Hello, everyone. Hope you're all doing good. Welcome to the Teqnion 2024 Q2 Q&A, and welcome to our new offices. As we became a few more people here at Teqnion, and the company that we shared a space with before listed themselves on the stock exchange, it became a little bit more productive and more cost-effective for us to rent a new space just a few blocks away. You don't need to worry about that we have gone mad or built a big new HQ. We're sitting at the ground level at a building that will be demolished in a few years. So we have a good lease. And Johan had bought most of the furniture at the bankruptcy auction.
Really nice furniture.
Very nice. Thank you very much for joining us on this Sunday. We're holding it today because last year we didn't have a Q&A during the summer due to vacation time, but we felt that it would be good to do it this year. And logistically, it's the only day where we are both in town. So happy that so many of you joined. We will, as always, alternate the questions between the live questions coming here in the meeting chat and the ones that are being presented in the Q&A at Teqnion.se. So do you want to say something about the quarter to begin with?
Well, we're not really happy with how everything is running at the moment. We struggle in a tougher economic climate within a lot of our industrial niches. We see it from almost every spectrum that it's not as easy to make good business now as it was a couple of years ago. And as we mentioned in the report, still the house building in Sweden is to a minimum, and we don't see any changes there. We will see what happens during the fall, but it seems to be a very, very slow market. Yeah, we would like to be able to present you with better numbers, of course, especially when it comes to earnings and cash flow. And we are in a situation where we're working very hard with operations, with a lot of companies, because we see there's a lot of improvement for us to do.
We are a strong team now. As we presented in the last quarterly report, we have strengthened the Teqnion team with three new employees. It's Patrick that works with Anna-Karin and Håkan as a CEO Coach, working very closely with the foreign companies and the management there. We have Anneli who's strengthening our accounting section. Marie and Annelie are supporting and making sure that we have good quality in our reporting. Then we have Jonathan as the CCO that works closely with Daniel and myself when it comes to both the reporting, but also with the improving what we're doing on a broader level. Yeah, it's very nice for us to come to a new office space. We all have individual rooms. We'd love to show you a tour, but we won't do that today, maybe in the future.
And as you might already know, we're nine people here. We are very few people here on an everyday basis because we travel a lot. We visit our current portfolio companies, but we are also, especially me and Daniel, are visiting a whole lot of potential acquisitions. And so it's a big office, and we will fit into it, but it feels really, really great, and everyone is very happy that we have our own space that we can manage in the way we like it. Yeah, maybe we just jump into the... You've seen the report. You had a few days to read it and read the numbers, so maybe we can jump into the question section.
Absolutely. So the first question comes from Daniel in Berlin that says basically two questions. So would you ever consider to list Teqnion on another stock exchange in order to do stock buybacks? And if yes, what factors would need to be fulfilled for you to consider such a listing?
We have talked about it for several years, and we continue to talk about it. It's not in the near future, but it seems like a normal progress for us to be listed at the main market at some point, and also by then have the opportunity to do buybacks, share buybacks.
Yes. The second question is, do you consider acquiring only minor stakes of public businesses at some point in the future when they are attracting prices from the market?
The future is so lovely because you never know, right? We don't see it as of today. We try to get our money back from an acquisition within five years. Normally companies like that are valued higher on a stock exchange, but you never know in the future.
Exactly. The most important part when it comes to that is, of course, the capital allocation. We want to, on a risk-adjusted basis, make the most of the money. The listed environment is interesting to look at, but where we are standing now, it's just far better to do unlisted private acquisitions. Next question comes from Christophoro from Italy. He's wondering, why is there a significant jump in CapEx?
CapEx is a funny thing now when we report according to IFRS. All the leases, our office leases and factory leases, are looked at as at CapEx. And if we rewrite a lease agreement and it's now on 10 years, then we have to calculate it, then you will see higher CapEx in our reporting. So it's a little bit of everything. It's not that we went out and started buying expensive machinery or anything like that. It's more like we have a few new leases that are on a long term.
Yeah.
Among other things, of course, but I think that is the major part of it.
We don't expect to change the way that we're working or change our companies, which means that we, as Johan said, we're not buying more machines and tractors or whatever. Can we give some more details about bad planning at Markis City and what we learned from that?
