Nibe Industrier AB
STO:NIBE B
Earnings Call Analysis
Q4-2023 Analysis
Nibe Industrier AB
In recent times, the company has faced a challenging market, reflected in a negative 1.4% growth during the quarter compared to the robust 19% growth experienced in the previous year. This downturn has also influenced the gross margin, which fell to 15.9%, indicating a notable decline from 19%.
The NIBE Stoves segment revealed an almost 19% increase in 2023 but was largely driven by acquisitions, with the operating margin reduced to 11.2% from 13.7%. Regionally, Europe showed strength in wood-burning stoves, while North America experienced a weakness in gas and pellets segments. NIBE Element demonstrated a 9% organic growth for the year, yet faced margin pressures, particularly in Q4, with margin just above 6% due to a rapid change in the product mix, with semiconductors and HVAC sectors slowing down substantially.
Cash flow operations halting at nearly zero were compounded further by the acquisitions made throughout the year. The company embarked on cost-cutting measures, including layoffs affecting 500 employees, signaling a structural reconfiguration rather than temporary adjustments geared toward navigating the tighter market conditions.
The balance sheet notably reflected an increase in tangible assets, primarily caused by a buildup in inventory levels. This influx in inventory indicates potential anticipation of demand variance or supply chain adjustments. The key financial ratios such as net debt-to-EBITDA remained at approximately 2x, and the equity asset ratio was close to 45%, demonstrating a steady financial structure across the company's history since its public inception.
Company executives have voiced concerns over market difficulties and foresee continued challenges with margins due to the slump in revenue alongside broader industry pressures. Looking forward, there is a forecast of weaker performance for the first half and possibly the full year of 2024, hinting at enduring struggles before any potential sign of recovery. Nonetheless, prices within the company have not seen a major downturn, reinforcing the company's position in not competing in the lowest product range but rather focusing on maintaining a premium market status.
While the near-term outlook appears challenging, the company expects full operational cost savings to take effect by early 2025, after which it anticipates a more positive trajectory. The long-term strategy points to a gradual recovery as the company rescales and aligns its operations to the evolving market demands.
In the fourth quarter, the company did not record significant one-off costs. Any notable figures were part of a yearly adjustment on the group level, suggesting that the financial results largely represent the ongoing operational profitability and not skewed by exceptional charges or gains.
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Ladies and gentlemen, welcome to the NIBE Q4 report. At our customers' request, this conference will be recorded. [Operator Instructions] May I now hand you over to Eric Lindquist, CEO; and Hans Backman, CFO. Please go ahead.
Thank you. Good morning or good afternoon to all of you are out there. Thank you for calling in.
Yes. Hello. Hans here as well.
And we've gone to have the traditional set up here where we comment with a few slides to start with, and then we'll have a Q&A. So looking at the first slide here, we, of course, have as it says a very good year, all in all, about the clear decline in the fourth quarter. And I'm sure that you're also going to have a number of questions regarding the restructuring program due to the start of the '24 that is weaker. But if we just comment about the year as such, of course, it's been large fluctuations in demand and we all know why. We tried to explain that the inventory adjustments in the whole distribution chain.
And now when that is more or less sold then, of course, we see that there are too many heat pumps in the chain out there, which, of course, makes it very difficult to make any kind of a realistic forecast and the higher interest rates, of course, they also make it difficult for families to buy new homes and invest and also that dampens the whole consumption, we can say.
Nevertheless, we've made 5 larger acquisitions, and they are strategic, of course, turnover was on SEK 3 billion. So all in all, that's fairly decent. But coming back to the restructuring program, of course, and we are sure you're also going to have a number of questions.
Looking at the group, the full year, of course, SEK 46.6 billion. That is the highest turnover revenue ever and also coming out with the operating profit of the very close to SEK 7 billion. That is also the best result ever. And the operating margin is also, as we recall, it's the best margin ever if you look at the year as a whole.
Looking at the fourth quarter where we see that the expansion or the growth is coming through with standstill and the organic growth is not there anymore. We have acquired some 7%. So the turnover we can say is about the same as last year. And of course, the operating profit coming down and also coming down the operating margin significantly. And that is, of course, now when we see the first part of this quarter while we start to react. And that is also a slide that describes that more in the graphic way, where you see now that the Q3 and Q4, particularly Q4, that's always the strongest one that is more flat compared to Q3.
