Yeah, good morning, everyone. Welcome to Lagercrantz presentation of our Q1 report. We will run this as we normally do for 45 minutes or so. Me speaking is Jörgen Wijk, CEO of the group. Together with me here, we also have Peter Thysell, our CFO. The presentation, as always, is, you can download it from our website, lagercrantz.com. We will try to, if we feel it's very comfortable and easy to have it like that, and you can download it there, and we will try to make sure that everyone knows what page we're on along the way as we go through the presentation. With that, I will start off with the going into the presentation. The presentation has three parts, really.
First, I'd like to give a short introduction to all of those of you that are new to the group, for a couple of pages, and then after that, we will go right through the Q1 report as we release the numbers and the report this morning. After that, we will also make some highlights on other things that is going on in the group and looking ahead a little bit, as we normally do in this presentation. We will start off with on slide number two. What is Lagercrantz today then?
Well, Lagercrantz is the, a tech group, one of the serial acquirers with no exit horizon, making acquisitions every year, and the scope we've defined for ourselves is the B2B tech and industrial companies within the B2B area. We are, as you see from the slide there, we are present in the Nordics and Northern Europe, but we also have some footholds in other parts of the world as our businesses are more and more increasing their share of exports. We also set up some hubs and some export activities in China, in India, and also in the US, as you can see all the way over to the right on the slide there.
We have some revenues approaching SEK 8 billion, and we have some 2,600 employees. We're firm believers in the decentralized way of working, with all the subsidiaries acting quite independently under their own name, and then we add more companies to the group and follow up and work with the companies along the way, driving business development and growth in the businesses as we work through the board work in our subsidiaries. We have organized ourselves into the five divisions you can see there, the Electrify, Control, TecSec, Niche Products, and International Division.
That is a new organization we've had for some two and a half years now, and you can see where the different companies fit in and how many we have there in each of the subsidiaries, in each of the divisions. At M&A has always been a very central part of what we're doing in our business model, and we continue to do, and in the last 12 months, we have made some 11 acquisitions here, which has been improving our growth. Adding on to our growth and also our earnings along the way. We feel that is a very important growth engine for us.
We have been on the stock exchange since 2001, where we were previously part of the Bergman & Beving Group. We were a separate listed company since 2001, currently on the large cap segment in Stockholm. That's a short introduction. Looking into the interim report, jumping right into there, we can see on page 3 that we added another very strong quarter for us, adding to the good trajectory that we've had for some years. You can see that it's been picking up here in the last 2, 3 years, to where we've seen some strong underlying organic growth. Also some really good acquisitions coming into the group, thereby the growth rate has been significantly higher here in the last couple of years.
It's been a good long journey for many years. We started out in 2005, around there, where we felt that the numbers were not sort of good enough for us. We wanted to especially to improve our margins and our, and grow the business, and that we've been doing. As you can see, the left scale to the right scale is proportional, and that means you can see how the margins are improving along the way here as we see times go by. We have been pushing different things along the way. We have been doing quite a lot of decentralization in the beginning.
We had worked quite hard during the financial crisis, so 2008 and 2009. Since then, we've been gradually improving operations, finding some operational leverage along the way, doing more and more acquisitions, especially of proprietary product companies. In the later part, we have pushed organic growth and even more acquisitions. Now here, the last couple of years, it's been the theme around towards SEK 1 billion, which we have now reached, as you can see there. We started out 2 and a half years ago with SEK 500 million, but now you can see that we have surpassed SEK 1 billion there to the right, on the right scale.
That is really satisfying, of course, to see that we have reached that goal basically 3 years ahead of time, or close to 3 years ahead of time. That's been very strong development over some years now. Looking into the interim report of Q1 on page 4, we have communicated here this morning that, I mean, we saw here that the market situation remains stable on a good level for most of our businesses. We have been really expecting or, yes, seeing that we are expecting some worse times ahead, but so far so good. We have said that for maybe, yeah, 6 to 9 months now, but it's still been holding up very strong for us.
I think that has to do with that we are sort of positioned ourselves in different or very broad base, in different markets, different segments, but we have along all the way also been positioning ourselves in areas where we see some structural underlying growth with the green transition, with other types of niches and areas, where we see some underlying good growth. During the quarter, we saw the strongest demand in the divisions, Electrify, Niche Products and International, but it held up with good organic growth figures in all those three divisions. Also, the others did fairly okay, but these ones stood out a bit. The ordering intake was then in line with previous year and in line with next phase during the quarter.
