Good morning, everyone. Welcome to Teqnion 2026 Q2 Q&A. Thank you all for joining us today, especially given that I guess it was a late night for many of you due to the World Cup final. We will, during the next hour or so, give you, as partners and interested parties, the opportunity to understand your business as well as possible. We will be alternating between the questions that we have received through the Q&A here in Teams. Just as a reminder, there's a Q&A button next to the chat button, and we will also be jumping into the email questions that we have been receiving. Before we start doing that, some words from you.
Hello. Good morning. How are you?
Good. A little bit tired.
Sad? Are you sad?
Yes, a little bit.
Okay. Welcome very much. Me and Daniel, we're here at our office in Solna, in Daniel's office space. Teqnion is doing a little bit better every quarter now, which feels great, at least in my stomach. For the quarter, the Q2 here in 2026, the underlying pre-tax profit from our subsidiaries is more than double than last spring's. Nice. The earnings on the EBITA level was SEK 7.9 million. That is up 36% compared to the last Q2. The organic part of that EBITA is up 52%, which is good. We try to sell more, but we are very much interested in earning more on everything we sell. Just as a comparison, the increase of the org anic EBITA for the Q1 this year was 13%. We're doing a little bit better on everything we're selling.
The group as a whole is performing better. It's not good yet, but we're getting there. The work that we put in throughout the years now, the team has managed to put us in a better position, and just moving everything forward. We have a lot of new processes implemented, and we worked hard on some turnarounds. Finally, the performance shows we are on a better foundation to build something from. I'm really happy about that. We have operated in our two business areas for quite some time now, and we have two driven teams with fantastic coworkers that are doing their best and want to perform. Also very positive. With that said, there's still plenty of things for us to do and for the teams to perform.
We're doing that, and we will just continue, and we will never get satisfied. Let's jump to the questions, maybe.
Yes, let's do that. The first one comes from Cristoforo through the email. He says: "Hello, Daniel. Nice to see the improved results. Thank you to the team from our longtime shareholder. About organic growth, good news. The number is positive, excluding exiting unprofitable businesses. One question, even if it is an apples to orange compar ison, I see some Swedish conglomerates will have still higher organic growth rate this quarter. Example, Lifco +5%, Lagercrantz +6%, Ratos +3%, et cetera. What is your thought on that? Thank you. Keep up the great work.
Do you want to listen to my thought first?
Go ahead.
My thought is that we want both. We both want organic growth on sales, and we want org anic growth on earnings. If we have to choose one, we have to start with the earnings bit because we don't want to do a lot of business that we don't earn enough money from. My thought is that we're going to have both on a good level. Right now, we are focusing on m aking sure that the businesses we're doing, we're doing in a great way with good margins and therefore good earnings.
Maybe just to add to that. We, as owners ourselves in Teqnion, and I think for most owners, given the business model that we have, our business model is that we're going to make more and more earnings and cash flow per share. It's not really to get the higher valuation for what we're building. Hopefully, that will come with it. That means that we want to have more earnings. In the short, medium term, it's really about using both levers. Of course, in the longer term, higher earnings will need to have higher organic growth as well. It's not really what we're chasing. We're chasing the earnings and then using sales as one of the levers rather than the other way around.
maybe another perspective on that is that, of course, when we see other companies that are better in one or other perspectives, we want to be better than that. These companies have been around for a while. They have quite a lot of experience. Of course, Ratos is rather new, but it's gathered with a team of people that have done this for a long, long time and with extremely, of course, smart people, good team, and a lot of capital as well. There's an underlying fac tor of it as well. Of course, if you pay a lot more for the same earning, you would also expect to have companies that just organically grow more, and there's a balance to that as well.
Yeah. Many levers.
Yes. The next question is coming from Thomas through the e mail. It says, "Good morni ng, thank you whole Teqnion team for ama zing work. Does Teqnion, as a group, have pricing power?
As a group?
As a group. Tricky one.
Yeah. Definitely.
On a group level. You want to start?
No. It would be too philosophical, I guess.
I think it's really difficult to answer as a group. The way I think about it is that as a group, we have more pricing power now than ever, to be honest. For every company that we acquire, we try to find companies that do have better pricing power than the group as a whole. Slowly, I think we have more pricing power now compared to one year ago, five years ago, 20 years ago. It's really different on an individual level basis. Unfortunately, because we like to tell you exactly how it is, we do have a few companies that have been struggling, as you know, and some of those have close to none pricing power. A couple of those are contract manufacturers, and they're price takers when it comes to the projects they're doing, because it's rather generic.