And that is, of course, affecting the profit and we can also see the curve up there that's getting a little bit of a downturn. And we're also going to come back to that and comment how we look at that. And if we just look at the pie chart, as we typically do, pretty much is the same. Climate Solutions is about 2/3, Element, some 25% and Stoves like 10% that doesn't change much over the years. And when we look at the distribution of the profit, of course, that is, again, pretty much pronounced the Climate Solutions almost having some 80%, whereas Element and Stoves have been hitting a couple of times a little bit earlier.
And if we then continue with the next slide, we won't dwell too much because we know that we are anxious to put some questions here. We also see that the North American pie is a bit over the 25% now, which is very good because Europe, particularly on the Climate Solutions side is weaker and in Nordic countries that represent just a little bit over the 21% or 1/5, which is our home market, we've always said.
And if you just have a few comments about Climate Solutions, of course, it's a good overall performance. But fourth quarter, again, coming back to that, that is, of course, weaker or a decline. And then we start this restructuring program from a point where we feel that, okay, we don't like to have any uncertainties internally, neither do we like to have any uncertainties out there. We might as well start doing this, sending clear signals what we're going to do. And of course, we have not deviated from our firm belief in the future. But sometimes, things happen and now there are a few things coinciding and we just had to react.
Otherwise, the investments, we have done them very orderly since 2020, and they are now soon to be completed. We mentioned that we've invested some SEK 8 billion over the last years, and the target was some SEK 10 billion, and they'll be completed, if not 100% this year, but at least the coming 6 or 7 quarters. And of course, we've been striving very hard to launch the new products, particularly on the Stoves side, when -- I'm sorry, on the natural refrigerant side, and that's now in existence. Now the time lines have been moved forward, so it's not that urgent, which is a little bit of a disappointment to us that we came to the market in a very orderly time but they now postponed at first of January '25 and delay that in a couple of years.
Nevertheless, the operating margin for the year as a whole already mentioned that, that is the best ever. And yes, again, operating profit for the Climate Solutions is, of course, on the healthy side with an operating margin of 17.8%, which is considerably higher than the previous year. And if we just continue on the Stoves side, there, we've seen a clear good demand and growth in wood burning where it's been much softer for pellet stoves and gas-fired, but also they are particularly for gas-fired products. And then we've had a very -- or have a very ambitious investment program, both for the production as such, but also for R&D. And now we have launched 1 generation of new products and want to come this year.
So those programs are also to be completed or soon completed and then of course, we have had to adjust our organization due to the variations in demand and that is affecting our operating profit and the operating margin, as we're going to see in the next slide, where we take a dive from the SEK 551 million to SEK 533 million, although we have pretty healthy growth, Hans is going to come back to that, but it's mainly driven by acquisitions and your operating margin is down a bit more than 2 percentage units there.
And on the Element side, of course, there, we are following the whole economy, we can say, as we said so many times, we are pretty much in every individual business sector. And there, we also have seen a slowdown in the second part of the year. And that is, of course, one of the reasons the HVAC industry is weaker than before. And the Consumer Goods segment continues to be weak, but that started a little bit earlier. And that's typically the first segment that takes a dive when the interest rates are going up. And then the semiconductor industry, that's a different story because there, we talk about trade restrictions in this particular -- particular between China and the U.S. So that is delaying the expansion there. But now we see new factors being erected all over in Europe and in North America. So that is just about to start going in the positive direction again.
Industrial segment continues to be good. And one particular segment is electrification of the vehicles, that is very interesting to us in a large market. And there again, we are ready for the expansion. We have invested, and that is also soon to be completed. But we've had to take some adjustment costs that's why the operating margin and the operating profit is slightly lower than last year, as you see on the following slide. And there, we take a dive from the 10 to the just south of 8 percentage units when it comes to the operating margin. And I think that's very quickly what I wanted to say according to the slide deck we had here Hans, it's your time to shoot.
All right. Thanks, Eric. I'll continue with the same speed to open up for the questions in a little while. If we can continue with Climate Solutions, slightly more on a detailed level. I mean, as Eric said, it's -- we phrased it in the press release as a good performance, but actually Climate Solutions has had a great performance. It's the best ever in terms of the higher sales, highest profit and also margins.
Sales for the full year were up by some 20.3%, of which just below 6 were acquired. But what we haven't specified in that table is that we also had minus 2.5 coming from divestments, the portion from the last portion of the Schultess group. And while sales grew by 20-plus percent, profit was up by 29%, very much due to a strong increase in the gross margin, thanks to the volume that came in, so to speak.