Bad planning, yeah. The big thing there when it comes to that particular company was poor timing and somewhat poor planning when it came to the big move from one town to another into new facilities. So we were under, I think we were under four roofs, and we saw for several years that we would make a better company, more robust and more efficient company, and a more homogeneous organization if we could all be under the same roof. And finally, we found a good location to do that a couple of years ago, and we moved. We're planning to move this the fall of 2023. Unfortunately, we were not seeing that our colleague and friend who was the CEO of that company was walking straight into some sort of depression or he was overworked, more or less.
So, in the middle of the, or just as the big move was about to take place, he couldn't get out of bed. So we had to jump in and take over in the middle of that project that was not, it was not far from ideal process. And we have also, while doing this big change at that company, more or less making four small divisions into one big one, has also showed us a lot of, let's call it poor, maybe just say poor culture. And everything is fixable. We're going to fix this as well. But when you have to turn a bad culture around, it takes time because it's not possible to bring all the individuals on board on the new ship, so to speak. So we have managed to put a new management in place.
Let's say there are like four or five people there now. From what I can see from when I talk to them, it's a fantastic team and they really want to succeed. I can only believe that they're going to do that.
I think one thing that we learned is that in the decentralized structure that we have, trust is, of course, super important, and nothing will change the way we're running with trust. But when it comes to things that we know are difficult, and when the local management says that, no problem, we don't need any help, we are going to use more of the trust but verify approach, which is, of course, maybe just playing with words, but it means something.
Yeah. And I mean, the company was running good. We saw it could be run even better, and that's why we with the previous management and ourselves decided to move it to make it even more, to make it better. And what would happen in that situation was everything I just explained. And also, of course, when you change things so dramatically, we also discovered a lot of lacks in the organization and how they did things in these four previous divisions.
Always easy in the rearview mirror.
It's always easy to make plans in PowerPoint and Excel, and then you have to execute it with real people and real premises.
A last question from Christophoro is, we have some big variations in the quarter regarding other operating income that went from negative to positive. Can we say something about that?
Yeah, a little bit. I mean, it's an item in the income statement that moves around a bit for us at the moment because a lot of our earnings comes from companies that we acquired maybe the last 5 years or so. A big part of our earnings comes from those companies. And those companies, at least the ones that are three that we acquired within 3 years, have earnings that are due for payment every quarter now. And sometimes we reevaluated those. We have to reevaluate those payments according to what we planned 2, 3 years ago. And sometimes it becomes a negative post and sometimes it becomes positive.
I think we had those types of costs that were negative last quarter, maybe around SEK 12 million when it comes to both these interests that we have to pay on future payouts to sellers of companies and also the re-evaluation of earnings. So this quarter, it was a positive bunch of those. I think it was around four companies that had to be re-evaluated, one that we're going to pay more for than we expected, and three that we're going to pay less for. So I think it's going to fluctuate, and it's going to fluctuate since we are a rather small company group. And we have acquired, as we say anyway, higher and higher quality, which means that we have paid more and more money for the acquisitions the last five years or so than we did before because we can afford it.
We can afford to buy higher quality. It doesn't mean that we changed the evaluation method. We still want our investment back in five years. But the companies are more, the numbers are higher, and these numbers affect us. We have to come up with a better idea on how to present it in a more clear way so it's easy to read. But the accounting rules is what the accounting rules are, and we're trying to just facilitate that as good as we can.
Yeah. Maybe just a few words regarding that. I know that some of you know this very well, but the strange thing is, the first part is not strange. I mean, when we acquire a company, we need to put something on a balance sheet when it comes to liabilities and reservations, and we need to reserve the amount that we think that we need to pay for the company within the next whatever years we sign the SPA on, share purchase agreement, which usually is a three-year period. And according to accounting rules, you need to be as precise as you can but err on the conservative side, which means that you should always reserve. If you're unsure, reserve a little bit more than what you think. That's the rules.
So when a company performs at a level that is exactly the level that we forecasted, then nothing happens with that line item. And of course, that has so far never happened. Sometimes it's better. Sometimes it's worse. The thing is that when the company performs worse and we need to let go of some of that reserve because we're going to pay out less of the earnings, that becomes positive on the income statement because accounting rules that unfortunately I didn't make up. And when a company performs better than expected, you get a negative effect on the income statement, the same row, but with a minus sign on it, which is unfortunate as well. None of them have a cash effect, of course. And we need to do it when we think that something has happened.
