Good morning, everyone, and warm welcome to Storskogen's very first Capital Markets Day here in Stockholm, in the lovely building of Moderna Museet on Skeppsholmen in Stockholm. Also, a warm welcome to you who participate and watch this online through the live stream, which is found on our homepage, but probably you have found that link already since you're there. My name is Lena Glader. I'm the CFO of Storskogen, and I will be moderating this event, guiding you through this day today. I actually used to be an equity analyst a long, long time ago in the beginning of the 2000s, 22 years ago maybe, and I used to go to these kinds of events as an analyst. Back in the days, we always got goodie bags.
I remember I was almost always the only woman, so I got silk scarves, I remember, from one Finnish company. I got jewelry from another. Not to mention nice stays at castles in the outskirts of Paris and other quite expensive events. Those days are gone now. I think I actually asked our compliance if we're allowed to give you tiny shampoo bottles from our subsidiary Baldacci here, but I was told that no gifts are allowed, unfortunately. You do have notebooks, right? You got notebooks and you got a pen that we gave it to you and branded with our logo, of course.
What I hope is that you can use that notebook and that pen to write down some notes from this day, and hopefully maybe those will be more valuable than a silk scarf. Who knows? Anyway, today's agenda is divided into two sessions. In the first session will be about strategy. You will hear presentations from Daniel Kaplan, our CEO, from Alexander Bjäregård , Head of M&A and corporate development, both of whom are co-founders of Storskogen as well, and then from a presentation by myself. After that, we have a Q&A session.
Those of you who are watching online, you should have a small box just right below me now, I guess, on the screen, where you can post your questions, and then we will collect them at this Q&A session at the end. We have a pause or a lunch for an hour, where you will have the chance to talk to our management, of course, and especially to meet our subsidiaries, some of our subsidiaries who are outside here. I really recommend that you take the chance to talk to them. You will meet here we have SoVent from Business Area Services, a roll-up of chimney sweepers, market leader in Sweden.
We also have from services, we have Agio, an IT consultant in the north, Norrbotten of Sweden, but also in Stockholm with a lot of state-owned customers, and also active in the north of Sweden, where everything seems to be happening right now. We have from business area trade, we have Båstadgruppen represented. As you see there, they are distributors of work clothes and workwear, very non-cyclical, business to business. We also have Baldacci with the shampoo bottles, of course. SGD, flooring distributor, also within trade. Finally from industry, we are represented by Brenderup, boat trailer producer, and as well as PV Systems. PV Systems is a company within automation, and they have this cool VR thing that I urge you to try out.
I almost stumbled when I actually looked at it right now, just a couple of minutes ago. Very cool. After lunch, we will then have another session which will be more operational. We will listen to our three business area directors who sit right here, and they will talk about their business areas and more in detail and more hands-on how they work with operational excellence, efficiency, etc., within their business areas. Then again, a combined Q&A at the end of that session. I think most of the management team will stick around for a while even after the day in case you wanna ask us some questions or have some follow-up questions for us then. Right. The first presenter today is Daniel Kaplan, our CEO and co-founder of Storskogen.
Now, he's got an impressive background as a serial entrepreneur. I believe you started your first business when you were a teenager, and then combining the startups and entrepreneurship with experience and work as a strategy consultant and senior advisor for large global companies. I think that combination of that strategic global thinking, if you will, and the entrepreneurship is actually pretty much explains what Storskogen is all about, I think. We will hear from Daniel about the strategy, about short-term priorities, operational excellence, and other things. The floor is yours.
Thank you, Lena. Hi, everybody. It's great to see you all. Fantastic actually to meet you face to face. Some of you I've met physically for the last few years, but quite a lot of you I've met only through the digital screen where I talk to a camera and you see me, so this is a lot better. Well, Capital Markets Day, why do we have one even? I think for us, in our perception, I think we've had a fantastic year actually. We did an IPO almost a year ago. We have launched into new countries. We have acquired great companies. We've had a tremendous growth. We're twice as big this year as we were last year at this time, both with regard to EBITDA and profits.
That said, we're new to the market, and we do need to feel that we need to start from the beginning explaining who we are and what and why and how much, so to say, that we need to do and start from the beginning and talk to you and inform you of what we're doing. Also, of course, our share price has plummeted, and we can also understand that it's a new world out there, very different from the one we had a year ago. It's been. A war has started close to us, energy prices, a recession coming up. Capital costs have increased tremendously with inflation and interest rates, and how do we tackle those things?
Those are a few of those questions that we want to answer today and give you some guidance on how we view those and how we want to act on those. Some of the things are. I'll be telling you a little bit about both our strategy, what are we going to do? What are we all about? Why are we doing that with regard to the market opportunity? How organization, culture, key processes, and finally regards to money. Then of course, Lena, Alexander, our business area heads will dwell deeper into that and give you lots of flavor and the actual practicalities on that. Finally, the tactics on how we manage the short-term fluctuations in the market.
Very briefly, we're currently 12,200 employees in 27 countries, divided into 4 market areas, the Nordics, DACH, UK, and Asia. SEK 3.7 billion in rolling twelve months EBITDA. It's a relatively big company. We've been around for more than a decade now. Three business areas, as I mentioned, trade, industry, and services. They will tell you a lot more about their business areas later during the day. As you can see, divided into verticals, we have 14 verticals in total, where we group our companies with a vertical lead supported by a business investment manager, as well. We'll get into how we organize ourselves and how we lead these, both the business areas and the verticals going forward. All of these have very different traits.
They have different types of risks. They create a very diversified portfolio. This is a core feature of Storskogen. I think originally we didn't have any intention to quote ourselves. We just wanted to build a portfolio of profitable great companies with strong cash flows that could be really resilient in a downturn and of course grow in an upturn. I think that was a part of what we're all about, the diversified strategy. Of course, no single vertical bigger than 14%. Our biggest subsidiary in terms of turnover is 6% of the total turnover. Our ambition is not to be dependent on any one macro or micro trend to the extent that is possible.
Anything that happens to society happens to our portfolio, but not to the same extent. I think most of you, especially those from the analyst side, know the math behind a portfolio. It simply is better returns at a lower risk. From a geographical diversification perspective, we're still not there. We're still a relatively Swedish-centric company, but our ambition, we'll get into that, is to gradually become more and more international, to reduce those types of risks that you have with the local politics, currencies, et cetera, et cetera, and the business cycle in each and every geography. Our ambition is, of course, to gradually become more and more diversified, even from a geographical perspective. What are we about?
Well, I think we are uniquely positioned to identify, acquire, and develop market leaders with sustainable business models over an infinite ownership horizon. If we take this slowly, Alexander will tell you a little bit more on how we identify these companies. We are active in lots of different verticals and industries and lots of different geographies, enabling us to have access to huge deal flow. We acquire them systematically, professionally. We've done more than 100, almost 200 acquisitions. We know the craft of doing acquisitions. Alexander will tell you more about how we do that. Market leaders, as you will see, when you look at our individual companies, we will cover a few of that today. We acquire market leaders, and that could be in a very small niche or a small local geography.
Of course, the traits of a market leader gives resilience, pricing power, etc., etc. Sustainable business models. We have a hundred-year perspective. We're really long term. First of all, we avoid certain industries, of course, but we also work continuously with our companies to be not only compliant, but to use sustainability as a competitive advantage going forward. I think that's actually crucial to be relevant in the long term. The infinite ownership horizon. I think a lot of people can challenge, "So why don't you do a private equity play?" As you can see today, when you meet our companies, we're building, you know, we're redefining industries, we're doing roll-ups, we're creating a changing industrial landscape for some of those companies that we're buying. They're growing tremendously. Why don't you sell them off?
In fact, the reason why they sold themselves to us in the first place is that we are extremely long term. All our decisions are based on long-term considerations, and this is why they sell to us, simply, at the right price. An infinite ownership model does not exclude selling off a company once in a while if we're not the best owner, if we've done everything in our power to turn it around, but we still can't really make it, we will divest one or two low performers. Of course, it's also a very important signal to our companies that we're not a charity. If they under-deliver over time, we will have to do something about that. We are about running profitable, successful companies over time. We don't give up easily.
What is our mission? Well, it's to empower businesses to realize their full potential. Looking closely at these words, to empower, it means that we're actually not running these businesses. On the other hand, we have great CEOs and management teams, and they are responsible for their P&L, retaining that responsible entrepreneurial spirit in the companies. That said, it doesn't exclude us being really supportive, providing them with all kinds of resources and knowledge and other types of facilities that will make them, their companies grow and develop over time to be extremely competitive and successful. But of course, realizing their full potential is totally different for two different companies. If you are a market-leading painter with 50 employees in a small town in Sweden, potentially growth is not on your agenda.
It's to retain that market position to happy customers, efficient production, and strong cash flows. Whereas you have roll-up opportunities with a global expansion plan, both expanding organically and through acquisitions, a very different play. We're helping both of those companies on their own terms to realize their full potential. Finally, our vision, it is to be the leading international owner of small and medium-sized companies. I mean, this is a very ambitious vision, the journey we are all about. This means that we are investing long term in establishing ourselves gradually into new geographies, into new industries, and to create a market position within those and create knowledge and really top-of-the-line expertise in those industries and in those issues, those domain and situational issues that are important in those industries.
How is this affected by the short-term fluctuations? Well, of course, we'll get into that, but we'll not do a geographical expansion to any extent when the world is on fire. We will consolidate that. This is still our long-term goal, and lots of our decisions is driven by this one. Of course, what does a leading mean? Well, apart from the geographical and industry expansion, it's about running profitable, healthy companies with strong cash flows that are successful, creating a portfolio that is truly resilient to any type of external shocks. We had COVID the other year, very strange crisis, if you will. Now we have a potential recession. There will always be ups and downs in industry, and we need to have a portfolio that can manage that over time.
If we're looking at the more important factors, I think we want to be the preferred choice. If you are a company seller, you've built a company for generations even, who will be the next generation owner? Who will take care of my company with love and competence and being a serious owner? We want to be that choice. As a direct consequence, we think that we will contribute great value to those entrepreneurs, to our employees, to our customers, to our suppliers, and of course, to the local communities where we are one of the biggest, potentially even the biggest employer.
We want them to open a bottle of champagne in the local community office when they hear that Storskogen has bought maybe their biggest employer, that they will know that we are a long-term owner taking care of that company, making it grow and flourish over the years to come. That's what we're all about. The question is, what about the market opportunity? Why did we choose small and medium-sized companies? Well, first of all, this is a large addressable market. I mean, there are almost an infinite number of great companies out there with strong profitability. These small companies, they face challenges. They usually have a great entrepreneur, but the kids don't necessarily want to take over.
If you sell it to an industrial player, there is a big risk that they will potentially move production in a few years, closing down your local community, more or less. Sometimes they need a personal de-risking. It could be about financial security. It could be that they have great opportunities or challenges, and they need new competence into the company, and we can provide that. Of course, there are actually other players such as us in Sweden, for example. If you go to Asia or even UK and DACH, for example, in fact, the need for someone like us is fantastic. We're getting so much deal flow and actually grateful entrepreneurs that there is someone with the business model that we have.
Of course, if you look at these challenges that a small, medium-sized company has, it usually has its personnel dependencies. It's too few customers, customer concentration, supplier concentration, and these make each individual company relatively risky. I would honestly say that a number of the companies in the Storskogen portfolio have had some tough times the last 10 years, and they wouldn't have survived outside of Storskogen. This implies that you can buy these companies at a lower multiple than you would a bigger company. Buying great companies at the right price and coming into the great companies, I mean, these companies are usually very successful. They're profitable, they have strong cash flows, they have leading market positions, long customer relationships, and they've been through ups and downs, and we will show this even further.
Of course, if we can buy great companies, really filling a gap in the market towards the entrepreneurs that really care about their companies and want a long-term owner, and we can buy them at the right price, then that's an extraordinary market opportunity. The fact that we have a broad investment criteria, we're in different industries and geographies, gives us access to an extraordinary deal flow. My guess, probably second to none. Of course, we have a very pragmatic, tested acquisition process, and this provides entrepreneurs and brokers with high deal certainty and also creates a long-term value creation on how to structure the deal as to have align our interests with the sellers, for example. We have an appreciated ownership model. Like I mentioned, the long-term ownership agenda, and this makes us the preferred choice.
I guess there will be more players saying that they are preferred over others, but we know for a fact that a number of acquisitions are made not because we're paying the best price, but because they want us as an owner. The consequence of this is, of course, that we can be super selective when doing acquisitions. We create a diversified portfolio across industries, and it's a very abstract thing, but over time, the fact that you can allocate capital to where it makes the most use good really creates returns over time without any kind of tax inefficiencies in that. This is not only through acquisitions, but also how you invest CapEx and time without any kind of tax inefficiencies in that. It provides us with a unique knowledge base.
Being active in many industries, they still have many similar challenges, but also in the acquisition process, just to be a part of 1,000 transactions, bidding, you start to understand the risks and how to price those risks in each and every industry. Who does this then? Well, we'll get into the organization less theoretically than this, but of course, we have the supporting functions. We have finance and control. We have all kinds of supportive function. We're 12,000 employees, so it's a big company. We need to have ESG specialists, legal specialists, business development, a centralized M&A, still actually with M&A people in each geography but nevertheless, it's a craft, and to do it really professionally, I mean, it's so far superior to have these really experienced M&A people running these processes.
Of course, but if you're looking at the operations below, we believe in the mix of the local presence and the industrial expertise. It's a matrix with, you know, Alexander will tell you more on how he builds the teams for each and every acquisition, but it's basically marrying, or merging these competencies, the local presence and the industrial expertise in everything we do. That friction in that discussion provides better acquisition decisions, but also better decisions on the boards. We talked a little bit about the values, but actually, this is what makes us unique. I think it's very easy to make a slide and some words, but it doesn't really matter. For us, this is what we live every single day. It's the entrepreneurial spirit. An entrepreneurial spirit could be how you run the family business.
Really, my own father, I have a family business myself. My own father did his last working day when he was 83. We still have employees who worked with my grandfather. It's about taking care of your employees for real, having a long-term relationship with your customers, caring about their well-being, your suppliers, your brand, building, making long-term decisions. But it's also about being another type of entrepreneur. I started Tradera, for those of you who know, which was a peer-to-peer platform which we sold to eBay. This is about finding a business opportunity, creating a business model that works, and then scaling that, being dynamic and systematic, creating a company with less personal dependencies. Being respectful. The company sellers that build their businesses, they are extraordinary people.
They've created profitable, successful companies, and we need to have a deep respect for the values they have built, and it's also a question of how we interact with each other. We show each other respect. In Swedish, it's humble, actually, but doesn't translate as greatly as to English. Nevertheless, it's about understanding that we don't know everything centrally. Actually, it drives the decentralized structure with decision-makers in the companies they know their business. We can support them, but they are responsible for key decisions, as well as running their daily businesses. Finally, professional. Running more than 100 businesses is all about being systematic. Systematic in the selection of companies, the acquisition of companies, how you run the companies in a day-to-day business, introducing KPIs, quantitative measures, and being data-driven.
That's why, for example, the vertical teams are always two people, one with extensive operational experience, usually CEO experience from that industry, and an investment manager, usually with five or 10 years as a strategy consultant or similar. We want that, the marriage of those two types of experiences when we run the businesses. We have a very active ownership model. You'll learn a lot more about this one. One part is, of course, to incentivize our businesses. Of course, when we buy a company, it's quite often generation shift, so a succession planning is important. The question is, so will these companies live on after you've changed the entrepreneur?
In fact, I heard yesterday, Fredrik told me that out of the 23 Swedish industrial companies, most of them we have owned for quite a while, only two of the original founders are still the CEOs. 21 are actually new CEOs. They've had a tremendous performance these last years, including this year. Succession planning and how to manage that is very important. Of course, when we acquired. This is an evolutionary process. Initially, we used to buy 100%. Nowadays, we usually buy, we leave a minority for management. Even if, when we recruit a new management, they get to own a small minority. I think on average, we own 88% of the companies in our portfolio. We have earn-outs as well, if we have short-term. Usually, the seller is optimistic, and we hope.
We're also optimistic, but we're more realistic, so we want to pay for where they are now. We have an earn-out and potentially minority option to kind of bridge that expectations gap. We have an LTIP in Storskogen, but, and in fact, most of our CEOs are actually shareholders in Storskogen as it is. We get a lot into way of working, but we are extremely systematic in what we do and how we do it. Basically, the annual wheel of quarterly board meetings, monthly follow-ups, and even in daily interaction when needed in combination with various types of specific activities. One of the parts of Storskogen is ESG, and this is not a lipstick on the pig, if you will. First of all, a lot of our small companies have big customers.
