Good morning, everyone, and welcome to the Teqnion 2026 Q3 Q&A. Thank you all for joining. We will, as always, for the next hour or so, try to answer as many questions as you have about your company. We will be alternating between the questions that we have received at qa@teqnion.se and the questions that we receive live here. For your information, you need to have a verified Microsoft account in order to ask questions here in the Teams. If you do not have that, feel free to send an email to qa@teqnion.se, which we will be monitoring during this session. Before we start the Q&A session, do you want to say some words?
I can present us. This is my colleague Daniel. He is the Deputy CEO of Teqnion and also holds the fantastic title CXO. I am Johan, and I am the CEO of Teqnion since 2009. Tomorrow, we will celebrate our 20th anniversary. The company was registered on the 20th of October, 2006. We celebrate that today with a crisp autumn morning here in Solna. We have 1+ degrees, and it is really colorful outside.
To summarize the quarter, we have continued our path to making a more stable foundation for Teqnion, a foundation that we can scale and grow from. I have a very positive feeling in my stomach that we have a fantastic team in place, and we have actually a couple of more colleagues coming in during the coming months that will help us make everything better and better going forward. Overall, a quarter with a lot of work, both on the acquisition side and on the operational side, and on a good trajectory for the future.
Great. Starting with the questions then. The first one comes from Galician Investor, who is wondering: over the last few quarters, Teqnion has managed to improve profitability while deliberately walking away from some lower-quality revenue. How do you distinguish internally between healthy pruning and a situation where improving margins could start masking weak organic growth? What would you want to see before saying that the existing portfolio is genuinely growing again?
Do you have something on the top of your mind? What I just feel about that is that we've been in a period of where we actually have targeted weak spots in the operational aspect of this group, and we have come a far way. We still have some improvements to do, but overall, as mentioned just now, is that we are on a positive trajectory. We have focused on the businesses that we see have a good future. And with the experience coming from doing this for rather a long time now, we have the gathered experience and knowledge on what to focus on. And I'm not scared or lying sleepless over that we have some companies still not performing on the level that we wish or that we demand, but we are getting there. And overall, it's not a scary thing, at least not for me.
No. And maybe a longer answer to that. It's not a secret that we've been in a turnaround situation for the last few years. We've been doing a lot of things, and the numbers take time before they show up. Especially for some companies. Most of our companies, when you do actions, you don't really see the financial results of that until maybe at best a quarter later, but sometimes even four, five quarters later. And when we learned that we needed to do more and different things in the turnaround, we started where we felt was most important. In the best of worlds, you do everything at once. At the same time, we are all only people, and the companies need to hold and do enough things to make a change but not get destroyed in the process.
For natural reasons, we started with getting the margins up, i.e., in pruning, as you said, in order to focus on the profits. And that is what we will be doing continuously, i.e., focusing on profit. But we are in a situation now where we feel that on balance. There will always be companies that can do better. All companies can do better. But we're also in a situation where we now have moved a little bit of prioritization to getting top-line growth as well, which is important over time. We've also moved some prioritization over to freeing up working capital. And those things are important, but compared to ensuring enough profitability in the core, they have been secondary, but we're moving closer to that.
Second question from Galician Investor: you've been very active on the acquisition front recently. As Teqnion becomes much larger, what do you think will ultimately become the scarcest resource: capital, enough great companies available at sensible prices, or management bandwidth to keep the culture and decentralized model working? And what would you make deliberately slow down acquisitions, even if pipeline remains strong? You want to start, or should I?
Let me start.
Yeah, please. Go ahead.
I think the truest answer there is that it will alternate what will be the bottleneck of that specific question. We will definitely slow down our acquisitions if we feel that we do not have the power or resources to implement or to buy the companies that we have in the pipeline. We do not want to end up in that situation, of course, but it is very important that we implement or absorb the very nice companies that we have the opportunity to acquire, and that we have the right foundation and organization to embrace them when they finally come into the Teqnion family.