So when there's maybe 9 months left until the payout, we usually don't do nothing. Our routine is that we need to look at it when it's 6 months left, and then we change accordingly but conservatively. So now we have a few companies that need to be paid out within the next quarter and some a little bit more than that, which triggered that we needed to do this this time and the opposite direction last time. Sorry for that. That was very boring, but maybe important. We got a question from Alexander at Paladin, which I think it's more or less the same question. Another question from Alexander is regarding the organic growth in the last three quarters. In Q4, it was -8%. In Q1, -1.5%, and now -6%. So it seems like it improved and then worsened now again. Why?
Okay. I see that the trend is there in the figures, but I don't see the trend as is in operations. It's more like we're in a slower, we are in a tougher market at the moment, and we've been for maybe a year. Those variations for me is just within our vicinity of operations. We have trouble doing selling with the margins we want in many markets, and it's not that we or our coworkers are bad at the moment. It's a lot of, it's tougher to do business at the moment. And I think we tried at least to present that in our letters and quarterly reports, at least for a couple of years, that we thought and we've seen the tendency that this is going to happen, and now we're here, and we're going to do the best we can with it. I'm not stressed out.
This is just the variations in the economics, and we have to fight this as we fight everything else that is troublesome.
Yeah. And maybe just the other thing was that we're quite or we're very small. So the fluctuation or the standard deviation quarter to quarter probably is a bit higher compared to if we were 10 times bigger. We have companies that are project-based. So if they sell a big project this quarter compared to last quarter or last year or not, that makes a few percentage points, but that is, it's not an operational direction. That is more of a chance. But with that said, sorry, I don't know what to say. I mean, minus is not good. We take that very seriously. That is super important for you to take away, but -6% or -1.5% in our operational world, we don't really see that as a trend per se.
It's just that. That was my point. I just want to emphasize that I'm not happy with where we are, and we need to improve.
Then we have a question from Margrim in Sweden who is wondering, are we using the American company AMETEK as some kind of company to look up to?
Yeah, I asked you if you knew what it was, and you said, yeah, had to Google it. So please tell me.
No, I don't think so. We're not. But it's a great company from the little, I understand. I wish that I owned a stock maybe 10 years ago. Simple answer is no.
But thanks for inspiring us with it.
Yeah, I think that we can learn things from them. They're apparently doing very well. Benjamin Belliard is wondering live here if we can say something about the working capital performance. We've made some progress on receivables in the quarter. Is there more to come? What about payables, which have increased a lot? What's behind it?
It's very easy to talk about details, and I'd rather not do that. But what we managed to do during the spring is that we, and since we strengthened the team here, we changed a little bit on how we are addressing these things. We look at the individual subsidiary, and then we see if there are some improvements that need to be done there in order to perform as well as we would like it to do, maybe when it comes to working capital. Then we put together a little, let's call it a little task force or whatever, and then we talk here. We talk with our colleague who is the chairman of that particular board. It's often one of the CEO coaches.
And then we come up with an action plan, easy to implement, and it should be a short project, maybe one up to maybe the longest period, three times, where we actually can go in and start making changes that hopefully will improve that particular company. So it's a little bit that we change now that we have more bright brains here, and we can help out more on the operational side and running the companies in a better way.
Yes. So I mean, our first tool in order to help all the companies basically to inspire and talk about strategy and missions and all of these things. But when it comes to some companies where both we and the company local management feel that there is much more to be done, but maybe they lack the tools or maybe sometimes they lack the hands and legs to do things, we have now started to be more hands-on in those regards to help them out.
Yeah.
Next question from Benjamin is if we could discuss the performance of Nubis and how we are helping them to address the market opportunities.
They are doing really well. They have big projects, and they have a lot of incoming questions regarding their products. I see that they are in a very good position to continue to do really well. I want to say, so maybe I say it, I don't think they need help. Everyone needs support and like someone to bounce ideas off, and they have that. This particular company, they work with Patrick here from our side, and I think it's a fantastic team, and I think they're going to perform really well.
Yeah. The one thing that we are, or Patrick, is helping them out with is basically the transition while one of the entrepreneurs is going to leave the company. We see a lot of market opportunities. We just need to ensure that we have enough capacity and capability to capture that. I think that's what we are doing. Finally, from Benjamin, you highlight three companies that are dragging down the group. Is it achievable to reach breakeven, and how long would it take, please?
All right. Looking into the future, when it comes to the house builders, not only ours, the entire business segment in Sweden is struggling still. We don't see the turnaround there. I don't dare to guess when the trend is going to change. We are filling our factories with as much projects as we can. Unfortunately, it's very, very hard to have a healthy margin on what we're selling at the moment. It means that we need to be even more efficient and really be sure that we don't take on too much cost when we produce these projects. As I wrote in the report, we haven't been really good at that during the spring. That is something that we're trying to achieve now. But when it turns around, I couldn't say, hopefully soon.