It could be Swedish customers like IKEA or something like that, but it could also be governments, and the ESG requirements are significant nowadays. The alphabet soup of various ESG initiatives and targets is basically impossible to navigate for a small company. We guide them, we help them, we navigate through that, and to help them to future-proof their business. When it comes to how we do this, it's once again to be very systematic. I think we are extremely long term. First of all, we avoid certain industries which we don't think is ESG compliant to our end. Then when we've chosen that. It's not only the most self-evident that we avoid fossil fuels or something like that.
It could be a thing about the culture in that particular industry, if we can be active there, for example. When we've chosen the companies that we buy, we onboard them, we sit down, have a strategy session, develop some strategies where they can be, not only compliant, but in fact create a competitive advantage. 'Cause I'm all about shareholder value. I think the shareholder values comes first. That's the main task for a company. It's actually quite well aligned with having a strong ESG agenda, because I think being relevant and competitive and profitable in the long term, then you need to have these things. Being a responsible owner, being a responsible employer, minimizing environmental impact, all of these things combine.
Of course, we implement targets, plans, key metrics, and we start to follow up, measure, and help them hands-on to achieve those targets. We have these companies, we have acquired them, and we want to empower them to realize their full potential. In our toolbox, if you will, we have industry expertise. Out of the 12,200 employees that we have, I can tell you that there's basically not one area where we don't have really leading-edge knowledge. This could be industry expertise, it could be situational toolboxes. We have done turnarounds. We have done mergers and integrations. We have done new factories. We have placed new automated warehouses. We have in-depth domain knowledge. You will get the CVs of some of our members. They are experts in branding, production, in sales force management, et cetera.
Of course, we are active in the geographical market. We understand that market, the culture, 'cause we have people who are from that market. That together with the generic Storskogen way, providing financing, stability. You will see some examples where we're doing significant CapEx investments to enable growth, for example. In tough times, a small company usually is very vulnerable, especially if they're a service company, for example. Just knowing that you have a strong owner that believes in your business provides them with long-term decision-making in tough times. Actually, when tough time comes, then it's really, really valuable to be a part of Storskogen. I usually take this countercyclical example that we increased CapEx during 2020. Nobody knew what was going to happen. The economy contracted quite significantly.
We invested 37% more that year in CapEx than the year before. That created actually the growth of 36% organic EBITDA growth the next year. Just by doing that, and we saw the supply chain disruptions, our choice was to, "Okay, let's build inventory. We can spend the cash for this year to make them countercyclical." That really drove growth last year and also this year. Strategy development, always hunting for operational excellence, governance and professionalism we already mentioned, and decreasing team personal dependency, broadening the team, succession planning, all of these things. How does this really have any actual impact? Is the company worth more if it's inside Storskogen than outside? Well, I think, like I mentioned, in 2020, the Swedish economy contracted with 4%, something, I think, like that.
We still had a small but nevertheless positive EBITDA growth. Last year was a tremendous year. It was along the top of the business cycle. We had a plus 36% organic EBITDA growth. I think decreasing the risks, increasing the upside, that's basically what we do. One of the initiatives, concrete initiatives that we have is the KEX, knowledge transfer, previously called business excellence groups. We have 12,000 people, like I mentioned, in lots of different geographies with lots of different expertise, and we're pooling all of that expertise into not only a joint platform where we put up cases and we have lots of events and presentations and courses, providing not only the CEO, but actually warehouse managers, production managers, et cetera, finance managers with support and a development curve for their own sake.
Concretely right now, we have six different initiatives with a team lead, experts associated, where we run these things. The question is, of course: Is this just like another consultant play? Well, we will just do a small extract today telling you a little bit more about one of these. It's procurement. Actually, all of these are equally important, I would say. If we just take procurement, it's very concrete. That's why we used it as an example. We currently have 14 initiatives within procurement. It could be the purchase of key materials such as steel or energy or insurance. I think today we're focusing a little bit on one of these aspects, which is freight. Of course, when it comes to procurement, if you look at our platform that we have, the KEX platform, we're actually blurring it 'cause it's actually...
We're just continuously now negotiating frame agreements across the board, and this is a voluntary exercise. If I want to purchase my gasoline at some other place than we have our frame agreement, they're free to do so. All the CEOs are hunting, of course, for operational excellence, and they're also looking for reduced costs. If they have great reasons why they want to have another freight forwarder than we suggest, they're free to do so, but we provide them with those frameworks. It takes time to negotiate them, to adapt them to each and every company. It's a slow process, but nevertheless, it's ridiculously concrete, the earnings and the benefits that this gives us over time. I think, Christer will tell you more about it. I think Peter will also mention about the work on specifically procurement.
Does this convert into money? Otherwise, it's no use talking about shareholder value. I think we've had a very strong sales growth this last year, of course, both organically and through acquisitions. We're guiding towards an organic EBITDA growth of 1%-2%, real GDP plus 1%-2%. Some people ask us, if you look at the CAGR here, 26% since 2019, why don't you guide higher? Why don't you guide towards an incremental increase in your margins, et cetera, et cetera? First of all, we have to understand that there's a business cycle going on, and it will fluctuate over time. Some of the companies that we buy, we buy great companies with great cash conversion at great profitability, but they're not necessarily growth companies.
Alexander will tell you more about this, but buying a Storskogen share means that you are into industries that you would otherwise never be able to touch as an asset class. You have SoVent outside chimneys, leading Swedish chimney sweeper, too super countercyclical. Actually, the higher the energy prices, the more people, you know, need to buy wood. Actually they will have more work to do now than ever. That said, there is some volatility to that, but all of our companies are not fast-growing companies. This is realizing the full potential means that some of our companies will grow quickly, otherwise will be very stable, and we will be very happy with that. It's one year almost since the IPO. How have we performed? In some aspects, very good.
Some aspects, things which we could have done better. Adjusted EBITDA growth, we're guiding; this includes acquisitions. I should say this is over a business cycle in the midterm. It assumes access to capital, and of course, we've had access to capital this year. Next year, not so much, we have to take advantage of that. That said, to maintain the growth that we've had previous years, the three-year average here is 79%. At the IPO, we had 60%-70%, I think, if you look in the five-year average going back. Very strong performance, as you can see this last year, perhaps even in retrospect, too strong performance when it comes to growth. Over time, we're very happy with the acquisitions we've made and the performance that we've had this last year.
I think we are set with a great portfolio with a lower risk overall in the tough times that comes ahead. The organic EBITDA growth, like I mentioned, GDP growth 1%-2%, real GDP growth. Last year, extremely strong GDP growth, the Q4 , the Q1 as a quoted company. This year, it's -3%. It's a quite natural development, to be honest, given the fact that we had such a strong business cycle 2021, so a little bit of a bounce back on that one. I should say we've had a super strong demand, but nevertheless a very strange year with COVID lockdowns as late as in Q1, super strong supply chain disruptions, accelerating inflation, making the time lag between the price increases from our suppliers to us before we could move that on to our customers.
That has actually had a significant impact on our EBITDA growth as well as on our organic as well as our margin. Of course, if we look at the margin, we're guiding towards 10%. We're currently at 9% and we're actually moving into tough times ahead. We're actually not satisfied with 9%. However, I think we feel that the underlying businesses, we have acquired a lot of great businesses, and I think are as well if, for example, just simple things as the super strong US dollar compared to euro and pounds and the Swedish krona as well, for example, is impacting that one. We have lots of other factors impacting the EBITDA margin.
Given the fact that lots of these are temporary and especially when the changes come along, like COVID lockdowns and the accelerating inflation, we're decently satisfied with the actual outcome. That said, we're not satisfied over time, but I do feel confident that we will get in line over time on the margin. We keep that target, and we're working towards it, and hopefully we can improve. The cash conversion, the three-year average has been 70%-ish. Lena and I will talk more about that, but it's actually been 70% for quite a long time. About a year ago, we had significant supply chain disruptions. In fact, you forgot that already, but this boat actually came sideways in the canal. There's been all kinds and COVID lockdowns in China.
Last year, we had such big difficulties even to get the goods in, before the Christmas trade. This year, we told them, "Let's buy three months earlier." We've had a conscious decision to build inventory to have, to be able to supply our customers with growth, making them happy. It's been very successful strategy. That said, we're moving into recession. Working capital is going to be one of the key concerns, so we will be very disciplined now, and I think you will see that our cash conversion will return to our normal levels over time sequentially. As of course, we're actually. I'm not actually dissatisfied with it since this was a conscious decision. However, this will have to improve over time. Leverage.
Well, our target leverage is to have between 2 and 3 net debt to EBITDA. We're currently at 2.5, a very comfortable level for us. So we're happy with that. We also had an ambition to deploy the capital that we got from the IPO. I think we're there at the moment. Of course, the cost of capital has increased tremendously. The access to capital has almost, you know, at this level, we don't want to issue new shares, and of course, we don't. The debt markets, especially the bond markets, are more or less closed at the moment. This gives us. We'll get into the short-term tactics later, but in short, I would say in a good business cycle, I would probably want this one to be 2.8.
In tough times, great uncertainties, I would probably want this to be somewhat lower. It will fluctuate a little bit in the next quarters depending on what acquisitions we make. Over time, the ambition level, as long as the world stays uncertain, I think you will see our ambition is to decrease this over time. In the next business cycle, we will probably want to increase it again. We keep our leverage target of 2-3. Just one thing about what about our overall view on our performance this year? I'm not talking about the share price, which has been disastrous. Actually we are quite satisfied. We said that we were going to expand internationally, and we have put down an office in Singapore.
We have built critical mass in our team in the UK and DACH. The one thing that we haven't done in international expansion is, of course, the US, which was an ambition of ours. Already when the war in Ukraine started, we said that, "Let's hold that back. Let's wait with that until we have better times." It's still on the horizon, but it's not in the near future. We're currently consolidating and focusing on those geographies that we have. Organically, the organic growth, the acquisitions, deploying the capital from the IPO, all of that are things that we are quite happy with. In retrospect, could we have done some things differently? Well, given the fact that the recession is coming up very hard, we might have been more conservative on the acquisition pace, for example. We could have been.
Of course, we're building an organization to take care of and manage and do a lot of acquisitions. We'll get into the short-term tactics. It might be that if we would have known in hindsight, you might say that we've been building our organization a little bit too fast, given the fact that we now have to calibrate our entire organization to the future coming at us, so to say. Getting into this concluding, I have three minutes left, Rebecca showed me here. The next generation ownership. Talking about the short-term focus, what do we need to do? Well, the prerequisite for us is to have a strong balance sheet. This is the constraint.
Between two to three, it might go up a notch or so in the short term, but over time, we actually would probably want to bring it down a little bit. We want to have a very strong balance sheet, a focus on cash flow. If we said to our companies last year, "It's okay if you increase your working capital," I think that's not the signal we're giving them now. I think you will see some rapid changes in that development as well. This, of course, gives this the background to all other activities. We have to calibrate our acquisition pace. This does not mean that we're not doing acquisitions, we're just doing a lot fewer for a period. We're focusing instead on operational excellence, redirecting resources to operational excellence.
We need to ensure that we have an effective organization out there. Of course, I asked our CEOs that we have outside yesterday. In the evening, we had a dinner. I asked them who was going to recruit people and who was going to be cautious about cost reductions. Some companies are going to be very careful now with costs, but a lot of companies, actually, we've had—it's really been hard to get good people. So some of these companies will be recruiting even through. We will be careful with costs, and this counts even for a central organization and our market areas. I mean, if we're not going to do so many acquisitions, we don't need as many M&A people. So some of these people will work with our companies.
Some of them will actually take operational roles, CEO roles, and CFO roles in our portfolio companies, and there will be some redundancies as well. We will be working a lot with improving our businesses going forward. In the long term, the strategy remains the same. We think that it's a viable, strong strategy. We think it creates value, so we will continue to acquire companies. We will continue a gradual international expansion, not this year or next year maybe, but over time. Of course, we will continue to do investments in our portfolio companies to continue to make them even more competitive over time. Three minutes are up. Lena .
Daniel. Thank you, Daniel. Yeah, still two minutes left until Alexander is on. A quick question to you on this. Maybe on this very last page, you explained about the calibrated cost or the calibrated strategy.
Yeah.
Is there anything more you can add to what is expected, what the market can expect in terms of benefits from that?
Well, like a good question. I think you're all wanting numbers here, I know that, but we'll not give it to you. There will be some cost calibration. There will be redundancies, of course, very concretely. Of course, when it comes to where we allocate our resources, like I mentioned, we have 14 initiatives only when it comes to procurement. The upside of each and every of those initiatives is really significant. We've bought a lot of companies, and the negotiating power we have as a group, it's totally different than we had only two years ago. There's so much to do now to really improve our margins, to reduce costs, to increase service levels with our suppliers.
Just using our resources, less acquisitions at the moment, more resources on procurement, digitalization, sales force management, I think it's going to have tremendous effects, actually, which far surpasses, you know, one or two more people or less. Sorry.
Thank you so much.
Yeah.
Thank you. So now it's 10:50, so it's time for the next speaker, who is Alexander Bjärgård, co-founder as well together with Daniel, and head of M&A, and let's see, corporate development. Yeah. There you go. And Alexander has actually, similarly to Daniel, quite an interesting background, combining a background as a lawyer with one of the Nordics' larger law firms, Mannheimer Swartling, very corporate, very structured with a background as with startups, and entrepreneurial-driven companies before founding, well, and up until and including Storskogen, I should say. I don't think that there's many people here in Sweden who have actually negotiated and closed more deals than this man right here. Look forward to hearing more about the M&A.
I believe will be very briefly touch upon what actually is the Storskogen M&A model, what has gone into the portfolio that we own today in terms of reasoning and strategy and diversification and processes and all of that. I'll leave that to you to explain. Go ahead, Alexander.
Thank you, Lena. It was time to stand up according to my watch. It was good timing. Thank you, Lena, and the rest of you for listening in today. I would like to start off on a personal note, being one of the founders and having all my savings in Storskogen. You might think that I sleep poorly at night, going into recession, but it's quite the opposite, actually, apart from our four-year-old at home, but that's a different story. Today I'm going to try to walk you through why I believe that Storskogen as a group is well-positioned to actually perform well during these tough times ahead, and that we are able to or that we have a position also to secure future growth.
What it all boils down to for me is the quality of our companies and our portfolio and our diversification. Luckily, Storskogen's strategy from the start has been to create a diversified portfolio of quality companies. That's good. Quality when it come to the acquisition criteria, well, we target, as Daniel explained, market leaders that are strong in their respective niche or local market, that have strong cash flows, and have sustainable business models, and have a pretty low risk profile. That's a good starting point if you want to have quality in a portfolio going into recession. You could say we were actually built for recession. We have a prudent and very selective M&A process that increases the likelihood of actually acquiring the good companies and not the bad ones.
We have developed during the years an M&A toolbox that provides both quality to the process and scalability. We do have industry expertise, and local expertise, as well as M&A expertise, in our M&A teams, enabling us to to have a high quality, both in terms of identifying and evaluating, as well as acquiring the companies. You also have to be diversified, I guess, to be sleep well. We have our companies, I will talk about that later on. They rely on many different long-term macro trends, many different geographies, both within specific countries, but also between different countries. We are not, as Daniel mentioned, reliant on any single business unit. I'm gonna walk through all those things right now.
Starting off with our fundamental criteria, what are we looking for when we acquire companies? What are the most important things? Well, to the bottom left in the triangle, you can see that we are looking for companies that actually have a proven business model. We don't buy startups, for instance. They have an extensive financial track record. Usually that gives you a few answers. Usually that tells you that they have a strong management, that the company is well-managed, that they have a good position in their respective value chain, and that their business model is well-proven. Also that their products and services that they offer are equal or actually better than their competitors. However, a strong financial track record is actually just a testament of the past, even though it can give you some hints of the future.
It's very, very important for us to assess if the company is gonna be successful in the very long term. Therefore, we try to assess which are the long-term macro trends supporting the company, and is the business models actually sustainable over time when things will change? Is the company's offering relevant in the long term? Is there a possibility to adapt? Sometimes you think that, but you know if things will happen, you have to adapt. Is it possible to adapt the offering over time? We also assess the company's market position. As Daniel mentioned, we target market leaders, be local leaders, region leaders, or national leaders, or even greater regions. They tend to have more resilience, more pricing power, and potentially are more successful in the future.
This means also that we don't invest in companies that have an uncertain outlook on the future, even though they can be very profitable and you know for a fact that in the next few years will be very profitable. Just to give you a flavor, we don't invest in companies related to the combustion engine, the oil industry, even though some of these companies are doing really well at the moment, unfortunately. We don't buy companies that are perceived as really trendy. It doesn't have to be fashion or design. It could be a trendy e-commerce platform because history shows that some types of trendy businesses or offerings will come and go, and we are in it for the long term.