As of right now, with the pace that we have, both on the operational side and in this particular question, the acquisition side, what I think about is that we will have the opportunity to run out of acquisition cash if we want to. We have to balance that a little bit, b ut right now, we see a cash flow growth from the operational side, which of course will help our credit and our ability to lend more money for the acquisition side. Right now, I feel that we are in a very good position in, well, three aspects that was questioned.
Yeah. I think it's a very interesting question as well. Our job is, in essence, to be the best capital allocators we can. I think it's not really capital, it's really about resource, being capital people, what have you. When it comes to the bottleneck on the M&A side, on one hand, you could call it resource allocation. On another hand, it's really about moving the bottleneck, because the best resource allocation is to ensure that the bottleneck gets moved to something else. I've only been here for six years, but during these six years, I believe that the bottleneck for M&A have moved quite a bit. In the beginning, when I just started, obviously, we didn't have the network and the reputation, so getting a pipeline was one of the key things to do.
Over time, we learned that management capacity to absorb companies became a bottleneck, and that is something that we've been working hard with. Obviously, we have Martin Lagerberg, we have Dave Barton, we have business unit leads coming in to help out with that. Capital has been a more tight resource historically. We have a new loan agreement that we spoke about in the earlier quarterly reports. We also took in capital a few years ago. I don't think it's possible to say what will be the ultimate bottleneck. I think if we do our jobs right, we'll just move the bottleneck from one thing to another and try to solve that as pragmatically as possible over time.
Absolutely.
Next question comes from Shane through email. It says, "Hi. I know you've added regional heads, but I'm guessing now is also the time to start thinking about MD recruitment at Percher. How will you bring in or identify from within the right talent? Do you think you can recruit from within the organization for business unit leads? Will that be a focus going forward? How do you decide what business units are organized under a lead? I'm guessing at some point you'll have businesses that will have more common characteristics. Would it make sense to have vertical leads?
Perhaps. Sorry. This is a very good question, and the key to scale something, anything that has involvement of human beings. The recruitment process is absolutely the key thing that we do. We're very lucky now to have a HR lead or recruitment lead in-house since half a year or so. That is very good. It's accelerated us and made us better in that aspect.
We recruit internally, externally. We try to find the right individual for the right job. Is it tricky? Yeah. Anyone that been working with recruitment knows that it's very difficult. We have improved our processes. We will continue doing mistakes, because we deal with human beings. But any company will be possible to be destroyed or to elevate and be excellent with the right people. This is something that we take really seriously and put a lot of effort into to get the right team in the right spot.
Yeah. I think there was quite a few questions packed into one, but maybe just to pick on a couple of more things. When we acquire companies, we try our best to focus on succession as well. Most companies, or actually vendors, they come to us because they see the horizon. They think about retirement. Maybe it's not imminent. That's what we prefer. But it's not decades away, because otherwise they would not be selling to us, and we would not be buying. But for the majority of the companies that we acquired the last couple of years, they already have succession in place. Obviously, you never know if it works or not, but that is one of the key things that we look for, because it makes it, at least on paper, much easier compared to finding someone externally.
We look forward to find more and more companies where there already is a strong management team in place and succession in place, which obviously is a little bit easier when you look for bigger companies that we are looking for now compared to historically. I think maybe just one more point on the companies that are similar. Historically, we've only looked for companies that are great companies. It doesn't really matter what color they have or what shape they have, as long as it's great companies. But then, of course, when we paint our canvas, the dots will be on the canvas, and sooner or later we'll find dots that are closer to each other, either by luck or because we actually know companies that are closer for one reason or another.
I think you've seen a couple of those already, and I would expect that there will be more of those coming in. When that happens, it absolutely makes sense that they would collaborate if they want to a little bit closer. We'll figure that out already before acquisition, of course, and it would also, of course, make sense that they would have the same head, in a sense, whether or not it's called a business unit lead or something else.
Absolutely. That type of a map, if we can call it a map, is already drawn, and we have a trajectory there as well. Then, of course, we need to have the right person, but that is something that we constantly is working with.
