Good morning, good afternoon, whatever it means to you are sitting out there. We are back and we're going to give you like 20, 25 minutes presentation of the report. And then we're going to, of course, invite you for questions. Just a couple of things. We have to finish around 12 because we have other tasks to fulfill today. And also we would ask you to only put two questions at a time to allow as many as possible to get their questions across. yeah hello also from my side hans here and i'll be happy to fill in where eric hands over okay fine well the overall headline is we believe it's a strong report that demonstrates both of course the uh the growth in uh in revenue and the profit and uh also margin wise and it's the sixth consecutive uh quarter so we might say it's a trend anymore rather than just a quarter coming alone So we're bold enough to suggest that, and we've given a few hints here on the slide that you have in front of you, and that is, of course, that it's less pronounced with the Swedish crown this time, it's more like par with the, here we go, there we go, with the the previous similar quarter or corresponding quarter we also talk about tariffs of course we have to do that but they've been fended off fairly well but for stoves but you're going to come back to that during the presentation and we see also trend towards more renewable attitudes both in europe and also in north america also something that we're going to comment more on when we come back to the quarter per business area and then of course we're very pleased to see that our assortment now is so well received and our presence is appreciated of course both national and also international and we keep the good cost control although we see that things are improving It's very tempting to perhaps increase costs. We have to have that discipline. And also we see that our investments in new facilities have given us a good productivity development. And they're sitting there. We are just idling now to fulfill the demand that we believe is going to come for the years to come now. Just a quick glance at the figures. You have them before, of course. The growth there of the 7.6, organically, that is really 8.7, which is a healthy growth. And it's also the gross margin that's improving, which is pleasing to us, demonstrating that we are polishing in our cost and keeping the cost discipline. And the operating profit speaks for itself, but also that the operating margin has taken a considerable jump compared to the corresponding quarter last year. and the graphs that we typically have that's also indicating that we are now on a stronger path towards the revenue and we also see I'm sorry the the profit of the financial items and that is of course a function or of several factors the sales improvement also that we have a pretty good cash flow we borrow a little bit less or quite a bit less than we did a year ago so all the things are working in the right direction if we talk about climate solution we've already mentioned that that the the market is solid when it comes to improvements and it's very pleasing to see that in europe both the single individual home market for heat pumps has increased and that is particular for renovation of course the new construction is not so you know prosperous and until until now anyway and also the commercial segment is expanding in the us as expected the single family home market for heat pumps went down when the subsidies were taken away but nevertheless the the commercial segment is really outnumbering that. So overall, we still have a growth there. And also that we have also these political uncertainties that we mentioned initially, but when it comes to looking at it in the U.S. with the manufacturing there, they really have an upper hand, so that's a good thing. Of course, people are affected by the political situation. But I also think or believe, which is sad in a way perhaps, that people are getting used to these things and eventually we have to continue to live. So we feel that there is an uptick in demand and in positivism in all three segments, really. And that, I think, has to do that eventually you get fatigued listening to all these problems. you just have to continue living and again the product launches have been very very efficient and successful and that fills us with the satisfaction naturally that people are looking for better refrigerants and intelligent controls for energy optimization and so forth so we feel we are really on the right track in investments we have them the larger ones behind us now That's not something that we're going to start now. They are installed, ready to take on the challenge. And very quickly, Horn's going to come back to more detailed figures when it comes to gross margin and such. But it's important to note, though, that the real underlying growth here, if we take away the effects of the currency, is around 9%. And the operating margin is now up well into the spectrum, whatever we call it, or interval that we really aim for between 13 and 15. And, of course, now we have on a running basis 12.2. So still a little bit to go, but that's quite a bit better than the corresponding period the previous year. Swinging over to element and there we really have had a positive element and that is particular for the semiconductor segment. Everyone talks about the segment you know AI and all that and here we are positioned so well in in North America with our subsidiaries delivering components to those manufacturers that really stand behind the manufacturing of the chips themselves and they of course predict a steady growth in the future and now we have gotten a sniff of that and that is of course one of the major factors behind the growth but it's also that the hvac market is certainly coming back and that also has a positive effect on on element however of course the new construction that is still slower in Europe and elsewhere. And of course, when construction is slower, that is dampening the whole mechanism in society. Construction drives the whole society. So that's when it comes to the home appliances and stuff like that, that is of course still limping along. and just jumping and over to the next I'm too quick no here we are I'm sorry there