We don't want to acquire companies like that, and that's also one of the reasons why they've been struggling. We also have companies that are doing really niche applications. For them, when they find the right customer and can explain to the customer why their application is the right solution for the m, the price is not really a factor. For them, the pricing power is really high. I think we have a ra ther big scale when it comes to the pricing power.
Absolutely. I totally agree with you. The most important thing there that Daniel is saying is probably take out that over time, we make sure that the pricing power, let's say on a concrete level, is getting better and better. It's also the mental part of it, just to educate ourselves and build a group, a team feeling that we actually can supply our customers with something that is valuable to them. That is also something within each individual that works, even if you're in a contract manufacturing business. If you're able to make sure that you're the best friends with your customers, you will be able to charge more because you will have the best relationship, and you're confident, and you're proud of what you can perform and what you can deliver. It's so many levels of this.
We are, of course, in charge of making sure that our coworkers have the right feeling about it and the confidence and the proudness of actually supplying the b est there is in their niche.
It's a very interesting thing that you're saying that because I think it's easy to sometimes think that the product is X, and therefore pricing power is X. Of course, it depends on how you package things and how you actually build the whole solution and the relationship. We have, for example, a couple of companies that are doing, on paper, the same thing. I think for most people on the outside, you would say that they are doing exactly the same thing. One of those companies have, at the moment, an earning that is, let's call it low single-digit EBIT margin. The other one is closer to 40% EBIT margin. The products are more or less the same, but they are packaged in a different way. They have different solutions. They have different relationships.
They're in different geographical markets as well. Of course, a smart inv estor's question is, why don't we do the same thing for both of them? We're trying. Next up, we have another question from the email. It says, "Firstly, I apologize for my ignorance, I found Teqnion as a very interesting investment case. The transparency in reporting is truly exceptional and creates a lot of trust, thank you for that." Thank you. "How should an investor view Teqnion's main risks?
I just got sighed. Its only risk is everything we do is balancing the risk, because that's business. The main risk as an investor is that we would start making stupid decisions and acquire things that we don't understand or that we pay too much for, or we get too much leverage, or I don't know. I see that risk as rather limited because we trained on this for quite a while, and we cherish this company as it was our own.
I think so too. Teqnion is a vehicle for redeploying cash into return of capital projects, which usually means acquisitions. Of course, if that goes wrong, we h ave these two engines, acquisitions and the current portfolio, and if one of those things doesn't work, the wh ole thing will fall apart. Over the last couple of years, we've had challenges, as you know, with our current portfolio. We are at a stage right now where Teqnion Nord, which is the part that has been struggling, are close to all-time high earnings and margins, which is a good new baseline, but far from where we want it to be over time. We have Teqnion Väst, which has performed. It's also newer. You could say the jury is still out. If things like that happen and we can't fix it, that's of course a big risk.
We think that we're in a better position now. We got ourselves into that challenge, and we have fixed it. Hopefully that shows that that risk exists, but that we're a little bit better now compared to two years ago. As you said, the acquisition thing, if we start buying bad things at high prices, then that will be very detrimental. We don't want to do that. From the same person, he's asking, "What is your biggest sub-segment exposure?" I think there's different ways to cut this. Geographically, Swe den is still our biggest end market. You could, of course, argue, is it really Sweden that is the end market? Because a lot of our customers are international conglomerates, so they in turn don't actually sell to Sweden, but rather to other international companies.
Sweden is, yes, high exposure. U.K. would be our second-biggest exposure. When it comes to industry, traditional heavy industrial is still our biggest group, I would say. Compared to maybe 10 years ago, it's in % much smaller. Defense has become bigger. MedTech has become bigger. I would say that the group miscellaneous, which is very different things, have become much bigger. Next one from the same person. "Your returns on capital has been falling steadily for a while. Is your business cyclical?
A part of it is cyclical. Companies acquired over five years ago. When it comes to return on capital, we're of course affected there, but because of previous mistakes, and it's going to turn better.
Yeah. Maybe just to reiterate, yes, the industrial climate 2025, 2026 is more difficult compared to a few years ago. Most of the decline, I wouldn't really attribute that to the cyclicality. It's actually mostly due to self-inflicted pain that we also have to a large extent fixed by now.
Yeah. That was a better answer.
I have three questions on the live Q&A from Prakal. He's saying, "Excluding the discontinued unprofitable business, organic growth appears to be roughly flat. How much more business remains to be exited when you do, and when do you expect reported organic growth to normalize?
It's definitely a continuous project, when it comes to discontinued business and what we report, we made it rather clear cut. There's more things to come, and it should also be able to, for us on the internal side, we see that we stop doing things that just makes us busy fools. We stop doing things that we don't earn mo ney from and only produce sales, and that is over the entire group. Over time, the target is, of course, to make everything much more profitable, and we're still in the journey of making that happening. The intention is that you're going to see better and better margins and better and better earnings, and better and better sales.