Yeah. Okay. Let's take a couple of live questions. We have Prakal who is wondering if our free cash flow deducts lease principal repayments. If not, what would free cash flow be after those repayments for Q3? Let's see. Since our recurring cash outflows, would you consider reporting free cash flow after leases to better reflect the cash availability for acquisitions? The answer is that in our annual report, and there are a few more line items, both for the free cash flow, but also for the income statement and balance sheet. That hopefully gives you a good view of how it looks. The short answer is that the lease payments have been more or less the same quarter-over-quarter. So, given that you know the historical numbers, you can extrapolate a little bit on that.
I guess the follow-up question would be, why don't we have more line items? Why don't we show more KPIs? It's an input that we have taken with us, and every year we have a discussion regarding how the quarterly reports will look. We don't like changing them in the middle of the year, but there most likely will be some smaller changes coming up for Q1 next year. Next question from Oceanside, who is writing, "Organic growth usually follows a J-curve. You pay for salespeople, product development, capacity, and working capital before the revenue arrives. Roughly how much do you expect to invest in existing subsidiaries before organic growth shows up, and over what time horizon?" It's a big question.
Yeah.
Please go ahead.
No, I don't know if I should elaborate on this. Thank you. There's sun here. It would be easy if that would be the long-term target for us to drive top-line growth. There we could spend a lot of money. I think we have to scale out all the time, where to balance, where we should put the cash, the hard-earned cash. With the experience that we have in this corridor and also out in the subsidiaries, we try to be very strict when it comes to capital allocation and where we see that we have the best chance of good returns. When will we expect top-line growth?
Well, I think if you look at what we've been doing the last couple of years and where we are now, listen to the tone of my voice, I see that I would be very surprised if we couldn't see a positive turn out on that KPI as well going forward. But it's not the key for us. The key is for us to build a foundation and good cash flows that would accelerate our business model, which consists of three engines. Where we have the acquisition engine, we have the big portfolio of very healthy, organically growing companies, then we have a tail of where we miscalculated, where we bought something in the future, or where we just see that the market for that particular business is shrinking. That tail is going to be minimized constantly, and we have more to do there.
Not as much as a couple of months or couple of years ago, but still, we're never satisfied. I wouldn't say that we sit down around the table and decide on a strategic level where we should organically invest. If that happens, then something very big has come along in one of the subsidiaries where they actually need to broaden their mandate in order to invest more than normally. Normally is that they should— with their normal operations, they should just increase year over year over year on a healthy level with the safeguard of margins and EBITA earnings. Yeah. Of course, it's a big question, but the big question for us is constantly to make sure that we put the capital allocation in the right spot. For us, we see that we should make sure that all the subsidiaries are healthy enough to generate cash flow so we can drive the acquisition engine.
Yeah. I feel like we're making long answers, but maybe that's okay.
No.
Maybe to add on that, organic growth is important. It is one lever that we're using when it comes to capital allocation. We constantly try to see where does the money make most sense. We don't always make the right choices, but we try to. I believe page 24 in the quarterly report, you can see one of the other avenues of capital allocation, where on a nine-month, the companies that were acquired would make SEK 45 million EBITA. Straight extrapolation will give you roughly SEK 60 million in EBITA for those acquisitions. You also see that excluding cash, we paid SEK 200- odd million for it. When it comes to investing in companies, there is different avenues of cash that makes more or less sense. That doesn't mean that we shouldn't have organic growth. I think that will come. It will probably come sooner than later.
As you said, strategically, we don't really sit here and say, "This company should do this or that." However, our companies are lumped into different groups internally. We have companies that we still feel need to do a lot more in order to get to a normal state. We have companies that are cash cows or normal companies. That's going to be the majority and is the majority of our companies. Then we have a few companies where we have internally, together with the CEOs, seeing that there is a lot of potential here. We might not be right, we might not be able to capture it, but we think that it is possible. For those companies, we look forward to be able to invest a little bit more in primarily salespeople in it.