we are again the net sales quite an improvement and of course now we see a growth of organically 11.6 and even outnumbering climate solution and then on top of that we have a couple of percent of growth when it comes to acquisitions. And very pleasing to see that our operating margin is back within the interval again, 8.9 versus 6.6. That's quite hefty improvement. And we're very pleased to see that. And also, the gross margin has taken a good step, which Hans is going to come back to and explain. Stoves, I've said that earlier during interviews today, that we would have liked to have this discussion or this press release or press conference two days later because we don't really know what's happening on the tariff side in North America. That is, of course, very, very important that that is mitigated somehow. We have had those tariffs since 25, and then they were worsened in April this year. and of course we hinted about that going to be difficult to mitigate that we feel that in a little bit longer time we will be able but now we know that negotiations are going on between canada and the u.s and as long as people are negotiating they still hope and hopefully at the tonight, their time they will have reached some kind of agreement and we are we hope that the terrorists will be eased off a little bit, we don't know they certainly won't be hardened to any respect, so what we see now what we've described is the worst case and we thought it was well you know well thought out to present that to you but we hope that after negotiations tonight that they will we're going to come back with some better news and despite headwinds we dare to say that demand has started to improve a little bit and we see signs in Europe of improvement in in demand not so strong but still we had an organic growth around the two percent during the quarter it's been more stable in north america we must say whether they are not so anxious as we are in europe or what's behind that we can't really tell but it seems like their market has been more stable all together both in canada and in in the us but it's very promising to see now that we believe that we've been down at the very bottom also on stoves and we on a second quarter that's very pronounced as we all know the seasonal pattern for stoves and we just hope that we're going to have a real come back now during the coming six months or come let's say five months as of today of course so that's a little bit about the the stow situation and here we have the figures the the margin of course operating margin is still negative that's a considerable improvement from the previous the previous quarter corresponding year so that's why we are fairly optimistic about changing this into a decent result. If the 25% terrorists would remain it would be a bit more difficult to of course mitigate that in the immediate future but we are fairly optimistic about looking after that. See what happens tonight just a few more pie charts excuse my language excuse my voice here we have the distribution of sales of course now stoves has not been able to grow so that's a very obvious dominance by the climate solution and ebay element and when it comes to the the the operating profit of course that is now all taken care of by climate solution and ebay element with is 78 and 22 percent but we hope to change that pie chart fairly quickly and i think with that that is the last the pie chart that i have the nordic countries slightly under 20 percent
rest of europe 45 and north america just about 30 and then asia uh seven percent which is predominantly element hans i hope your voice is better than mine i hand over to you thank you very much Eric and I hope you recover quickly now for the for the question and answer session all right hello again from my side to everyone out there and and just like previous on previous calls I will take you through the numbers a little bit more in detail and of course also the balance sheet cash flow and and some key parameters if we then again look at climate solutions here I mean, as Eric said, we've seen a robust growth in this business area in both sales and profit in most markets and both on the residential side and the commercial side. The only exception really being the residential in the U.S., but which has not declined as much as we expected following the Trump administration's seizing of the tax credit. So they've actually done fairly well under these circumstances. And with regards to the US, our local manufacturing footprint is of clear advantage over there because we virtually do not ship any product across any borders there, meaning that tariffs within this business area is not much of an issue. So for that reason, we have neither had much of tariffs nor any refunds. It's it's the underlying business which we show here. And looking at the underlying business, I mean, as Eric mentioned, we saw a growth in the quarter of 9% cleaned from the currency effect, which, by the way, is becoming less and less pronounced for every month that that passes coming in at sales of 7.3 billion up from the 6.8, leading to an increase in the result of, you know, some 20%. And if we would do the cleaning of the currency impact here, it's actually up to slightly more than 23% improvement in margin. And the reason for this is the improved gross margin, which comes naturally when we get more volumes into the factories. But it's also, of course, a consequence of the investments that we've made, where we have more efficient, more modern and automated factories. Year-to-date, we're up some 9.6%, up from the 12.8 billion in sales to more than 13.5, also with a good improvement in gross margin because of course that took off already in Q1, leading to a result there of or result improvement of more than 18 percent so on a rolling 12 month basis we're now at 13.6 percent thanks to the 13.8 that we made in Q2 and carrying the 12.2 with us from the first half of the year so all in all we feel very confident and happy about the development in this business area. In terms of geographical distribution of sales, there have not been any large movements at all. A small shift between Europe and the U.S. where Europe has taken a percentage point, you can say, because that's