But it's so many things that affect that market when it comes to interest rates and prices for all the building material and the salaries for those who are going to build the houses and everything. So we will see when that market changes. On the other hand, there's a big demand for houses in Sweden. We lack thousands and thousands of homes here. So sooner or later, this country needs to build some homes. Sorry. And the third one was Markis City, and we addressed that a little bit already. I couldn't really say, but one thing that you need to have in place in order to have a healthy and profitable company is that you have a team there that actually likes what they're doing and are good at what they're doing. And I think we have that now.
So now we just have to support them and give them time in order to show themselves, their team, and their customers that we are a new company that wants to do things in a better way, in a more efficient way, and work really closely to achieve the customer demands more or less and be the best in that market here in Sweden. I think they're going to do it. The question when, we can discuss this maybe next Q&A.
Yeah. I think it gives maybe a part of the lesson learned as well is that, I mean, we're really focusing on finding companies that have real competitive advantages and pricing power and other things that we like, which means that they can be in the driver's seat for their own future. And I mean, whatever vehicle we have in our group, we try to do the best with it, but it's very much more difficult for the house builders to do something miraculously now when the market is more or less dead. For Markis, I mean, that's more on us to actually do something good with. There is no market reason for it to perform badly. That's on us.
I got a question here from Song, who is saying there seems to be some parallels, though not exact, between Teqnion's situation and the poorer inherited product mix at Bergman & Beving, which is currently being addressed systematically through refocusing on the profit over revenue in less performant subsidiaries and acquiring companies with strict criteria to fulfill some long-term strategic metrics. Any thoughts?
Many thoughts. Always many thoughts. Now, we don't, okay, let's not like this. When we started this company 18 years ago, we could only acquire what we could afford. And you can imagine that that was maybe not the best quality of companies. As we have been fighting along and working hard and managed to survive and earning more money, we have finally reached a stage where we can be more picky when it comes to what type of acquisitions we make. So I think that that somehow answers Song's question, is that as we have the opportunity or the means to do better things, we're going to do better things. And I've seen it in several of the more mature serial acquirers in Sweden.
For me at least, it was one of the big things that Jörgen Wigh did with Lagercrantz when he took over in 2005, let go of the big revenue and just kept the big earnings to simplify things a lot. That's what we like as well. It's not that we look at others. It's just for us common sense, and that's what we want to be good at this, which means that we constantly have to improve, and that's what we're doing.
Yeah. I think it's, I mean, it's a really slow process. I mean, we're doing things that are really mundane, or subsidiaries are doing things that are, we try to find companies that do unsexy things, which partially means that it's quite tricky to improve super quickly. And maybe just a few words regarding that as well to bring attention to three points in history based on your one timeline there. So I think that Teqnion financially have struggled, depending on how you look at it, like three times during these 18 years. The first time, obviously, you all know the story in 2008 where things absolutely did not go well. In 2008, everything was crumbling, and we made the first and only loss in Teqnion history going from profit to loss. Hopefully, we'll never do that again.
And then in 2019, just after listing the company, the global economy went into a synchronized slowdown for the first time in a decade and a half. And that actually took down our earnings per share roughly 70%, 7-0, which is really, really bad, but less bad compared to going from profit to loss. And now we're in some kind of global recession again, and earnings per share is down roughly 15%, which is still really, really bad, but once again, less bad compared to 2019. And I do believe that we will have fluctuations over time. The important thing, of course, is for us, you know, our financial targets is that we try to at least double our EPS every five years, which means, of course, that every top is going to be higher than the last previous top and every.
Valley.
Valley, thank you. It's going to be higher compared to the last valley. But I mean, it's a really long improvement process. And as you all like to say, I mean, we're still just in the beginning. It's a long way left to the top.
You say such good things.
I just say things. Marcus from Germany is wondering, "Congratulations to the acquisition of Avelair. Could you explain the reasons for choosing this company? Do they have pricing power? And what is their competitive advantage? Will the current management stay on board?
Yeah. The company is run by David, who took over after his parents that founded the company. So I think he's been the CEO since early 2010s. And he's going to stay on. I think you said it a week ago or so that we don't really know who found who, that we found each other. And on a personal level, it feels really, really good. We have the same business values and probably also most other values in life. It's a fantastic little team, and they are very good at what they do. They focus on, like we, always trying to be better. They have everything in order to continue to grow and continue to increase their product portfolio with better and better air compressors that they sell on. It's a high-end, quality, efficient, really efficient, less energy-consuming compressor compared to some segments in that business.