Okay. Next question coming from Kolapan email is saying, "Hi, Johan and Daniel. Thank you for your continued efforts in driving Teqnion forward. I have a couple of follow-up questions. What is the expected timeline for Nord to return to organic growth and margin improvement, and what point would you consider taking more decisive steps, such as restructuring or divesting persistently underperforming companies? In other words, at what point will your patience run out?
How long is a string? Well, the patience has run out in a couple of occasions the last couple of years. We are constantly looking for opportunities to be the best owner of the companies and also that might at some stage be that we are not the best owner of companies that no longer fulfills the criteria of being one of the Teqnion companies going forward.
This is the natural state since we are constantly buying better and better, and there will be some niche industries that will have a very hard time following along, and maybe there are better harbors for those companies than Teqnion for the future. We will see. When we should expect organic growth, I will expect it sooner than later, as Daniel just put it. There are now a lot of the foundations in place in order to start actually driving more active sales and getting the top line there. We have the foundations for it.
Yeah. I do not know if we should give a little bit more color on that, but if you look at Teqnion Väst, the company there, roughly, earnings-wise, is the same size as Sweden. However, they have grown a lot due to acquisition of the last few years. As you know, as shareholders, we calculate organic growth based on that they have been in the group for 12 months. If you look at companies that have been in the group for over 12 months, if you have been here for 13 months, you get one month as part of the organic growth calculation. In order to get a full kicker in that calculation, you need to be here for 25 months. If you go back 25 months, the group was much, much smaller. There is just some technicality in it.
More and more companies in Teqnion Väst will be part of this calculation going forward, so you can get a better evaluation of how that portfolio is looking. Teqnion Väst is, in local currencies, down a little bit this quarter. A quarter is a rather short time, but to explain that gap, one of the companies that we spoke about, I think, in the last two quarterly reports, they had a huge 2025. Now they have reversed back to normal state, which is still a very good, healthy company. That will establish a new baseline. Another reason for it is that we, as you know, the previous question was, how long is a string? There was a company that we have folded, as you all know about. Those numbers are, of course, reflected there as well.
Teqnion Nord is more of a— w e've spoken a lot about that. I think the key companies when it comes to pruning, I feel that we're mostly done. Pruning is never a job done, but the big things have been done. Again, hopefully sooner than later. Next question. This is in Swedish. I'll try to translate it. It's Tobias. He has a question about financial expenses. It has increased a lot during 2026. Why? Is basically the question. I think it's a very good one, because if you look at the 2026 financial expenses, both year- to- date, but especially Q3, you would see that they have increased a lot. This, I guess is one part where maybe more line items would be helpful to understand the accounting pieces of it.
A small part of the increase is that we have bigger loans because we have acquired more businesses. The interest rate as a percentage is actually lower due to refinancing earlier this year. Over 90% of the increase of the financial expense is due to IFRS revaluations. As you know, most of the earn-outs that we have, which is recorded as a liability, and also the shares of the Teqnion UK companies are recorded in pounds. So when the pound strengthens against the Swedish krona, which it has over the year, that has an effect on the balance sheet that gives us a net interest cost due to IFRS rules. It's not anything that changes the tax. It's not anything that changes the cash flow. It's just an accounting effect.
If the pound goes down, you would instead see a financial income there, which is also not a real income. Okay. Sven from email saying, "Hi, Daniel, look forward to meeting next month in Holland." We'll be at the investor event for your information. "Congrats on the Q3 overall good result. Of course, always some room for improvements. On the Q3 acquisitions, I just want to sense check based on the margins and revenues, is it possible to assume they're supposed to add roughly SEK 40 million per annum going forward starting in Q4?" Almost.
I think the question refers to the page we spoke about before, page 24. So where you see the EBITA of SEK 45 million. So the SEK 45 million there is what the companies would have contributed if they were actually acquired 1st of January 2026. So that's nine months. Simple extrapolation would make that SEK 60 million. Then, of course, we would have interest cost for acquiring them, so it would be a little bit lower. But that's a number.
