Ladies and gentlemen, welcome to Vestum Capital Markets Day 2025. So happy to see that so many have joined us here in Stockholm today, and a warm welcome to those of you that are watching online too. My name is Petra Bergman. I'm a financial journalist, and we are going to listen to a lot of presentations here today, and they will be followed by a question-and-answer session in the end. If you are attending online, you can submit your questions by just clicking the box below the video. For those in the room, you can scan your QR code on the back of your agenda flyers, and then you can submit your question. If that doesn't work, you can just raise your hand, and someone will come to you with a microphone.
A recorded version of this will be submitted on Vestum's page afterwards, and there will be a coffee break in the middle for 15 minutes. Okay, so it's time for me to introduce the first speaker of the day, the CEO for Vestum, Simon Göthberg.
Thank you, Petra. Great to be here. Great to see everyone here. Warm welcome to Vestum's first Capital Markets Day. To everyone watching the live stream, warm welcome to you as well. Super excited to be here today and looking forward to spending the next few hours with all of you.
This is the first Capital Markets Day ever for Vestum. How come you haven't had one before?
Yeah, so there's been a lot going on in Vestum over the last couple of years, and we're now switching focus to growth mode after spending the last two and a half years on basically being playing defense and being focused on reducing debt. We've also seen an interest increase in Vestum from investors, both in the Nordics and across Europe. Hopefully there's going to be some non-Swedes listening in to the live stream today as well.
The purpose of today is, of course, to get to know Vestum better, to know the strategy going forward. First, a few words about you. Simon is one of the co-founders of Vestum and brings over a decade of experience in various M&A roles, mostly from the private equity industry. He spent six years in the U.S., living in California, where he worked at an American-based private equity firm before moving back to Sweden. With that, I'm handing over the stage to you, Simon.
Thank you so much, Petra. Again, great to be here. You will today get to meet five individuals from the Vestum team: myself, our CFO, Olof Andersson, two out of three division managers, and the MD of our biggest company called Pump Supplies. As you can see on the screen here, I'll start today with a strategic update, and then I'll come back towards the end to talk about our M&A strategy. Let's get this going. Just the first couple of minutes on our business model and the effectiveness of the compounding business model. It's really about three things. Number one, sourcing and execution of high-quality acquisitions and acquiring these companies at reasonable valuations. Number two, the reinvestment of the cash flows generated by these companies, and then to reinvest this at high returns, both organically and in additional acquisitions.
Number three, to do this for a long period of time. What do you have to believe in to believe that we can be successful with this? Number one, do we have the capabilities of sourcing and executing high-quality acquisitions? Number two, can we support these companies to continue to generate high returns, both organic growth, profitability-wise, and cash flow generation? Number three, can we reinvest a large portion of the cash flows that are being generated and find new growth avenues, both organically and in new acquisitions? Number four, do we have the resilience of doing this for a long period of time, not just today and tomorrow, but in 10 years' time? At the very core of this business model is self-financed growth to allow free cash flow to fuel growth without being dependent on issuing equity and too expensive debt.
If we can be successful with our targets on free cash flow and with our acquisition strategy, then ultimately we'll show a high earnings per share growth and a high return on capital employed. Where do we fit in with this business model? We have chosen to focus on the large and structurally growing and underinvested infrastructure sector. An underinvested and aging infrastructure is not just a thing in Sweden or Northern Europe. This is a global thing, and this creates a global market opportunity. We can do this for a very long period of time. We have decided to focus on these growing pockets, growing niches, and technologies within infrastructure, where we today have market-leading positions with some really strong financial profiles.
We operate a decentralized business model, meaning that all of our companies are run by their own management teams, their own managing directors, and they run day-to-day operations. They are then supported by people in Vestum with strategy, with add-on acquisitions, with financial resources. We today have 1,500 people across the Vestum portfolio, but only 13 people working at Vestum head office, meaning we are truly decentralized. We now have a clean, lean, and mean balance sheet ready for growth, which feels super exciting. Again, we spent the last two years on refinancing our capital structure and investing in our balance sheet, and we are now in a position to allocate capital towards growth. We today have an established platform across Northern Europe. We own 35 companies, sales of some SEK 4.2 billion and a margin of 10.5%.