where we've seen a larger growth. And then the U.S. just coming down to 23 from 24% a year ago. Moving on into Element, also as Eric mentioned, we've seen a phenomenal growth here in the second quarter of 11.6%. And the Element business area has seen an overall strong growth, mainly driven by semiconductors, very much in the US, but in general and also the HVAC business as well as an improvement or in coming from the electrification of the industry that is going on in general and this growth has been achieved despite of you know the geopolitical uncertainty that's out there leading to not very many houses or buildings being built and and people are also careful when it comes to private spending be it in the white goods industry and so forth. But the statistics and what you hear, so to speak, from central banks and elsewhere is that this slowdown in economy is coming to an end. So we should hopefully here also see an improvement as we move forward. And also in this business area, the local footprint for us, manufacturing footprint, that is clearly a strength. and neither here do we see any large impacts of of any tariffs. So again the numbers speak for for themselves. Sales as I mentioned up by 11.6% up from 2.8 to more than 3.1 billion in the quarter leading to an improved profit of you know 50% also when you you clean it for currency. Here we've seen the gross margin improved by two percentage units also coming from more volume in the factories but of course the large investment program that we've been carrying out over the last five years has been within all three business areas so element has naturally benefited from from that as well then landing the operating margin in in the second quarter at close to nine percent well within our announced interval there and year-to-date we're up some nine percent and with an operating margin of just below eight and rolling 12 months we're at the 7.7 and have good hopes to of course improve this for during the remainder of the year. Geographical distribution of sales within element here we have had some movements in the sense that both North America and Europe have improved if you compare with with a year ago so things are clearly moving here in the right direction and in our very strong markets Nordics has kept kept its share in this respect stoves is as Eric mentioned of course still facing an overall challenging market but in north america is actually fairly stable it's again these tariffs that causes some questions of course but the negotiations between the two countries are ongoing as we speak and we we interpret that as a positive sign from a market point of view we definitely think that we've been down at the bottom and are are moving in the in the right direction and i think a very clear sign of that is the small but very important organic growth that we achieved in the second quarter of 1.8 percent so we did come up from the 678 to the 686 and have also here been able to improve gross margin and numerous actions have of course here been taken to fend off you know the impact of of the weak market and the tariffs so I think we're very well positioned for a further growth and the operating profit which is a loss but if you read the line it says profit I mean it's been cut in half which also is a very good sign for us here today we're basically on a plus minus zero situation a small profit in there and expect to improve from there. On a 12-month rolling basis we're at 4.3% and have said that we should aim to be somewhere between 6 and 8 for the full year. Also here the geographical distribution of sales. The Nordic region has actually taken a slightly larger portion of this pie compared to a year ago. North America has kept its portion whereas mainland europe has been has been losing out a little and that's where we've seen the strongest weaknesses over the over the last quarters you can say but where things are beginning to to move again leaving the business areas and moving into the balance sheet i won't dwell too much upon this i think we can comment upon the non-financial current assets having increased from 16.2 at the end of the year up to 18.4 i would say that is a very natural trend for us that is the working capital the inventories that we build during the first half of the year to in order to have our stocks filled with good products for the sale that takes place during the second half of the year so it's all within our planned levels On the equity and liability side, the equity itself has increased by some 2 billion from compared to the beginning of this year, long-term liabilities there have increased slightly the long-term ones that we've made issued a bond and it was a very successful bond emission that we made was oversubscribed quite substantially and we decided given the good conditions that we got there to simply take on board a little bit more bonds than we needed to replace as a matter of fact very pleasing to see from coming from the performance of the business areas and and the group in total during the first half year and not the least in the second quarter is of course the cash flow we've increased that by some 50 percent come if you look at the quarter now compared to a year ago from some 950 million up to 1.4 billion and of course we have had a slightly negative effect from the change in working capital but again that's just what i mentioned that's building the inventory and then the investments in our current operations has also been reduced quite substantially down from 480 there to 330 roughly meaning that this large investment program that we have been carrying out has come to an end and we're more moving into normal maintenance investments so all in all and operating operating cash flow in the second quarter of close to 800 million up from you know minus 100 a year ago and then the remaining positions there are more of a mathematical character you can say financing activities for example being the dividends that we paid out looking at the cash flow year to date it's actually increased by some 65 percent which is a sign of of the increased sales and profit from from our business areas working capital roughly on the same level as last year but then investments being cut in half so i think it's a