That's also a number.
Jesus on email is writing: "Congratulations on the 20th anniversary. I have two questions. In the Q3 report, underlying EBT was SEK 57 million in Q3 against SEK 61 million a year ago," which you can see on the whiteboard. "Which cost line explains most of the decline?" The second question is: "Teqnion Nord's EBITA fell 5.9% in Q3 on flat sales. What drove it?" I think it's easier to answer both questions at once. You want to kick it off?
Well, I think the first one you just explained—
Yeah.
—very thoroughly. The second one I leave to you then.
Yeah, absolutely. I think, when we look at Teqnion, we look at it from the same point as you, where you look at the overall numbers. But then, of course, you do not know what is happening in the subsidiaries on a monthly basis. Even if the sales are flat, you could see if you had the information that we have, that it is very different companies that have contributed to those sales. Last year, there were a few companies, especially in Teqnion Nord, in the Q3, that finalized big projects and a few high-margin companies had higher sales than what they usually have, which really bumped up both sales but also profit.
This year, I think it has been more normal, and at the same time, we had a few larger projects that were moved to October, and that we will be recording in the Q4 instead. The answer maybe to both question is that it is mostly a mix effect, that certain companies performed better last year and certain companies performed better this year. And of course, when a high-margin company performs better, that is better.
Yeah. But the EBT thing there was the first question, right? So there you had all the things that you answered for in.
Yeah.
Yeah.
Good. Let us see what more we have. Alex, as a long-term shareholder, thank you for your hard work in righting the ship in the last few quarters. The progress is apparent. Many of the successful serial acquirers achieved outsized success with one or two holdings that grew massively. Lifco and Brokk, Berkshire and GEICO. Does Teqnion think about enabling this sort of outsized growth? If so, how?
We think about it, we hope for it. We have about a couple of potential gems that might be really big and successful going forward, and of course, we pay some extra attention to them to make sure that the management has the right support along the way. But definitely, yeah. The longer that we're in the game and the more companies we acquire into the group, we're going to see more and more opportunities in that direction. It's very difficult not to have some kids in the group that you have closer to your heart, and I have a couple, maybe more than a couple, but a few that I definitely think can blossom and be really successful companies within themselves.
Yeah. Compared to Berkshire, we won't take any bets that are so big as Berkshire's GEICO bet or their American Express bet. It's not our business model, and we rather prefer to be conservative and just continue to acquire roughly the same size and bigger over time. We also don't have any illusion that any of us are Warren Buffett or Charlie Munger, so let's keep to what we can do. There are, of course, some companies that have contributed a lot more. You never know what we find along the way, but if we look back over the last 20 years, and let's not make this into a really long thing, but we have companies like Elrond, which was one of the first acquisitions. Without that, we would not be standing here today. They've contributed a lot.
Yeah.
They pay a lot more per year in free cash flow compared to what we paid for the company. Over time, we have a few more like that, which really have changed the shape and especially the size of Teqnion. There are a few, as you say, that we believe will be maybe one of those that, yes, will contribute, but maybe a lot. Hopefully, we can report back on that in a few years. Milan is wondering over email. "Hello, congrats on another good quarter. I understand that Teqnion explored many geographies when looking to establish its second leg, the U.K., and that you traveled quite a bit to a few countries in the process. Which factors do you consider when evaluating a new geography as a potential hunting ground, and how did the U.K. score on those?
What made us pick U.K.? Our spotless English language.
Exactly. There's no magic in it. We've looked at a number of different factors. Obviously, the jurisdiction has to work when it comes to doing business, acquiring business, all of the enforcements that are needed. There needs to be enough companies of this kind, and of course, some countries are easier than others. There needs to be a language and a culture that we at least feel that we understand. There needs to be something about geography. Everything equal, it's very difficult to acquire something in Australia just because it takes a week to visit one company, if that's enough. Then you have to be a little bit lucky to find the first company to put down the pole and start digging. There is something about what other companies have done before us. There's no need for us to invent the wheel.