I think that has been holding up very well for us, and it's been basically the same type of level that we've seen in previous quarters. We see the growth has come down a little bit, but not very much, but still come down a little bit here during basically since Christmas, but it's been holding up here in the last quarter quite nicely, we feel. It's not been worsening anything during the quarter, really, been on the same level as previous quarters. We strongly believe that our broad focus with many different end customer segments and geographies, where we see some good emphasis on electrification, infrastructure, security, and other specialized products in niches, provide very good resilience and good growth opportunities going forward.
We feel that the market has been holding up very well for us, and we've seen a good quarter in terms of the market development. Looking at page 5, we can jump into the numbers then for the Q1. The net revenues increased by 28%, to a little bit over SEK 2 billion. As you can see there, the organic product growth was 6%, acquisition added some 19%, and currencies some 4%. The EBITDA then increased by 35%, and the EBITDA margin was at an all-time high, which is also the EBITDA, really, the SEK 57 for a quarter, it's an all-time high, and the EBITDA margin of 7.5% is also an all-time high.
The organic EBITDA growth was 11%, where we saw some especially good development within the Electrify tech and International divisions that contributed the most. We also felt that cash flows were really good, the SEK 286. We had a somewhat really bad quarter last year, so the comparison was quite easy there, but we feel that the cash flows have been strong here during the quarter. Profit as the financial items increased by 19% then. We see that interest rates are picking up, and we also have some currency exchange rate effects on our foreign exchange loans that also affected the profit financial net during the quarter.
The 19% is a, is a, I think, a really good number in terms of the growth in profit as financial items. The return on equity was at 28%. You know that we have a target of 25%, so we are well above that, and the equity rate was at 38%. The profit over working capital, which is the internal measurement we use in, within the group, was at 72%. You know that we have always been benchmarking ourselves toward a 45%, so the 72% is a really strong and good number for us, as opposed to the 68% that we had ending the same quarter last year.
During the year, during this last 12 months, we made some 11 acquisitions, but here during the quarter, it was 3, that added about SEK 280 million in annual net sales. That is a... I'll come back to that, but it's a Danish company and two UK companies that you can see there. The earnings per share increased to SEK 3.83, as opposed to SEK 3.70 in the fiscal year of the ending last quarter. The proposal for the dividend for the annual shareholders meeting, which will be held at the end of August, is SEK 1.60 per share, as opposed to SEK 1.30 last year. A strong, good quarter, and adding to the trajectory that I pointed out earlier.
Looking at the outcome by division, we see on page 6, you can see how that looks in the different divisions. I think it's good to see that we have 5 really strong divisions providing real good margins. We especially see that in 4 of them, the Electrify Niche Products and the International divisions. We see the improvement that we have seen along the way in the International division is holding up here and continuing in the quarter. We also see the Electrify, which had a very strong quarter here, also with some project-related business during the quarter, but otherwise, the main companies within Electrify also had a very strong quarter. The Control division is lagging behind a little bit.
We are struggling with a couple of units there, and we also see some component shortages and other things affecting some of the companies within the Control division. We also had a very good quarter last year with some project-related business that, especially our company, Precimeter, had last year, that wasn't really repeated this year, and that is also affecting the comparison versus last year, so that's also behind the numbers. But good margins and good profit growth in really all the divisions except Control then, which I'll come back to here just in a minute. We look at page 7, we made some comments by division, and in the Electrify division, the revenues increased by 21%.
The EBITDA increased by 34% to a really good level of SEK 87 million for the quarter, and a very strong EBITDA margin of 18.1%, as opposed to 16.4% last year. The larger units, the Elpress and a couple of several of the Finnish companies performed very well, while we are still struggling a bit with the little bit lower volumes at Elfac in Denmark, not struggling, but still on a lower level than last year. That has to do with lower volumes to the wind power industry, a key customer segment for Elfac. As I'm sure you read about in other in other in other ways.
The QD then delivered a very strong quarter with some project deliveries to an international network operator during the quarter, which is also boosting the numbers a bit here in the quarter. The recent acquisition of Teproflex that we did here in December of last year had a strong demand and made a good contribution to also the outcome of the Electrify division. The Control division, then their revenues grew by 5%, but the organic growth was minus a little bit, but because we are dealing with some acquisitions here, the EBITDA then was at SEK 21, and the EBITDA margin is 11.4%.