it's a very good cash flow and we will come back to to the net depth on this page instead because that is now on 2.7 it's the same number as we had last quarter if you do the decimals again it's actually an improvement it's 2.65 but going forward during this year we are quite convinced we will bring this down around roughly to the 2.0 2.1 line hovering around there and this is a key parameter of course that the banks look at investors look at and so forth and and we keep it very much under control we're not worried about this at all it follows exactly our path the only challenge was back in 23 when we made this very large acquisition at the peak of the cycle and then the market turned sour but ever since things have normalized the the development here has been exactly according to to our plan so we're we're quite pleased with that interest-bearing liabilities as a portion of equity have also continue to decrease at the same time as our equity assets ratio has increased so we feel that we are quite stable and also well positioned for both an organic and a growth through acquisitions going forward working capital a slight improvement there from a year ago it's natural again that it is a little bit higher during this part of the year because we need to fill our stocks for the for the sale which i just mentioned and now a last slide here before we open up for the q a return on capital employed return on equity they are of course not at the targeted level yet but they are improving step by step as they were also last quarter so they are on the on the right way and of course a result again of this improved sales and profitability situation that we have and the equity share equity per share has also increased and the closing day share price we will know at the end of the day what that will be that's right won't comment that any further but with that i i'm ready for questions i don't know if you have anything to add and i've been trying to cure my voice you know on my vocal cords so we should be ready so please you shoot now if you wish to ask a question please dial pound key five on your
Operator
telephone keypad to enter the queue if you wish to withdraw your question please dial pound key six on your telephone keypad the next question comes from Christian Hinderaker from Goldman Sachs please go ahead morning Eric my hands and thanks for the presentation I I want to start on the working capital, Hans.
You mentioned, obviously, it's up year on year. I think inventory is actually broadly flat in that sense, but you had more than $700 million lift in both receivables and the liabilities line. If we look at the non-interest-bearing current liability, $8.6 billion, including provisions, that's up quite considerably quarter on quarter and was well ahead of consensus. I guess two parts to my question here is, first, what drove that increase, and are those drivers structural? And then second, what's actually in this number? Because when I look at the annual report, I think only a third of the line is coming from trade payables. I think you have some contributions in here from acquisitions. Just interested in the splits, if you can share those.
Well, there are no major or how shall I put it, one-off effects in these numbers really. The effect from acquisitions is fairly limited because we have not made any larger acquisitions in this respect. We have some delay when it comes to the invoicing or the effect from receivables and we saw that quite clearly during last year as well where they kick in more during the second half of the year. We have a tendency here of invoicing very much at the end of every quarter, very much in the third and especially in the fourth week which has an effect and this is especially pronounced I would say when we come to the to a quarter as well so I mean the inventory we've been building actually we should even possibly be building even more to to meet the demand out there but the payables and the receivables which are the major things in there have developed quite normally. But we can dig into the numbers in a separate call if you have remaining questions.
Yeah, thank you Hans, appreciate that, Caleb. My second one is on M&A. You have a through cycle growth target that includes a 10 percentage point contribution from acquisitions. The software end markets in recent years, growth from M&A is understandably been a bit more modest since 2023 but you've acquired Beltrami in the quarter and the release talks about aims to be more proactive on acquisitions. I guess just interested in is NEBA still targeting M&A of that scale, mid single digit, double digit percent of sales and then what are the technologies or segments really that you're seeing as a particular focus in your pipeline?
Well of course we are going to go back to acquisitions but as they say you know So once bitten, twice shy, and Hans mentioned that, of course, when you acquire a company that's relatively large at the peak of a cycle, and then the downturn comes, and we have, of course, been very, very cautious not to overburden the balance sheet since then. I think that the overheated market 23, 22, 23, particularly in climate solution, has also taught us a lesson that we have to be cautious when we aim for larger acquisitions. Hopefully, also the market has been taught that lesson. So we are definitely back to, again, evaluating acquisitions of larger kinds than the Italian ones you referred to, not to diminish that one to any point. But certainly now, which haunts projections here of the important ratio coming down to in the vicinity perhaps of two or so, we are certainly positioned to take on large acquisitions, but without being, of course, too risky-minded. So we are back on track when it comes to evaluating acquisitions of larger kinds again. I hope I answered your question partly anyway. and is it just is there any sort of regional technology kind of focus there or well i think that there are no specific regions but of course we are fairly well set in the nordics i mean that's very important to note i mean you could possibly buy one or two companies but the the growth going to come from mainland europe in north america for all three business areas. That's as clear as I can be there, I think.