Since we don't sell the companies we buy, we don't plan to sell any companies we buy, it must be relevant in the very long term for all stakeholders, both shareholders, obviously, but also for the local community, for the employees, and so on. Therefore, ESG is ingrained in our decision-making, both when we acquire companies and when we develop companies. Things we look at from an acquisition perspective is, for instance, the specific market in question, the place in the value chain, and the products and services that the company offer, how they are produced, how they are sourced, and how they are delivered. We also look at the business ethics of the company and the market.
It's also very important that the companies has a possibility to adjust because we know that demands from society at large will increase over time. As Daniel mentioned, we don't only like companies that are compliant today, but we actually prioritize companies that have a competitive advantage when it comes to their ESG. We believe that in order to make successful acquisitions, you need to have a local presence. Also when you own them, it's much better to be close than far, far away. We actually only buy companies with head offices in our current markets. We could buy an add-on in a different market if it makes sense for that business unit. Basically, we buy companies in our markets that we are in.
From a financial perspective, I know all of you like numbers. We tend to buy. This is the sweet spot you see to the right on the screen. We tend to buy companies that generate an EBITDA between 15 and 17 million SEK, with a margin between 10% and 15%. Even though prices differ over time and between verticals or business end markets and geographical markets, we usually pay a multiple of 5-10x, or 5-8x, on the underlying earnings. Daniel already talked about the transaction structure. We try to have a balance. We can use earn-outs or minority shares. We also, when the company sellers stay in the company, it's very, very important to have aligned interests in the transaction.
We want to be friends both in the transaction and even afterwards, and have the right incentives. Usually nowadays, we actually don't buy 100% of the company. We buy less, always above 50%. Over time, we always have the right to acquire the rest of the shares. As Daniel mentioned, we usually leave some shares to management even over time. I guess from the outside in, it must be very difficult for you to follow us when we do acquisitions. What is the strategic reasoning for why we buy this company or that company? Impossible task, I guess. I will try to give some light on how we think when it comes to M&A. As you can see to the left here, platform acquisitions. Well, the basis starts with a single company.
When we buy a company, usually, we buy it on a standalone basis on its own merits. We don't expect any synergies apart from the general group synergies that we provide. It should be a company that provides great return for us as a shareholder over time without regards to the rest of the portfolio. Actually, a majority of cases is not platform or not today platform acquisitions, but could be grouped in different kinds of transaction frameworks. One is add-ons, one category. An add-on for us is an acquisition made by an existing business unit that we have, and it has to be part of that business unit's strategic agenda. Usually, an add-on creates short and long-term synergies, both or on the cost and revenue side.
Sometimes an add-on can be made in order to strengthen the company's market position by adding products or services or accelerating growth within a market or a way to establish the business unit in another market. Even though we demand and follow up on synergies when making add-ons, we rarely take synergies into consideration when it comes to pricing the add-on. So the synergies is on our benefit, basically. An example of an add-on made is when Brenderup, one of our business units, the leading trailer manufacturer in Scandinavia, bought Tysse, who's the leading trailer manufacturer in Norway just recently. Fredrik Bergegård will tell you a bit more about that transaction, and you can actually meet the CEO of Brenderup and talk to him during lunch here if you want to know more. Another category is roll-ups.
This is when we make not just one or two add-ons to a business unit. This is actually when we consolidate an entire fragmented business. We can go from a local market leader to a national market leader. Usually, we put in a joint group management for the entire company and joint group functions. Synergies could come from purchasing, sharing resources, developing best practices, and introducing new products and services as a group, and obviously, knowledge sharing. Example of roll-ups that we've made or are making is SGD, the leading flooring distributor in Sweden, and SoVent, the leading chimney sweeping company in Sweden. I think Peter Ahlgren will talk a bit more about SoVent later on. You also have the SoVent guy by chance here today, so you can talk to him as well during the break.
We have something we call holding groups, not a self-evident name. But basically, this is when two or more sister companies that usually are pretty equal in size, it's no reason for one to acquire the other, but there are so many synergies that the CEO and managements of these companies feel that it's much better to have joint incentives in a top co. So it's much easier to work together. They could have the same types of synergies as in a roll-up or add-on, but basically, usually they are a bit more independent with their own managements, trademarks, and so on. One example of a holding group is Hår AB or Hairco, which is the leading group of distributors of hair care products in Scandinavia. Christer will talk a bit more about this.
I think also you have the CEO of Baldacci, which is a part of the hair group, hair care group, here outside as well. You can talk to him later on. Our last grouping are the clusters. These are actually sister companies that work in the same market space, and they see a benefit of having a more closer collaboration than a general Storskogen company. Storskogen creates venues and tools for these companies to both formally and informally meet and exchange, competences and experiences and so on. These types of initiatives can actually include purchasing. I think Christer will talk about that as well. This has been done many times, for instance, amongst our electric engineering companies, and also our welding companies, for instance.
It could mean a transfer of competence, sharing resources even, and their respective networks. Even though we don't expect any synergies when we acquire a company within an existing cluster, some of our greatest synergies has actually come from these cluster meetings, and Christer, as I mentioned, will walk you through one of these examples. Worth mentioning is that it seems very static, this, but actually, you can have a platform acquisitions that makes an add-on eventually, or we buy sister companies, and suddenly you have a cluster, or and they start working together, and then you can become a holding group.
It's not static, and these numbers you see to your right will change over time. Now I've talked a bit about our fundamental criteria, what we like from a financial perspective, what we look at, and some strategic considerations that we make. We actually have more considerations when we acquire companies. We have different group considerations, and that could be, for instance, the financial targets that Daniel talked about, external targets, but it could also been our own internal targets. It could also have, or we can also consider how we want to create this diversified portfolio. We might choose one identical company to another in, for instance, a new geography, or we want to build one of their verticals even more. We have those types of consideration.
All of that leads down to how we allocate capital through our M&A process. I understand this might, to some of you at least, sound good in theory, but this would be basically nothing if you don't have companies to choose from. As Daniel mentioned, I do think we have an unrivaled deal flow. The last 12 months as an example, and this has been the case even historically, we evaluated about 1,100 cases, and these are actually cases with sellers contacting us, wanting to sell their business to us, and these are all cases that actually fit our acquisition criteria. Obviously, we get many more that we say no to at the door. How come that we have so many cases to look at?
Well, first of all, Daniel mentioned we have a great universe of small and medium-sized businesses that are successful and that are for sale. It's also the fact that we are located in many markets, and we are active in many different business verticals, and we have a proven track record of acquiring companies, and we have an offering to the company sellers that's appealing to them. As one thing is also the long-term ownership agenda that tend to be very, very important if you're gonna sell us your life's work. We also have a true understanding of what it is to actually run small and medium-sized businesses. That also reflects in our corporate culture. In conclusion, when we have built the portfolio up until now, we have done that by being very selective.
What are the actual sources? This might be old news for some of you, but what are the sources for our deal flow? Well, we buy a lot of great companies with great entrepreneurs. If they like the experience when selling their company to us and being owned by us, they would probably talk to their peers. That generates deal flow. If you're a good owner and a good acquirer of companies that will generate a deal flow, and that has been the case for us. Even people we don't know, even indirectly, have started contacting us more and more and more over the years since we have built a reputation on the market we are in.
In fact, these two categories is about half of all the deals we get, which I would say are pretty much proprietary deal flow. The rest are the brokers. We actually like working with brokers, and we usually recommend, even if a company seller comes to us, without a broker, we recommend it to use a professional advisor that usually brings stability and the right expectations to the whole process, and it becomes more professional. It takes time to build relationship with brokers. We have built long-term relationship. We nurture those relationships. We rarely miss an opportunity in the markets we're in, especially in the markets we've been in for a long time. That's very important to us. You don't have to read everything on this slide, by the way.
If you make maybe one or two acquisitions a year, you don't need many tools. I guess if you're a good person, experienced person, you can do a couple of acquisitions. For us, having done a great number of acquisitions, we have developed tools for every stage of the process, both for internal use and also our interactions with other parties, external parties, such as advisors and counterparties. This is essential for us, as Daniel mentioned, the professional side. We couldn't have done this without these tools and processes. As examples, we have specific DD request lists depending on the type of company and industry. We have handover checklists within our different departments at Storskogen. We have onboarding list once we bought the company.
We have different kinds of decision framework works just to mention a few things. One tool that I'm extra proud of, if you can be proud of a M&A tool, I don't know, is our case assessment tool, or more sexy, the CAT. This is basically our boiled-down experience of making more than 100 acquisitions. This tool, as you see to the right, is just an extract. It's high-level, it's many pages, is used by all members of our deal team.
This forces us not just to go through everything that's important in the specific deal, not to forget anything, but it also forces us to assess the attractiveness of the deal compared to all other opportunities out there, which brings a lot of value to our process. The tools provide for high quality in our process and also scalability. You can do a lot of acquisitions. Theory and processes aside, you won't be acquiring good companies if you don't have good deal teams, basically. For us, I should click here once again. This means if you look to your left here, the internal perspective, we have industry expertise to assess the M&A opportunity and also to build relationships with the company. If we acquire it's very important to do that early on.
Usually this is provided by the business areas and the director of a vertical, for instance. However, it could be also other employees, investment managers, or other employees of Storskogen, providing the business knowledge. It could also be a CEO of one of our existing portfolio companies or other personnel within the Storskogen Group. We actually also use different kinds of external sources, obviously, and for instance, expert calls we've been using recently a lot to get insight into different customers, for instance, what their plans are or competitors. You get a lot of insight from these expert calls, actually. Another aspect is local expertise, as this is so important for us.
You have to know the local market condition or the cultural aspects of doing business in another geography, and also legal aspects and tax aspects and all these things. It's really important. This is provided by, well, it could be a local manager, country manager, but it also could be our business area people locally or M&A people locally. Then we have the M&A expertise. Some people say that it's very easy to do M&A. Probably they've never done any M&A or they're not very good at it because to my knowledge, in order to both assess the opportunity and have quality in that and also create the best possible transaction, not just for us, but for all parties involved, requires a lot of experience and knowledge.
We have actually dedicated M&A resources in all our deals. We obviously use external advisors such as legal and financial advisors and technical advisors and so on when needed in all of our transactions. Just to give you a bit of an example here, this is a company, Hans Löfqvist Engineering, an old company, kind of small company that we bought early this year, I think. The team behind was from an Investment Director of industry automation vertical, Patrik Klerck. He's previously been the CEO of two automation companies and also been the head of the automation companies at Addtech, managing a lot of automation companies, buying a lot of automation companies. He was supported by Kajsa Lööv, investment manager with an experience both within management consulting, but also in operational roles.
Leading from an M&A side was Vilhelm Stern. He's been working with M&A for over seven years and lately for a few years within Storskogen, probably done more transactions than many people. We also had our co-founder, Ronnie Bergström, in this transaction since he has a vast knowledge of industrial expertise, but also actually knew the company from long ago. We have, I think, Roger Käll, who is up there, one of our CEOs for PV Systems, also supporting in the process. The decision-makers were Fredrik Bergegård, heading industry, and Daniel and myself. I also actually met the company five years ago and followed the company since. Okay, now I've tried to talk you through why I believe that we have acquired a portfolio of companies of rather high quality.
Well, if all of those companies were to be in the same region, targeting the same end market, relying on the same macro trends, I still wouldn't sleep good at night. But as you can see here, and Daniel already mentioned this, we have three business areas that are kind of equal in size. They in turn have verticals, but also these are sales numbers. If you look at earnings, it would be slightly different. Truly diversified. But more importantly, they rely on many different macro trends. These are just examples. For services companies, for instance, some of those are relying on the underlying digitalization trend, and these would obviously be the companies within our digital services vertical and other companies as well for that matter. Another example is the green energy transition.
We have a lot of electrical engineers working on that right now, relying on that macro trend. For our trade companies, you have a trend, underlying trend of health and wellness. We're all getting older as well, which helps that trend. We all want to live longer. That's one of the trends that supports Christer's business area. In industry, there are a lot of different trends. You have nearshoring, but also you have Industry 4.0 together with automation drives a lot of business for our companies and their customers and so on. Apart from being not reliant on any single macro trend, we are not relying on any. This is a really fun slide. Pardon. The biggest company stands for only 6% of our net sales.
We're not relying on any single business unit. As Daniel mentioned, this is a journey we still are on. We're not there yet. We started out as a Swedish company, but we really want to be more diversified from a geographical perspective in the future. Okay. Now we talked a bit about the theory. What has this ended up in? Well, these are. I don't expect you to read this as well. These are actually the top 20 biggest companies that we own today. And two takeaways here. If you can read the numbers here, they're usually one or two or three in the respective market. It could be a national market or a bigger region, or in one of those cases, a bit smaller region. That's the takeaway, market leaders.
Another thing for the sharp eye of you, down there you can see that they're pretty old, on average 47 years old. This means that they have been around almost as long as I have. They have actually been around in good times and in bad times. As you can see here, pretty stable growth for the last 20 years. These are actually just 14 of those 20 companies. The reasons why we left out a few companies were that they actually started somewhere in the middle here, or we have a carve-out from Schneider that we didn't have the accurate numbers. Still, I feel pretty confident with the quality of these companies.
They have historically performed even in tough times, as you can see the financial crisis there, and I think Lena will show more slides to that effect. The last slide for me. Now you know, hopefully, and you can share, and you sleep well at night knowing that we have a good portfolio of companies, and we have a diversified portfolio of companies. Sleeping well is not fun, or it's fun to get up out of bed every morning. I think it's really fun. One thing that drives me is I actually truly believe that Storskogen has a unique market position to effectively allocate capital towards long-term macro trends, attractive end markets and geographies, as well as in specific companies.
If you're dedicated to one niche or one company or one country, for instance, you don't have that opportunity. This goes for both internally, an internal perspective. As Daniel mentioned, we can work with CapEx and OpEx. We can choose where we place our money. We still want to be the best owner, but we still have the option to choose where we allocate capital internally. But obviously, also when you acquire companies. Since the companies we acquire are not listed companies, I guess it would be almost impossible to get this kind of exposure for an investor, both with regards to the specific companies, since you remember large part of our deal flow is also proprietary, and also with regard to certain market segments even.
A couple of those examples are the chimney sweeping industry, which we talked about a bit, or the automation industry for sawmills, very specific niche, but still you can't get in there, or the floor distribution industry. Obviously, you can't get in there if you not invest in Storskogen, that is. That's the only way to get in there. I think thank you for listening to me, and, I guess over to you.
Thank you.
Lena.
Thank you. We're running one minute behind.
One minute.
What, uh-
I will talk fast.
A couple of minutes. One quick question for you. One thing that you did not touch upon, but that we actually wrote in the Q2 report and in the press release that went out this morning where we used the word possible divestments.
Yes.
Is this something that your team is looking at? Is there anything that you can share with the audience about those plans?
Yeah. In line with what Daniel already talked about, it's not our plan to sell any businesses that we acquire. We are in it for the long run, and we have different criteria how we work with underperformance, and we try to obviously turn them around. If we are not the best owner, and we have done everything we can do, and there is a better owner out there, we might sell off one or two of our low performers, or where we are not the best owner at the moment. My M&A team is currently looking at a few of those cases.
Great. Thank you, Alexander.
I'd be happy to answer any questions out there, and also on stage later on. Thank you.
Good. Thanks. Over to myself, I'm not gonna present and introduce myself further than that. It's time for the CFO presentation part. You've been sitting for a long time. If you wanna just stretch your legs while I talk, that's completely fine to get the blood circulation going. If you wanna sit down, that's also fine, of course. I will show you a lot of numbers now, so buckle up. I think that you people are number crunchers, however, so you'll probably be all right.
I'll try to talk you through the numbers and not just show them. My intention today is to show you through numbers why basically what Daniel and Alexander have been explaining so far, why we feel confident that our portfolio has the ability to perform throughout a business cycle, even in a downturn. I'll also talk you through how we manage the portfolio of companies in terms of control and financial steering, follow-up of performance. I'll also talk about cash flow, working capital, which is of course the name of the game for many companies right now. Finally, I'll go through the balance sheet items of net debt and cash and leverage items. Starting off a bit softly, however, with the classic revenue and EBITA margin slide.
What we show here is the revenue in terms of like rolling 12-month from the beginning of 2019 and the EBITA margin on top also rolling 12-month. What you see here is of course a strong revenue growth going from SEK 4 billion at the beginning of 2019 to SEK 27 billion at the end of the rolling 12 months ending in Q2. You can also see here Daniel showed on one page that the average EBITA margin has been 9% over this period. What we see here, however, is that the margin was around 8% in the beginning in 2019, has then gradually improved to 10% in 2020 and 2021.