We see some challenging market situation in some of the companies there, with seasonality effects also in Datenova, which is an important part of the business. We see some positive development in other areas with Direktronik, Lia, and Load Indicator and also IQ. Some of the companies are really doing well in Control still, but we also see that Precimeter had a very strong quarter last year, and that was not repeated this year. The recent acquisitions, Dieckborg, contributed very well, even though it's a fairly small company, so it doesn't really add much to the numbers. Still, for that company, it was a good add-on to what we're doing to that division.
Looking at the rest of the divisions, the three, the TecSec was standing out a bit, with the revenues increasing by 60%. The EBITDA grew by 70% to SEK 95 million, and a very strong EBITDA margin growth over 1 percentage point as well. We see that the PCP acquisition we made last summer had a very good quarter, and on top of that, we also see Aras, IC Nordic, and Brictel performed particularly well here during the quarter, and a strong Q1 with 6% organic growth in the division. We also see the newcomers with the as mentioned already, PCP, also then Door and Joinery and Fireco in the UK, deliver good contribution, earnings according to plan.
Those we made here, Door and Joinery we made last summer, but Fireco came in during the quarter here, but had a good start within the group. The Niche Products division here we saw revenues grow by 12%. EBITDA grew by 70% to SEK 104, and the EBITDA margin was at 21.6%. A very strong margin, doing it very well margin-wise in the Niche Products division. We feel that the business situation remains stable and favorable for several business on the business units. We see a particularly strong development within Acep that was lagging behind a little bit last year, but it's pushing their numbers quite a lot this year and doing it very well.
The one of the bigger companies within the full group, the Tormek, continue to do it very well during the quarter, and Steelfire in Finland and Sweden did well and El-produkter as well. Waterproof Diving, that we acquired here during the fall last year, also continued delivering according to plan. The International division, last but not least, is the group revenues by 39%, the EBITDA with 50%, and the EBITDA margin reached a 15.5%. For those of you that have been following us for a long time, you know that International has been lagging behind a bit when it comes to margins, but are now picking up and have made some really good acquisitions along the way. We are building the marine sector there, where the company is adding, addressing that segment.
We also have a couple of other companies. The Schmitzs-technik in Germany is also doing it very well for us, and that is adding to the numbers and the margins within the International division. You can see I added... Yeah, we put that in text there as well. The recent acquisition, the Tebul, which is adding to the marine sector in Finland, and Supply Plus, that also came here, came to the group during the quarter, delivered good earnings contributions according to the plan that we had originally for the company. Those are the comments by division, and I'm sure you have some add-on questions to that. We'll take that afterwards. Those are the little bit of the reporting on the Q2 report.
I would like then to come back to the Lagercrantz towards the SEK 1 billion, and that we've reached that goal now, and we're on page 9. It's been a great thing for us, I think, that we have this program, that this strategic platform that we've been working with for we launched it in March, or was it April of 2021, and now it's been a little bit more than 2 years, 2 years and a quarter, and now we've reached it well ahead of time. And what we did there was really to clarify some of the strategies and financial goals that we wanted to work with.
We also reorganized into the five divisions, where we see some sustainability, and, yeah, an angle to sustainability with some clear growth ambitions, where we see structural underlying growth in those markets. That's where we would like to be with our group. I think the resilience that we see in some of our companies is due to that we see that we are more structurally directed to the right sort of segments where we see some growth. We are within the electrification, we are into the green transition. We are into more of where we see infrastructure investments in criminal engine centers, for instance, is one area.
We also are in some areas within the Niche Products division, where we also see some underlying structural growth due to the change in the whole society and the where we see growth, different type of investment, and that's good to see. In the program, we also wanted to increase the capacity within M&A. We have done so by adding some M&A resources to the divisional level, with the ambition that we can run multiple M&A processes at the same time, simultaneously. That has been also good for us, that we have picked up an M&A growth rate along the way. We have also increased our geographical scope, so we are more working, especially within the UK.
You see a couple of new deals that came from the UK, and that we are setting some extra ambition there to grow in that market, which we feel is very interesting, and it's proven to be very interesting along the way as well. Last but not least, is the focus on sustainability, where we set some clear ambitions and some clear goals in sort of the 2030 perspective and also the 2050 perspective. That we've also addressed in our sustainability report that was just released in our annual report here just a few weeks ago, or just a week ago or so, where we can see more of that, if you would like to look into that. A lot of good reads there.