These 35 companies are scattered across Norway, Sweden, Denmark, and the U.K., Sweden being our biggest market at 77% of sales, and then the U.K. at 14% of sales. Looking at profits, the U.K. represents roughly 25-30% of profits, and it's our fastest-growing market. These 35 companies have on average sales of SEK 121 million. They have some structural capital, and this is super important. We don't own any micro or super small companies. These 35 companies have on average been around for 28 years. They've been around for decades. Looking at the right-hand side, you'll see the profit split of our group. Today, almost two-thirds or 63% of our profits are coming from product companies. This is also very important. It's been growing rapidly over the last couple of years, and our strategy is to continue to grow the share going forward.
We have three segments in Vestum: Flow Technology, Niche Products, and Solutions, with Flow Technology being our biggest segment, representing 44% of our profits. There has been a lot going on in Vestum over the last couple of years. Let me take a couple of minutes and walk you through what has really happened. In the first two years, in 2021 and 2022, we were super acquisitive. It was all about creating critical mass. I think we did that quite successfully. Then 2022 came along, and we had geared Vestum for high growth, and inflation skyrocketed, interest rates went up very, very quickly. We had to rethink our strategy, and we did. We were in a position where our balance sheet was too highly levered, and we had some expensive debt in there with bonds.
We were also looking to streamline operations, become more specialized, focus on core assets, get rid of some non-core companies that no longer fit our strategy. We went into a two-and-a-half-year period of divestitures. We divested companies to hit basically two birds with one stone. We could take the capital received from those divestitures and reduce the balance sheet, and we could get rid of non-core assets, non-core companies that no longer fit our strategy. We are now going into 2025 with a clean balance sheet and a platform that is ready for growth. Financing-wise, in the beginning, we used bank financing bonds. We issued equity on every single acquisition and free cash flow. Again, this business model only works in the long term if we allow free cash flow to fuel growth with reasonable leverage.
The first acquisition we've done in two years was in August last year, and that was the first acquisition to date in Vestum that was financed with all cash. That is how we think about this going forward. We'll finance acquisitions with cash without being dependent on issuing equity and expensive debt. Lastly, the type of companies we've acquired. In the beginning, it was mostly services companies. That was a bit of our heritage, and then we shifted focus to product companies. Going forward, platform acquisitions will be focused on product companies. Why is that so important? Because these companies fit very nicely into the decentralized business model. They have some substance. Customers are buying our products, not from key individuals. We have lowered dependency on people, on key individuals in these companies. We have some true substance, and these are typically asset-light, high-margin suppliers.
Going forward, we're focused on value generation, on free cash flow and return on capital at the very, very core. We're now in a position to allow free cash flow to fuel growth. This is what the repositioning looks like from a balance sheet perspective. The pink bars represent financial net debt, and the line represents leverage, financial net debt in relation to reported EBITDA. As you can see on the far left here, in Q4 2022, we had financial net debt of SEK 2.8 billion. Two years later, SEK 1.4 billion. We've reduced financial net debt by 50% in two years. In the SEK 2.8 billion, we had SEK 2.5 billion of bonds, expensive bonds. Cost of debt was really high for us. Two years later, in the SEK 1.4 billion, we have zero bonds. We've done all this without issuing equity.
We've done divestitures, and we've used our free cash flow generation, which has been very strong. Looking at leverage, the line, we're now within our financial target of 2.2 times reported EBITDA, again in a position to allocate capital towards growth. This is what the repositioning looks like from a type of company perspective. The pink bars represent share profits that are coming from product companies. In 2021, it was 21%. Now it's 63%, and we'll continue to grow. This won't be 63% by end of 2025. It will be something higher, driven by both platform acquisitions and organic growth. Why is this so good? Because these companies are market leaders in growing smaller niches, meaning they have high market share, and they can take high prices for their stuff, and they can increase prices as they go along, which shows in the margin.
These companies have an average EBITDA margin of 16%, and they are asset-light. They do not have a lot of fixed assets. Looking at return on capital, we use a simplified version of return on capital employed, which is return on working capital, EBITDA over working capital. For these companies, they are on average at 72%, which I think really stands out. What is so good about these companies is that they have customers on a nationwide scale. They are not dependent on a local region. Some of these companies have own products, so we can export these products and accelerate growth even further. This is where Vestum will allocate capital towards going forward, both organically and in new platform acquisitions. There has been a lot going on over the last two years. Vestum today looks substantially different today than two years ago. We have changed the group structure.