They are also like a local UK manufacturer that also talks to a lot of potential customers that they have. They are very close to their supplier, which is Avelair, and that can help them out when it comes to specifications. Also, of course, the actual design of whatever power they need for the air compressor and also when it comes to service and aftermarket. So they have the presence on that local market, and they have a strong brand, and they can continue on that path, I think, for a very long time.
I think maybe just to add to that is that they are probably one of the best ones that we've seen when it comes to operation, when it comes to these smaller-sized companies. And of course, that is a process competitive edge, and hopefully that can also help our other companies a little bit, inspire them over time. And there are other factors, of course, that we like. We do believe that they have, let's call it pricing power. They have a very big installed fleet of machines, of roughly 1,000 of them, and that generates substantial aftermarket revenues year in, year out because nobody wants their factory to stand still. All right. We have a lot of questions here from our Spanish friend, the Galician Investor. In the report, we mentioned that it's easier to win the EuroJackpot than to be acquired by Teqnion.
However, we also mentioned that some of the companies have low competitive advantage in our group. Could you explain why these acquisitions were made and what percentage of companies that fall into the low competitive advantage category?
I think we just discussed that a little bit. We described that we started out with the means that we had at the time and had to acquire whatever we could acquire and constantly just increase the quality of what we buy. Yeah. Generally, we say we have three types of companies. We have the trading companies. They can be highly competitive or less competitive, but we've been managing those types of companies from the beginning of Teqnion now, and I think we're rather good at doing that. We are able to generate really good cash flows from those types of companies. But I mean, it's something that you need to understand. It's built on long-term relationship, both with customers, of course, but also in that case, with very close relationships with the suppliers.
It's a real team effort to build a relationship that can stand for decades, and that's what we value there even more. Then we have the companies that manufacture things for others. And the contract manufacturers, let's say that everything that has a factory, and we do a lot of sheet metal. And unfortunately, we do a lot of sheet metal works for the big truck companies that are really good at pressing down the margins. And it makes us to, we need to uphold a very efficient factory with a really highly skilled workforce and all these certificates that you need to have in order to be able to supply that business. And it's costly overhead for that, and you're not allowed to earn very much money. So that is a very long, that type of company is nothing that we look at anymore.
It was something that we acquired back in 2018 and maybe on some mental flaws that it looked cheap on paper. You should never do an acquisition on those. Help me with the words.
It's a nice little value trap.
Okay, thanks. Yeah. So of course, we have companies that are below par on what we're looking at today. And hopefully, it's always going to be like that. Hopefully, we're always going to improve the type of acquisitions we make and always target and aim for higher quality companies. At least that's how me and Daniel look at these things.
Yeah. Maybe another perspective on this, because it's so difficult to answer if they have competitive advantage or not. I mean, of course, that's a scale, but Teqnion looks very different now compared to, of course, 10 years ago and also five years ago. So half of the companies were acquired before Markis and half were acquired after Markis. And of course, then you say that doesn't make sense because we have 29, but whatever. For the last five years, those companies acquired for roughly 80% of our EBIT, and of course, the quality of those are on average higher compared to ones before. And hopefully, as you want to say, when we improve more and more going forward, we're going to increase the share of just higher quality companies and go from Division 7 to 5 to 3 to Champions League.
Maybe the third type of company that I never addressed is, of course, what we're looking for now. So it's more the companies that own their own brand names and own their own designs and can more or less forge their own future.
Yeah. Exactly. Long answer, sorry for that. If you acquire excellent companies with years of experience and profitability, why is the role of the CEO Coach necessary? Shouldn't these companies be able to operate independently from the same person?
Okay. I can talk, I think I can talk hours about that question, but companies are run by human beings. They buy things from other human beings and they sell to other human beings. Human beings are an animal that needs encouragement and that needs someone that asks the right questions and motivates them in the right direction. It's also some sort of showing the right map for the future. So the CEO coaches are normally the chairman of the board of that particular subsidiary. So they run the board work, focusing on strategy going forward for the next decade and the coming ones. But they're also the everyday contact person when it comes to managing director or subsidiary CEO that needs to bounce ideas with someone that is not some of their employees.
