Welcome to the Q&A session for Momentum Group's interim report for Q3 2023. I'm Ulf Lilius, CEO for Momentum Group, and I'm here with Niklas Enmark, Executive Vice President and CFO, and we will go through our Q&A session with you.
Have you seen any noticeable effects from a deterioration in the economy and reduced demand?
The simple answer is not really. We see overall a quite stable demand. That said, we however mention that for some customers, especially export-oriented customers, we see a more wait and see attitude and a slightly lower level of activity. However, they continue to order. It's just that they wait a bit longer, and it's a bit more focused on price and not only on availability. Also, the slower pace is also compensated by improvements in other customer segments, as we also point in our report.
Do you recognize the pattern and how it looked like compared to previous recessions?
The shift in focus to price and also a bit more unpredictable customer behavior is quite normal when we enter a period of slow growth. However, it's very difficult to draw any deeper conclusions for how deep and long a possible slowdown will be based on this. Also, this is not the general situation. In certain customer segments, we see a solid increase in demand.
Okay. Are price increases still present in the market, both to you from your suppliers and to your customers?
We see that the situation has settled down compared to last year, but there are still price increases, and in a few cases also decreases, but more due to special circumstances. In general, the downward pressure on prices is often more resilient. We continue to defend our margins and adapt where we have to, regardless if it's related to raw material prices, currency, or availability of products.
You show in the presentation the historical development of revenue and EBITA coming from acquisitions and organically. What is your estimate of where the growth will come from going forward?
As you can see, the contribution from acquisitions over time has increased for both revenue and profit. Our belief is that we are able to grow by 15% annual EBITA over time. One-third could come from organic initiatives such as revenue growth, gross margin improvement, and cost, where 50% to two-thirds of our EBITA expansion will likely come from acquisitions.
You mentioned in the report some measures taking in business area services to focus on certain customers and the reduction in personnel. Can you elaborate a bit on that?
This is in line with the adjustments we make on company level in the group. In this specific case, we have chosen not to prolong certain low-margin resource-demanding contracts. As a result, we can achieve higher efficiency and thus able to cope with fewer employees.
Some final questions we have received. What do you think about pricing in the future? Will it be tougher to pass on prices? Do you see prices come down slightly on input goods? As we mentioned in the report, there are still increases in purchase prices, but at a more moderate pace. As we have also said before, passing on price increases is never simple, but it's a part of the work we have done successfully and hopefully will be able to do also in the future. Price decreases, we have seen somewhat of, but are not that prevalent. How much are you willing to burden your balance sheet the most to acquire companies? We still have a good potential for making acquisitions, both in terms of net debt to EBITA ratios and also as regards available funds.
As we have also mentioned, we must grow with financial stability, not to risk the balance sheet. Can you highlight how Momentum Industrial and Askalon have performed in the quarter? What are they growing, and what does profitability look like? Both companies have had a good quarter in terms of growth in revenue. As we mentioned in the report, Momentum Industrial's earnings were stable compared to the preceding year. Profitability is good in both companies, both being in the higher range of our focus model. Compared to your peers, you show strong organic growth of 8%. How come? Well, we see a lot of our companies had a strong development during the quarter. The explanation is also coupled to which underlying markets we work on, spare parts being a large part of our offer and also being successful in pricing. How do you view the conditions for future acquisitions?
Do you see any reductions in the multiples, less competition due to other players with financial difficulties, et cetera? Downturns can always create opportunities for players with a solid financial position such as ourselves. For us, it is business as usual, really. We will continue doing acquisitions in good times and in bad times.
Thank you for listening to our Q&A session. If you have any specific question or other requirements, please do not hesitate to contact us. Thank you very much.