This is how Vestum will look from the first quarter of 2025 when we release the Q1 results on April 29. Three segments: Flow Technology, Niche Products, and Solutions. In Flow Technology, we're all about water infrastructure and basically three things: moving water, cleaning water, and protecting from water. This segment grew by 15% last year, both acquisitive growth and organically, margins of 18.5%, which was in line with the previous year. This segment represents 44% of our profits. This will also increase going forward, driven by both acquisitions and investments organically in these companies. Focus for this segment is growth, growth, growth. Looking at return on capital, these companies are at 90% return on working capital. Looking at the mid segment here, Niche Products, these are companies that sell products to other parts of infrastructure than water infrastructure.
A part of this segment is a bit dependent on construction investments. It was a bit of a tough year last year. Sales came down a bit. Margins came down to 12.4%, which is too low for this segment. Here we should be above 15%. The focus for this segment is twofold. One, to improve profitability in the companies that have fallen down profitability-wise, to bring us up to 15% again. For other parts of the segment that are doing very, very well, we're looking to invest organically. We're also doing platform acquisitions to these segments. Platform acquisitions will be focused on Flow Technology and Niche Products as we go forward. In Solutions, we have our services companies. These are typically installation companies and highly niched infra services companies. For example, we do concrete renovations in parking structure.
This segment also faced a tough market and a tough economy last year. Margins came down to 7%, which is way too low. The companies in this segment have historically been above 10%, and we are now focused on one thing in this segment, and that is to improve profitability, to bring this back up to where it should be. Again, in the short term, what we are looking to do is to make platform acquisitions in Flow Technology and Niche Products. Flow Technology is where most acquisitions will come from in 2025, and that is driven by our extremely solid platforms in this segment and that it is extremely underinvested markets where we currently operate, specifically in the U.K. We are going to talk more about this later on in the presentation. Let us talk a bit about growth investing. We have two engines: organic growth and acquisitions.
When it comes to organic growth, here it is really all about creating the environment that will nurture long-term profitable growth. And when I say organic growth, I really mean organic profit growth. We today have operations where we have three division managers, and they are chairmen of the board in each of these companies, so 10-12 companies each. They support these management teams and managing directors to fuel organic growth. We have acquisitions, platform acquisitions that we are looking to do again in these two segments that you saw on the previous slide. We are going to do acquisitions in our existing verticals, but also in adjacent verticals. Add-on acquisitions are to strengthen the market positions in our existing platform. Let us talk a bit about organic profit growth.
I'm not going to go through all these bullets, but I want to say something about the top three ones. We have division managers who run our companies as chairmen of the board. Their biggest task, their most important task, is to ensure that we have the right managing director in the right company and to ensure that that person is highly incentivized and motivated. We've done quite a good job, in Vestum, with succession planning to ensure that we're not dependent on founders. Although we don't have a lot of the founding entrepreneurs left in the business, which I think is a good thing, they still have the entrepreneurial mindset. They still have the entrepreneurial mindset, although they're not the founder of the business. What does that mean to us? It means seeing opportunities, not challenges.
It means being creative and innovative and daring to make mistakes. What tools do we have in our toolbox to support with this? Number one, pricing, I'd say. These companies are entrepreneurial-led businesses. They've been around for decades before Vestum comes in, so obviously they've increased their prices as they go along. Sometimes it's scary to go from a 3% increase to a 5% increase, and they need support with arguments to bring to their customers and sometimes just a little bit of a push to go from 3% to 5%. These successful companies, again, they've been around for decades. They've made dividends over the last decades, so they're quite well off.
For a person who owns 100% of the shares in a business to risk everything and go into a new market, making an added acquisition, doing all these things could be just not the right thing to do. When they sell to Vestum, we can now add the risk willingness to unleash the full potential in these companies. Margin-wise, we are extremely busy with improving the margin in Vestum. We are currently at 10% EBITDA margin. Our financial target is minimum 12%, and we can get there just by working with the existing portfolio, being independent on M&A. We can go to 12% just by working with the existing portfolio organically. What are we doing? Pricing strategy is one thing. Being even better with project selection and efficiency measures. We have some extremely efficient companies in Vestum that are best in class in these things.
