emission fireplace, a groundbreaking innovation that almost completely reduces particle emissions when burning wood in the fireplace. The product will be delivered to end users in autumn 2024.
The action plan affects NIBE Stoves in Europe. A similar action plan was implemented in the North American companies last year to adapt their operations to lower sales volumes.
The decline in sales has reduced both the operating result and the operating margin. However, with the measures implemented, we want to gradually improve these in the second half of the year. Our clear goal is to return to an operating margin level in 2025 that is within the historical range of the business area.
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 million (726 million) related to the acquisition of businesses, ie SEK 1,234 million (1,382 million) was investments in existing businesses. Excluding leasing, the depreciation rate was SEK 749 million, compared with SEK 579 million in the corresponding period last year.
Of the SEK 10 billion investment program decided in 2020, the majority, i.e. 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 until demand increases.
Markaryd, Sweden, August 16, 2024
Gerteric Lindquist
Managing Director and CEO
If you have any questions, please contact:
Fredrik Erlandsson Head of Corporate Communications and Investor Relations +46 70 486 63 90
Hans Backman, CFO; +46 433-27 30 00
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