But of course, in Q4, things slowed down and very much as a result of the market, which has continued to decline due to the inventories that we see are out there. So in the quarter itself, the growth was minus 1.4% meaning that the organic growth, including a slightly positive currency effect actually were down by roughly 9%. And although gross margin improved, the decline in volume overall has a negative impact, and we came in there on 15.9% in the quarter, which, of course, was down from the 19% of last year, but in a way, a strong quarter.
If we look at the geographical split of sales, there haven't been very much changes to that picture. North America has picked up slightly, slightly and overall, we have seen in North America that has been a little bit stronger in general than Europe now during the latter part of the year.
If we quickly move on to NIBE Stoves, that business area grew with some almost 19% in 2023. But of course, a large portion of that came from acquisitions. And as stated before, I mean, wood burning stoves in Europe has been fairly strong and performed well, whereas North America with gas and then pellets in general have been weaker. So we came in there at an operating margin of the 11.2% down from the 13.7%. And in Q4, sales in total went up by 7%, but that -- all of it and much more, so to speak, came from acquisitions meaning that the organic sales, including a slight positive currency effect were down by close to 7%. And with a weaker volume and the continued ambitions we have in R&D and so forth, the margin came in at 12.7% there.
In terms of geographical split of sales, the North American pie piece there or piece of the pie has increased due to the acquisitions we've made now representing almost 1/3 up from basically the fourth of last year. NIBE Element has basically shown the same pattern as in the business area, mainly comes from the slowdown in semiconductors and lately then also the heat pump related HVAC business. And with these being reasonably high-margin business for the business area, that has an impact on the result. And in addition to that, the Consumer Goods segment has seen some weaknesses. But as Eric pointed out, there are also very interested in opportunities within, for example, electric vehicles and other segments as well. As Eric pointed out, it's a segment where we are represented basically all over the world.
Full year, we were up by some 9% organic, including currency, was up by 6.3%. But then due to this rapid change in product mix, the operating margin came down, and we dropped down below 10% and came in just south of 8% even. Q4 was rather flat. And with this continued unfavorable product mix, so to speak, operating margin came down there to just above 6%. And as you all know, we have a target there of staying at 10% or above our business cycle.
In terms of the split of sales on a geographical point of view, so to speak. This is, again, the most global segment that we have, where we're represented not only in very many segments but also in very many geographies, which is a strength, of course, when one area is possibly weaker than another.
A quick glance then just at the balance sheet and then cash flow and some key figures here. The balance sheet, what sticks out there, and it was the same in our last Q report are the tangible assets, and that means very much inventory. As you know, we have been sourcing a lot of components post the COVID period and during this year, when things became, so to speak, better for us. We've also been able to build finished goods inventory. But we're obviously working on bringing these down even more. They have come down slightly, but there is more to do.
On the equity and liability side, it's possibly the long-term liabilities that stick out a bit, having come up from the SEK 6.4 [ billion ] to the SEK 16.9 [ billion ], very much related to the acquisition of very important climate for life company in the Netherlands for us. And if we then jump over to the cash flow analysis. We've actually generated one of our highest cash flows ever as well there with the SEK 6.5 billion. But obviously, with the change in working capital, where we have been building inventory and then also continued our very ambitious investment program. The operating cash flow has been basically 0 and then on top of that, we have the acquisitions made during the year with the CFL Group in the Netherlands sticking out as the biggest one.
A very quick glance on the key financials. I mean, working capital has come down slightly but not enough, especially if you ask me as the CFO, we're continuously striving for bringing that down. So of course, a little bit easier said than done when the market within Climate Solutions currently has inventory in the system already. But overall, the key numbers are very fair, so to speak, interest-bearing liabilities being at 70%, net debt-to-EBITDA at 2x roughly and an equity asset ratio of close to 45%. But obviously, we are affected as well. Return on capital has come down slightly as well as the return on equity when things develop a bit slower, so to speak, during the last part of the year.
But summarizing our key financial figures and the ones we really follow and have as our targets in the annual report and for our companies, we see here our development ever since we went public back in 1997, where we see the equity assets ratio, return on equity, operating margin and net margin, which have developed quite favorably over time, step by step by step. And we've been through both one or the other challenges during these years and by that, I think we leave open for questions? Or would you like to add something?
No, you shoot out there. Please.
[Operator Instructions] And our first question does come from the line of Carl Ragnerstam from Nordea.