Operator
The next question comes from Carl Boakvist from ABG Sundahl-Collier. Please go ahead.
Yes, thank you, and good morning. My first one is just on climate solutions here. We think about both what we see happening in the market, and I'm specifically talking about heat pump volumes here. Of course, that's not all of the climate solutions division, but now when we come into the second half here and we've had organic growth of, well, for the first half close to 10%, you also should have, and to your guidance here about the stronger second half than first half, I'm just a bit curious about how you'd expect kind of the seasonality to help you given that all is equal. This should also support a bit of an acceleration in your year-over-year figures.
Well, I mean, it's perhaps a very naive answer in a way that the seasonality, you can always argue and reason around it, but it seems like heating equipment has more of a season towards the second half of the year, and that comes for heat pumps, that comes for stoves, to a lesser degree, of course, on the element side, where we supply so many categories of the industries. So I think it's an old or established truth that equipment that we supply has typically, it's more major season during the second half of the year. And it's very pronounced for stoves, of course. Whether that is intelligent or not, you can always argue, but you like to have your stove in for Christmas, whether you live in Sweden or whether you live in France or in North America. And it seems like when you have renovations going on, now comes the season, could be, of course, a little bit of a difference when it comes to air conditioning that you like to install in the spring. And that is more pronounced on the south or the Mediterranean market in Italy, for instance. So it's more of a tradition than anything else. So we don't foresee that that pattern will, you know, go away. How much is that going to influence the whole thing? Well, I think we have to look at the figures prior to the war in Ukraine and the pandemic, where we had more of a seasonality of a certain kind.
Understood. And I'll limit myself to two questions. So the second one is just also on climate solutions here. But when we think about the last four quarters, really, the increase in operating margins have to, well, almost, well, to a full degree been driven by higher growth. You get the benefit, as you talked about, from more volumes in your factories and so on. And as we now look into second half and think about your margin range guidance and so on, Should it still be expected that if we fast forward to the end of the year, that it will have been driven by a continued increase in your gross gains rather than efficiency on the SG&A and R&D line, for example?
Well, I think that overall, I think we are through the streamlining that we went through 24. fall so that is more to monitor that there won't be any major additional savings of that just trying to keep what we've achieved now so that is one thing and of course productivity wise s volume now will increase as we predict of course the productivity going to be more pronounced so that is the major things of course when it comes to gross margin the um i don't think that we can cut down any further on sales and and those activities i think they have to tag along with
Operator
the growth because we are utilizing our sales resources very very um should i say to the maximum right now yes absolutely thank you the next question comes from daniel kogenari from morgan stanley please go ahead good morning gentlemen thank you for taking my questions i have two and take them one at a time if okay um i wanted to start with the climate solutions segments organic growth was the sense but if i reverse the fx benefit in europe if it's behind peers
market indicators and it has decelerated sequentially i do appreciate this is a decentralized business but it'd be useful to get some color about the underlying top line trends where you're seeing growth by product category and just be useful to comment on growth that is uh yeah well we take europe we also mentioned in report you know we are fairly large on water heaters i mean the um the fundamental idea years ago when we started to acquire was to acquire companies selling water heaters and then couple that with the heat pumps produced in those days here in market in sweden so of course water heaters today they don't have any growth they're very modest one it's more for replacement and for some reason it's rather replaced in several instances by a heat pump for just tap water and also district heating that we have invested in and that's typically a nordic phenomena that is also fairly flat so it's the the heat pumps in Europe that is driving the growth. And what's pleasing to see is also that the HVAC commercial segment is improving considerably in Europe. And that's something that we are looking at with, you know, very focused because we believe that there's a lot of things to do that saving energy, adding air quality to offices, hospitals, schools. That has been, I shouldn't say hasn't been forgotten but compared to individual homes it's on a on a lower level so that is to come very pleasing in north america that the drive there is of course on the commercial side and that is naturally ventilation cooling and also heating particularly on the commercial side on the individual single home side there's been a downturn as we've explained a couple of times now mainly due to the subsidies or tax subsidies taken away but we also see there that that downfall is not as big as we would have anticipated hopefully giving us a signal that also there the understanding is now coming you have to heat and ventilate and and cool your home in a different fashion hope I answered your question there the first one yeah that was very useful thank you And my second question is on the cost and margin, because in my view, this is the key positive surprise for investors.