Since we're industry-focused, most of our companies look the same organizationally and operationally from sales, production to aftermarket. We can use the companies that are best in class in efficiency and have them educate some of the other ones. We have segment days and divisional days where we get together, half-day events, two-day events, and we educate each other on these things. Accretive growth basically means that our highest margin companies are also the ones that are growing fastest. The ambition in Vestum does not stop at 12%. We can take this to something much, much, much higher, but we need to add M&A. We have raised the bar for acquisition targets in Vestum to minimum 15% EBITDA margin.
When we look for acquisitions now, the companies that we have in our pipeline that we will execute in the short term all have margins of above 15%. As we go along and make these acquisitions, something will happen to the margin. It will go upwards. We have divestitures. We've done divestitures in the past, and although we're not looking to do divestitures now that will shrink the business and create the IRFs of five and a restatement of historical figures to mess everything up for analysts and investors, we still have that tool in our toolbox if we can achieve net growth effect. What does that mean?
It basically means that if I have a company that is structurally stuck at low margins and we do not really see that we can make operational improvements to bring that up to 12%, then it could be creating value for us to divest that and reallocate that capital towards a company with high margins. As an example, if I have a company with $10 million in profits at 4% margin and we are quite stuck there, if we can get reasonably paid for that company and simultaneously acquire a company at $20 million in profits with 20% margin, then I think that would create value to us. Again, we are not looking to do divestitures that would shrink the business. It would have to come as a net effect of growth. We are keen on generating earnings per share growth now going forward. Let's go through our financial targets.
We have three financial targets and one dividend policy. When it comes to our growth target, this is 15% EBITDA growth per share. And per share is super important because it basically tells you that we're not looking to issue equity to reach our target. How to get to 15% and how can you believe in this? Basically three things you have to believe in, three buckets. We have organic growth, we have free cash flow generation, and we have valuation multiples. If we can generate organic growth of 5% and a free cash flow in relation to adjusted EBITDA of 60% and acquire companies at six times, then we'll get there. That will achieve a 15% growth. If you say, "Well, Simon, I think you can go a little bit better in organic growth.
5% can maybe be 7%." These things are communicating with each other. If organic growth goes up to 7%, we can then increase the valuation multiples from six times to seven and a half times and vice versa. When it comes to free cash flow, our ambition is to achieve a free cash flow in relation to adjusted EBITDA of 60%. Last year was 49%, but now with the new balance sheet in place and a new capital structure in place, we are looking at significant interest cost savings over the next 12-24 months, which will push our free cash flow upward. Looking at margins, the target is minimum 12%. As mentioned, we can get there just by working with the existing portfolio. Capital structure-wise, we are currently at 2.2 times reported EBITDA. Can we take that above two and a half times?
On a pro forma basis, we wish to be below 2.5 times. In a given quarter, if we acquire a company, then the leverage could go above 2.5 times as the balance sheet would take the full hit immediately, but profits will come later on. Dividend policy-wise, we're looking to reinvest all cash flow into growth now, and we'll see where the board stands next year. For this year, all cash flows will be going into the business. Let's summarize the first slide of the first section of Vestum's first capital markets day. We have a decentralized business with some asset-light, high-margin suppliers in growing niches of infrastructure.
We've done a repositioning over the last two years, and we're now in a position, I think, to increase our value creation with the decentralized business model and ultimately achieve a high return on capital employed. How to do this? We now own and will keep investing in these asset-light, high-margin suppliers that I think fit super nicely into the decentralized business model. We will use both of our growth engines, organic growth and acquisitions. To fuel this growth, we need cash flow. That's where our ambition is quite high on free cash flow in relation to adjusted EBITDA of 60%. If we're successful with fueling growth now with this free cash flow, maintaining reasonable leverage, ultimately we'll achieve our financial growth target of 15%. Okay, that concludes the first section of today's presentation. With that, I hand it back to you, Petra.
Thank you very much, Simon. Now it's time to introduce to you Olof Andersson, the CFO of Vestum, a co-founder also. Olof has nearly a decade of experience as a CFO in various companies. He spent three years in Asia, especially in Hong Kong and India, and he worked there before he returned back to Stockholm. Now it's time for you to do your presentation. Go ahead, Olof.