So it means that you have all of a sudden, you have an extra layer of encouragement, bright ideas, hopefully, or at least other ideas and new visions and the combined experience of many people. So you're not on your own. So for us, it's extremely important to have these CEO coaches. They are actually lifting the way we look at the future and how the CEOs of subsidiaries can work towards the long-term strategic goals for the future. Yeah. This is a topic you can discuss a lot, but for us, I mean, we know that we have a lot of fantastic products within the company group that we sell and we design and we sell and we manufacture for others. But what we really value and our true asset is, of course, our coworkers, the people working there and their relationships with the customers and the suppliers.
That's where you can create value over time.
Yeah. Maybe just to add two more things to that. One is, of course, as you say, that when we buy higher, higher quality companies, we need fewer CEO coaches per company. I think that if we only had companies like the struggling house companies and Markis City right now, we would need, I don't know, one CEO coach per three companies or something in that direction. If you look at big companies such as Lifco, I think they have roughly one CEO coach or they have another name for it per roughly 10 companies. So of course, you can stretch that a lot more, and we hope to be able to handle much more than 10 companies per person.
As I heard you want to talk about before, when it comes to high-quality companies like Nubis, we do not a lot, which of course is very helpful in this regard. The second factor that I wanted to add is that, of course, what we try to achieve is to both acquire really good companies, but then over time, actually make them better. Historically, we've been able to make the companies better over time, where you can see a little bit higher growth, a little bit higher profitability compared to before then joining the group. Of course, that's the second, another factor that I just want to mention.
Just from our own experience as well, we introduced it rather late to have dedicated boards for each subsidiary. I think we did it in 2016 maybe, where we tried to focus on strategy work and just laying out the map for the future within the board work and not talk about here and now on whatever operation issue was on the table. We've seen the change. It works. We continue doing it. We still have a lot to learn, of course, but we feel and we see that we're on the right track there.
Yeah. Continuing with the Galician investor here from Spain, are you still confident in achieving the doubling EPS every five years? Given the current projections, it seems challenging. And then there are some numbers which basically are saying that it gets more and more challenging for every year because the numbers get higher.
I'm very confident.
Yeah. Me too.
I don't really know what to say about that. I feel really confident about it, and I see that we're going to manage to do it. But we also set that target on a five-year horizon just to be able to not be forced into stupid decisions on the short term. And I'm happy about that financial target. And I know that we both and the entire team here, we fight to achieve that, and we're going to do it.
Yeah. And I mean, I don't want to talk about alternative timelines, but I do believe that if we really want to do, and if we wanted to have a good one-year result or a quarterly result, we could actually have that this year. But then that would be somehow of a sacrifice of the future because we've done things that we believe would be better for the future. We could, of course, do things, sell with discount to get more sales and whatever in order to push up the profitability, but that would be bad for the long term. So that's the reason why we have the five-year target.
Maybe also for me at least, I think we say the same thing, but we could, of course, acquire more companies. We look at many, many companies, and we could acquire more, but we want to be sure that we have the resources to incorporate them into the group in a good way and also that we find companies that we pay the right amount of money for.
Yeah. Words are cheap, of course. I'm jumping in here with a question from Gianluigi from Italy. We're saying, "Dear Daniel and Johan, congratulations on the newest acquisition. I have a question regarding your personal investments. Would you be willing to share what percentage of your net worth are Teqnion shares? This would be incredibly insightful.
Sorry for giggling, but well, I own half of my apartment, half of my country house, and very, very little shares. I have everything in Teqnion, more or less.
I have roughly 80% in Teqnion. So we are, I think, confident.
Sorry, I don't own half of my apartment. I own a quarter, the bank owns half. My wife owns a quarter as well.
Yeah. We're sitting in the same boat. All right. I'm jumping in with a few questions here from Himanshu from the UK. Can you give us how the bottom three businesses have performed on sales year-over-year?
I'd rather not.
We actually discussed if we should show that much that we did regarding the three bottom performers, but we felt it was fair for you to understand what you actually own and what is dragging us down. But we don't want to share more information than necessary because especially for those three businesses, we do have competitors that could be interested in it. So we'll keep it for ourselves. Any comments on the Free Cash Flow? When do you expect significant improvement? And is there a cash flow metric in the business units' incentives?