It's Carl Ragnerstam from Nordea. A few questions. Firstly, looking into the volume drop in Climate Solutions in the quarter, what portion would you say is distributors and installers taking down inventory? And how much would you say is end market demand? And secondly, on that as well, you mentioned in the report that is an acceleration during quarter. Is it fair to assume that this was inventory driven? Or is it also a combination of end market demand getting a little bit worse?
Well, we believe it's a combination. Of course, the higher interest rate that has an effect on new construction and people's readiness to buy any merchandise, but of course, also heat pumps. But there is a clear, of course, signal also from the distribution chain that they are still overstocked. And that is, of course, damaging our output as well as all the other manufacturers. So that's a combination.
Okay. And that goes also with the acceleration, I guess during the quarter.
Yes.
Okay. I mean we also curious to know a bit more about your guidance for first half and full year '24, we stated it will be weaker. I mean could you give some light on what magnitude of weakness we're talking about in the first half for instance. Would you say that it's a similar organic drop as what we saw in -- during Q4 or that acceleration might continue a bit during Q1? And how do you see that?
Well, I don't think that we can inform you so much more than this written in the report. But of course, as we try to say, as we try to have said so many times, our reports, they present to our best ability, a story, a true story of where we are, where we are heading. And of course, when we talk about a weaker second half and possibly into '24 like half a year ago, that is, of course, something that is now moving ahead as we see with the weak '24 to start, we don't have the crystal ball, I apologize for the remainder of the year and we feel it's appropriate to not promise there is going to be any dramatic improvement in the second half. I guess you should read it like that. We like to be prudent in our guidance and that's as far as I think that I -- we can explain that.
And if you look -- I mean, we only have 1.5 months here during the start of the year. Would you say that the situation is even tougher during the start of the year or that it might continue as you saw during December?
Well, how should we answer that? If you walk into precise figures, I think we released more than we are able to, but we understand your question and definitely. And I think that's a good guidance you can get from us because the picture is not totally clear to us either. It's very difficult to even ask distributors and installers to where their inventories are, and I guess we're trying to give you the best guidance possible.
But as far as percentages and stuff like that, we have to stay out of that from all again, from a fairness point of view to all our shareholders because we don't like to release anything that's not written in the report. But we try to indicate to you now that that's the first 2 quarters will continue to be, as we said, even in the Q3 report. And I think that's a little bit clearer than we used to guide due to the difficulties that we had in the market. And when I say we, I think it's the whole industry and is to continue. It's a little bit of a surprise, I guess, to all of us that the demand out there has taken such a hit as it has due to the higher interest rates and due to the gas prices going down again.
And we also have a little bit of a sentence there or a sentence regarding the willingness to support our industry. And now we are not preaching for our own company, but let's say, sort of a sustainability issue, are we really heading in the right direction or are we returning more to a gas-driven society again when prices are down. So that's a fundamental and very important issue, but I won't dwell too much more on that.
That's very good. And the final very quick one is on cost savings. If you could help us on the ramp-up of the cost savings. You said it. It will be full effect in '25. Is it early '25, you mean by that? And also if you could give the cost savings split by segment or perhaps geography as well.
Well, I mean, to start with, that's not something we're going to start doing in December. Of course, that will take a gradual breadth of the organization as we negotiate and as we fulfill this. It's not that something we can wait. We're going to do it as quickly as possible, but also as responsible as possible, that's what we say. And when we say that when we hit '25, of course, all costs should have been driven out of the organization, if I may use that word.
So it will be a gradual, did I say the introduction of the program that you're going to see, and '25 will be totally clean from this.
And our next question comes from the line of Douglas Lindahl from DNB Markets.
I wanted to come back to the outlook comment here. My impression at least is that you're getting a bit more vocal about the difficulties you see in the industry. To what extent is this really market that you're seeing that is becoming increasingly weak? And -- or to what extent is this you becoming more vocal about these things, meaning you've changed your communication to a certain extent, would you say?
Well, I think that perhaps we've been too conservative in our communication. We have not really been so well trained media-wise or communicating with you folks out there. Perhaps, we've been too home woven in a way, and we apologize for that. And we try to give you as good as possible guidance. And we are happy that or pleased to note that you know that we have -- we are changing gradually a little bit. But it's not so easy. We have our habits and we've invested for so many years. And we're trying to -- despite -- particularly in my age, we tried to be a little bit more modern without being extremely modern.