Prakal is also wondering, "How has the organic revenue and profit performance been in the companies acquired during 2025?" It's still very early. Some of the companies we acquired in 2025 are only maybe eight months old or something like that. As a group, we're happy to say that they are growing. Growing as a group. The quality of the companies that were acquired in 2025, 2026 are different, better, compared to earlier. The expectations on them are, of course, higher. We hope to be able to buy more of those companies that are more autonomous and just stronger in most regards compared to earlier. With EBITDA margins now at 14%-15% for four consecutive quarters, how should we think about margin and EBITDA growth as comparisons become tougher from Q3 onward?
Maybe just to repeat what we just talked about. We're really targeting to become better overall, that includes making more sales with higher margins. Our target is internally to continue moving along this path. We don't give any forecasts, you know how we express ourselves, hopefully, how we communicate over the years, we are not satisfied wh ere we are today. We want to become better at what we do.
Yeah. I think also, exactly, we always want to be better. We've had a period of rather quick decline when you looked at the financials, and during the last four quarters has been maybe not a straight line, but a rather quick recovery for four quarters. If you were a shareholder that didn't really look at the reports for the last two years, you would say that it looked almost a little bit like a straight line over the last two years. Of course, going forward, we won't have earnings growth, organic earnings growth of 50% or whatnot. That won't happen. We're getting closer to some kind of normality, whatever that means, and then we just nudge that normality into a new normality that is a little bit better than yesterday.
I think we're getting closer to that point, which is, I guess, how a serial acquirer should work. You have, over time, a rather stable return on capital, rather stable profitability, and then you just grow from there. We got an email from [Roserial]. It's in Swedish, but basically the question is, "If every subsidiary is acting independently, who is held accountable when things go wrong? Is there a risk" It's two questions. Let's start with that one.
Yeah. Every subsidiary is operated autonomously, and they are working under the hol ding company in their separate region, Nord and Väst. They have a board. Every subsidiary has a dedicated board of directors that makes sure that they have a strategy going forward, going into the future to maintain competitive and profitable. The board, together with the CEO, works this out and makes sure that we follow that strategy. Of course, the top management is held accountable for making sure that we perform along that line that we together decided on.
Yeah. The second part of the question is, "Is there a risk that a continuous improvement mentality becomes a reason to not really hit the targets with clear and measurable results?" I think the risk is there. We absolutely hear every now and then, especially a little bit earlier, that things will be better, because it's human nature that you believe in what you're doing, you believe in your team, you believe in your business, and you're doing things that are, of course, qualitative.
You feel that you work really, really hard, and that should pay off mentally.
Exactly. That soon the financial will come. I think, to be self-critical, in the beginning, you, I, the rest of the team, we should have maybe not pushed that, but we should have questioned and verified that clearer and maybe had closer deadlines to ensure that it really, really paid off. We're humans as well. We learn from that. We were maybe a little bit too lenient. Looking backwards, yes, we were. We saw in some of the companies, yes, the talking became action, that became output and results. Great. In some of the companies, the talking and the actions didn't really translate into results. Capitalism or business, yes, action is good, but action in the wrong direction is not helpful. Sometimes it's even worse. In those cases, we do something about that.
We try to be a sounding board. We try to be closer. We try to coach. We see if we agree about the direction. We try to see if we can support in any way. If nothing of that works, then we will have to find another solution.
Definitely.
Maybe just to tie that together. Yes, we talk a lot about improvement and slow progress and those things because they are important, but they are only important in the framing that we want to have measurable results. That is, of course, the target. We got a question from Akash. It says, "Hi, Dan and Johan. Congratulations on the continued success regarding the turnaround. I have two questions. 1, what will be the impact of a more stringent M&A criteria on deal volume and ability to deploy all your free cash flow?" Let's start with that one. Maybe this is marking a little bit on words, but I'm not sure if we have a more stringent M&A criteria. I think that we are sharper when it comes to M&A.
If this is referring to the comment that we made on the whiteboard, where we got a clearer mandate in the beginning of 2025, it's not really that we got a more tight criteria. I would say that we got a more clear mandate. Before, we didn't really have a super clear frame for the management and for every single case, we had to take it to the board and have discussions with the board and in certain cases with the bank as well regarding what to buy and what not to buy, just to give an example. During 2025, due to the new board that came in in 2024, they came to the conclusion that management is running the business, management is running M&A, and the management should be accountable for what we acquire or not.