Operator
But if we exclude operational leverage, could you maybe give us a little bit more detail on what drove the better cost performance? And it would also be very useful to understand if you see any cost inflation coming down the supply chain looking into the rest of the year.
I think that's all manufacturers. They are looking at the inflation when a product is coming in. And I think that is very important for us to do everything, our utmost, to hinder that. We have, of course, very ambitious savings programs going on where you, together with manufacturers and suppliers, do it in a different way. Where you say, well, if we promise you a certain volume over a number of years, you also have to come down in price. But we also allow you to modify the design. Not only a brutal, you know, saying, price cutting, but also designing the products in a different way for us to benefit the ready-made product at the lower cost. So that's going on parallel with guarding off with the price increases that everyone wants to have now. So I think we have a fairly good defense mechanism short-term, but we also have a longer-term defense mechanism where we really work together with our supplies to lower the cost in a more constructive, civilized way, if you may call it. I hope I answered.
Operator
The next question comes from Anders Akerblom from Nordea. Please go ahead.
Yeah. Hello. Thanks for the presentation and for taking my question. So I wanted to follow up again on climate. You've been through sort of the automation, sort of operating leverage uplift. But I was wondering a bit on sort of the pricing side. How do you see sort of, I guess, pricing potential in the current environment? You raised quite a bit a while back, but how do you see sort of that potential developing?
I think that as inflation has come down, as interest rates have come down, it's it's not that much of a maneuvering room for price increases there might be a room for smaller ones but i mean that can't be compared at all to the price increase we had just you know some 36 months ago even 30 months ago so that's that's come to a totally different scenario and of course that is balanced out with a with a better volume so i think that's a there are communicating vessels you cannot continue to increase prices when inflation is fairly low at least here in europe and of course it's not so positive to hear from one point of view that
the interest rate is going to go up but also an indication that the market is coming back and which we feel so i don't know whether i answered your question fully but that's how we reason no you're difficult to import any larger price increases work together with um yeah supplies yeah no that that makes sense and i yeah yeah thank you uh and i guess the sort of second question that sort of piggybacks a bit on that i mean from a competitive point of view would you see that sort of that that's impacting your your outlook on on sort of pricing to to to any extent and i guess a sort of question in that i mean how do you see the competitive landscape mainly
from a sort of volume perspective and capacity additions in the market now that you know market growth has been been good a lot of projects that have been sort of potentially not really ramped up how do you see that developing going forward well um typically in the past we were not so well geared up when it comes to taking on all the volumes so we believe that for once we have done our investments it's never ready you know that but the major chunk is done we are ready to expand of course we have to get labor accordingly and when we see the order intake coming so that's very important and as far as the landscape of competitors they've always been there and i think everyone is really clinging on to the market shares they have i don't think that anyone going to give up neither will we give up so um it's a it's a fight out there but i think that the pleasing part is when market is developing in a positive direction i think it's uh it's becoming becoming lesser of a dogfight. So we look at it as a fairly decent situation, but always, you know, tough competition, but there's nothing new.
Makes sense. Thank you very much for taking my questions.
Operator
The next question comes from Uma Samlin from Bank of America. Please go ahead.
Hi. Good morning, Hans and Eric. Thank you very much for taking my question. Two for me, please. So, first one is on air-to-air. I think in the last quarterly result, you announced that you're going into the air-to-air segment. Would you be able to give us a bit more update on what are the opportunities there? What are the timeline of the product launches?
And what would be the expectation in terms of margins for that product in Europe? well i'll try to be as expedient as possible there um when it comes to air to air a number of our companies that we have acquired have had agencies for air-to-air machines and but they have been limited to their respective countries italy norway just to mention a few of them and we've not been able to capture or broaden that because there there have been other you know or countries that have had in that agency. Now we decided to work with another company to broaden our source under the NIBA umbrella. The products are produced here in Markaryd. And because there we have exhaust air, we have air to water, and we have ground source. And we do not have the supplement of air to air. So that's why we introduced that one. It's not a new subject in our group, but it's new under the Niebu brand name. Was that clarifying?