For the first time from this year, there is something in the incentives regarding cash flow. When it comes to when it's going to be a leap of improvement, I don't think we do many things in leaps here, but we are constantly working on it. As of today, we have a few companies that we know that we need to target this issue with. We know that this should be possible to do in a normal timeframe, let's say a year or two. Overall, we're looking into this for all our subsidiaries. We always want to improve these things. It's critical for us to have great cash flow and lock up as little capital as possible because we want to use it to allocate it into new acquisitions.
Perfect. We have a question from Yuan, who is wondering if we could put some color on what hurdle rates we work with regarding acquiring companies. And then trying to assess what group EBITDA margin trend will be. I tried to guess the very long trend, 5, 10, 15 years, and so on.
Hurdles in acquisitions?
Yeah. Yes, we do have hurdles, but we do it inversely. So we try to get our money back within roughly 5 years on what we feel is a realistic forecast, and then we risk adjust that with how the earnings and structure of that look. So that is basically our hurdle rate. And regarding our EBITDA margin trends for the future for 5, 10, 15 years, do you want to do that?
Yeah. No. But we still know that we have the capacity to improve it as the group looks today. But we are also acquiring companies with higher margin than the average margin from the group. So over time, we're going to increase it, and our goal is to constantly increase it. I think I talked to you about these things at least a couple of years ago when, if you look at the big serial acquirers or industrial groups in Sweden, like Indutrade, Lifco, you've seen what's been happening with their margins if you look 10 years ago. And we don't want to be less good than they are. So we're constantly trying to improve, and we have a strong belief that we're going to achieve that. But how fast, I don't know.
Higher.
Higher and longer. Yeah.
I have a question here in the chat from Alex, who is wondering if we have considered organizing the subsidiaries into divisions.
Yeah, we thought of it, and we did it for a while, and then we realized that we didn't think of it as divisions. So we don't operate it as divisions. So we split it up again.
Maybe just to clarify, that was only a paper product in the reports. It had nothing to do with reality.
It was a little bit looking too much at others and not looking into what we're doing. I don't know about the future. Maybe it becomes clear for us that we should do it. Maybe we should split it into Swedish companies and foreign companies or something else. There's nothing that we plan on doing at the moment. This way of operating that we're doing at the moment works really well. I think we continue for a while until we see something better.
Yeah. Moritz comments. I saw you started a merch shop. On one hand, nice. On the other hand, isn't it distracting?
It's a very good question, actually. Of course, it's distracting, but very, very limited. Yeah. You have to do fun things as well. And I think the embryo of this was that when we're standing here a quarter ago and someone asked, "Why don't you have a merch shop?" And then we said, "Maybe I will make one." And I said, "Maybe not." And now we have. And it's been very good.
I mean, we kind of did not make it.
We did not make it, but you pulled the strings. Some of our lovely shareholders and friends have made it for us. So it's.
are operating it.
Are operating it. It's a fun thing because you have to fill your days with fun things as well. Now it's not our core. It's just a little gimmick that made us smile. And hopefully, you as well.
I seem to not be able to add two more things every time now, but.
Please do.
One thing, I think, let's see, potentially, it can actually save a little bit of time. That is not the reason why we did it because we get emails every now and then about, "Can we buy some merch?" And then sometimes we've been able to send away some merch, and that takes time from me or Yuan because we don't have assistance.
Yeah, we have to go buy a stamp and go to the post.
Exactly. And nowadays, that would be automated. But I think the second point is really what Yuan said. I mean, we do things that are distracting. Tomorrow, I'm going to Barcelona on vacation. I'm not going to do much Teqnion stuff. That is also distracting, but hopefully, long term, good.
Long term, necessary.
Probably. Hopefully.
Charge the batteries a little bit.
Yes. Continuing here in the chat. Tobias is wondering, "How come you grew your profit after taxes, but EPS went down 1%?" The quick and accurate answer is that we took in some money last summer. So we have more shares. So more people are sharing the same profit. So that brought it down a little bit. Alexander is wondering, "How high is the proportion of revenue generated by struggling companies, roughly?" Maybe you also can mention the highest organic growth rate of the best-performing company over the last month to get a better feeling for a variety of developments.
Tough thing to dive into, I think. Good question. Start.
Yeah.
I think it's difficult. I was thinking something like this, and you will use.
Then I add two more things.
The necessary things. No, but normally, very, very rough figures. We say that maybe 10% or something like that is going to struggle or not going to perform well in the group if you just draw out the time span. And right now, there's more because we are in a more difficult situation in the market. So now we have too many companies struggling. We have a few of them that are boosted on the other direction because their market trends are just spinning off, like we reported and we have done for a while. The electrical things in society are increasing, both when it comes to electrical grid and everything that's connected to that, but also everything is electrified, and we sell components to that type of industries. Those are boosted at the moment, and we'll probably be for a while, but not forever, is my guess.