The board is doing their evaluation on us if we are acquiring the right businesses or not. They're doing the evaluation on us if we're running the businesses in a good way or not, but the board isn't operational, as they were to a higher extent before. Just to maybe clear out that question mark. You want to add something to that?
I just felt the more stringent, I was hooked up on that a little bit. The deal flow is high. What we're looking at on paper is better acquisitions than before, as it should be, and the confidence that we're doing the right when it comes to M&A is very high.
Yeah. We have a higher cash flow now, of course, because we are a bigger group, and we will deploy all of our cash flow into M&A. Not saying that it will happen exactly now, but that is how it will look, and we have enough cases, more than enough, to get that done. The next question from Akash is: In the Q2 report, EBITDA was plus 36%, but organic EBITDA was up 52%. Can you explain the discrepancy? How is organic EBITDA significantly higher than the EBITDA growth?
You want me to?
Yeah, go ahead.
No.
You're the IFRS expert.
What we're saying is that the organic part of the EBITDA has grown by 50-plus %. Just to say that if we had SEK 5 million, I don't say that we have that, it's just an example. If we had SEK 5 million, now it's SEK 7.5 million, it's just the part of the growth. The organic part of the growth was growing by over 50%.
Yeah. Then maybe just to add some fun IFRS facts. The organic growth in EBITDA, as you say, is how we view real earnings. The auditors in the call might not really agree with how you think about real earnings, but that is the closest you get to cash in the income statement. In the EBITDA, that one includes, among other things, earn-outs revaluations. You also have the IFRS lease, and then, of course, you would have overhead. Overhead is absolutely real. The other two things are question mark. That's how the rules are. We show both because then you can choose which one you want to follow, or maybe both.
Maybe we complicated that too much now, we have to do a new whiteboard for the next quarter. That's fine.
We got a question from Benjamin Billiard, who is quoting Johan saying, "Effective data analysis and support from non-human intelligence are becoming increasingly important for getting there efficiently." This was an interesting comment regarding M&A. Can you expand on it a little bit more, please?
I think I leave that to you. Of course, those tools are implemented more and more over the entire group, and we're constantly in a learning process on how to use these tools effectively and on the M&A scene. Over to you.
It's super interesting. We've received a question a lot of times regarding how will we scale M&A. For a couple of years ago, we were acquiring three to five companies a year, and we got a question of how would we ramp that up. Our answer, I think, has always been, we'll figure it out, and hopefully we get smarter, we get better. Maybe what we didn't anticipate was that we got this gift from God, that AI came. I think historically, if you look at peers, you would see that there's roughly one to two acquisitions per M&A FTE in the other serial acquirers. At Teqnion, depending on how you count FTE, I'm working close to full-time. Johan is supporting, Jonathan is supporting a little bit as well.
We're closer to last year, nine per one FTE. It's not because I have stopped sleeping. It's absolutely helpful that we have AI tools that can help us to do things, that can run 10 things simultaneously while I'm sleeping, to help out with things that would just take a lot of manual work, and that would pick up things that we would never have picked up before. Of course, we take very m uch Centaur or Centaur approach, where we try to use AI as a tool to support us. Basically, when I work with M&A, I think about them as a team of junior or associates. It's not the answer.
It can make mistakes, and we can't trust it at face value, but it makes a lot of the analysis that would have taken us a lot of time, or maybe we wouldn't even have done them because it's too time-consuming and not good capital allocation. Now when we have it, yes, we're spending tokens, not tokens that you really can see on the income statement as some of the real AI companies do. Yes, we're trying to really lean into that. I think part of the result you can see as well. Good. We have a question from Augusto on the email. He says, "Amazing progress. Keep it up. I'm aware you increased your M&A hurdles to 15% margins and up to SEK 40 million in profits.
However, I don't think you ever acquired a company that large. How different is it acquiring a company in that range? Is sourcing different? Is growth profile different?" We have acquired a couple of companies that are-- They're not 40, but they were just north of the earlier hurdle of SEK 30 million. How different is it to acquire a company in that range? It's interesting. We learn things all the time. Theoretically, you would think that if you acquire a very small company, if we go in the other direction, it would be easier. If you buy a company that is half the average size, you would want it to take less than half of the time in order to make capital allocation good, right?
What we've seen is that buying companies of smaller sizes usually just takes more time because they're usually, on average, not as good when it comes to administration, structure, process, all of the pieces that matters when it comes to M&A and business quality. If you go in the other direction, going from, let's call it SEK 10 million to SEK 20 million to SEK 30 million, SEK 40 million, they are on average better. The processes are a little bit more professional.
They usually have sell-side advisors that are, of course, more expensive but also better. It makes the processes, I would say, a little bit easier and more professional.
More predictable.