Yeah, that's super helpful. And what kind of margin expectation do you have for the R2R product, if I may ask?
Well, I think that we are entering that segment with two price categories, you can say, one very premium one and one a little bit lower priced. So that should not be derogatory to the overall margin, of course. We don't carry any investments or anything like that. We, of course, have to carry inventory. So that should be a supplement to what we already have, not being a burden. And, of course, coming from a relatively low volume, they're going to take some time before we're up and running. But we see from the companies where we have it elsewhere, there has not been a burden on the profit and loss. and that's the experience and Hans would like to add something there now maybe you haven't forgotten it I think Uma also asked the question on the timing in this respect yeah the timing yeah yeah of course they are they are on the way to the market now so of course they're going to take you know before we really can say well there was a success or we need another year I think we need a year we need a definitely we need another summer season so perhaps at this time next year we can give you a more uh adequate clear answer of the timing if we have been successful successful have
we have we kept the timelines we have given ourselves i apologize for not uh getting that thank you i mean it was they were introduced on the nordberg fair this spring late spring and they will as eric said they're on their way to the market as we speak so they're being launched now during the fall here or will reach customers during the fall yeah that's super exciting is that both cooling and heating uh for that product is it both cooling and heat yeah that's the traditional one yeah absolutely yeah that's super helpful uh my second question is actually just on the longer term i guess it's a follow-up on the previous questions regarding the margin on climate solution so i guess if you look back in uh between 2017 to 2020 your climate solution margins is around like 14 give or take i guess you know after the roller coaster of like between 21 and 24 i would say that as you have now higher efficiencies you have a bit more you know you've done like several rounds of cost cutting so what do you see you know in the medium term as the throughout the sustainable modern profile for climate solutions do you see that to be higher than the previous levels you have before 2020 I think that it's premature to give
you that guidance Uma I we believe that we we give guidance in our reports that we are fairly certain we can fulfill and until now I think we have to live with 13 to 15. But of course, there's nothing saying that we wouldn't like to come higher. But I think we have to give you that guidance continuously right now anyway, 13 to 15. But it looks promising to fulfill that this year. I hope you see that in our report. But to come out and say now we're going to go for 16, 17, it's premature.
Yeah, that's super helpful. Thank you very much.
Operator
The next question comes from Carl Dienberg from DNB Carnegie. Please go ahead.
Thank you very much. Thank you for the opportunity. So my first question is regarding the semi-exposure in the element business. I think in the past we've said that that's been accounting for roughly 10 to 15 percent of the division. So first question, does that assumption roughly? sold and then a second question related on the same topic as well if you could share anything with regards to the growth in this specific segment here in q2 given the quite a significant step up we see here uh sequentially relative q1 thank you uh okay i see uh the 10 to 15 percent And I think that I think it's rather on the upper side there, of course, anymore.
So that's clear guidance we can give you when it comes to the growth, particularly Q2. I think that's been in the system for a while, you know, that they've been hinting us that you better gear up. And that is very, very promising to us. Of course, they don't release anything, everything to us. But they're fairly good when it comes to giving us indications of what they foresee, what they see in their system. They are giants, of course. I mean, when you talk about those companies, I guess there's no secret that we talk about AMAT and LAM. We are a little midget compared to those. So it's very interesting to work with them. And we feel that we have a very good relationship. and we also feel that we have a solid position among them which means that when they grow, we're going to grow and we also launched new products during the spring here now which is also helping the improvement new, very delicate components to their machinery that have been developed together with our customers So I hope that gives you a little bit of an answer to your question.
Absolutely. Yeah, yeah. I was maybe also looking for if you wanted to share the growth number in your element or semi-exposed business in the element side, but maybe you want to hit that number for yourself.
Okay, well, perhaps I'm a little more discreet there. Okay, sounds good.
Secondly, I just wanted to ask also very briefly on the your U.S. heat pump business. I mean, we talked about this in the beginning of the year. I think you were sort of anticipating quite a drop here given the removal of the tax breaks. And now we see that your U.S. at this measure on the net sales is still holding up fairly well. So maybe now in hindsight, would you say that the market is still doing a little better than what you anticipated?