Nothing is forever. We also have the defense that for rather sad reasons are really booming. We have companies there that's not going to have this demand forever, but they have at the moment. On average, yes, we slow down, but we don't slow down as much as we would if we'd just been focusing on one or two or three industry segments. We focus on good companies within every industry segment that we find that we think that we can understand somewhat and that we believe it's going to be there for decades and decades. That's how we think about these things. It's very interesting for us as operational people to jump into these companies that are struggling at the moment and help them out and try to fix them as fast as possible.
It's actually nothing that we report or focus on when it comes to discussing with you as shareholders. It's more like an operational thing that we address every day and what takes up most of our days, actually.
Yeah. Do you want to say something about the best-performing organic growth companies?
Maybe I did.
I think you did.
Yeah. Without thinking about it.
Is there?
Yeah.
Good.
But you should add a couple of things.
I have nothing to add on that, unfortunately.
Okay, sorry.
Galician Investor from Spain, more questions here. Are there any companies acquired since Daniel arrived that are having some troubles? If so, which ones? What are we doing? Etc. I only buy perfect companies. No.
I only hire perfect CEOs.
Exactly. Exactly. No, we acquire better companies now for a lot of reasons because we've learned so much over the time, as Yuan said many times. And now, of course, we also have the cash to acquire higher quality companies. But if we were able to buy only great companies, I mean, I wouldn't be able to write a book about investing mistakes. I continue to make them. We continue to make them. It's not a one-man show when it comes to anything at Teqnion. And yeah, go ahead.
I just interrupted. I don't want to. I just felt like an expression on that topic is that, of course, we can buy a company that at the moment of acquisition is perfect. Then something happens within the market or with people that work there or with their customers or the people that work with their customers. It's not a perfect company anymore. It's a moving target, and we're trying to balance it. We balance it by everything we do to just reduce risk and to be here for the long run because we strongly believe in the long run of doing this. Every company, even the most perfect company, has a life cycle. That needs to be addressed by the management or maybe at some point by the board. That's where we come.
I think if you take the companies that we have acquired for the last three years or five years, they perform as a group as expected or a little bit better than expected. And expected means that we're getting our money back within roughly five years. And then, of course, within that group, it can be diverse. We have within that group companies that are losing money, but more of them, of course, are doing a little bit better given that the group as a whole is doing a little bit better. And I think that's, and I hope that you that are partners in this and invest in that bet on the group and rather not that we don't make mistakes because we will continue doing that. New mistakes.
Yes. And maybe every once in a while, old mistakes as well.
Unfortunately.
Yeah.
We have another question regarding Markis City. Do we think that they will be generating profits now when they have a new facility?
Yeah, we think so. But we need to change the culture around and make the people working there a happy gang again that wants to perform well towards the customers. And we're in the process of doing that. But changing a poor culture around towards a positive one is what really is a turnaround. And that takes time because you have to change on how people look at their work and their life. And yeah, it's going to go well. I'm the CEO. I'm supposed to be optimistic.
But still, you're very pessimistic.
I am.
Maybe now when we've done this for an hour, we've come through almost all. Okay, one more question. Hello, do you have another country in mind for further expansion? Yes, but I think that we will not share it as of now.
Because it might change.
Exactly.
As everything else.
I think, of course, know this. I mean, we're always creatively evaluating new opportunities. Yuan and I, we spend a lot of time together traveling and talking about different things and about the future, about potential strategies, about what we should acquire, what we should not do, and all of those things and in between. Some of those things, I wouldn't be able to say a percentage we do something with because we thought it was smart. Sometimes it was smart. Sometimes it wasn't. For a lot of those things, we actually don't do anything. Maybe it inspires us to talk about something else. We will always, I mean, opportunistically look at, of course, continue to do the things that have worked well and making those better, but always also looking for new things to do. That would be risk-adjusted good allocation of capital.
Yeah.
Do you have any concluding remarks now that we're going to Q3?
No, it's going to be a lot of work. I'm looking forward to it. I'm so happy with this team. I can't emphasize that more. Fantastic people working here. The future is for us to grab.
Yes. Thank you, everyone, for joining. Have a great rest of your weekend.
And summer.
And summer.
Have a swim in the ocean.
Bye-bye.
Bye-bye.