More predictable. Exactly. Is the sourcing different? Right now we're in a very fortunate situation where we have, it's strange to say too many, but we have more incoming leads than what we can take care of, which is really, really nice because then we just pick the best ones. The sourcing from this one, there's so many things that just comes in. I pick up my phone and we get things, mostly on the email, but sometimes on phone. The growth profile, is that different or not? I think our biggest companies that we have acquired overall have a little bit better growth prospects, but it's not something that is significant. I think that the robustness is different. There's less downside risk in them because they are less reliant on one person doing everything.
They have more people, usually to begin with, spreading the risk out a little bit. They have more structure. They have better processes. They have, let's call it, just systems, hard and soft of different things.
Normally longer history.
Yes.
Deeper relationships.
Yeah. Exactly. Lou is another person that has written to us on the email. He says, "Hope you're well. I'm taking in the most recent report. A few questions are coming into my mind, and I was wondering if you could answer either here or within your call next Monday. One, what is the management perceived as a new mandate by acquisition starting January 2025?" I think we spoke a little bit about that.
Yeah.
Yeah. Question number two: "You've changed your maximum earnings level to SEK 40 million. Are you searching for slightly bigger target? Are you finding bigger targets coming your way?" Yes to all of those questions. I've been trying to communicate clearer and clearer to all sell-side advisors, brokers, investment banks, corporate finance advisors, whatever you want to call the helpers, that we want to look for bigger things. With the help of that, we are getting a little bit better with the help of AI. We've shown that we can acquire nine companies last year. We've done a handful this year. Of course, there will be some kind of bottleneck in "How many companies can we acquire per person?" The natural next step, instead of buying 100 companies to make SEK 1 million.
Ridiculous example, it's of course easier from a capital allocation perspective to buy the same amount or maybe even fewer and go up a little bit. It's both that we are receiving more companies of all sizes, but also that, of course, that we believe that it's better capital allocation and better for Teqnion shareholders to go up a little bit in size. Maybe just to align expectations, we don't think that the majority of the companies will be of that size. We just want to let all of the sellers know that we are open to that now, and mostly that we're lifting up the lowest level. Next question here is, "As your floor for profitability has increased from 10% to 15%, is this a consequence of the management mandate?
Are you seeing more difficulty improved margins as you tend to acquire better margins at first?" It's not a mandate thing. This is something that we have decided that we want to acquire, let's call it better companies. Is it because it's difficult to improve margins? Part of the answer is maybe yes. Maybe it's not strange, but I feel that it's easier to improve on something that is above average in quality, because they usually are used to improvement work. They usually have a mindset that they want to change, and they are open to try things to make things better. The reason why you usually don't want to do turnarounds, because on paper or in Excel, it's super easy, but in the real world, it's not.
You have to turn around the people and their mindsets, and that's the part that takes time.
Exactly.
If you're already on a winning streak, you have the confidence, you know that you're able, you know all those things. It's much easier to tweak that into something even better than trying to change a mindset that doesn't believe in themselves.
Exactly. I think, just to add to that as well, we have seen, at least for us, because there's so many cases, and you could say that the market for really, really small companies is inefficient when it comes to acquisition. I would say that maybe that's true, but also because we and the sellers are choosing each other not only because of money but because of other things, relationship, culture, beliefs, et cetera. What we have seen is that we're not paying higher multiples for companies that are of 15% compared to 10%. Of course, for same size of revenue, 15% is more, so therefore more money, but not in relation to the earnings. Given that conclusion, we really don't see a reason why we should not buy "better companies" for the same price.
Right.
Next up, same person. "What is the process and steps regarding acquisition on your end? I understand that Daniel is the go-to guy to find them. Do you manage to do the valuation, due diligence all internally, or are you taking external counsel?" You want to go?
Yeah, sure. Just to simplify it very much is that Daniel finds them, does the DD, negotiate with them. He has been doing this for over five years, he's a fast learner to begin with, he's a very bright mind that handles it perfectly well with the support that he gets from the other team members here in this corridor. We strongly believe in that way of doing the business because we own the responsibility ourselves on a very personal level. We are very thorough when it comes to doing these things because we don't want to make mistakes, we don't want to pay for that responsibility on a third party.
We are so confident that the best way of doing an acquisition process is to own every step of the way, from the first contact to finalizing the deal, then start building a strong relationship by doing business together with the seller that we normally do for several years after an acquisition.
Yes. I don't know why I even say this, maybe because I'm still thinking about the World Cup. For Teqnion, what we do is that we acquire companies, then we improve companies over time. That's it. That's our two core activities that should make us great and make shareholder value great over time. We so much believe that we should be really good at that and not outsource our core competence, because if we outsource our core competence, what are we? Taking the football analogy, we're on the pitch. We should assist, we should score, we should catch balls that don't fall into our net. We can outsource things as diet, massage. I don't know what things football players do, scoring goals.