There is also something about that we don't love a lot of competition. Those, I would say, are the main factors when we look for a new hunting ground, which ended up being the U.K, after I think that we looked at maybe 15 different companies. We are also now, as you've seen, we have two legs that are roughly the same size, which is good, at least if you're a human. We also didn't start this now. We've been thinking about our third leg for a while, and let's see where we end up on that. Next question comes from Galileo. "How much do you expect the change in working capital to contribute to free cash flow in the next two years?
I couldn't answer that question.
Me neither. But maybe two things that are interesting still. One thing is that if you look at a cash flow statement, that would give you a very good idea of if we're tying up working capital or releasing. However, if you just compare the income statement with the balance sheet, there will be some strange things happening. Just as an example, if you acquire a company that makes SEK 1 million in EBIT per month straight, and we bought it a month ago, then we will get SEK 1 million in EBIT in the quarterly report. However, their full working capital would be loaded into the balance sheet. The balance sheet, when we acquire companies rather quick, as we do now, the balance sheet working capital just grows much quicker than the income statement, and it takes 12 months for it to catch up.
Then again, during those 12 months, we buy a new company, so you would see this effect basically forever. Another thing is maybe going back to what we spoke about in the beginning. We focused a lot and are still focusing a lot on the profit of the companies. Organic growth has been a secondary thing. Working capital has also been a secondary thing.
Yes, you should be able to keep more than one thought in your head at the same time, but it's also important to know what are you optimizing for. So now when we are more in a normal state with, let's call it 15% margin, we want to go higher. We will go higher, but working capital has been lifted up on the agenda, so you would expect to see it look better. Next question from Galileo is: what are the annualized savings from the supply chain office currently?
That you know.
Yeah, I do know that. I think to give some vague answer, I think in the last quarterly report, you wrote that the annualized report, sorry, savings was somewhere in the region of 10%-15%. Now it's, I would say, a little bit north of 15%, but it's not really a number that we will be reporting on a quarterly basis going forward. Hopefully, you'll see that in our gross margins over time instead.
What we see is that it's really well-utilized.
Yeah.
It's used more and more by more subsidiaries, which is really, really fun, and they do a fantastic job over there in our office. Still a lot of untapped potential, I think.
Yeah. I think that the way to think about it is, yes, it's a sourcing office because we have to call it something. Over time, you would expect to have, of course, better gross margin, better working capital, and all of those piece that you would see maybe on the cost and outflow side. What you wouldn't see or that we would see is that it's a two-way street. So one thing is to take instructions from Swedish and U.K. companies and say, "Let's make this better." Then there is the other part where with a tighter connection with the different companies in China and the Southeast Asia, we would also see more products flowing into our European markets. Hopefully, that will contribute to higher revenue over time as well. How do you assess the current market environment due to escalation energy prices interest rate? Go ahead.
No, higher energy prices for us is mainly when it comes to moving things around. We don't have that many big factories that consume a lot of energy in any way, so it's not a big thing for us. It's always important, of course, but it's not that it's something that affects us a lot.
I think it's interesting when you think about cyclicality because I think a lot about that when we look for companies. One thing that we always have talked about and always think about is that we don't want to have too many companies with too many correlated risks. Higher energy prices, usually that would struck into the wider macro environment about cyclicality. However, we try to always also find companies that may benefit from it. We have, for example, Merridale in the U.K., where you see more order intake, higher growth, more profit, because higher energy prices means that there are more money to be saved by using their services.
No, I love the answer, and also there's plenty of examples within the group with companies selling components or systems that actually becomes more and more important when energy prices are high. So it really goes in both directions, and if we do our jobs right, we will have a group of companies that will be basically unshaken by whatever happens.