A little bit lower than that, 9.3 is the rolling twelve-month at the end of Q2 this year, largely or mainly only due to these external factors that we've seen there, out there in the market and have experienced, which also tells us that the margin potential of this portfolio is higher than that. To the far right on this graph, you see the bar that is slightly darker, that shows RTM, so that is pro forma, as if we had owned the portfolio the entire twelve-month period, whereas the other graphs show the owned period only. So the pro forma is of course the run rate of the business, and there we have a revenue of SEK 36 billion with a margin of just above 10%. This is only 3.5 years.
Let me show you how the subsidiaries have performed during the for longer time series, during the past 21 years, in fact. Even though we were founded only in 2012, our subsidiaries have, as you just told us, Alexander, been out there, been existing for 47 years, which means that they have been through a number of business cycles. What we show here is the EBIT margin of the combined EBIT margin of more than 100 business units, in fact, dating back since the year 2000 here. We highlight the three downturns we've had during this period, the IT crisis in 2001, the financial crisis in 2009, and then the mini COVID crisis a couple of years ago. There are some takeaways from this slide, I think.
The first one is the light gray line, which shows the EBIT margin of the industrial portfolio. Clear cyclicality there, of course, as expected due to large fixed asset bases, but also look at the graph and see how the rebound was after the crisis in 2001 and 2009, as well as the COVID, of course. The dark gray line shows services, also quite interesting, I think. This actually proves what we have known all along, that the services business area is resilient, actually, in fact, more resilient, has been in the past than the other two business areas. Perhaps not as much improvement in strong business cycle, but definitely more resilient in weaker business cycles, as you see here. Finally, the blue line, which shows trade somewhere in between.
What I think is most interesting here is, in fact, you see since actually the whole period, but definitely since 2012, it has a clear negative correlation to industry, doesn't it? When industry's EBITA margin goes up, trade goes down. When trade go up, industry goes down the portfolio today. The dotted line here is the overall group or the combined margin of all of this, which in fact is then Storskogen. Elements of cyclicality in there? Yes, for sure. Is it as cyclical as the industrial sector or the capital goods sector? No. I would say no. Of course, every business cycle has its own traits. Some macro experts now seem to think that this time around it will be the consumer demand that will be more hurt than the industrial demand.
Jury's still out there, I guess. In either way, this portfolio is resilient, even if it's the industrial or the consumer, or trade demand that goes down. The consumer demand is not directly correlated to trade, because you have almost all of it is business to business, so not as sensitive as consumer demand. On the next page, I look at the distribution of profitability in the portfolio today. What we show here is the bubble graph, of course. I'll talk you through it. The X-axis is the EBITDA margin, and the Y is the revenue. What we're saying here is that 7% of the revenue belongs to companies with a margin of below 0%, so loss-making. This is too high.
I believe that this is what you have alluded to, that some of these companies are clearly affected by external factors, and we know the management is strong and good, and once inflation comes down, they will be able to produce profits again. In other cases, these might be on the divestment list. 9% of revenue belongs to companies with a margin of between 0% and 5%, 33% of the revenue belongs to companies with a margin of 5%-10%, 29% of margin between 10% and 15%, and then 12% + 10%, so 22% of the revenue comes from companies with a margin of more than 15%. So all in all, 84% of the revenue is from companies with margins above 5%.
As I said, the red bubble there, I think, is the one that we that would be most likely, part of it maybe, to be subject for divestment, and which would of course have a positive impact on the group's overall profitability. We're not giving any guidance as to when and how that would be done. Now we've seen how the portfolio have performed since 2000, regardless of whether we were the owner or not. Now I'm gonna get to the question of, so how have they performed under our ownership? We get a lot of questions on this, so we thought we'd set things straight. This is a bit of a messy slide, but I'll talk you through it. To the right there, we have divided the acquisitions into cohorts or vintages.
The firms you see there belong to a certain cohort. The cohort of businesses that were acquired in between 2012 and 2017, this is the original portfolio, have performed with a negative organic EBITDA growth, mainly due to, I would say, two or three subsidiaries in there. Some of them have clear difficulties with the macro environment inflation, and have an EBITDA margin of 6.6% here. But they only represent 8% of revenue, and they were acquired at a multiple of 4.9x. The next cohort acquired in 2018 have a positive organic EBITDA growth development since acquisition. An average margin of 8.6%, still below the target, which is 10%, as you know.
They were also acquired at quite low multiples of 5.4x. The return on invested capital in this cohort has been really good given the strong organic growth. Same goes for the next cohort, 2019, with extremely strong positive organic growth and a margin of more than 16%, acquired at a multiple of 5.6x. The last cohort, 2020, also positive organic EBITDA growth there, a margin of closer to 16% as well, acquired at a multiple of 6.3x. The big one acquired in 2021 at an average multiple of 8.2x have an average. They are not included because we don't have history, of course.
They have an average EBITDA margin of 12%, so also above the target. These don't add up to 100, some of you will ask. Why is that? Because this is organic growth. Add-on acquisitions are not included in this. They're stripped out. In our organic growth calculations, we don't include add-on acquisitions. That was a bit about showing the strength or resilience of the business and how they have performed both before we bought them and during our ownership period. Moving over to control, of course.
The end game, I mean, we get questions all the time, how do you manage such a big portfolio with the acquisition pace that we've been keeping, yet making sure that the numbers are correct, and that nothing fishy is going on? You, Alexander, just explained how you work through this in terms of M&A processes, and I will guide you very briefly through how we work with this in terms of financial control.
End game, of course, being reliable financial reporting and ability to forecast developments so that we can make better decisions as a group, as well as tools to set targets for the companies and for the subsidiaries to be able to follow up on their towards the targets and on their performance. Our financial onboarding, of course, starts already at the M&A process stage. We onboard each acquisition within the first month. After acquisitions, they're in the group reporting system, and then they tag on this beautiful annual wheel of ours with budgets every year. Budget project is going on right now as we speak out there. We follow up on the budgets every month, every business unit.
We have forecast periods, so we update the forecasts in Q1, Q2, and Q3, and then we follow up on that as well, including a five-year forecast for each business unit, actually. We have internal control, we have risk management, we have tax. All of that is included in this annual wheel. It all, of course, results in monthly reports from the subsidiaries to us. I'll show you some examples of that in a minute. From us to our board of directors, monthly reporting, and then the stuff you read in the quarterly reports and annual reports. On top of this, cash pools, cash management and internal financing that we work with on a group level as well. This is what a monthly KPI follow-up tool might look like.
I know that the ones who look at this online are trying to zoom in to see what's going on behind the numbers. I'll come back to that in a while. Of course, Trade, Industry, Services have different set of KPIs. Now, we all look at revenue growth, EBITDA margin, of course. What Trade more looks at is gross profit, inventory, and cash conversion. Industry also follows up order book and working capital and CapEx. Services, you don't have almost any working capital, but instead you have a lot of projects, so there is a project profitability follow-up, occupancy rate, et cetera. Different sets of KPIs.
What you see here to the right is an example from an anonymous trade, a quite large trade company, and they do follow up on a number of numbers here as you see compared to budgets and expectations and last year, et cetera. For instance, here you see the income statement with sales, gross profit, and EBITDA margin. You can see if you look very closely that they beat their EBITDA margin budget every month except for April this year. We look at the balance sheet with focus on working capital, so we have return on working capital, which is close to 100% in this case.
Inventory turnover, which is down from 5 to 4, which is not good of course, but this is what we see in many companies, industry and trade companies, now with high inventory levels, to put it frankly. Finally, cash conversion cycle down there. You can see that it has been above last year also as a result of inventories. It's follow-ups like this that is the foundation of our control. It makes it possible for us to allocate resources where needed and to be a sounding board for the CEOs out there to give them the support needed or the applause, of course.
Apart from monthly follow-up and internal control, we have another tool as well, which is our own confidence indicator, Storskogen Barometern, we call it in Swedish. We've been doing this since April 2019, actually asking all our CEOs every month 10 simple questions regarding demand, pricing, regarding inventory levels, forward-looking and current statements, regarding occupancy rates, et cetera. It takes them only 60 seconds to answer, so very quickly. The result here is actually a very useful tool for us to stay a bit ahead of the curve, to gives us an early warning in some cases and, because what we see here is the dotted line is the average of all these business areas. There are two takeaways here, I think.
The first is we plotted the EBITDA margin there, which is the dotted line or the orange line is the EBITDA margin quarterly. You see here that this is an early warning tool, actually. The EBITDA margin follows, not perfectly, but at least to some extent, the sentiment out there in all our subsidiaries. The other takeaway, I think, is what happened in March 2020 when the sentiment just went down very sharply, but the margin declined a little, but not a lot. It held up pretty well during this period as well. Over to cash flow and financing. There you go. One of our communicated financial targets that Daniel showed on the previous page here is cash conversion, which we target to keep at 70% or above.
This has been the level for the past five years. The beginning of the first half of this year, we were significantly below that target, and there is a lot that projects that we are working with to get that straight. You will hear from the business areas what they're doing, for instance, but the point being here that the history has been at this level. If you look at return metrics, the P over WC is actually earnings over net working capital, 73% in this last twelve-month period. 91%, I believe, last year, so very high return on working capital. Return on equity, 9.2%, and return on capital employed, 9.6%.
However, some companies out there, some peers even, have or calculate return on capital employed excluding cash, and if we do that, then return on capital employed is 11.9%. I've learned that some companies even calculate return on capital employed excluding goodwill, and measured that way, it would be 20% in our case. Just keep your mind sharp when you look at or compare return on capital employed numbers between companies because the way that is calculated might vary a lot. The return metrics have been diluted by share issues, you know that. Here we try to illustrate how much of that is or how much the share issues have actually been diluting.
You see here we have made quite large share issues, around 20% of the balance sheet in new share issues every year, except for 2021 when it was 35% of the balance sheet in new share issues, strengthening the equity. This, of course, has a significant dilution effect given the fact that we haven't deployed all the cash, and the proceeds in investments directly, of course. It takes some time. We have had quite significant cash balances as well, which you should bear in mind, and also it takes time for the companies that we do then acquire and where we do deploy the proceeds in investments.
It takes time for these companies to actually start growing their profits, which is a profit growth that over time will improve these return metrics. Staying with the cash flow for a while, on this graph you see the free cash flow, operating cash flow, as well as free cash flow to sales. The free cash flow to sales has been between 5% and 9%. It's in line with some of the comparable companies out there and a bit lower than other comparable companies out there. If you look at the absolute number of cash flow, you see we had free cash flow of more than SEK 1 billion last year and operating cash flow of SEK 1.6 billion last year.
Bear in mind the portfolio is significantly larger today, but our cash flow this year has been disturbed by external factors. Again, the potential is quite significant in the portfolio we have. The free cash flow is in a normal year, in a normal time, that of course can be deployed and complemented by debt, keeping a net leverage intact in new acquisitions, providing quite nice growth, not just issuing any new capital, just using the cash flow. That is perhaps good to bear in mind. Right, and then again, I'm gonna talk a lot about cash flow now I realize.
Moving from the free and operating cash flow to working capital, which is more concrete and tangible, where we can make quite a big difference. The way it has evolved this year is in a negative way. You see the average cash conversion cycle days basically measures the days between the sales, when the sales turns into cash, basically. The higher the bar, it's not good if the bar goes up, so to say.
It's been an exceptional year in many ways, and I'm sure that you've seen this in other companies as well, where inventories have been higher due to price inflation, which is quite a large impact on these inventory levels, as well as volume, of course, with larger inventories. You see the inventory is the orange line there. The days average accounts receivable of days sales and the days payables move in tandem, which means that they offset each other. It's actually what affects the working capital is the inventory change. Interestingly, you see the split here between the business areas where services ties up basically no capital, working capital at all. Zero inventories and days of sales and days payables are offsetting each other.
Whereas the days sales and accounts receivable are almost at the same level in trade as well, and slightly higher in industry, but it's the inventories here that of course attracts the interest. Trade companies always have larger inventory than industrial companies, but you see the trend there in this beginning of the year. You understand where the focus is now in Storskogen Group is to manage this. Of course, making sure that we have the goods needed to deliver the sales, but not keeping them too high for the foreseeable future, this shouldn't be a normal, so to say. I should also add, I mean, even though these are trade companies, there's almost no element of fashion or anything like that in there. So this is there's no in.
These are very high quality inventories if you will. No need for currency there. Just wanted to tell you that some trade companies obviously have a high fashions. I think that the Båstadgruppen and that you can meet outside here, they can sell their work shoes even six months from now. I mean, that their model don't change much. Moving to the balance sheet items and the debt here. We have, you see here the interest-bearing debt and the cash. You see here on this other little box what the interest-bearing debt consists of.
We have an RCF, which is a revolving credit facility of a total of EUR 1 billion, which is, I guess, at today's euro, it would be SEK 11 billion, after which 7.5 was utilized at the end of Q2. We have two sets of SEK bonds, three billion each maturing in May 2024 and in December 2025. We also published a press release on last Friday of a new term loan of EUR 300 million, so a little more than SEK 3 billion, and that will, in its entirety, be used for paying down the utilized part of the RCF, to increase the unutilized part, rather than to increase the total net debt of Storskogen.
There is a bunch of operational liability items there. We have a credit rating from Moody's and S&P of BB+ and Ba1, indicating also that we do have, once the capital markets open up, the ambition is to extend the average maturities here mainly on the larger bond markets. But however, also bear in mind that the next maturity we have coming up is May 2024 in terms of the SEK bond of SEK 3 billion, which is still some time ahead. We have some non-interest bearing liabilities on the balance sheet as well. We have earn-outs and minority options.
Also bear in mind that only 40%, so a smaller part of all of this, is due within twelve months from now, and the larger part is long term, so due within two, three, four, five, even six years maybe in some cases. Also the way we carry these on the balance sheet is quite a prudent way of valuing these, using the upper, typically the upper end of the forecast for the acquired subsidiary. Should we head into a slower economy, then of course these forecasts might be lowered a bit, and in that case these liabilities would come down as a consequence of that. Net debt and leverage.
Daniel mentioned on one of his very first pages that there is a target of the interest bearing net debt to EBITDA to keep that between 2-3 times. That is the shaded corridor we show here. You can see that, dating back a number of quarters, we have been in the very lower range or below that. Right now at the end of Q2 at 2.5, so still comfortable headroom to that 3.5 times that Daniel, I think, also showed on the page, which is the absolute maximum. Still comfortable headroom to that, and I don't think I need to comment more on this.
You were quite clear that to be in the very upper end of this range is something that we would be comfortable in during a very good, strong economic cycle and during a weaker times, maybe in the middle or lower here. My final slide is about costs. We thought that we would give you a glance on the operating expenses, perhaps that could help you estimate how various inflationary forces could affect us and have affected us, in fact, because these are the first six months of this year, so we already have quite significant inflationary effects in this P&L right here. I'll talk you through some of the items. The first one is raw material and necessities, making up 55% of sales.
Here, of course, industry represents the largest share of this, services the smallest, obviously due to the nature of the business. For industry, it's metal is the by far largest share of this, steel. Also for services, steel is actually quite a large part of it. For trade, it is finished goods, basically. Steel, but you also have in industry, there is plastics, there is a number of other components as well, of course, but it's a mixed bag. We talk about we get questions on energy costs and fuel. Well, direct energy costs are quite low, so only 0.2% of sales actually.
Indirect energy costs are more difficult to calculate, of course, since they are included in the cost of the raw material and goods. But the direct cost is quite low. Fuel costs 0.6%. This is less of an issue now. It was more of an issue in the beginning of the year. Personnel expenses, which is higher in services due to the nature of the business again, and lower in industry and trade. Finally, the share of HQ or group expenses of this EBIT is negative SEK 171 million, which is attributable to group costs. Transaction costs are only to a very limited extent included in that cost.
Transaction costs are actually distributed in the business areas. I think that was the last page from my part. I managed to keep the time even, yeah. There you go. I don't know, should we ask Daniel Kaplan and Alexander Bjärgård up on stage?
We're back.
Yeah, exactly. To open up for questions. I just move these. Should I start with some questions from the online chat room here? I need to get my glasses. Thank you. Here. Let me see. Okay. Yeah. So there is one question here to you and me, but maybe you wanna take that, regarding the stock price and the increased rates, and cost of lending. Will there be a buyback of shares?
Well, I do feel the urge to buy back shares. I think at this point our main concern is of course that we want to have a strong balance sheet. I think it's not the priority at the moment. I think having a strong balance sheet is the primary priority at the moment.
Right. Is there any comments? We had another question here about the share development. Is there anything more you'd like to? Any comments on that? What are your views?
No, I think, I mean, apart from the macro and all of these things affecting our share price, I think the reason why we're here is that we obviously want to take the opportunity to explain more about what we're doing and how we create value and our resilience. We understand that we are the last one into the stock exchange. We're new to the gang, and when the risk increases in the economy, you look to decrease risk and you move away from newcomers such as ourselves. I think, for us, it's all about performing over time, delivering strong quarterly reports, and I think some of our peers that are more highly valued, I think they have had already 100 or so quarterly reports to show how they perform in various business cycles.