No. I appreciate the difficulty in forward-looking commentary in general, so I can understand. So interesting to hear that. Just coming back to your expectations on the weaker market there in 2024. And given where inventory levels are, how should you -- or how do you expect this to sort of play out for Climate Solutions margins for 2024?
Yes. Well, I mean, isn't that really, of course, if the market continues to be weak, of course, no one can maintain decent margins without taking actions. And as before, we are working always from a relatively decent level of profitability that makes you safe when it comes to -- or certain when it comes to analyzing things for a certain period. But when it now continues into the first part of this quarter, of course then, you say, well, realistically, this will not change. We have to do something about it and we do it from a very solid platform. We don't like to wait until it's very obvious that we have to do things.
I mean the fourth quarter is not ideal, it's not pleasing to us, but from any outside, it's not like too bad if we shouldn't judge ourselves. And we think that's the neither way of reacting. You analyze things, you work from a profitability platform and then you act. And that's exactly what we're going to do now.
Okay. So continued difficult margins, I guess, then.
I understand your question to us. No, don't misinterpret this. But I mean you also know that as you saw in quarter 4, I mean, when the market -- or the revenue goes down, no company in the world can really continue to maintain the margin.
No obviously. Yes, it's just the context of your inventory levels. But on the cost-cutting program, thanks for being vocal about that and explaining that. I'm just trying to understand. So 500 people are affected. And if the market sort of bounces back in 2025, will you rehire these 500 people? Or are these structural costs that you're actually taking out?
No. They are structurally taken out. But of course, if the market would bounce back another 30% to 40%, of course, they are -- I mean, we can't live with the same staff, but they are to be taken out, assuming that we'll have no dramatic jump. But of course, as we see it now, the heat pump market will continue to grow. But now we feel that we have to adjust because we were equipped, if I may call it, to a larger volume. We all thought that the industry thought that now we will rebuild Europe, particularly in the ventures in North America with heat pumps. And of course, if you take more people that are not this is a very, very sensitive and difficult situation that we are -- I mean that's the last thing for me. I mean, I spent a whole life here to even suggest that we're going to reduce people, so emotional, but the pressure or part of the job is to do just this.
Yes. I understand. It's not easy. I clearly understand that. And just to move forward in the questions. On pricing, we haven't touched upon that topic yet, are you seeing any changes there in the market? Are you adjusting your prices? Are you seeing competitors doing anything on pricing, obviously, for heat pump specifically?
Yes. Well, I'm sure that there are movements out in the market in a limited way. But our frank assessment so far isn't that we haven't seen any major downturn in pricing. But having said that, we all know that in some markets and some segments of the market, they're always going to be intense.
And then how are you acting in this market? Or are you planning to act?
Well, we try to maintain our product or our message to the market where we are producing products of premium kind. And of course, if you like to buy products of a lesser sophistication, we also have an assortment of that kind, but we don't participate in the very low range of products. I guess that's your answer to that.
And then maybe a question for Hans, I noticed that eliminations in Q4 was positive on the EBIT. What's the reason behind that?
That's the same thing we do every year when we run through the contingent liabilities for additional purchase prices because that's the 3-year plan, we need to adjust the liability that we've set aside. And sometimes, we have to set more side, sometimes we have to release a little. And the net effect this year, following the market development, you can say, was a net effect of a release.
Our next question comes from the line of Karl Bokvist from ABG Sundal Collier.
Most questions have already been asked. But if I may, at the start of 2023, you did provide some details on the organic growth of your heat pump business. What was the organic figure now in the fourth quarter?
The organic figure for the I think.
Are you asking for the organic growth of heat pumps in Q4?
Yes. Yes, sorry, exactly.
Okay. Well, I mean I won't have to return to that picture. Did you have that Hans?
Well, I mean, in Q4, we had an organic growth in total for Climate Solutions including.
There was a contraction of the organic side.
Currency of minus 9.3%, I think I mentioned that.
Yes. No, it was more about both in Q1 and Q2, you explicitly said that the heat pump part grew organically by I think it was 40% in Q1 and then a bit above 30% in Q2. And then I was just curious if it would be possible to say what the heat pump business, how that developed organically now in Q4?
I don't think we recall giving that number explicitly. But maybe you're right, if you've taken notes on that, but that's not -- typically we talk about the specific segments.
Okay. All right. Understood. Then just on the one-off costs were in that you will book in Q1. I was just curious if you could give some details on which costs you call alignment costs and so on in Q4, now that we are worth highlighting or if any magnitude would be possible to give.