To comment on a few of these things, to touch back on the clarification of strategy and goals, I think it was very important that we highlighted that we wanted to grow by 15% per year, that we wanted to really double the size of the group every 5 years. We've done it significantly faster, and I think that has to do that we've seen some good underlying market growth, but we also highlighted that we would like that one third of our growth to come organically, and the rest through 5-8 acquisitions, adding about 10% of the full group every year in terms of acquisitions.
To clarify, that has been helpful in working internally with this, and especially the organic growth has been better here in the last few years than previously, where we also cut out some low-margin businesses and did some pruning. Along the way, we feel that we have a very strong and broad-based portfolio of companies within the group now, and that we definitely have some greater ambition when we talk about organic growth along the way. We will see what will happen with the business cycle. Maybe we will need to see some lower sort of growth rates, but on the other hand, I think that will be good for us to work more with, yeah, seeing up cash flows and making more acquisitions instead.
That's really how we would like to compensate if that were to happen. On long term, we definitely have a greater ambition in terms of organic growth. The return on equity, we should do this in a very profitable way, so the return on equity should exceed 25%. This is the goal that we work with externally, we also, as I pointed out earlier, we have transferred this internally to the profitable working capital, which will well exceed the 45%. You saw that we were about 70, we are well above the internal profitable working capital goal along the way.
In this strategic platform on page 11, we have also highlighted along the way, and I think that's a really key thing about us, is that we really, really are pushing for more proprietary products. We see when we work with proprietary products, that we have a building stronger market position, that we see higher margins, and we see also better opportunities for growth, especially within exports. So we are basically translating the group from being Back in the days, we were more import-related, but along the way, we're becoming more and more export-related, due to the proprietary products, where we can sell them into any market we would like to. We see along the way that this has been very good for us. We see that margins are higher. It's pushing our margins.
It's also pushing our organic growth, when we split it up into different type of products, different type of companies that we have, we see some differences there, that the proprietary product companies grow faster and have higher margins than the average of the group. This is very good. The 75% was now achieved here again in the first quarter. I think we're pushing it a little bit, so it's been increasing a little bit, and we will continue this journey. We are now revisiting our financial goals, and I think that we will see a higher ambition here in the near future. Since we now reached the 75%, that was our aim for some years.
We would also like to highlight the continued focus on value add. That has been very important to us over the years, and you can see here on page 12 how that's evolved over time. It's good to see that we have been struggling a little bit. We had a very good trajectory here over a long period of time. We were struggling a little bit here when we saw raw materials prices pick up, and that we needed to compensate ourselves in terms of pricing. You can see here in Q1 that we had a very strong number here again, and that means that we have been pushing through some raw material prices also towards customers here lately.
They are, yeah, improving our margins a little bit again, reaching a really new all-time high in terms of on those margins. That's also very good to see and important for us. I was also talking about the acquisitions and that we are increasing our ambition within acquisition. As said already, 11, we made 11 acquisition here in the last 12 months, adding some SEK 1.3 billion in revenues. You can see what companies that are over to the right. It has been, it's very important to us to increase the rate of acquisitions, as we see that it's the smaller ones that meet our targets usually in terms of price tags and so.
We would like to make more acquisitions along the way, and we are also working more and more with it in a decentralized manner. We will make some exceptions. We will make a few bigger ones as well, but we would like to continue doing what we've been doing very successfully over many years, adding company one by one, adding them to the group and giving them a lot of love and care, and initiating some energy into the companies and get them to grow within our group. That's how we work with the acquisitions that we make over time. As already pointed out here, during the quarter, we added three more, and I'd like to go over them a little bit briefly here.
We're starting off with the Glova Rail. The Glova Rail is just to give you an example, like, give you a sense of what type of companies we're looking into. Glova Rail is a Danish company that provides components and solutions and products for vacuum toilets for trains. A very niche-oriented company, very specialized in doing that in a very well, in a good manner. You can see over down to the right here, we usually put in some numbers and as a fact sheet, really what we've been acquiring, and you can see the very good EBITDA margins and a good company, really, very niche-oriented.
They're very known for their quality, and they're also known in the market for the ones that can supply control panels and technical modules for many competing products, so many competing brands. In terms of spare parts and stuff like that, they can also provide for other competing solutions. This company is located in Odense in Denmark and has some sales that there are above SEK 60 million. This company is part of the division International from April of 2023. It's a good example of the type of companies we're looking for and are happy to add to the group. The Fireco, on the other hand, is another company, which is the UK-based company, that was also adding here during the quarter.