Lemonade mixers.
Then, of course, other companies do other things, and for some of them it works very well. The next question from the same person is: What's your plan when deal ramps up over time? As the free cash flow improves, this is more capital to deploy. This will need capacity in many forms to address that.
One thing is, of course, that we, over the last year, have increased the number of people that works here, and the new team is, as in your words, is the best team we ever had. We have a fantastic driven team, both in the U.K. and in Sweden. Several of those people will probably, as the time goes by, be more and more involved in the acquisition part of our business as well. Time will tell. As we normally answered this type of future-looking questions before is that we will, as we go along, learn along the way and find ways to do this and scale this in an effective way. We longing for the day that we have too much capital to deploy. Bottleneck is that we have not enough people that want to run M&A.
M&A is often looked as something magical and very, it's very intriguing for a lot of people to work with M&A. It doesn't take too many days between the inboxes filled with people that would like to work with us on the M&A part. I strongly believe that the best way to be a very good person working with M&A is that you've been operational. You have seen how you have to manage people in order to make a profitable business, and you deeply understand the different levers, as you say, on how to pull an organization in the right direction and not only be extremely smart when it comes to read an Excel sheet or the financials.
Yeah. I also think we human, we try to improve all the time, and I think that we are better compared to a year ago and five years ago. The thing with humans is that we learn rather slowly, and secondhand information is super important. We try to read things and get better. For some reason, evolutionary-wise, we learn better through firsthand experience, which is a slower, more anecdotal process. AI doesn't work in the same way. Unfortunately, everyone says that you can make one mistake but don't make the same mistake twice. We try to live by that as well. Still, we're all humans and that will happen because we are humans. AI is a little bit different. I actually don't want to talk too much about the AI because it sounds like we're becoming an AI company.
It's interesting. When it comes to acquisition, the first acquisition that I did with support of AI, it took longer compared to if I just did it myself. For the second, I think it took maybe roughly the same amount of time, over time it just became quicker and quicker. I built different artifacts that helped me to analyze various things that capture things and do different checklists that I would sometimes miss. It reads 300 pages of lease agreements and cross-reference to other things that a human mind would not. How would that ramp up? That's, I think, at least part of it, and that's what we're seeing at the moment as well. We got another question here in the Q&A from Benjamin.
He's saying that our financial target number two is that the EBITDA margin should be at least 9%. That target seems a low bar now, especially as you're acquiring far more profitable companies now. Is it time to review that goal?
It's hard to answer that question. Let's put it this way. Every year we look through our strategies on a group level. We look at the financial targets. We talk about them and see if they're necessary to move them in a direction. We're going to do that this year as well. We will see what comes out of those discussions with the board.
Yeah. I think maybe just to add to that. This becomes a little bit philosophical. We've made financial targets in a 3-tier way because number one and number two should always be in place. They're put as a hygiene factors. When we're off on one and two, that's a red flag. The focus should, for us, always be to at least double our EPS every five years. The first one is on stability. We want to ensure that we always can survive because without survivors, there's no five years. That is, of course, there. You could argue, is that the right KPI? Should it be something else or not? It's one way that we're looking at it. The second one is to ensure that we have enough buffer to being busy fools, to not creating value.
Should it be 9%? Should it be 12%? Should it be 15% or 7%? We could argue that. The key which we strongly believe in is number three, that we create long-term shareholder value by increasing the EPS or actually free cash flow per share over time. If the margin is 9% or 15% or 20%, of course, it's helpful. It can come, of course, from having higher margin. It can come from having higher revenue that translates into profit. My view is that as long as we're above a certain threshold that we called 9% at the moment. It could be a different number. It's not really that that we're chasing. It's just more profit and cash flow per share. As long as we are safe, which is one and two.
Very good explanation. That's how we look at it. I totally understand that you look it from a different way from the outside. For us, it's the EPS that is the main drive.
Yes. The next question comes from Pete on the email. It says, "Hi, Daniel. Congratulations on a great quarter. I just have a couple of questions for your earnings call, assuming you're doing one. One, working capital has been an outflow year-to-date. Do you expect this trajectory to continue as acquisitions increase, or will it stabilize in H2? Are recent acquisitions more sensitive to cash collection compared to longer-standing companies in the group?" The short answer is that we don't really do forecasts on that. Maybe the same amount of words is that when we get into a position where we're growing organically and assuming that disregarding acquired companies, of course, the growth will take some working capital, but that will also stabilize. If that will happen in H2 or not, we can't really comment on that.