Okay, please, Hans.
I mean we didn't have any one-offs in that sense in Q4. The one thing that might stick out is the one that Douglas has just asked a question about, and that is on group level where we do a yearly adjustment for the continued liabilities for the additional purchase prices. Apart from that, there have not been any specific one-offs in either of the business areas or on group -- for that group level for that matter either. It's just these early adjustments that we make.
Okay. Understood. Yes. No, it was more about the commentary when you align the capacity and so on if there's any particular costs that we might not see in Q1 or Q2, but to my -- so if I understand it correctly, it's more about an ongoing business decisions that were taken.
Within stocks, I think Eric mentioned that we have within our North American business has made adjustments to meet the new demand there following the gas prices having come up and demand has declined. But that's more in the ordinary course of business adjusting.
And also on the Element side.
And Element, absolutely.
Okay. Understood. My final one is just on a bit touching on Douglas' question there. But have you also seen any kind of campaign efforts or by extension lower prices in the premium segment among your competitors or within the industry?
Not to our knowledge, no. I have to say to our knowledge, otherwise, I mean they will bring that about, if that would be a major thing if something would happen in the market. Well, of course, we can be -- although we try to be a little bit more transparent and guiding, we are not -- we're at a point now where we're going to try to explain everything every quarter. But a little bit more open, we hope.
Our next question comes from Viktor Trollsten from Danske Bank.
So basically, I would like to delve a bit into your comments. I do fully understand but it's difficult to make any forecast in this market. But you do say that your assessment is that the performance in the first half will be [indiscernible] of course, and then possibly for the full year also. And I'm just trying to understand what that really means because I guess, just for the sake of proving my point, if we said that organic growth in the first half year is minus 10% and then you said that it's possible for the full year that it will in 2023. I guess that suggests that we turn to growth in the second half. Is that how we should read that comment if you do understand my question.
Yes. I'll tell you, when you try to write such a sentence, as I'm sure you fully understand, you know that if you don't write anything, you're going to say, okay, what are going to happen in the second half of the year. Why don't you comment that? And now when we say possibly, that is a way of guiding again. We don't have the miracle tool or miraculous tool to say that as of July 1, now when we assume that the first quarter is going to be very to a point quite weak and then everything on a jump to the better. I mean that's also unrealistic to say.
So I guess it's a cautious comment. We're all waiting for improvements. I think we are ready. That's what a whole statement is, we are ready to grow. But now we see this. And we just said, well, something going to happen, help us out there politicians and when it comes to reducing interest rates and also when it comes to the willingness to assist this industry, not only us, but the industry, the heat pump industry, we need some help against lower energy prices that continues to pollute the world with the CO2. That's the whole issue.
Yes. But I'm sorry if I'm a bit slow here. But do you understand how I interpret the comment that can fully say that it's difficult to make any forecast and you don't have a crystal ball, et cetera. But it does implicitly mean that are you rather saying that the second half, perhaps not as not fully compensate for the first half rather than you're saying that the second half will be as weak as the first half. I'm just trying to understand what you're clearly saying.
Yes. You're elegant to your question, Viktor. But I think that I like the arm wrestling with you. So -- but I think that's all for the answers right regarding the second half, if I don't hear anyone by saying that.
No. Okay. Okay. And then secondly, and perhaps difficult to judge from just 1 quarter. But if I read it correctly, it seems that your European volumes in Climate Solutions is down 25% organically in Q4, which actually is much better performance than if we compare with the overall industry at, let's say, minus 50%. So I guess the philosophical question is, are you feeling that you can get back market share in this sort of market that you perhaps lost during the component shortage period? Is that a trend that you're setting?
Well, I think that question is reoccurring. I think we should come back to the slide where we present the fourth quarter, so we don't have any [ dissonance ] here. If you just have patience to wait a second there.
Yes, of course, of course.
I think that might be clarifying to all of you out there. There, we have there, we had a fourth quarter and we say that the growth has been minus 4% and as Hans suggested, it's acquired at 8%. So that takes us to, yes, mathematically just south of 10%. And I don't understand why you say there's been like 25%. This is the situation that it's -- the growth has helped us, of course, at the acquiring company, particularly Climate for Life has helped us. But the gross margin remains at a healthy level, which is very important. And that's why we say, well, it's not the gross margin that causes this. It's the overhead that's too big because we were planning for another turnover. And I don't know where you -- isn't that picture clarifying your previous question as well.