And also here would, of course, be very interested to hear anything if you give you know given the numbers of what the decline has actually been on on the u.s heat pump side as well uh for you yeah well it is actually better than we anticipated you know there were predictions of some dramatic drops in market going down with 50 percent of things like that it's not that dramatic but it's still a hefty cut if it's been perhaps I shouldn't perhaps be so precise, but it's much less than they predicted, 50 or 40 or 50, that people indicated. So that's an indication, we hope, that the knowledge among customers of private individual homeowners, it's a higher level of understanding what they can achieve by installing a heat pump, given that the tax subsidies are gone. And, of course, it's also noted that the oil and gas prices are high in North America. I personally visited Canada last summer here now, and that's one of the things that everyone talks about, the petrol prices, as we say, in Europe or the gas, I mean, when it comes to diesel or, yeah, petrol. And also on the oil side, everyone talks about that. So I think that is also, sadly enough, driven people to realize, how should I really acclimatize my home? So I think those are the main explanations that we've been in the market. The heat pumps is not the novelty anymore. It's something that's there. And of course, on the commercial side, the construction industry is so well acquainted with the heat pumps. So I think that wraps off.
Thank you very much. Yeah, yeah, yeah. I think it's good.
Yeah, absolutely. That's totally fine. Thank you very much.
Operator
The next question comes from Michelle Baldelli from BNP Paribas. Please go ahead.
Hi. Good morning to everybody for taking my question. I've got a question about your dealers' distributors' inventory level. Do you see them as having reduced the inventory level in the last two or three months with the Iran war that may, let's say, come back from one day to the other and therefore probably they didn't, let's say, continue to demand at the same pace of the current demand trend?
This is the first question. um you prefer that i do the second or you answer to this well well we can be thinking first one right off whether our inventories or they share them in the wholesalers inventories are monitored due to the oil prices is that the question really or no the question is more if you feel that they have just used their inventory level to satisfy this spike of the demand in the last two three months or not well i mean there that's always the question you know that was one of the main reasons why everything went so chaotic like three or four years ago so we just hope that and i think i mentioned that initially here we really hope that the industry now is more sensible not overstocking of any kind but rather realizing that heat pumps they're gonna they're gonna be there and we have to fulfill naturally the demand but you can swing up and down depending on oil price i think that the overall fear among customers is there that oil and gas will not be reliable in foreseeable future and therefore they swing over to other alternatives that's our view of this and of course there could be wholesalers that have been ordering a little bit too much that is not to our knowledge but i mean we don't have a total insight into what they what they do and i don't like to criticize anyone but what that part of our industry did in 22 and 23 was not very good for the overall industry that that whiplash or whatever you call it that was terrible for all of us so we just hope and we when we talk to our immediate wholesalers we try to convey the message be sensible be realistic don't overstock we know what's going to happen but I mean we are one out of many preachers out there we are aware of the question and the danger in your question and we try to do our chunker to prevent that I don't think I can answer the question more than that yeah sure no thank you very much and the second one was just a clarification When you said that H2 trends should be at least the same level or even better than the first part, you refer to the organic growth here on here for your business or it was just about seasonality,
so basically a normal seasonal trend?
Yeah, ordinary seasonality, yeah.
Okay, perfect. Thank you very much.
Well, I think it's, Anders, you are there with another question. Should we allow you one more question before we close? Because you are so polite.
Operator
The next question comes from Anders Roslin from Pareto Securities. Please go ahead.
Okay. I had just one question, and that's regarding the sales development in climate solutions. You had 11% up in Europe, 5% in the Nordics, 5% in Europe, and 6% in the U.S. And my question is that this tendency of having a stronger second half and particularly fourth quarter, is that true also for Europe?
Because they have now for a couple of years had the strongest quarter in the second quarter. and so this seasonality will be europe as well i i think that um we should perhaps divide it a little bit better what you see in the second quarter and i think i touched upon that uh during a previous question that during the second quarter the particular the air conditioning segment is really strong and I think that's what you see there. I was referring more to the the heating which is our you know home turf since many years back.
Okay so for the heating heat pumps we will see the seasonal tick up at least.
That's all questions for me. Thanks very much.
Thank you. and with that i without being impolite we have to close the session for today i apologize for my voice but interesting questions and very pleasing to present the report to you like the caliber of what we had today and we hope can continue with that so thank you very much for calling in and if there are remaining questions i mean we realize there are a few more on the line here feel free to reach out to myself or to our new investor relations officer Frida Lannerheim and we'll try to answer the the remaining ones thank you from my side as well thank you