I think you should expect that it will, one, normalize, and secondly, that that number will sometimes be positive and sometimes negative on a quarterly basis, which is, I get it. It's not much of an answer, but that's how it is. Two, margins have declined in Teqnion Väst due to exceptional comparable quarter. Can you comment on what you expect a normalized margin run rate for Väst to be in future? We're acquiring companies that are, let's call it ballpark 20%-25%, maybe just a little bit north of that in EBIT margin. If you draw out a line long enough, it should go into that direction.
If we don't put too much cost on it.
Yeah, exactly.
We also see over time, just going back to what you just said about the financial targets, it's the EPS that we're chasing over the long run, and maybe the EBIT margin will change according to something else. As it looks right now, and what also is shown on the whiteboard page is you see what has happened with the most recent acquisitions when it comes to EBITA margin where we're targeting right now.
On an individual company level, we have one company, Teqnion Väst, for example, where they are in rather advanced discussions with their key client, where if everything goes through, it might take a year or maybe two. It's a really big international conglomerate on the other side. If that happens, they will probably bump up the revenue in the subsidiary, let's call it GBP 20 million-GBP 30 million. The margin on that will be not high, based on the discussions, it's basically a case where we get, let's call it, a fixed amount of margin that is more or less free for taking up a little bit of responsibility. Great for earnings, great for earnings per share, good for our return on capital. On the KPI margin for that company, not great. However, that's not really what's important.
No.
You pay salaries with profit, or what profit is, not margin. I have a question here from Leo Williams in the chat. He says, "Hi, guys. I've read that there's an emphasis on keeping the owners of acquired companies on at least three years to help them transition. I'd love to hear how those conversations look at the juncture, were they considering retiring, et cetera, and what the process is of finding the right replacement.
Yeah, that's a really relevant question. That's one of the key pieces of the puzzle that you need to manage in order to make a successful serial acquirer, I guess. Finding companies and acquire them to a reasonable price is doable. Finding the right type of people to operate these companies that we acquire is a tougher nut to crack. We love spending a lot of time with the seller after we finalize the deal, make sure that they continue to h ave a place within that subsidiary. Hopefully, just do business as usual. Even after that, we own the shares. Nothing should really happen, and over the time that comes, we work with them normally in the board of that subsidiary and make sure that we have a strategic plan going forward with or without them, depending on if they want to retire or not.
The retirement plan is normally discussed very early on in the process of us getting to know them, always before we actually finalize the deal. Both parties, we are very certain of what's going to happen when it comes to that transition. How we find a new person. Hopefully, we find someone that is able to run the business that is already in the business, then we have a time to transfer the mandate over to that individual over the years where we still have the owner in operations, or we together with the previous owner, can go out on the market and find a capable person. We both have the, from a Teqnion perspective, we have the experience on how to search and find the right type of individual.
From the owner's perspective, they have all the knowledge on what's necessary in order to operate just this particular subsidiary. We work with that together to find the right type of individual that is giving the fantastic mandate to run this good business going forward in the Teqnion Group. I have the deepest respect for this type of search, we have found really good people, we also made mistakes in this because in these type of businesses, you definitely need to be entrepreneurial-driven to some extent. You need to be a true leader. You need to have many hats in order to make sure that you grow the business going forward. Hopefully, we find someone that is very eager to be a part of the big journey of the Teqnion Group.
They also, over time, can help us and support other subsidiaries, that is something that we implemented maybe for the first time in a really true way last year. It so far looks really well, that a subsidiary CEO also starts to help and support the boards of other subsidiaries and make sure that they perform well.
Yeah. I think we're also in a fortunate situation. Perfection when it comes to acquisition or when it comes to recruitment, it doesn't really exist. You could try to find something within a proximity to perfection. We're in a fortunate situation where we receive hundreds of IMs every year. I speak to maybe 100, 200 vendors per year. As you know, we only buy, let's call it one, two handful per year. As soon as we feel that it's not the right fit, we just stay away because there's so many other things that we could chase after. It's not a problem for us. We can, of course, make mistakes. It's a dating process. You could find a partner, you could marry the person, then you find out, well, this wasn't really right. That happens as well.
We just try to be very picky with that. To your question of how does it work when the vendor maybe wants to retire? If we feel that if the person is going to retire the same day and it's super important, and it's difficult to recruit, we just don't go there. That's the luxury of being in our position. We don't need to solve something. We only want to solve the easy problems.
Are we ready to wrap this hour up? Do you want?
Let's do a couple of quick ones.
Okay.