No. But in the report, you also give sales per geography. So in Europe, for example, you did SEK 3.8 billion in sales in Climate in Q4. And then, of course, you have some acquisitions and you have some currency in that. So year-over-year effect in Europe in Climate Solutions implies now 25% down. U.S., for example, is growing 10%. I'm more curious on the geographical development.
Okay. So that's how you [ fact ] calculate somehow. Well, I see the graph okay.
Yes. Yes. I don't want to push you anyway. I'm just curious about North America, obviously, continues to grow in Climate Solutions, not perhaps surprisingly given the plans there. But in Europe, you performed quite well at least versus my expectations on what the industry is seeing overall in Q4. So I guess that's my -- where I'm coming from.
But I think it's a fair statement to make that we have regained some market share now when we've been able to deliver again. We were in a squeeze there not being able to get product out the door for a while.
That is true. But we don't like to pat ourselves too much on the shoulders because we are right in the starting and gearing now to improve results. And of course, it's always a raise for better market share, and it's been so painful during '22 and particularly when we couldn't deliver and that's, of course, another reason why we were also trying to explain that in Q4, as you compare last year, was extraordinarily strong, as you see, with a 42% growth versus 2020 -- the previous quarter, like '21, which wasn't a bad quarter either. But the operating margin last year was like 19.3% in that quarter. And that is suggesting, of course, that they were coming out products to the market had not been delivered previously. And so it also -- that's also the case in Q1 and Q2 '23, that's why it's a bit difficult to compare the market this year. Okay. That's a long dwelling. There are many more people. I hope we answered you Viktor and I hope we are still good friends.
And our next question comes from the line of Axel Stasse from Morgan Stanley.
I had a couple of questions, if I may. On pricing, you mentioned that some segments face pricing pressure. Could you maybe please elaborate on the specific markets? And in these specific markets where you see some competitors, for example, getting the prices, how much NIBE has actually kept their prices? And then a follow-up question on this one is, do you expect some countries, additional countries in the next coming months, for example, where you could see some distributors putting pressure on your pricing strategy?
Well, the first question, I think the answer from my side or from our side was that we haven't seen any major pricing issues. But what I said was that, of course, we don't know everything, and I'm sure that in certain market segments in certain countries, there could be price fighting. But I also said once that we have -- we work in the premium segment. And of course, why do you have a premium product when that is to have a decent price or a good price with [indiscernible]. But if a customer will be more testing interested in the product of a lower specification, of course, we also have that but we do not participate in a very low range of heat pumps. That's what I said.
And as far as the forecasting for what's going to happen in Q1 and Q2, that's impossible to forecast for us.
Okay. So you are not, I would say, afraid for now from all these players cutting their prices, right?
Well, afraid -- you shouldn't be in business if you're afraid. Everyone has to be, of course, observant and we are very cautious whatever happens in the market. And until recently, it's been the shortage of components has been hindering us. And we firmly believe that we have a strong position in the market. And when you say about fear, I mean inside fear doesn't take you anywhere. That's our standpoint.
Okay. Okay. Very clear. My second question was about your flexibility in terms of costs and how you feel you can protect your margins. So you announced this cost-cutting plan. Would you be ready to get more your cost base if you think volumes are way weaker than expected going to 2024? I tried basically to understand how much room you guys have here to protect your margins basically.
Well, I don't think that we can dwell more on that. We all respect, [indiscernible]. I think that what we -- the guidance we've given you and whatever shock absorbers we have, I think that's something that we have to keep to ourselves. Now we'll give a clear message to the market. We're going to take the cost down from what we judged in the market. And we had to take it from there. And I think that's where we had to stop when it comes to answering your question.
Okay. Can I ask a last question about your leverage. So leverage is now at 2x, and you announced you wanted to do some further acquisitions in 2024. So I want just to ask what is your sound leverage level according to you? Is it 2.5x? Is it slightly more? What is your objective here?
Yes. I mean, Hans should answer that. During some heavier or larger acquisitions, we've been up to between 3.5x and 3.8x and then we work it down very quickly. And you are more appropriate to answer that question, Hans. But during the large acquisitions in the last 10, 12 years, we typically take it down in [ 6 to 8 ], courses down to [ 11 ]. Of course, where we are now at 2x, we are fairly comfortable with that. And because when we are down to 1x, then you wonder do we acquire enough. So it's been little bit of a standstill when the pandemic hit us, of course, that's typically something we are looking for every -- not every hour of the day, but all the time, Hans.