Yeah. No, I love the answer, and also there's plenty of examples within the group with companies selling components or systems that actually becomes more and more important when energy prices are high. So that comes a little bit with the territory. We are working in narrow niches with high application knowledge of a very specific thing, and a lot of it comes when energy is high or where energy costs are high, our products will be worthwhile looking at and buying.
Yeah. We've got another question here over email saying, "Hello. Could you please comment on whether you have plans to acquire businesses in APAC?" And the context is basically that we have a coworker on LinkedIn where he's been trying to get some connections when it comes to M&A in Asia. The short answer is Yes. Do we want to do that in the short term? No.
But when it comes to M&A and trying to evaluate where we want to go, we can't work in a sense that we come up with the idea that let's go to a new market, and then we start assessing if that market is good. At least the way we work is that we start the thought process and start to get some feelers out years before that happens. Johan started to think about other countries outside of Sweden probably a decade before I joined Teqnion, and then for natural reasons, it took time before we got there.
I didn't have the guts.
Or maybe the time.
Or the skills.
But it takes time. I think in a sense, we want to become the best when it comes to this, and we want to do this for a long time. So the time, and if you think about which countries we might go to, there are very few off-limits. There are, of course, some that are way higher in priority. There are some that are off-limits/very low priority. But given that we have a lot of connections to China, we have a sourcing office in China. We have actually a subsidiary that have a subsidiary in China. And given my background in China, it does make sense for us to think about it, and it's not something we spend a lot of time on, but if that day comes, then we would be ready. It's not going to happen in the short term.
Next question, Geir, over email. Can you please elaborate on the reasons for the development on the financial expenses?" Sorry, this one we already answered in a previous question. Oceanside is wondering over email, "Strong quarter on the free cash flow. I have a few questions for you and the team. At first glance, Norband appears to be quite cyclical/seasonal with the timing of all events to which the company supplies its products and solutions. Could you please help us understand more about the business and your reasoning for acquiring this business?" Yeah, absolutely. Should I start maybe?
Please.
Can it be cyclical? Yes. And I guess when people are cyclical, it's about cyclicality correlation to the macro environment because all companies are cyclical. They just have their own cycles. In this case, they are somehow tied to the event industry, which is a very broad one. They are actually more tied to the more premium high, what's this English word here? High-profile events that have been growing quite rapidly compared to the overall event industry. Right now, they're doing very well. From a macro environment perspective, I'm not going to guess where we are, but we're not at a high. So hopefully, if the macro environment goes up, they would benefit from that as well.
The cyclicality is at least on one aspect of the cycles is at least 100 years approximately because then we have another pandemic, so—
Yeah, exactly.
—sorry for that.
When it comes to seasonality, we're not afraid of seasonal companies, and now I'm talking about intra year. Norband have a seasonality where they have more of the sales and profits coming during the time when there are a lot of events in Europe. That obviously means more during the warmer degrees, but at the same time, they have sales all over the world, and if you look at South America, it doesn't really matter. But seasonality is not something that we're concerned about. Rather, we're happy to have a company that have some higher sales during the summer period because typically that's when it becomes really quiet for the more traditional industrial companies, both in Sweden and the U.K.
Absolutely.
How many subsidiaries are below your 15% bottom line hurdle today?" I would say that we don't really disclose that, but our current margin is more or less 15%. Mathematically, half of the revenue is below and half of the revenue is above. That doesn't mean that half of the companies are above or below, but we would, of course, always have, due to how averages work, companies that are underperforming compared to the average. Then we have a question about earn-out liabilities and revaluation. Wondering where those latest revaluations came from, which companies, and that's unfortunately something that we do not disclose.
"It looks like the Q3 deals are priced below 4x net EBITA with 9% contingent consideration versus 25% in H1. What drove that change?" Every deal is different. In theory, we can pay more Total EV if the sellers are happy to take more on earn-out as a risk-sharing. Some people like to have more certainty, and in that case, to a certain extent, we can be fine with it if we're sure about other aspects, but in that case, the total EV becomes smaller. I wouldn't say that it's a trend regarding in which way we're going. You would see just kind of fluctuations because there will only be maybe a couple or three acquisitions in a certain quarter.