Kip has a question. It's a little bit long, but basically he's wondering, if you look at Note when it comes to the business combinations and how much EBITA we buy, and then compare that to actual numbers over time, how does that compare? I think a quick one is that, of course, in the disclosures, we put in the numbers that you should put in, according to the accounting rules. The companies that we acquire before, they sometimes look a little bit different compared to when we own them. Just as an example, because they are privately owned, some of them have properties in the company, so they don't pay any lease. We usually don't want to own the properties. They go out, we do a leaseback. That adds cost.
A lot of the owners, let's call it that it's three owners, they don't take any salary or very close to, due to tax reasons. It's better to take dividend or something similar. Of course, in the real world, you need salaries, and especially if we recruit someone else to replace, or three, four other people to replace these three people, you would add that up as well. It's not really apple to apple. Another question is, I know you've been consciously discontinuing unprofitable business for the last few quarters. How far along in the process are you? Are they more of an ongoing process? Well, it's going to be there forever. We never want to enter any unprofitable business. Sometimes, people make mistakes. Sometimes the world change so that things become unprofitable while they were not in the beginning.
It will always be there as a process to tidy up and clean up for things that should not be there. Of course, I think the biggest jobs have been done. As you know, we've closed down business, and that's not part of what we should do going forward as long as we've maintained.
No. There's so many things going into this question also because we will definitely try to make sure that all our co-workers are confident and want to deliver customer value and be proud of that and make sure that they can do sales with high margins and make more money. Some of it will, over time, not be good business, and then we have to do less of that and more of others. As Daniel mentioned, it will always be here, and we will always have to address that. I want to fall back on what you said about EPS. That should be our KPI that we should be measured on, and that's the one that we're chasing. We want to deliver shareholder value over time, and we're going to do everything we can in order to reach that.
Yeah. Two quick one from Doug. Historically, Q3 has always been a quarter with strong margins. Why? The short answer is really that it's a mix of which companies that have delivered during the Q3. It's also a little bit by chance. I would not expect if you draw out the timeline, 20 years with the same type of companies, you would not see the same accentuated seasonality as you've seen. Doug is also wondering why is working capital consuming cash if organic sales are negative? The key component there is that the organic growth measures companies that we've had in our group for at least 12 month, or actually 13 month and above. During the last 12 month, we have acquired a number of companies that have performed quite well, as we talked about before.
These companies are growing. Okay, let's do the last one as well.
Okay.
Horst. Positive organic growth versus flat figure in Q2 2026. I think the question is, when will we get back organic top-line growth?
As soon as it will drive EPS. As soon as we will make sure that we earn good money on all the business that we do.
Yeah. We're getting closer and closer to that number. As you've seen, the negative organic decline had been shrinking. I wouldn't really draw a straight line into that as well either. Stable or higher margins as demand is increasing versus current sales. The pressure will be on having companies working at the same or high capacity, and with more higher margins product split. I'm not entirely sure if I understand the question, we are, as you see in the backlog, we have increased the backlog this quarter quite a bit. Maybe just to give some color on that, across the board, the backlog looks good.
It looks a little bit better.
Exactly. It looks a little bit better across the board. Then there's three companies that have really bumped up that increase. It's not evenly distributed. Three of the companies have done exceptionally well when it comes to order intake. For those companies, I would absolutely expect revenue to be up and profits to be up. For one of the companies, the delivery is not expected to be until 2027. For two of them, I think it's going to be later this year or something like that. It's across the board better. Three companies really did really well in that regard.
Yeah.
Last one. Just listened to the interview you did, I think that referring to a podcast. I just want to say thank you for your transparency, especially on the topic of your partner. You're welcome. I also really like the details you provide on the subs. Teqnion is becoming a better company with each new acquisition, and it's clear your role in the process. Teqnion is the second biggest position in my portfolio, so to see that it's in capable hands is really important to me. Thank you. It's a long question. I'm going to be short. What did you learn in McKinsey? What did you learn afterwards, pre-Teqnion, and what have you learned at Teqnion? I think just to make it really simple, and real life, of cour se, isn't this simple in my mind.
I think at McKinsey, I really sharpened the tool of analyzing things. I think I became really, compared to earlier, much better when it comes to analysis and getting a good business sense. My time between consulting and Teqnion, I think I got the chance to try to apply that into the real world, into change management, taking it from Excel to the real world, translating that to P&L. I think at Teqnion, I have the opportunity, and have been challenged to do more of both. Of course, the real world isn't really that simple, but that's what I could come up with in 10 seconds.
Very good. Thank you very much. We wrap things up.
Yeah. Do you want to say something as a closing remark?
I just want to say to all of you that took the time to listen to us, thank you very much. I hope to see you again in October, when we will be back. Until then, have a great time.
Thank you very much. Take care. Bye-bye.