If I just may add just a little -- I mean, we never want to jeopardize NIBE in anyway, of course. But we have deliberately not set a target or a room for that matter because we want to have the flexibility if something interesting comes about. And as Eric mentioned, we've been up to above 3.5x just below 4x at certain points. But if you look back at us over a 15-year period, we've been at an average of 2.2x roughly despite all the acquisitions made and 2.5x, you can say is, of course, a level given that we have bonds on the market..
So that's roughly the answer.
And our next question comes from the line of Brijesh Siya from HSBC.
I have a couple of questions. To start off with Eric, you talked about in the guidance about first half and second half, sorry, I'm coming back again there. It was not clear whether you were talking about first half being weaker on an organic basis because you had quite a few acquisitions in the second half. So I just wanted to check that one. If you could help us understand whether your comments are related to organic or it's the overall business?
Yes. Well, I apologize. But could you repeat the question? Are you going to have a guidance on which period?
Well, so you talked about 2024 first half being weaker and could be for the full year. When you make that comment, is it on an organic basis? Or it's on a including scope effect. I'm asking this because second half of last year had a significant scope impact.
Well, I should answer that. I don't know whether fully. It's still comprehended a question. But as I said before, I think when it comes to guiding as good as it possibly can, we've been trying to guide like sometimes little bit more. And now when we are middle of February, we felt it was decent to suggest that there is no guarantee that the second half or at least the first quarter that half year wouldn't be affected. But that's not, of course, a forecast. That's more a cautiousness, that's my answer to that. But it is correct answer, I don't know. Well, I understood the question correctly.
Okay. I'll probably -- that's fine. And the second one is on the subsidies, which are all being announced and we had the Germany one being sorted out. Do you see any signs of that subsidy schemes being kind of now giving you a higher volume or at least sequential volume improvement, anything you see in the market which would suggest that things have changed?
Well, Germany is one of the countries we don't have to inform explicitly of that. I think Germany is holding up fairly decently, but of course, the program that we thought or the industry thought would have come about was more generous percentage last summer. And it's more that the gas being banned as of already this year and it was thought to be banned in '25, that is to be allowed or as it looks now for another 3 years, until '27. I think that's the most -- it's a hindrance to all of us to the industry rather than the subsidies because that gives in tougher times, of course, people think in many cases, they ease a way out and they continue to install a gas burning boiler.
Okay?
Understood. And probably last 1 on M&A. Quite possibly family businesses running, which are kind of both boiler as well as heat pumps. So given the market scenario, do you see enough opportunities out there given side, you'd be interested to consolidate the market, which would help in the long run. Did you kind of see any interesting targets there?
Yes, I would be the forced to say that we don't see any good targets at decent target. We really do that. But I think there, we have to stop the guidance because the answer to the question is yes, we do that.
And I've always done. I always look at it -- that's part of the DNA.
Our next question comes from the line of [indiscernible] from [ Sveriges Radio ].
It's [indiscernible] from [ Sveriges Radio ] not Martin. Can I -- first of all, can I take 2 questions in Swedish?
Absolutely.
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[Foreign Language]
[Foreign Language]
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Our next question comes from the line of Carl Deijenberg from Carnegie.
Just 1 from me, one follow-up considering the time here. And I wanted to ask you, Hans, with regards to the net financial development here in Q4, up a little bit here to SEK 214 million, and I think it was SEK 181 in Q3. So I just wanted to ask, is this here in Q4 sort of pure financial costs? Is it a justified level going forward? Because I think you had maybe a few one-offs in Q3 related to the bond issuance on the acquisitions of Climate for Life. That's my question.
Yes. No. I mean there is nothing special in this in a way. I mean it's a result of the financing that we've done following the acquisition of the Climate for Life business and, of course, increasing interest rates that have come step by step over the year. Yes.
It's -- that could be -- or there is a portion of currency in there as well. But that's not a major point.
Well, we have now been talking about 65 minutes, and we'll come to the end here because we have other interviews to be taken care of. So we hope that we have now started an era with a little bit of a more open attitude to the future. But as said, it is a little bit of old fox that is trying to change. And I'm not including Hans in that because he's a young guy. And we appreciate the questions, and we had all the best intentions to answer them, and now we've got a lot to work again. Thank you for calling.
Ladies and gentlemen, this now concludes our conference. Thank you all for attending. You may now disconnect your lines.