I think we will just have to deliver over time. I think that's my-
Yeah
take on it.
Sounds good.
Yeah.
Questions from the audience? I think there are some microphones.
Eric, I think,
Yeah.
Hannah is running like a gazelle down the stairs.
Thank you, Eric Salz, JP Morgan. Thanks, Daniel, Alexander, Lena, first of all for the presentation and the further clarity. There may be a couple of questions I would like to ask. Starting first of all with the infinite holding period horizon. I get, you know, that you alter the message a bit in terms of underperforming companies is those are the ones that you may dispose of. It still feels a little bit that it comes out of a position of weakness, although you say, okay, if we've done everything and we can't deliver more, then we may sell a company.
I appreciate that a long-term view is a good thing and, you know, it delivers you the network of potential deals, and I get that, and I wouldn't advocate for, you know, changing this to a PE model because you're not a PE company. It is just completely different in terms of your P&L and your approach. If you say, you know, okay, we're holding things forever, then you also may. This may be interpreted as you expect of yourself that you always are going to be the best owner of companies, and it's hard to sort of argue that given that times change.
If you are doing, like, the best things for the companies, then a great testimony of that would be that private equity or any sort of investor would line up to buy things off you because they would see, like, the people at Storskogen, they are doing the right things for companies. They're building businesses. At some point in the future, you may not be the best owner, and you can recognize that. By saying you're not open to disposing businesses except for the point where you think they're underperforming, sort of rules out a potential avenue for shareholder returns.
Why would you not change that message and be open, sort of over time to sell businesses in a situation where you could accept that you're not the best owner anymore, although these businesses perform well?
A very good question. I think there's lots of different levels to that. We do get actually one question a week from some of our private equity colleagues who want to buy some parts of our portfolio or things like that. That's of course nice for us to hear that they appreciate what we're doing with our companies. Of course, there is an element where the key aspects are we the best owner of these companies? I'm not ruling out that sometime in the future we would not be the best owner of a well-performing company. That said, there are so many fantastic aspects that we feel are fantastic, very intuitively speaking, with the way we are working with these companies.
Not only in their acquisition process, but how we get into that this afternoon, how we actually work and develop these companies, and the joint synergies of having the capital allocation without tax, skattekilar. How do you say that in English? Well, tax effect when moving money around. But also from a systematic perspective, when it comes to procurement, all kinds of synergies with kind of digitalization, cross-benefiting from through verticals. I think if you ask the CEOs down there, they are selling each other products, they are pitching towards big projects together, they're selling things together, they're buying things together. The way of working that we are in the boards actually make us believe quite firmly that we are the best owners of these.
I think the companies and the verticals and the various bits are actually a lot more worth together in the diversified portfolio, decreasing risk. We're actually with an infinite holding period, that's our ambition. It could be a low performer. In theory, we could divest even a high-performing company if we are clearly not the best owner. I think we are, we're very far from that distinction. I think the strategic price for us, if we would start to divest well-performing companies, the strategic price would be that we would pay a lot more for new acquisitions because they would not choose to sell to us because we would potentially sell off their company to an industrial buyer later on. They usually already have a nice price on the table from a private equity player, for example.
They choose to sell to us. The moment we start selling off our great companies, there will be some strategic negative consequences for us.
Also maybe can I add something? You usually talk about when you were in startups and you started Tradera and you had an internal name. I don't know if I can-
Yeah, yeah.
Yeah. Internal name was on the first slide, Prebay. You know who you're gonna sell to. You kind of all operations is focused on how to sell the company for a great value in the future. If you're long-term, you can't really do that. It's a completely different way of working, I guess.
Yeah. I think the way when we started Storskogen, myself having an interim CEO working for a lot of these private equity companies and venture companies, also starting traditional startups with the aim of selling it onwards. We really wanted to do the exactly opposite way around, to buy long-term profitable companies with strong cash flows being extremely long-term in all our decision-making. So the heart was basically where Storskogen comes from is to be something totally different, and that's the value offering. Yeah.
If I can ask two more,
Go
In short, shortly. On international, like, is Asia, like, given it's far away and there's not so much exposure that you have there, is it still something in the near term? Is there an ambition or is that team going to change there or you can, or are you gonna keep a team in place? The other question, which I'll ask immediately, the confidence indicator that you showed on slide 42, I believe, you know, it ran until December 2021. Obviously, times changed. Can you give an indication how it looks now?
Can I just answer that very last one? The reason why we stopped in December 2021 is for compliance reasons, basically not to give forward-looking, because many of these questions are forward-looking, so not to give any forward-looking statements, we weren't allowed to do that. That's a simple reason for that.
Getting back to your question with the international, I think it's one of the regrets I have is that we don't have 30% of our business in the U.S. and 30% of our business in Asia at the moment. I think we would have been a lot stronger company with a great diversified portfolio, even geographically. We are going to keep the team in Singapore. We already have factories in China and Taiwan and Japan. We have people already working, and we're sourcing from Asia, we're selling to Asia. We are very much active in Asia, and it's not only 3 or 4 people in our Singaporean team, it's actually hundreds of people that we have working in Asia. We are in fact already there, and it's an important part.
We believe that we've actually seen that the value we bring in these early first contacts with company sellers, that the value we bring is even greater there because they don't have anyone like us, a long-term owner. The entrepreneurs are still the same. They've built a company for a generation or two, and they want someone to be the next generation owner. I think being a long-term owner for SME companies, I think we get access to great companies at the right prices. I think the market opportunity is fantastic, actually.
Can I add something?
Yeah.
I can't keep quiet. From a value creation perspective, also from an operational perspective, we actually missed out early in our early days companies that wanted help, because if you're a medium-sized to small company, you don't have the resources as a big company, so you need help going into different markets, sourcing from different markets, and we didn't have that back then, and we weren't the best owner back then for those companies. Gradually we want to be the best owners for these companies, helping them sourcing and selling, for instance, in Asia, not just acquiring Asian companies, for instance. Yeah.
Great. There's another question from the audience.
Yeah. Hi. Markus Almerud here from Erik Penser Bank. I'd like to tie on to where you kind of start, where the last question or the last answer. There are lots of compounders that are companies of similar type as yours here in Sweden, and I would like it would be interesting to hear the differences in operating and making acquisitions here in Sweden and internationally in terms of. Because you're much more diverse than most of the other compounders here, which I know that there is something that has been discussed widely and this diversification. Is this very different to do this in Continental Europe or in Asia or in the U.S. compared to Sweden?
One aspect I think Daniel already talked about that, the business model in itself with eternal ownership that also some of our peers have, is actually quite new to many of the other markets outside Sweden, and they are longing for that type of owner. I mean, one difference there, we have several peers, and they do it quite differently among themselves as well. I think on average, we want to be very local. That might differentiate us. Some are very decentralized. We're very small head office, others are not. We have a decentralized model, but we also want to help our companies even in the tough times, for instance, going ahead. Our governance is a bit different, I would say.
I was thinking of the acquisition difference, if it differs how we acquire companies in the different countries. That was part of your question, wasn't it? Yeah.
Yeah, it was part.
Yeah
Just if the process is different, if you have less type of acquisitions, less type of competition when you are going into deals. If you can meet the company here where you have, let's say, an installation company in your in one of your divisions, for instance, there are other companies here who also makes a similar type of acquisitions. If the discussion with the target is very different here than it is if you would make similar acquisition in Asia or in Italy or in Dutch.
Thank you for asking that question. That gives me the opportunity to tell you that I think this is a great opportunity that we have being in different markets. If, for instance, it's a crowded marketplace, not only in Sweden, to buy electrical engineering company, the prices go up, the quality of the companies go down in comparison to previously. We can choose not to buy them here. We can choose to buy them in the UK, for instance. I think that's a real strength, and that's actually what we do or I do every day, is to make these decisions. That I think is a real great strength that we have. That was half the question. What was the other half?
I can start with that one. It's basically the process. I think the entrepreneurs are surprisingly similar, having surprisingly similar concerns regardless of country or industry. They care about their companies, they care about their employees, they care about the long-term health of their business. I think that is very similar. In fact, in Singapore, most deals are proprietary. It's long discussions. It's a little bit different when it comes to sourcing. Whereas in Sweden, for example, we have established relationships with brokers and everybody knows that we want a broker. So for the half that is not add-on acquisitions, where it's quite often proprietary deals, they come through brokers. I think it's a little bit the processes could be different.
I think in Asia, to be explicit there, it's longer processes. We're a little bit more careful in the due diligence processes and to see that they fulfill our various ESG agendas, for example. So there could be slight differences, but.
Yeah.
Yeah.
Basically, the needs are the same.
Yeah
... for the company sellers. One thing is different maybe. Some people want they don't like being bought by a foreigner. That's why it's also important to have local teams because they are the same nationality, so to speak. That might be one difference if you kinda do cross-border transactions.
On using brokers, I know that you've used quite a lot of brokers in the past. Now that we're going to different kind of environment, has this changed or do you think that this will change, that you will use more internal resources and, you know, rings in the water with the subsidiaries you already have? Will this change? Tied to that, if you can just talk a little bit about if you've seen anything on the pricing environment for the targets as we go into a different interest rate environment.
Yeah. Good question. The pricing has, I would say, in general come down a bit during the spring and summer and now. Obviously, there are certain industries that still hold up prices and certain end markets. In general, I would say it has come down quite a bit, and I foresee it will continue to go down. Most of our companies that we buy are really profitable companies, and they don't have to sell basically, usually. They can wait out bad times. We expect them to get back into the market in a couple of years or so. With regard to the brokers, we nurture our relationship with the brokers even in the tough times.
They are usually more creative in tough times, and they call us a lot more, I guess, to with different kinds of things that we can do together. I guess we will try to nurture the relationships a bit more. Obviously, we have time to spend on operational excellence, and that would bring probably. We think about synergies, we think about their clusters, and we think about all the things I mentioned before, internally. We'll definitely keep the relationships with our brokers going forward.
Yeah. There is one aspect, of course, when we build, I think, for example, Christer will talk about how we're building one vertical for some health and beauty. Of course, you're talking about the rings on the water and as we gradually gravitate. Previously, we did primarily platform acquisitions. I think these last six months it's been 50/50 add-on acquisitions, and if you add clusters and et cetera, it's even more, and a lot more. Add-on acquisitions are quite often proprietary processes. Either we have contacted them or they have contacted us, and it's through networks, et cetera. There is a little bit of a shift, I should say, on average. Yeah.
Maybe I could just pitch in with a question on line here. There are two questions that from different people that are actually tagging onto each other, so maybe I'll ask both of them. They have to do with the, with succession and, so we showed a cohort with the organic growth development during our ownership. Would you have a similar for, before and after succession, in the, in the company? I know we can't show you any graph of that, but any comments on, the performance?
I can-
Yeah.
Since we don't have any numbers, I can speculate wildly, I guess. No, but, since depending on the type of companies we buy, if we buy, as we did in the beginning, we bought a lot of small companies, and we want them to be future-proof. Usually, as Daniel mentioned, they had one really good entrepreneur. They probably didn't have a CFO. They didn't have other types of staff that could provide processes and routines and know-how build up, so that could be resilient in the future if that key person leaves, for instance. For these companies, we might add cost at first in order to future-proof them and make them successful in the long run.
The cohort would probably be that all things equal outside, that we probably go down a bit in profitability and then over a couple of years start going up above the previous level. Now since we buy a bit bigger companies, bigger teams, the need for us to add those types of costs are fewer, I would say. It takes some time for us to get to work with the companies and see the growth.
I should say, I mean, the business model has evolved. Initially, we usually bought 100% directly. We had a relatively rapid succession into a new owner. Usually it's these are generation shift companies. Nowadays, we buy more and more, we leave a minority stake, so we have a more orderly and a more prolonged transition where the existing management stays on, potentially. And then we gradually find in the company or elsewhere, we gradually find that succession plan. So we actually. It also has to do with the multiple and what companies you buy, but I think we've seen a lot less, like you said, the original decrease and then the increase, I think that has kind of evened out, so we don't really see that shift.
This is, qualitatively speaking, we actually haven't numbers on this one. That's the gut feeling is that we had more of a dip initially previously than more, it's more a steady state.
A little bit related question comes from Martin Lindgren here, regarding the earn-outs. Are they all performance-based or would some of them be due without any performance requirements?
I would say that all are performance-based.
Yeah.
There might be some exception that I don't know, but probably not. All.
All.
Usually they are actually not depending on one year. Usually want to have a couple of years to even out the performance so we can have a kind of more true value.
Yeah.
Yeah. Any questions from the audience here?
Hi there.
Yeah.
How big can a vertical become? I see that you have the biggest vertical is 14%. Is it LNS or, yeah.
I actually should know by heart which one is the biggest vertical. Actually, I don't know which one is the biggest vertical. It's products, yeah. LNS is actually in automation. I mean, a vertical can become quite big. I think we just don't need to have one vertical director for each and every one, but we could have several, and we also have several in different geographies, for example. When we divide the work in between. We don't necessarily see a size matter. Of course, if you take products specifically, we have a few companies. Brenderup outside is a very big company in itself, and LNS you mentioned. As we do add-ons and roll-ups and things like that, the individual business units can actually become relatively large.
If you have a vertical with 10 or 15 companies, which is a reasonable size, I mean, last year, I think, our average size of our business units actually grew with 30% organic growth and acquired growth. As they move, it's not necessarily the number of business units, but the total size of the vertical will certainly increase. I don't actually see an upper ceiling for that one.
It has to make sense from operational perspective, I guess.
Absolutely.
Okay, just one more question. How is the-
How do you see investment grade on Storskogen looking forward, the credit rating?
Well, we can't. We're not gonna comment on that. I mean, we're happy to have the credit ratings that we do have today that are one notch below investment grade. I believe that we need to first wait out the capital markets. Cost of debt is very high at the moment. Of course, we have to wait out the capital markets and start working in that market, which is a lot deeper of course than the markets here in Sweden. Then grow in size and develop according to plan and then maybe investment grade would come. We're not per se targeting that that is the end goal at some certain point.
Okay, thank you.
Yeah.
Oops.
Rutger Smith. This has been touched upon earlier, but with this idea of infinite ownership and your company culture, one market that has been mentioned just a little, which is considered difficult is the German market. I think that your culture would fit perfectly with the SME businesses there. If there is indeed no hard competition, I think you should have a large focus on that.
Yeah
Market because I think your ideas would be looked upon as appealing.
Actually, I have to say my German is a little bit rusty, I have to say, when we bought the Roleff, which was one of the first ones.
Yeah. You might have to take a
Yeah
crash course in German.
I used to actually live in Switzerland, so I, actually, I knew some German, but now it's rusty. That said, I think Germany is, of course, relatively speaking, from a culture perspective, they have a very good view of Sweden. They would like you said, a lot of companies actually don't want to be owned by foreigners or sell to foreigners, and having a local organization helps. I think the discussions with our German company sellers have actually been very beneficial. I think I agree with you, and they have a fantastic Mittelstand. That said, short-term, they are facing lots of challenges, and they have wonderful industrial companies, but they will have to overcome a lot of challenges.
Well, they have to compete with the other markets for our attention, so to say, on fair grounds. Yeah. More questions. Go, Eric.
Thank you. There maybe another question from me on the M&A strategy. In this slide deck today, there's quite a bit more detail on you know what are roll-ups and holding and cluster et cetera. In terms of the M&A criteria and the process, is the key thing that has changed over time the minority interest in leaving shares with owners, or is there anything other than that in terms of how you presented the story at the IPO with the criteria that has changed in that M&A process?
From the IPO, nothing basically has changed in our acquisition criteria. We had the same logic then with the transaction structure, for instance. From a fundamental perspective, we looked at the same companies as we like the same type of companies then as we do now. Obviously, now we are facing a near-term with the uncertain future, so we probably shift our focus. Different verticals are interesting than in the IPO. Although we are in it for the long term, we have 100-year perspective. But still, it's if you can avoid buying a company that may really have tough times next two years, we will do that probably.
Yeah
From a criteria perspective, nothing has changed.
I should say that, I mean, we have decided not to guide towards a higher margin or an incremental increase of our margin from 10% and upwards. I should say, though, that we've had a massive deal flow, and I've always had the assumption that we would have a big correlation between the price of the company and the margin. I'm not so convinced anymore because I see that we have found a lot of great companies this last year without necessarily a lower margin. A margin can be an indicator of quality. It doesn't always. That's not always the case. I think on average, I think like your cohort analysis showed, we're buying a little bit higher margin on average, but that's not necessarily true for the future, I should say.
It's depending on each and every company.
I agree. Yeah.
If they have the quality.
I think the cohort analysis also shows that the correlation between the multiple paid and the organic growth rather than necessarily the margin of the business even though there is a positive correlation or negative correlation, if you will, with the-
Yeah
With margins as well. Yeah, sure.