They are providing different types of products for fire doors and fire door hardware. You can see the main product up to the right there with the Dorgard, which is one of the key products, a few different versions around that. Have a very strong market position in the UK, the company is based in Brighton, south of London, in the UK. A very good company coming in as well. They had a bit of a weaker year in 2022, but we still see some good improvement opportunities within the group that they can approach, soon approach the 15%. That is really the goal for the full group.
This company is part of the tech division from April here, in 2023. The third company that we acquired during the quarter is Supply Plus Limited, is another U.K.-based company, providing high-quality ladders and hose reels for firefighting and emergency rescue services. You can see the products over to the right there. Some of them are mounted to the vehicle, while others are more loose that you can carry around. They're very specialized and a very high quality, this is really important products for firefighters, that these work in the right manner and that they have a lot of trainings around them, and they have a very strong market position in the U.K. around these products.
The company is located outside Cambridge, in the UK, and have a revenues of approximately 5-9 million GBP. With. We also see some good improvement opportunities in this company, and we see that in fairly near term with this year, already at the 17%, which you can see over there to the right in the fact sheet there. Really good companies, very niche-oriented companies, very good specialized, doing good at what they're doing.
I think that when we come in as new owners, we have the opportunity to work with the teams that are in the companies, and we usually try to add some energy, add some structure, and to get these companies to grow and make sure that they're making the right amount of money along the way. That's the intention we have with these acquisitions. Looking a little bit ahead, I think it's good to see that Lagercrantz closed another very strong quarter. We have seen a stable market development over the quarter, and we see that we have a strong set of companies, many of them making a very broad-based success with many of the companies.
We see along the way that we are addressing the different segments which we have here on page 17. I think the new divisional structure that we have is proving to be the right one for us. We see that the Electrify, addressing that market, the tech sector growing quite significantly, Niche Products as well, and International. Control, I think we have great ambitions. We have a number of also M&A activities going on there. We also have some companies that we need that we need to turn around and fix there. They're lagging behind a little bit, but in the long term, I'm very, very content that this is the right structure and the way to go forward.
We're finding markets and segments with underlying structural growth that we will also be able to use that to balance also, that will prove to be resilient, I think, also, if the downturn gets more severe for us along the way. We don't expect that really, but still, given what everything that is said in the market, it's fair to say that, of course, we are very observant of what's going on in the market, even though we see very little, basically nothing, so far in our businesses as of now. I think it's also highlight to also look at the mix by market segment.
This was released here in our annual report that is on page 18, and you can see that where we have a dependencies. I think it's good to see that we are in very many good segments. We also have a very broad base when it comes to customer segments in many different markets, both geographically and product-wise, and also, yeah, and very broad base in many senses. To round off, we're looking at the financial overview. You can see here, for those of you that like numbers, you can see here that the rolling 12 months here over to the right on page 19 is, yeah, adding a new quarter and a new all-time high in many aspects.
The 16.9 in EBITDA is, uh, is an all-time high. The, uh, the EBITDA as well, at SEK 1,297, is also an all-time high, you see the EBIT above the SEK 1 billion I talked about, and EBIT growth in the last year, 28%. It's, uh, it's, uh, we're having fun at Lagercrantz along the way. With that, I'll think I'll round off. Peter, before we open up for Q&A, would you like to add something or?
No, I think you said the most important things, and I think it's time to open up for questions.
Yeah. Okay, let's do that then. To you run that, you need to unmute yourself, right? With star six, right? Star six, you unmute yourself, and then you can put out your question, if you'd like.
Again, do you hear me? It's Ellin at Carnegie.
Yeah. Hello, Ellin. Welcome.
Hi. Thank you.
Hi.
Super. I have a couple of questions. First of all, the organic growth in the quarter, should we estimate that it's mainly price driven?
Yeah, I think the price component, yeah, as pointed out, I think, in previous calls, we don't measure that. We are a company with many different companies, right? We can't really measure the price component. Given from what we know and what we hear in the companies, my expectation is that I think most of it is price, even though the price component has come down as compared to previous quarters. We have not raised prices as much this quarter as we have done in the previous 3 to 4 quarters, because we also see some raw material prices coming down a bit now. When we talk about metals and other types of raw materials.
I think most.