Absolutely.
Noah over email is wondering about backlog and revenue. Backlog continues to grow considerably faster than revenues. I'm curious on what's driving the divergence and how we should think about the timing of the revenues.
Oh, it's a very diverse story. The backlog consists, of course, of a variety of different type of projects and products and deals. Since we acquire companies, some of the companies that we acquire have a backlog that will, as you mentioned, regarding the balance things coming in with just 1/12 of the revenue. When we acquire a company, this is the same thing. We acquire a backlog from a company, and it pops up on our backlog. Some of it comes from new companies, but we also have quite a good order intake from parts of the existing portfolio. There's nothing that has changed when it comes to the execution of the backlog from the historically owned companies. It's the same thing. I don't see any trend in that it will stay longer in the backlog or shorter. It's just the normal execution of the backlog.
Yeah.
Just talking from experience and what we have today.
Exactly. Very different from company to company, but again, we do believe that we will start seeing more and more of the revenue coming through. Maybe one thing to add to that, the backlog piece is quite interesting. We follow that as one of a few different KPIs. We follow it on a company-to-company level, not really on a group level, because on a group level, it unfortunately makes less sense. Just to take a few examples, Abercrombie that we just acquired, they're not a far cry away from SEK 100 million in revenue, which is quite big for being our group. They don't have an order backlog because they get cash paid when people transact, or actually that goes to the card processor, and we get it within two weeks, but there's no order intake and no order backlog.
Norband also very recently acquired, they don't really have backlog in that sense. They do, but a lot of the revenue and the exact volume will come rather close to execution. We have a few companies, or we have a few more companies compared to if we go back 10, 15 years or even five years, where the order backlog tells a little bit less of the individual subsidiary story about what will happen next. Again, that is not a trend. It just happened. Next question from Noah is acquisition disclosures. Is there a particular reason why we provide a three-year average for revenues rather than the most recent fiscal year? Most other acquirers report the latest annual revenues, which I find helpful in assessing the underlying growth and contribution of acquisitions.
Yes, there is a reason, or maybe a couple of reasons. One is that we don't really like to change communication when we have chosen a certain way of reporting. This has been the way that we've been doing for six years, maybe something like that, and we want to keep it just to keep it stringent. The companies we acquire, we expect them to grow. If you take the average of the last three years, if you believe that your companies are growing and have been growing, and the average of the last three years would, of course, mean that that is a little bit lower compared to the last year on balance.
However, there are companies that are jump on quite a bit. When we look at companies, we try to look at the history. We look for longer than three years. We try to focus more on a five-year what has happened, because you get companies that are up and down because of different reasons. We feel that, one, it's a little bit more conservative to use a three-year average, and secondly, when it comes to expectations, it takes out some of the volatility in both directions. That's the reason why we've chosen that.
Yeah.
That's also the reason why we don't do pro forma, because we don't want to create unnecessary expectations for the companies.
Yeah. Very few of the companies that we have in the portfolio would be on a stock exchange themselves. They are just, by the nature of it, rather small companies, and they can fluctuate a bit. What we look at when we look at the history of a potential company that we're looking at to buy, we want to know that it's been around for at least a decade, and then it should have been constantly slowly growing and been stable over that time. If you draw out the line for a decade, and you see that it fluctuate a little bit about an average point, then it's good enough for us. It tells so much to us.
If the company's been around over a decade, then you know that the people in there are people that are able to build strong relationship with both their staff, with their customers and clients, and with their suppliers. You have a very good part of the DD, just look at the history and the stability of the financial data.
Yeah. We have actually run out of time. We are three minutes past 9:00 over here. I guess we could in theory do this for a lot longer, but with respect to everyone's time and for us to focus a little bit on making the business better and getting that organic growth, maybe we end it there.
Absolutely. Thank you so much for popping in, and hope to see you again in February.
Take care, everyone.
Bye-bye.
Bye-bye.