I want to mention something on the pricing of the company. It is true, for example, that you would have lower multiples paid now on average than you had last year. On the other hand, they're counting on historical numbers that are historically very high. If you look, actually, my experience of the pricing of the companies that we're buying, like you're saying, in good times, they don't necessarily become a lot more expensive, and in bad times, they don't necessarily become a lot cheaper. It's more that over time with a forward-looking, I mean, we're basically buying them on a forward-looking multiple rather than a backward-looking, if we're talking about in our internal process that may. You know, it's some small fluctuations. It's not like a stock exchange that goes up and down like crazy.
This is very stable over business cycles. Yeah.
The alterations in strategy that you presented today in terms of the focus on the synergy, you know, more focus on synergies, maybe a bit less focus on M&A, the clear focus on balance sheet, cash conversion, cash flow. Do you see that like, if you think about the business longer term as a short term sort of hiccup in the strategy that you need to work through before you can resume, you know, the similar ambitions as, you know, presented in the IPO, which may have been, like, altered a bit given, you know, the learning over time. Is that how we should read that?
I think you're absolutely correct. We have the long-term ambition, and when the markets open up and I think we will increase our acquisition pace again. We always have had a plan, so to say, even though we haven't been so explicit with it when it comes to the vertical groupings and the clusters and the add-ons and the roll-ups. It's as we grow and we get the critical mass in each and every potential area, then it kind of, I think, becomes easier for us to present our thoughts, rather than for example, if we had one or two or three companies within that particular area. As we grow, I think our method, so to say, our strategic agenda for each and every area will become clearer over time.
It's true that we have the same strategy, even though there is a hiccup now and we have to adapt. I should say there will be long-term higher costs of capital. That's my belief. It might not be 100 acquisitions in three years. Regardless, I think we will still have a more steady pace. Never stop talking. Sorry.
I think there is one minute left, so do you have a final question?
I don't want to keep people from lunch, of course. Make myself even more unpopular with you.
No, you're happy to see me.
I'm joking. On the slide 31, you showed the revenue reliance in the 6%. Is the percentage for EBITA similar, or can you say anything about it, or is it something we can't disclose?
I'm sorry. Could you repeat the question?
On slide 31, you showed, I think, the 6%, which is the biggest. It's a 6%.
Ah.
The biggest contribution in terms of business unit to your revenue and how, what's the percentage for EBITA? What's the biggest-
Historias.
What's the biggest reliance?
Our biggest company. How does that interpret?
Oh, it's more or less the same.
More or less.
It's pretty much the same, I would say. Yeah.
Okay.
I think the biggest company in the portfolio has pretty much the same margin it would be in your portfolio as the average.
Yeah.
Yeah.
About 10%.
Yeah. You're nodding. Yeah.
Yeah.
That's it. Okay. There was one last question on the online, but I think we answered that already. It was about the from David, would it be possible for you to exemplify how the profit of a company that you acquire increase under Storskogen's governance and management. I believe that the cohort this was posted two hours ago. I believe the cohort-
Yeah.
Probably answered that question, so.
I think some of you have seen myself before or heard Lena as well. The interesting part will be to listen to our business area managers this afternoon. They will tell you a lot more. I think the actual understanding what we do in Storskogen really hits home when you listen to what they're doing, what they will tell you this afternoon. That's our ambition anyway.
Yeah.
I hope that you stay and have a wonderful lunch. Don't forget to talk to our fantastic CEOs out there. They will tell you the truth. They're at least they've been told to. They're shareholders, of course.
Right.
They would probably want to increase the price, but nevertheless. Yeah.
Let's meet here again at 1:30.
1:30.
Sharp.
Thank you.
Thank you. Bye.
Thank you. Right. Okay. Welcome back from lunch. Hope you got something to eat and drink, and hope you had some good chats with us or our subsidiaries or business colleagues out there. During the morning session, we focused on strategy. We also touched upon operational excellence, the way we work with synergies in roll-ups and add-on acquisitions. Alexander Bjärgård explained the rationale behind that. Now the next session, we will learn more in detail, more hands-on, how this actually works from our three business areas. They will give us a deep dive into the business area, but also, all three of them will give you some real-life examples of how we work with operational excellence in various forms.
On a group level, even though they are described as a business area-specific cases, I can assure you that these similar examples can be, or are, in fact, rolled out in all business areas. The first person on stage is Christer Hansson, Head of Business Area Trade. He's been with us since 2015, I think, but has a vast background from sales, basically, being an executive director at both Dustin, being part of taking Dustin public, and then also before that at Telia, among other places. Senior experienced sales guy to lead the business area trade is the right person right there. Go ahead, Christer. The floor is yours.
Thank you, Lena. Just before going into the deep dive of the business area trade, I would like to introduce one of the companies that have been with us for a couple of years, 2019. We've been on a journey together with this company in a roll-up case. We have done a lot of acquisitions and build a platform for future growth. That is Båstadgruppen and Jonas Cedås. Please, roll the movie.
Båstadgruppen är ett företag som utvecklar och designar skor, yrkeskläder, lätta yrkeskläder, tyngre yrkeskläder. Vi har kunder som är inom vård och omsorg, vi har kunder som arbetar på lager. Vi klär den lokala matbutiken. Vi har levererat kläder till gruvorna i norr. Vi är väldigt brett spektrum på produkten. I vår strategi som vi la när Storskogen förvärvade Båstadgruppen var att vi såg en möjlighet till att expandera bolaget. De förvärven vi har gjort, de tilläggsförvärv vi har gjort, så är ledningar och nyckelpersoner verkligen vill vara kvar och vill jobba med oss. För man ser möjligheter att ta bolagen till en ny nivå i en ny kontext.
Storskogen är en väldigt bra samarbetspartner som har en stor förståelse för vår affär, engagerad i bolaget på ett bra sätt. Det är en väldigt bra mix mellan decentralisering och centralisering. Vi har fått möjligheter att investera i saker som vi ser behöver göras som kommer ge oss bra effekt på lång sikt. Till exempel ett robotlager som vi har investerat i för att bli betydligt effektivare i vår leveranser till våra kunder. Rätt leveransprecision och högre kapacitet. Vi har investerat där i, ja, CFO till exempel, som verkligen har fört bolaget framåt. Det är verkligen tack vare Storskogen har liksom hjälpt oss och stöttat oss och vi tar de besluten lite tidigare än vi kanske skulle gjort annars. Sedan Storskogen förvärvade oss 2019 så har vi mer än tredubblat Båstadgruppens omsättning.
Nu framöver kommer vi fokusera mer på att verkligen kapitalisera på de förändringarna vi har gjort, dra ut nyttan av alla investeringar vi har gjort och presentera oss som den nya Båstadgruppen för våra kunder. Vi ser en väldig synergieffekt med leveranser till våra kunder. Kunden kan beställa en order och få från alla företagen. Det finns en väldig synergi mellan kunderna, mellan de här förvärvade bolagen också. Vi ser väldigt med tillförsikt an på framtiden.
Thank you for those words and the movie, Jonas. I hope you had an opportunity to meet him out here at lunch. Now I will go more into details into the business area which I'm heading on. If you look at the left-hand side, you can see that we are now an international group of companies. We of course are still a lot of Swedish business units in our group, but now nine companies outside of Sweden. Three in Norway, where we actually did our first acquisitions in 2020, three in the UK, and three in the DACH area with the operational presence in most part of Northern Europe.
If you look at the business area, it now stands for about SEK 10 billion of net sales, which is approximately 28% of the group, if you look at the run rate. Looking at the graph on the right-hand side, you can see that we have been on a steady pace of growing the business area. If you look at from 2018, we were under SEK 2 billion in net sales, and now we're trending towards SEK 10 billion. Of course, we have more than 5 times the sales from 2018 to this date. You can also see the margin on that graph that we had a dip in 2019. We have been working really, really hard with the margin situation. Pricing has been extremely important for us.
I think we've been on a steady pace of increasing the margin and been now delivering only around 10% since. This both goes with the companies that we have acquired, of course, but still with the companies that we have owned for several years. I think that's really strong. You have to bear in mind what kind of situation we've been into since the 2.5 years since the pandemic. I mean, there's been all kinds of supply chain issues. We have had factories where we are producing a lot of our products in China closed, skyrocketing freight costs, and so forth. I'm really proud of what we have delivered so far.
Lastly, on the downside here, you can see how we are divided our companies into verticals. This is a fairly new way of us dividing our companies now. Did this before summer, but it feels good that we're doing it now. We are now have the companies within the same field, same industry, selling the same kind of product in the same niche in the same vertical. Starting with the niche businesses, here we have all the companies working with professional equipment. It's only B2B related equipment or products, like Båstadgruppen selling safety shoes and workwear for B2B customers. It can be Primulator sending coffee machines to Oreka and so forth. Really focusing on the B2B professional equipment, sports clothing and accessories.
Here we have leisure when we're focusing on people's spare time, both equipment and apparel in this vertical. Home and living, here we have the companies working with homes and all related products related to homes. It can be the flooring distributor of SGD, which has been a fantastic journey for us. It can also be the home interior companies working with products for that area. Lastly, we have the health and beauty, which is this vertical, which I'm gonna come back and do a little bit more deep dive into. But it's really a vertical that we think is gonna have a bright future. That's a short introduction to the business area Trade.
Lena Glader was saying something that we often get questions on, how can you manage so many different kinds of companies and the variety of companies? My answer to that is, I mean, we, first of all, have management team out there in the companies like Jonas Cedås, like all the CEOs here, managing their own business on a day-to-day basis. Great management team. We have invested a lot in new CFO capabilities in our companies. We feel that we have great management team out there. Secondly, we have also a really experienced professionals working with the companies from the Storskogen side with a variety of different market expertise.
Looking at my team, Jacob Sandström, for example, experienced CEO from the branding and the marketing side, was the CEO of DDB, one of the leading Nordic firm in this field. Erica Butterworth, an entrepreneur building her own company prior to joining us, but has an experience of a highly competitive market in travel agency where she was the CEO of Apollo Sweden and Denmark. Åsa, part of the team building Expedia in the UK and then took that to the Nordics, where she was the MD. Been working with Bookatable on a Nordic and European level. Highly skilled in econ. And then it goes on.
Anders Molander, experience from distribution, Mekonomen and Clint. By the way, latest Roger and Lars Thomas, also really experienced people working in different areas of the business area. I feel that we have a team that can support our companies in both good times and in bad times. These guys are also supported by a team of investment managers, like Daniel said, often five to 10 years' experience from a management consultancy firm. Okay. Way of working. Like Daniel said, our mission is to empower our businesses so they can reach their full potential. What does that mean for us in the business area? It goes with trade, industry, and services. We have to work differently to different companies depending on what kind of situation they are in.
First of all, we have the companies where we really, really believe that we can grow and scale the business. On the left-hand side, you see the companies that we are talking about the first path. We usually talk about four paths. The first one is where we believe that we have organic growth opportunities. It means that we can invest in new sales organizations. We might invest in new factories in industry, automation lines in order for us to be more efficient. It means that we can hire more people, maybe in our consultancy firm in the services area. It means new sales organization and sales strategy. We really, really support that in the trade area, of course, with the team that are around me with different capabilities from different industries.
Highly supported from us, but also from the management, of course, in those companies. We have the second path, which has been really successful in the past years. Alexander showed us that 40% of our net sales are around companies that have done add-ons or roll-up activity together with us. Here we have both companies that we think that can make one add-on acquisition, but we also have the companies where we really think that we can consolidate the market, and then we will try to do that. We will identify, we will try to meet the target, often together with the management team from us, Storskogen and the management team. Usually, the M&A discussion are taken care of by us.
Of course, the team around the platform companies are together with us achieving those goal and taking onboard the company when we have acquired them. It's really a cooperation between the Storskogen team and the team doing the acquisitions. I think those two really shows the company that we feel have a growth opportunity, we will absolutely go for it. Of course, there are add-ons or roll-up cases that had that from the beginning but also have organic growth, and we of course support that as well. This is trying to just show this is the way that we think about it. Thirdly, I think Daniel mentioned those companies as well. I mean, we have companies that have a stable growth or stable profitability, maybe not as high growth. We like those companies as well.
Doesn't necessarily mean that we have to do a lot of changes. They are stable as they are, and we support that. They are good as they are, and we will continue for them to be able to maintain the operations, and try to maintain the client relationships. So highly supported by us as well. More focus of our time, of course, on the left-hand side than on that. Fourthly, of course, we have unfortunately, there will be companies that need to change. Lena showed that we had about 7% at the time that was not having a EBITDA margin on around zero or less than zero. Of course, the team from Storskogen, together with those management team, work hard to change that.
Sometimes it means that we have to kind of change the whole strategy, might have to change the business model, might sometimes need a new management in place. We work hard for those companies to change. It will mean in the future, if we can't change them, we might also divest them. We are not the ones that are. We have been trying really hard, and we will go for it and try to change those companies as well. I think this is what we trying from the, from the business area to see how can we help the companies in the best way, with the position that they are in. Of course, there are companies come and go from these kind of different.
They can be, you know, a reliable performance that after a while can do an add-on acquisition. This might change over time. This is just to get you to understand that how we think of doing business and how to manage our portfolio. If we look at operational excellence, I think we have been driving one project from the Business Area Trade, which has been around freight. I don't know if you know how this situation has been the past two and a half years, but it's been crazy.
You can see on the right-hand side the prices from Shanghai Containerized Freight Index, from September 2020 in the middle of the pandemic, where it cost about $1,100 for a twenty-footer, which that's TEU, stands for a twenty-foot container, and then skyrocketed up to 5,500. The cost of containers, of course, has been really, really substantial. That has not been the only problem. I think for us, Lena showed that the inventory level for the trading business has gone up. One reason for that is the conscious decisions that we took a year ago that we really should have the products in place when we want to sell them. This has also been a factor. It has been really, really tough to get products in.
What we have tried to accomplish now is to be able to have better prices, but also great service level for our companies. What we did back in the spring, we had a cluster meeting with our home interior companies, led by Erica Butterworth. They had a lot of discussions on how they could cooperate with each other, but one theme was freight. We also saw in that case that we had a lot of different prices within our companies, a lot of different service levels within our companies. We decided, together with the team out there in our subsidiaries, to focus on this and started a project negotiating a new frame agreement for Storskogen. The team has done a terrific job.
I mean, we're seeing freight costs coming down, but on that level that we are today, we are seeing a cost savings on yearly basis if everyone are moving there into our new frame agreement of approximately, you know, SEK 25-30 million on inbound freight. With a higher service level, which is as important. In order for us to be able to have right inventory with as low buffer inventory as possible, of course, we need to have good freight situation, and this ensures us that. It doesn't come with only that. We send, of course, a lot of parcels from our companies, and we will be able to save another SEK 15 million on that. I really, really think that this shows, first of all, we have now the strength and the volume that we can negotiate good deals.
That wasn't the case a year or two ago. Now we really have and are an important player for the freight companies. What this shows, I think, is that we can now deliver and negotiate frame agreements on the group that the companies that are as a subsidiary in Storskogen can have and work with. Talking about SEK 40 million here, I mean, it's a great amount of money. I'm really proud of the team that has been doing this. This is not only for Trade company, I should say. There's also a couple of industry companies that will be able to do this. It really shows the importance of us working together, I think. Lastly, I want to comment on one, and some of you might have heard me talk about this before.
I would like to kind of make a deep dive into the health and beauty vertical, a vertical that we really feel is in a market that has a good macro going forward. It's been really resilient in the last downturns with these kind of products. It all started with an acquisition in 2019 where we met a CEO of Daniel Odehn, which is the CEO of Baldacci, and we really liked that company. It's a haircare distributor working with products for the professional haircare side. You've seen him out here talking about the products. We really liked the company. We really liked the market that they were in with a lot of salons, a lot of different customers.
We had the opportunity to acquire two more in the same field, also professional haircare distributors of Alba and Frends. Alba's name was Lantz at the time. Frends was our first acquisition outside of the Swedish area. With this, we felt that, you know, we were heading in and starting to consolidate the market. We are really market leader with these three companies. We continue when we went into the DACH region. We did two more acquisition. This PerfectHair.ch was the first acquisition in the DACH region. It's a professional haircare online distributor. More with this, more like Baldacci and Alba, a distributor of professional haircare. Before summer, we had the opportunity to acquire two more company with Session Mape, also a haircare distributor, and Scandinavian Cosmetics.
Scandinavian Cosmetics is a large distributor for beauty, skincare, and cosmetics. Market leader in their field, have built a Nordic presence and a really strong supplier for the brands that they are delivering on. With Scandinavian Cosmetics, we also have done Vox in Norway. With the knowledge of Scandinavian Cosmetics and what they have done with their portfolio and ensuring that they get new brands that wants to come into the Nordics, we have decided to consolidate the three first companies with Baldacci, Frends, and Alba. We will have them. We haven't even decided the name. That's why we called it Hairco. It will not called Hairco going forward.