If-
Most of it is probably price, but not fully, not all. A little bit, maybe.
Okay.
a percentage zone, I think, would be sort of underlying growth.
Okay, super. A question on the International Division. They had a very strong organic growth. Could you just elaborate a little bit on what the underlying market demand is?
We see good development in more of industrial-related type end markets. We also see good conditions in the marine sector. We see a few of the, really all three of the marine-related companies with the ISIC, with the Libra, and also with the Tebul in Finland, they're growing quite nicely with the, what we see in the market at the moment. The marine sector, and I think it's also a bit related to the military sector, even though we don't have very much there, but it's a bit, little bit related to the military as well, or defense.
Okay, super. Going into the Control division, we're seeing a negative organic growth three last quarters. What would trigger a positive growth in this positive sales growth in the Control division?
Yeah, I think in the Control division, we have two or three companies that are really important to us. It is Radonova, right? It's Precimeter, and it's Direktronik is the three main ones there. I think that Direktronik has been growing quite nicely. They're doing it well, but we also have some smaller units, especially in Norway, with the Vanpee and the Liating, and also the Vanpee in Denmark are struggling a bit, and that is hampering the numbers. I think also the Precimeter, the Radonova, as I think you're aware of, has a very sort of strong seasonality towards the winter in their business.
We usually, if you look at the numbers, you can see that the margins and the division are doing much better in the Q3 and Q4. What held it up last year really was the Precimeter. Precimeter is addressing the aluminum molding or aluminum sector, and that there we see some lower volumes, especially in Europe, where we feel that the aluminum industry is suffering a bit from the high electricity prices, and therefore they're reluctant to invest more.
We have sales also in other parts of the world, in the U.S. and in Far East, but Precimeter did a very well, very strong quarter last year and didn't manage to repeat that this year. Those are important sort of factors to within the International Division.
Okay, super. Just to clarify, you said that QD had a strong pre-deliveries in this quarter, and that has a positive effect on the margin in the Electrify division?
Yeah.
Yeah.
Yeah.
Does that also have any positive impact on the cash flows and makes it seasonally strong this quarter, or?
Yeah, I don't know. The project-related business, I don't think that affected the cash flow that much, but it will in the next quarter that, yeah, it is the long payment times on that one. It's... It's not huge. It's important, but it's not huge.
Okay, I think that was all for me. I will get back in line. Thank you so much.
Mm-hmm. Thank you.
Hi, can you hear me?
Yes.
Yes, good morning. This is Max Bacco, SEB.
Hello.
First of all, very well done, and nice to see you reaching the target three years ahead. Very impressive.
Thank you.
Just some, a few follow-up questions. On the QD here, on the project deliveries, did it have a positive impact on the margin, or was it quite in line with the segment?
I think it was-
If you can comment on it?
Yeah, I, yeah, it's in line with the margins that we have there.
Okay, perfect.
More or less, yeah.
Yeah. In terms of the order book, how long is it, and how much visibility do you have here in the, in the second part of 2023?
Yeah. I mean, we have some 70 businesses, right?
Yeah
... yeah, therefore it varies quite a lot between the different companies. Some of the companies have very short order books, while others have very long order books.
Yeah.
We usually say that we have 3-4 months visibility on a group level.
Yeah.
Yeah.
Okay, that is the case now also, I guess?
Yeah, yeah, 2-3, Yeah, 3 months, whatever. Yeah, it is.
Yeah.
I think that, I mean, we're approaching summer, right? I think that.
Mm
September will be an important month for all companies, really.
Mm
... to see what's going on and whether things sort of pick up after summer as they should or we expect or if the. Yeah, what will happen. I think that September will be important, but that and that goes for all companies, I would say.
Yeah, okay.
Yeah, not only Logicon, I mean it. Yeah.
Yeah. One final question, I mean, the cash flow was really strong here in the quarter, although the impact from net working capital, which was negative, is that more a seasonal effect that the net working capital, you saw continued build up in inventory and so on, or?
Yeah
Is it the organic growth that drives it?
A little bit of both, I would say, it's more the seasonality effect. We usually have a weaker cash flow in Q1 and to some extent also in Q2, even though we weren't satisfied with last year. You shouldn't look at last year.
Yeah.
... because that was not good enough. We are definitely driving a better sort of cash flow. From a seasonality perspective, it's somewhat slower in the or weaker in the summer than in the wintertime.
Okay, perfect. That's all from me. Thank you very much.
Thank you. Thank you. Hi, yeah?
It's Anna from Handelsbanken.
Hello, Anna, welcome.
Hello. My first question is if we can go a bit into detail on the gross margin improvements. You did have some comments on new companies having very, very good margins on slide 12. Could you maybe give us some comments if it's also related to the price increases that you have seen, that you've done, or some cost decreases that you've seen on some materials, prices, or so on?
Yeah, I think it has more to do with the price increases and cost sort of working better with margins in the existing business than the add-on from acquisition. I think the acquisitions, I don't have that separated, but I would expect the margins in the acquisitions will be on the level of the rest of the group. I think that what you see in the improvement is more related to the existing business, the legacy business. Then we've seen some price increases along the way. It's been taking some time before to push it through a little bit.
I also feel that we also have seen some raw materials prices come down in other parts of the business, and that is also affecting the margins a little bit in the positive direction. I think we also should realize that there is some of the something on the currency effect there as well. We are more export related along the way, and we have production in the Nordics and in Sweden, and that is also affecting the numbers in the positive direction. Well, I don't have a split, but those are the components, I think.
Okay, that's very helpful. Thank you. You did sort of talk about the inventory levels. Could you maybe share what your view is on the current inventory-to-sales ratio? I think it's just about 16. Where would you want to be currently, and do you have different views on different segments?
Yeah, we don't measure it in percentage of sales like you have it there. That's not the metric we use in internal, the inventory turnover rate, and that we have by company. We have an inventory target for all of the companies, or for every specific company. We are above the target in quite a number of companies, and we are definitely driving that down. I can't give you a number right off, but it's, I think we definitely need to push down on more our inventories along the way here. We have been working a bit with it, and we saw it in Q3 and Q4, we saw some improvement.
Here in the last quarter, we saw a little bit of that it went up a little bit again. That, I think, has to do with the seasonality. We need to protect ourselves in terms of being able to deliver over the summer, especially in some of the Swedish companies, and therefore, they're building some stock before summer. Otherwise than that, we definitely are driving down the stocks along the way.
Okay, great. My final question is, on your M&A pipeline, sort of how you're experiencing companies' willingness to sell and if you seem to have common views on price tag?
Sorry, come again? I didn't quite understand the question there.
No, just when you were talking to M&A prospects.
Yeah
... if you know that the companies have a very high willingness to sell, if it's more, if they seem to want to wait and so on, and if you seem to have common view on price tags, given the volatility.
Yeah
that we've seen.
Yeah
... in recent years.
Yeah. I think it's the market was sort of very, sort of, yeah, boosted, and the price tags were very high some year and a half ago, or maybe two years ago. Since then it's been coming down. I think it's been reasonable here in the last year or so, I don't see a change in that really in the last quarter or so. I think it's been very stable here in the last six to nine months. We have been able to conclude deals. I think we are bidding at the right level, and we are, yeah, we see eye to eye with the sellers in terms of the price tags. I think it's.
Okay, good.
... it's very established, and I think that, yeah, we're bidding and working with them, but it's also about sort of a lot of soft values that they choose to come to us in terms of that they feel that this could be a good harbor for their company. It's not only price, it's a lot of other things as well. I think that's been very stable for many years, really. It's been going up a little bit in terms of the price tags and multiples, but currently we're in the midst of the range that we usually bid, working with.
Okay, thank you. That's all for me.
Mm-hmm. Thank you.
Hello?
Yeah.
Hi, good morning. It's Carl Bo- at ABG.
Hello, Carl.
... most questions have been answered. just, I apologize if you referenced it, there's clearly a very strong performance in your underlying units. In, in the past month or so, have you picked up any market indications, in particular end markets, that are either improving or weakening? You mentioned that the marine cluster is performing well, but any kind of flavor here that you could add?
To be honest, not really. I think what we have disclosed in the report is really where, how we see things. I think it's been very stable. We see very little of any downturn. We don't see the order intake or anything deteriorating or any new trends there, really. We see it's been stable, and we have communicated it's been in line with last year in terms of order intake, and it's been in line with sales. I think it's been, I think we have covered most of the trends that we see, and it is holding up very, very well, and we see very little of any downturn so far.
Understood. Well, it's clear that your organic earnings are, you know, driving underlying margins, but acquired growth still has a pretty stable margin profile. I'm just thinking about going forward here. Usually, if we just look at kind of long averages, this quarter that we're heading into, seasonally-wise, should be a bit of a better margin quarter for you. I'm just thinking about what's happening with the units and the seasonality, in case you have anything that you wish to add on this.