We are in the moment have structured in a holding company, but we are absolutely the new Nordic market leader in this field. It means that we will be able the go-to place whenever a new brand in the US wants to come into the Nordic market, we will be the place to go to. It doesn't matter if it's cosmetics or a haircare or professional haircare. I'm pretty confident that we will be one of the players that they ask. I'm strongly believe that this is gonna be a good future for us going forward. Not only are we building a new group, we have a group management team. Of course, we're strengthening the customer offering that we're building here.
We have several brands that we will expand to these new markets. We are now in Norway, Denmark, and Sweden. We also have a lot of synergies with the consolidation of one warehouse, a new, absolutely new platform for doing more acquisitions. I really think this shows that we started with a company that we liked. We liked the market that they were in. Now I am confident that we have built a vertical that is so strong that it will be the go-to place for new brands. We also have our own brands, which I hope you've seen out there called Björk, which we are expanding to other markets.
This is a place now with over SEK 2 billion net sales, and hopefully a great story going forward as well. Thank you.
Well, thank you, Christer. I think that I was planning actually to ask you a question in between here, but Rebecca tells me that we're running a little bit behind, so maybe I'll save that.
All right.
For later, Christer, so beware.
Thank you.
Thank you so much for that. That was Business Area Trade. Love their shampoo. My teenage daughter refuses to have anything other than the OLAPLEX that you saw out there. Over to something else. This is Business Area Services headed by Peter Ahlgren, who is one of the earliest, well, almost a co-founder of Storskogen, having been with Storskogen since inception, more or less. Also, with a background similar to Daniel and Alexander, with a combination of being a strategy consultant. I believe that there are basically no business situations that you haven't met before, as well as working with entrepreneurial driven companies and with the services companies that we have in Storskogen. Welcome on stage, Peter.
Thank you.
I'll leave you to press the button first. Is he on?
Yeah. Takes an M&A person to do this.
Yeah.
You are so skilled, Alexander, in many ways.
Good afternoon, everybody. My name is Peter Ahlgren, and I'm gonna take you through a deep dive to services, which is a business area. Nowadays we are almost a third each in each business area. Although I must say we in services is almost double the number of business units. I think that goes to say something about the market really and the verticals. It's usually smaller companies in the services segments and usually quite fragmented segments as well. You see the same pattern as in trade.
We are so far heavily geared towards Sweden, although we about two years ago started to do our first acquisition outside of Sweden, in the same verticals that we are in here in Sweden. We try to leverage the knowledge we have here when expanding outside of Sweden. We are about 5,000 employees, and as say services, I mean, the definition is quite broad. I usually say when Fredrik produces products and Christer sell products, we do none of that. We do the services around it. Looking at the financial performance, I think we have seen a steady growth, and on top line wise, both organically and acquisition driven.
I think we have a well we have a small downturn in margins here in the first half of 2022, mainly to the reasons that Lena explained. I think we have been pretty hit pretty hard, at least some of the companies of the external shocks we have had. I think the first the last COVID wave, I hope that was actually there will be no more, was hitting us quite hard in the beginning of the year. We had companies that had sick leave rates of about 20%. If you're billing hours, I mean, then you have a challenge basically.
You have a hard time working from home if you're like a painter, for example, or at least you have a hard time invoicing someone for it. That affected us, had a negative impact, mostly for the installation companies, I would say. Later on, the price increases have a time lag, usually to pass on. We used to quite a large extent work in different project type of business when you have a fixed price for everything for a week up to like half a year, and then increasing prices and pushing them through the system takes time, basically. Look at the verticals. We have seven verticals within services that we group our companies in.
Alexander talked about our M&A strategy and trying to identify companies within macro trends that we think are viable and relevant in the long term. Two of the trends there were urbanization and then aging infrastructure and there's let's say about four of our verticals that are active within that market segment. That's engineering services, contracting services, infrastructure and installation, obviously in different small niches and in different phases of the value chain. Here we have a kind of a wide spectrum of companies, usually very niched. We don't have any like large construction companies. We'd like to find smaller niches where we have market leadership in quite well-defined smaller segments.
For example, we have land contractors that work with excavation and horizontal drilling, basically expanding the backbone network, the water pipe and electricity backbone network. We have companies that are dredging our harbors. We have specialist companies in the fire safety, for example. We have one company that is specializing in measuring vibration at demolition sites or blasting sites, so to say. There's a wide spectrum of companies. In the installation area, we have plumbing. We have companies working painting, electricians, cooling, ventilation, so everything around the building. We don't do the actual building itself, so to say.
That was the more construction-oriented areas. We have logistics, which is a group of companies mostly active as 3PL actors and freight forwarding, so they don't own their own infrastructure, usually. We have digital services. That's an area which we have been expanding and focusing on for the last two years. Agio, which is a consultant company based in Luleå working with the municipal government agencies. We also have two product-related companies there. So it's both consultants and products. Obviously they are benefiting from the digitalization trend, which is wide, and we are also leveraging them for our internal digitalization projects.
On the other side, the land contractors and the installation company is quite immature when it comes to digitalization. That's some of these initiatives we are driving. Last but not least, we are the HR and competence area, and they are mostly focusing on education, adult education and staffing services. They stand out a little bit from the crowd because they are actually looking forward to a potential recession, since increasing unemployment means more business for them. Moving on to the team we have the same structures in trade and you will see the same, I think, in industry. Basically, as Christer mentioned, we are very much decentralized.
I have 62 people that I see as key personnel that are not on this slide because it will be too crowded. The CEOs and their management teams in our subsidiaries are taking the daily operation decisions and are supported by investment directors. As you would see, the investment directors have a background from the vertical which they're working in. I have seven verticals and an investment director that are heading up each vertical. For example, you take Oskar Bjursten is heading up digital services. He has a background from as a CEO for a number of fintech companies. I think the latest one was Simplr and it was Payzone before that.
Catharina Hedberg is heading up HR and competence. Her latest position was from Atvexa, which is a company group with education companies, where she had the same position as here. Thomas Pilo comes from Havator, which is a large Nordic crane operator, where he was the CEO, and has been in leadership positions at NCC, and he's heading up engineering and contracting services. I think I will stop there. I will not go through everybody here, but I think you get a picture that we try to have a more senior person as investment director that heads up a vertical and from their position heads up the board of each subsidiary.
As a board member, basically, we are involved in target setting, the business planning, setting the strategy. The P&L responsibility when the plan is set, that's the CEO's responsibility. As in trade, we have a number of investment managers that support our directors. Usually there are two persons in a board: an investment director and investment manager from our side. Then usually it's the company sellers, the minority owner, owners could be external persons as well. Yeah, I will just give you a couple of example.
I think Christer talked about the freight initiatives and we're working on a number of initiatives, and I know both industry and trade have a couple of and a bunch of initiatives they're working on in parallel. Yeah, just mentioning procurement because that's an area where we are working as well, obviously. Here's an example from our companies working with electrical installations, which is, as Alexander took the different M&A perspective, I would say that it's a cluster because they are sister companies. We don't have a common legal structure, but they are working together when they can benefit from it.
In this case, they pool their purchasing of electric material, which is like cables and everything you install. That together was about SEK 250 million, and they went to their suppliers and used that for bargaining and reduced on average cost by about 8%. Obviously, there's a lot of differences between these companies, and some of them have been really skilled before and have had low prices. I think the company that lowered its cost the most, there was a decrease of 30%. Obviously there's some benefit that we can use by drawing on our critical mass when we're getting more and more companies into the portfolio.
I think Daniel mentioned the framework agreements that we have, which is everything from the services part. We have a lot of vehicles, service vehicles, all the installation. In installation, you usually have a service vehicle, and here we have a couple of framework agreements which have lowered prices for them and as well framework agreement for fuel. That's something we are benefiting from. Cash flow and working capital, Lena showed her slide and we don't have that much working capital when we compare. Which never happens. Obviously something that we can get better in. We have something that we have looked at, for example, is how to structure the payment plan in a project, for example.
It's usually a negotiation. How much do you invoice in the beginning and what kind of toll gates do we have? There we try to push and decrease the kind of order to cash cycle so we could be even more capital efficient within services. We're also running, usually using our size, a number of initiatives for knowledge sharing and, for example, one area which we have worked with a lot is ERP systems. Some companies when we acquire them don't have a system. They have someone doing the accounting, but they could have time reporting by their personnel handing in paper and so on.
That's something we have worked with quite a lot within these fragmented small companies to get a better information flow and for us and for them to get better control of their operations basically. Yes, I will take a deep dive into one of the companies that we have because it's always interesting to listen talking about aggregated figures and verticals and so on. What's really, I think, fun for me to work with is not the verticals, it's each individual company because that's what's interesting and that's where our real business are. SoVent I think is an interesting example. Alexander Bjärgård mentioned our M&A perspective. I think this is a textbook example of a roll-up basically.
It's SoVent consolidating the chimney sweeping segment here in Sweden and have done over 30 acquisitions and we are over 40 locations in Sweden. Basically I would say to some extent transforming that industry 'cause many of these companies is really small, quite traditional in how they their business practice. Could be like five to 10 employees, for example. SoVent has turned that around, I would say, and taking them into a modern context with a lot of focus on company values, on customer focus and profitability.
They also launched an educational program called SoVent Academy, where they take the employees through and it's more both, so to say, the soft part of it, but also the hard part about add-on sales, how to do route planning to maximize the number of chimney sweeps per day and per person. It's really had a good effect with an EBITDA margin which is clearly above average in the industry. SoVent is also a clear market leader in the chimney sweeping segment here in Sweden. We also see that this is interesting from a capital perspective going forward because there's a plan. I think the market in Sweden is rather consolidated.
I would say we have a couple of more targets on the list, but we are quite big at this, but we're gonna try to leverage this position to expand the offering. Going from a kind of a chimney sweeping company to be more of an indoor climate company and working with ventilation as well and add-on sales. I actually had SoVent visiting me and fixing my chimney and they actually sold an overview of my ventilation system as well, which really needed a cleaning. I saw it when they kind of did it. Then I was convinced that they were good at add-on sales as well.
I think we have a possibility here to expand the offering and as well are looking at other markets nearby where we could expand this concept because chimney sweeping segment is very fragmented in many of the neighboring countries as well. That's it for me, I think.
Thank you, Peter. That always reminds me that I need to get the chimney swept too. But if SoVent CEO is still out there, then maybe I'll book that. Right. Next, thank you so much, Peter. We've heard about sales from Christer Hansson. We've heard about operational strategy, operational efficiency from Peter, and we'll hear something similar, but also a little bit more production related, I think, from business area industry. Fredrik Bergegård is the head of business area industry. He is a seasoned business leader from the industry basically, having had managerial and senior executive positions with companies such as Electrolux, Gunnebo Industrier and Ahlsell before joining us. Maybe I'll just leave the word to you then, Fredrik. Go ahead.
Okay, so last but not least, you're gonna hear about the industry and a deep dive here. Is my mic on? Yep. Okay. We'll start with the overview, and we start by looking up in the upper right corner. We have had a nice growth the last couple of years, especially the last two years. We have grown roughly 100% per year, and on a running basis, we're now on 14 billion SEK in net sales. Together, we're 38 companies with almost 5,000 employees around the world. We are 39% of the group's net sales now. If we look down to the right, you see what kind of companies we have. We're split into three verticals. We have industrial technology, automation, and product company.
They are roughly a third each within the business area. If I would describe them briefly, industrial technology companies are focused on manufacturing excellence. They are typically a subcontractor of another product company. Typically they have, like CNC machines, automated machines producing steel components going into, for example, an excavator or a pump or something similar. We compete on manufacturing excellence, simply. Having efficient manufacturing, but also good service, availability close to the customers in their R&D projects when they develop a new component or they do cost reduction projects or so. We work close with them to find ways how to lower the cost of their product. If you look at automation, this is companies where we sell automated products or we do software or we do integrated solutions.
Out in the hall here, you saw PV Systems, which is one of our integrated solutions companies. They simply help other manufacturing companies. For example, starting out with if I say dumb robot, but then putting together a solution where, for example, you can have a robot arm, but then being programmed and then pursuing a certain amount of tasks like we've seen out here as well. Someone asked about LNS, which is one of our bigger companies. They belong here. LNS is manufacturing, designing and manufacturing automated products. All the peripherals around the CNC machine is manufactured by LNS being an automation company. Last, for those of you who are here, we have Brenderup out here visiting us.
Trailers that you pull behind a normal car, as an example. This is companies where you have your own assortment, you have R&D, you have your own manufacturing, you have a brand, and then distribute and sell branded products. A classical manufacturing product company. To the left, you see our presence. Within industry, the majority of our companies are still Swedish, but we are also expanding, finding a lot of new nice opportunities like in DACH region, but also surprisingly nice companies in the UK. If you look at the brown colors, you see that we have people employed and factories all the way from the U.S., most of the countries in Europe and all the way to Asia with China, Japan and Taiwan.
Also within Business Area Industry, we have a very, very strong team of experienced people, being the sounding board to our CEOs. All of them or all of us has the experience. We've been there, having quite significant staff responsibilities, P&L responsibilities. We've been there with when you need to lay off people, when you have a drug problem in your organization, when you're in a legal dispute with a supplier or when you have a recall of a product, etc., etc. All of the seniors in our team have their own experience of all these situations that our CEOs can end up in.
If I take a couple of examples, Patrik, who was actually mentioned here earlier, longer 25 years in automation industry, started out as a technical sales director, CEO of a small medium-sized automation company, was promoted into one of our peers, Addtech, and then was there for a number of years before he joined Storskogen and came to us and is now responsible for our vertical with all our automation companies. Monica Gutierrez, long career in heavy Swedish industry. Sandvik, SSAB was a CEO of Tibnor for Sweden and Denmark, multi-billion SEK responsibility, and then short with Epiroc before joining us, and she's responsible for our products vertical. Another example, if I say, is Jost Bendel, who just also joined us, responsible then for our companies in DACH.
Many years, 12 years with Siemens. Five years with the Schindler Elevator Company, and now joined us. Talking about culture, we got a Swiss German who lives the values of Storskogen also. Really nice personality, really people managed person who will lead our companies in DACH. Way of working, I was asked, this applies for all our business areas. I would say, I will kind of describe how we work in the business areas. Important for this is that when it's all about people, right? We have a lot of people in our organizations. The way we work is always the underlying and the main purpose and the aim is that this is to empower the companies, but also the CEOs to reach their full potential.
That we always, when we work with our companies, remember our values about being entrepreneurial, always thinking long term, being professional, and show respect in all situations. That we always live that when we think through this kind of, in a way, structured way of working. We start out already in the transaction phase, tying relationships with the management and with the company, assessing the culture and feeling really, is this a company that we wanna work with? Of course, we do the commercial parts like the DDs, evaluating the company, making sure that we believe there is a market-leading position, et cetera, as Alexander Bjärgård described. Then also thinking through the succession plan.
Like, will the company seller stay on, or is he explicit that he will stay on only long enough to hand over? How will we manage the succession? All the incentives that they are in place, so that we have, if there is a CEO, what's the employee agreement look like so that they are incentivized and so forth. We do the onboarding, and as mentioned before, a lot, like, we have the checklist to make sure that it runs smooth and in a simple way. Once the company is on board and with us, we have established the board, we established all the formalities, then we have, on a quarterly basis, we have a routine for board meetings. The year starts, you could say, in Q2.
'Cause in Q2, we take the step back, and we think about the long-term overall strategy for the company, and we also think about the long-term ESG aspects and ESG activities. In Q3, after the summer, we try to compile this into a three-year business plan. This varies, of course. If it's a small company, we try to make it fairly simple to them. They all do a business plan. The larger ones, I mean, they are used to creating and having the routines for quite extensive business plans, and then we let them do it that way. As long as they tick the boxes, and has thought through what are the, like, three to five things I'm gonna do over the next three years to develop my business.
In Q4, we narrow it down even more. We make a budget. For us, it's important also to do the CapEx budget in industry for the coming year. We also do the conclusion of the internal control, where the companies have done their own self-assessment during the year, and in the end of the year, they do a gap analysis, and they present the activities and actions to close potential gaps in the internal control. Q1, we just summarize, have everything in place that we have said we're gonna have to start up the year. Is everything planned for the year? We have some other themes like risk assessment, which all companies do in the same way, in that case.
Monthly, we have monthly meetings. All of us have monthly meetings with all our companies, and it's the chairman of each company who holds the monthly meeting. It's 30-45 minutes, depending on size of the company. The CEO always participates, sometimes the CFO from the business unit. We have KPI reports. We can either automatically generate, like the one Lena showed, which we get out of our system if they don't have one of their own. If they have, we let them use their own, so as long as it ticks the boxes of the KPIs we want to see. Some of the, again, bigger companies, they have more extensive monthly reports than we require, and then we make a summary of that.
We keep track of the business, but also ongoing projects and activities, and we do the forecast update. I think the most important part is the last one, the kind of daily interactions that we have, trying to always be available for our companies. Here also the investment managers that was mentioned before play a key role being very close to both the CEO but also the CFO. Our younger, really skilled, sharp, colleagues helping out supporting the companies as well. We are in close dialogue. If I'm, for example, chairman in like 8, 10 companies, we, I mean, we constantly keep like texting, we're calling each other, we email, of course.
If we have certain actions, it could be a recruitment ongoing, or it could be a large quotation they wanna just check off with us before, then we take Teams meetings. If there are bigger decisions that requires a board decision, we don't wait for the next board, but we take the team meeting with the board, 30 minutes or like, and then make the decision, and then we just repeat it in the next board meeting and put it into the minutes. We try to work in a very pragmatic but still very professional way. These are typical topics varying from business unit to business unit.
A while ago, like, or last year in 2021, for example, then as we have heard, I mean, availability was key, but then we raised prices. I mean, we increased prices, and we kept our customers happy. Now, with the change of climate this year, we've changed tack. I mean, now we are really looking and pushing with the companies with the main, for example, inventories. We're really following up on that instead, and costs. We're kind of tailoring topics based on the needs of each individual business unit. I'm gonna do an example of operational excellence in industry. I picked that we are very, you could say, fond of, and we're big believers in optimizing the production, and this is then optimizing the production of typically product companies or industry technology companies in particular.
Just some examples of investments lately in Alfta, which is a subcontractor of steel parts. We've invested in a robot cell, including a CNC machine, just like less than a year ago. Albin, the same, another more efficient CNC machine, also increasing their flexibility. Stål & Rörmontage in Sollefteå, we invested in a beam manufacturing line with an automated robot cell. Wibe was a test equipment. A specific example of Swedstyle, where PV Systems that you saw out here was actually the supplier. Swedstyle wanted to redesign one of their products. They redesigned it from being manually assembled to be possible to have an automated assembly, then moved the manufacturing from China to Sweden, to our manufacturing site south of Jönköping.
We lowered the cost, and we had a payback of the investment of less than 1.5 years. It was actually close to 1 year. We got an improved ESG footprint from this project by decreasing CO2 from not transporting all this material from China to Sweden, but also using Swedish steel, which is much more positive, again, about CO2. Having manufacturing in-house, we had much better control of the working environment for the people producing the product. Really important for us in addition to the cost saving that we did. This was a collaboration and the work done between two sister companies within Storskogen, PV Systems and Swedstyle. Another example, this case study of Brenderup acquiring Tysse.
Brenderup is the leading trailer manufacturer in Scandinavia and also one of the biggest trailer manufacturers in Europe, actually. We have the headquarters in Malmö, but then production site in Wieleń in Poland, and then a distribution hub in Jönköping. Turnover roughly SEK 1 billion, and then acquiring the Norwegian, you could say, local player, Tysse, with a turnover of SEK 240 million, roughly. This was then an add-on, so this was a fully, like, possible to fully integrate and get all sales synergies and cost synergies we can out of this acquisition. Brenderup and Stefan, who is out here, has the responsibility, has the lead. We supported them with, of course, M&A skills and also our own support from the board.
What we did, I mean, actually it was Tysse and the company seller, Rune Tysse. The Tysse company is actually located in Tyssebottnn, north of Bergen. As we've heard before, a lot of strings from the company seller with emotions tied to both the brand and the people in the village. He was concerned, of course, what was gonna happen. At first, not fully transparent. There was something in the air. In the end, I said, "Let's, we have to talk." We invited Rune and his external CEO, Per Steinar, to Stockholm, and we put everything on the table together. 'Cause if we were gonna do this acquisition, we needed it to Rune and Per Steinar to at least understand and agree that this was the plan.
We couldn't acquire them and then try to do an integration and then realize that they were not with us in this. We did that prior to signing everything and agreeing on everything. We came up with a good plan, which ended up with a real good cost benefits for all parties. In step one, we are combining our purchasing power for all the trailers in Norway and all the trailers in within Brenderup from Wieleń lowering purchase prices. We're also optimizing production in the sense where Tysse actually has a very nice, highly automated production of the sides of a trailer, which Brenderup doesn't. With much higher volumes to Tysse in that automated line, we'll get even bigger and better cost benefits from their production.
Optimize logistics using Tysse as a hub for the Norwegian market, just like we have a hub in Jönköping for the Swedish market due to the long transports from Poland of trailers. Optimizing this, immediately gaining synergies. In step two, we're actually moving into kind of a functional organization where also the sales side is combined, basing the Norwegian sales on Tysse's sales force, but then adding some of the Brenderup salespeople. Combining the assortment, which of course takes longer time to do, but in R&D, finding the same components in the different trailers. Using Brenderup's digital solution, where Brenderup is actually quite advanced in the rental side with softwares behind the rental.
When you, for example, go to OKQ8 renting a trailer, it's actually in Brenderup's system you're renting it. We're using that platform now and expanding it also to Norway. Then last but not least, Tysse's assortment for the professional segment is more extensive and very well-recognized, so we will use that and replicate that under the Brenderup brand in different markets. A lot of synergies, how we can work when we do an acquisition like this. I think that was my last slide. Hopefully by that, you got a picture on how we work with the companies on a day-to-day basis, monthly basis, but also what kind of activities we do together. Of course, the things like an acquisition is a project that we keep in close dialogue together with the companies.
Thank you, Fredrik.
Okay, thanks.
I think you can, maybe you can stay on stage. We'll ask Peter and Christer to join us on stage as well. Now we've learned how Storskogen can create value not only through acquisitions, but actually through hands-on work with add-on acquisitions, such as this last case you showed with Brenderup and Tysse Group, through building a cluster of sister companies within the same vertical, cosmetics and haircare, that then, as a next step, can be joined together and create synergies that way through roll-up cases and strategic advising, of course. Through the day-to-day work with the platform acquisitions that we have, just like you described here. Thank you so much for that.
I think that we can just, I don't know, open up for questions from the audience, if there are any. Do we have the microphones ready? There you go.
Yeah. Hi, Markus at the Erik Penser Bank. Maybe a question to Christer and Fredrik. You are on the ground. It would be interesting to hear, and you were talking about trade before, for instance. Secondary sourcing, which is something that happens. It's a big trend. How are you affected by that, and have you seen anything of that happening as of yet?
When you say secondary
Sorry. Let me rephrase. We have basically production moving closer to home, and-
Yeah
... you're sub-supplying a lot of businesses. If you are seeing and if you're able to ride on that trend where production moves home, supply chains are changing-
I see.
getting closer to maybe the home markets, moving home from Asia, et cetera.
Yeah, absolutely. We have a lot of customers. I can give you many examples. Swedstyle, the example I gave, that's, I mean, IKEA that is asking to, like, can you bring home manufacturing? Which we then look into, and obviously then did. More, maybe surprisingly, is that even if I say steel constructions, welding, constructions or welded constructions. We also see an increased demand in Sweden of larger project that usually went to the Baltics, which now the big construction companies in Sweden ask us for, and we actually win the projects, which we didn't do three years ago.
Because simply the Baltic competitors used to take the steel from Russia and it's more difficult to really know where are they now getting it from, or they can't even get it because they don't have the sources to ArcelorMittal or the other, like Italian or Spanish steel manufacturers or so. Yeah, definitely.
I know it's difficult and maybe impossible, but if you try to kinda draw a timeline where you had the geopolitical crisis with the China-US conflict before the pandemic, and then came the pandemic, and then have you seen kind of these movements kind of gradually increase or accelerated or taken a halt? If you could just talk about that, 'cause I think it's a big trend.
Yeah. I think the trend is really, really strong. A component of, like, takes longer to move, while a steel construction for a construction, is much faster. It's just the next project you ask, this, Swedish, supplier instead of the Baltic one, for example. We see it coming surprisingly fast, I would say, in project business. We see it gradually but it just takes time because you have a product, component that is specified into a product or so. Also the trade companies are asking-
Well-
us to deliver
I might.
To them.
Looking at the trade companies, I think, I mean, you saw the freight volume that we have about 5,000 TEUs, and mostly from Asia. I think Asia will still be a valid and long-term place for us to produce. However, I mean, the discussions in and around our companies is, of course, to move things back to Europe as well. I think it will take a little bit longer than in the industry sector.
Maybe a question about the haircare products and the consolidation of those companies, 'cause I think it is. Just to maybe elaborate a little bit about how you're thinking about this. What is needed for you to kind of consolidate like that? 'Cause I think the
Yeah.
I mean, correct me if I'm wrong, but the ground, like the main thinking about this is to keep the companies independent, et cetera. What makes you take that step? I mean, how should we think about this?
Yeah. Good.
Is it more of an like abnormal thing or?
Yeah.
-exception?
Yeah, really, really good question. To be honest, I've had the question on my table for many years, but, for me, it has been really, really important for the team around those companies that want to do it. It's been a discussion with me, the CEO of Frends, CEO of Alba, CEO of Baldacci, that they also think this is the greatest idea because we have so much things that we can do together. I think that's the key. We're not gonna do this on an, you know, on an everyday basis because, as you say, I mean, first and foremost, we like to keep the companies independent. This is the first time we really do this on a sister level.
Of course, we do add-ons acquisitions, but then that's part of the game plan from the beginning. This has evolved during the past years. We have, you know, we have actually had products that we took in, brands that we took in, that all three companies were selling on their market. We have started and gradually worked this. I don't think you should see this as something that we will do on with all our companies. In this case, I really think it's this huge opportunity for us in building this big brand house for and being a market leader in the Nordics. You're right on it. It will not be on. We have to have the management team with us.
Okay. Thank you.
Thank you. Any other questions? Eric? Hannah running. There you go.
If you think about market leadership, and you've talked about that, look across the three different business areas, are you like typically a market leader in very fragmented markets, or do you consider that some of the verticals that you're in, you're like an established market leader with fairly little competition? And how, like, do you define these markets? Is it mainly geographically, or how would you look at it?
I think if I'm talking about the trade, I think you're right. In some verticals, we are a market leader. Like taking, you know, the haircare distributor, they will absolutely be the market leader in Scandinavian Cosmetics. Being a distributor, distributing those kind of products, they are top in Sweden, Norway, and probably the second in Denmark. They are a market leader in that sense. Of course, we have companies like SGD, which is, we have built to be a really strong position in flooring distribution in Sweden. Of course, Sweden is the market. It will be on, you know, a geographic base, I think.
Some of them are really, really small niches as well, as I think Daniel was mentioning.
Maybe we should hand the same question to services, which is in a slightly different-
Yeah, I think it depends a little bit on.
Why are we kind of targeting market leadership? I mean, we want the companies to be strong, to have a good market position, to have above average profitability basically. Services is very fragmented, so to some extent it's quite local business. We can have like the largest electrician installation company in Vetlanda, which is a small place in Sweden. Then they, I mean, by any means, they are not kind of the leading player in Sweden, but they are in their market, they are the biggest one and have a good profitability, and that's kinda good enough for us.
Industry?
Yeah.
Market leadership.
I mean, if I take the biggest companies in industry, then some of them are truly like European or even global. LNS is a global market leader in peripherals for. Then also going down to the smaller companies, of course, like but if I say Stål & Rörmontage, SEK 150 million turnover there, I would say is a Swedish market leader in stainless steel bridges. They are extremely, I mean, competent. It's difficult for you to find someone who can weld in large stainless steel products like they are keeping Mälaren from flowing over in Slussen. The parts keeping Mälaren in place are stainless steel welded in Sweden, as an example. Yeah.
also the smaller company we strive to have, market leaders.
Like, I think we have time for one last question before we should hand over the word to Daniel for closing remarks. I have no questions online, but there is one in the audience. Go ahead.
Yeah. This is perhaps Rutger Smith. This is perhaps the most irrelevant remark of the day, but still I find the name of the company a bit awkward. It's not that I object to it, but the association between the name and the activity is a bit difficult. The question is whether you consider to change the name, shorten it, because internationally it's a bit cumbersome, and now is perhaps the time. In 20 years' time, it's more difficult to do such a switch.
Well, thank you for that remark. I'm sure that.
Hand over that to Daniel maybe.
I hand over that to Daniel.
I'm sure that everyone here has struggled to pronounce it right, Storskogen. Well, let's keep that question alive within the company for a while and see where we end up in that in a few years from now, but thank you so much. Okay. Thank you, gentlemen. Well, it's time for closing remarks by our CEO. Let's see. Does he have his own-
Let's see. Oh.
Oh.
You can hear me.
There is a summary. There you go.
Oh, wonderful.
Go ahead.
I'm First of all, with regard to the Storskogen, I think there are two parts to that one. First of all, it's the joy of having our DACH, and UK, and Singaporean colleagues to pronounce Storskogen. That's one part why we want to keep it. The other one is, of course, it's a part of our soul and our history, of course. I guess with my Jewish ancestry, shortening it to SS, it does not really cover it, so we'll skip that. Sorry about that joke. All in all, we have considered it, not yet, anyway. That joke aside, Storskogen, I hope you've enjoyed.
It's been a long day, lots of information, but our ambition has been today to really explain what we're all about. What is our long-term vision? What is our mission to empower our companies to realize their full potential? More importantly, you know, why SMEs? What is it with us that makes us believe that we have a unique position to get the deal flow, to be able to identify and select the right companies, and to create a high-quality portfolio? Of course, if you have a high-quality portfolio, it's all about how do we manage that portfolio.
Hopefully, listening to our fantastic business area managers, Alexander, Lena, you understand that we have really working hard with getting the right people in place, fantastically skilled, experienced people, both analytically with investment managers, but of course our investment directors as well. That we have the culture that ties us all together, our behaviors. Of course, coming back to the very relevant question, why are companies more worth within Storskogen than outside? Why don't we sell off verticals or groups of companies? Well, the magic is in the small details of how we work with the companies, the systematic selection and support and daily interaction between us and our companies. I mean, we are not a portfolio manager. We are not a private equity player. We are, in fact, industrialists.
We buy the companies, we run the companies, we make them better, and we own them for a long period of time. We're not about multiple arbitrage or anything like that. I think that wasn't even in our vocabulary until we heard it like a year ago. It's never been a part of our acquisition processes or anything like that. It's actually, for an industrial, it's about the long-term buying and taking care of these companies. Does this convert, of course, into good profitability, resilience? Hopefully, Lena has shown you a little bit on how we work to control and understand and measuring and following up on KPIs, but also that it actually delivers over time. I think we have a proof point. It's going to take us a few years, a number of quarterly reports.
I think the recession is like almost perfectly placed for us to be able to show you the proof of concept that we have acquired a quality portfolio that we actually are not only capable of managing that portfolio, but actually doing it better, being the best owner, so to say. That's all a part of our agenda. Short-term, I think, we've talked about what we need to do to tackle the short-term chaos, basically. We're, you know, we're looking at the recession. We've actually had pretty chaotic 2-3 years back now with all the supply chain shortages and the war and the COVID and everything. It's been actually very challenging times.
Being a little bit masochistic, it's actually quite fun, and I'm actually looking forward to these years that comes 'cause I think we have so many great things to do, and I'm actually super excited, I have to say, which is partly stupid, but probably, but it's true. I think we're actually feeling very energetic to the challenges that come ahead, and I think it's a great possibility for us to really push our companies to take market share to become even more competitive going forward. As to the market, the share price, and things like that, I mean, it's not my place to value the company, but hopefully we will over time show the value we bring, and hopefully that will be appreciated by the market. I'm sure that there's some great points here.
Well, all in all, a diversified portfolio providing the resilience, strong deal flow, consistent returns, and I think you will see over time that we will return to the strong cash flows that we've had historically. I think you've also seen that we are ridiculously structured in the way we're working, systematically creating value and trying meanwhile to retain that important entrepreneurship, with lots of, you know, supporting them in all the kinds of ways, and it's going to take time. We don't have a predetermined margin route for each and every acquisition we make for every single initiative. Over time, I think you will see that we have some extraordinary developments are going forward. Finally, we're planning for the recession. It's no drama. You know, they come along every five or ten years. It's time for one now.
I think we've built for it ever since we started. We're actually, strangely enough, looking forward to it in some kind of way. That was actually what we had to tell you today. Hopefully, you've had the time to meet, you know, the heroes, the real heroes of Storskogen, our CEOs, our companies out there. They're the creating the value. Those are the ones that we're, first of all, really enjoying working with, but also that we're really proud of and the journeys that we're on together with them. Thank you, everybody, for today, and, enjoy the rest of the afternoon. Take care. Bye.