No, not really. We have seasonality in some of our businesses. We have the Gallanova for the winter, right? We have Elpress and the ones sort of doing more of infrastructural investments. Those are normally more in the summertime, where we don't have winter. We have some seasonality, but all in all, it balances out. We usually say that the Q3 and Q4 is somewhat stronger than the Q1 and Q2. I think that the weakest quarter is probably the Q2, but that you see in the numbers. If you say, I haven't even realized that the margins seem to be higher in Q2. Maybe that's true, but it's not significant, I would say.
Understood. Just finally, it looks like another year, last year, where you were very disciplined on what you paid for companies. Well, common recurring questions, question, but have you seen any kind of differences or changes in dynamics in terms of M&A discussions when it comes to what you, what the sellers want to receive?
No, no changes there, really. I think we have been paying sort of the price tags and the multiples over a long period of time that we're used to. We didn't really increase them when interest rates went down, and now when interest rates are coming up, I don't. I mean, we have a hard time sort of arguing that it should be even lower. I think multiples of 4 to 8 times in EBITDA is quite good when we're looking at these very strong, niche-oriented product companies that we're looking for. If we can continue acquiring at that level, I think it's a good thing for our shareholders to just keep up the pace and go along with that.
All right. Understood.
New trend.
Yeah.
No, no new trends there, really. No.
Okay, great. Thanks.
Mm-hmm. Mm-hmm. Good. Someone more? Okay, let's round up then.
Hello, can you hear me?
Oh, yeah, now we can hear you. Yeah, please.
Oh, great. Hi, Jörgen and Peter. It's Niklas from Redeye.
Hello. Welcome.
Hi. I just have a final question, that's with regards to the growth you foresee ahead. I mean, you have the target of growing 15% per year, you state that a larger part of that will come from acquisitions, probably than usual, meaning that, I mean, you see probably 5% organic growth as a reasonable target. I mean, I just wonder, do you have to add any resources to continue to scale acquisitions going forward? What are the main challenges you see in this?
I think we have been living in a good sort of setup here in the last few years, where we have been surpassing or overachieving both on the organic growth and on the M&A growth targets that we've set. We should grow by 15% per year, and we've said that two-thirds of that should come from M&A, and one-third, which is the 5% that you're referring to, comes organically. I think that those are reasonable looking long term. I think we have been well above them for some time now. Maybe we will see a somewhat slower organic growth as we see growth rates come down a little bit.
On the other hand, I think it's important for us to be able to scale up the M&A growth, and that's we've basically been doing already. I mean, we had some... Was it 14.9%? What was it in the quarter here? We have that number. It was 19%, right? That was added from the M&A here. I think we have been scaling up the M&A activities. I think we will continue doing that by adding maybe some more resources on the divisional level. But I think that came, most of it, has already been done, that we have set up a stronger M&A teams in the division.
That came really from the reorganization we made some two years ago. We have been adding a few resources, and I don't think we will add very many more now. It's, we will get this organization to work and hopefully be able to close some 6-12 deals per year or something like that going forward.
I mean, you added the feet on the ground in the UK and have been scaling nicely there. I mean, do you look looking into adding any new resources in other countries, or are you happy?
Yeah.
with the countries you're active in?
Yeah. I think, yeah, I don't think we will make drastic changes in the coming quarter, but looking maybe 2 years down the road, I think we will also be addressing other markets. We have been talking about Germany. We have been talking about the Dutch or the Netherlands, and that is or the DACH area. Those markets, I think, could be areas where we would like to add some feet on the ground. We have some companies in those markets, so we have some people working for us there, but they're more working in the companies, more on an operational level.
What we did in the U.K. was putting feet on the ground in terms of M&A resources, and that has proven to be very successful for us. Probably we'll do that in some other markets along the way, but I don't think it will come the next quarter. It will probably be a little bit further down the road.
Great. That's all for me. Congratulations to reaching the target. Have a great summer.
Yeah. Thank you very much. You, too. Do we have some final questions, or should we round off there? Okay, let's round off. Me and Peter are available for some one-on-one, if you'd like to call us. You in the on the website, you can find our phone numbers and also in the in the report. If you'd like to ask something, please don't hesitate to call us. Thank you for listening in, and have a good day and a good summer. Thank you very much.