Thank you, Petra. I'll start with giving a short overview of Vestum's performance in 2024. We generated net sales of roughly SEK 4.2 billion at an EBITDA of SEK 447 million, which corresponds to an EBITDA margin of 10.5%. If we look at the trajectory throughout the year, we saw a small decline in net sales and seen as a whole net sales decreased in 2024 by 3.8% compared to the year before.
That rate of decline actually decreased during the second half of the year. What we are seeing is we are expecting the net sales development to stabilize and actually switch into growth during 2025. When it comes to the profitability development in terms of EBITDA margin, the pattern was quite similar to the net sales development. We saw a declining EBITDA margin during the first half of 2024, and then the EBITDA margin started to pick up in Q3 and Q4. We think that trend will continue as net sales shifts back into growth. If we look at the different segments, starting with Flow Technology, Flow Technology generated sales of SEK 1.1 billion, roughly a billion SEK, in 2024 at an EBITDA margin of 18.5%. The segment delivered quite stable growth during 2024, driven both by organic development as well as the acquisition of PDAS, which Simon mentioned previously.
If we look at the margin development, it was quite stable throughout 2024. We saw a small decline in the fourth quarter, which was entirely driven by the fact that PDAS has a lower margin than the rest of the segment. It is important to stress that the margin of PDAS is actually expanding, so we expect the margin in the segment as a whole to pick up and continue to grow going forward. Moving to Niche Products, which generated net sales of roughly SEK 700 million in 2024 at an EBITDA margin of 12.4%. Some businesses in this segment faced a very challenging environment in 2024, as Simon mentioned previously, and that has put downward pressure on net sales and margin development in 2024. However, that rate of decline actually decreased in the last quarter of 2024.
When we talk to the businesses that make up this segment, they are positive for the future and see a shift towards a more favorable market condition going forward. We actually expect this segment to turn over into growth mode when it comes to both net sales and profitability development. Finally, the Solutions Segment. The Solutions Segment had a turnover in 2024 of close to SEK 2.5 billion at an EBITDA margin of 7.1%. When it comes to the development during the year, the pattern was quite similar to the Niche Products segment. We saw a decline in sales and profitability throughout the year as a number of businesses within this segment faced a tough market.
However, as in the Niche Products segment, we saw that rate of decline decrease in the fourth quarter, and we expect the development to stabilize and then also shift into growth, both when it comes to net sales and profitability during 2025. It is difficult to say exactly at what time and at what magnitude, but we expect this to happen during 2025. That was the segment. Now, if we break down the group profitability into different sales categories, basically what we see here is the group net sales divided into different EBITDA margin categories. In the pie chart to the right, we break down each EBITDA margin category into the underlying segments. Basically, if we start looking at the top category, the yellow box, 26% of Vestum's net sales was generated by businesses delivering an EBITDA margin above 20%.
More than a quarter of Vestum's revenue comes with a margin of above 20%. That is mainly driven by flow technology companies. Half of Vestum's flow technology companies are located in this category. We also find two niche product companies in this category, namely the two container businesses that Vestum owns. If we zoom out again and we add this top category together with the category below, that is companies that generate 12%-20% margin, then we can conclude that 46% of Vestum's portfolio in 2024 delivered an EBITDA margin which was above Vestum's financial target. 46% delivering above Vestum's financial target, which is an EBITDA margin of 12%. The opposite of that obviously means that more than half of Vestum's net sales are generated with an EBITDA margin which is actually lower than Vestum's financial target today.
That is, of course, not good enough. If we look at those segments, those two categories in the bottom, the biggest one is businesses generating an EBITDA margin of 7%-12%. The majority of both these bottom categories is made up of solutions companies, so the companies that have been facing a challenging market in 2024. The vast majority of those companies have been historically above 12% EBITDA margin, and all of them have been above 10% EBITDA margin. We see no reason why these companies should not be delivering in line with this historical track record in a more favorable market. Obviously, we have been working hard with these companies to maintain profitability in this challenging environment, and we think they are very well positioned to start climbing this margin ladder as we expect the market conditions to become more favorable going forward.
As Simon mentioned, we measure our companies on a variety of factors and KPIs. Obviously, growth is extremely important. Obviously, profitability is extremely important, and networking capital is also extremely important. We have seen a quite positive development when it comes to networking capital as a share of net sales throughout 2024. We have actually decreased networking capital ratio by almost two percentage points compared to the year before. This is an area where we spend a lot of focus working with our companies. We provide them with trainings in how to work with optimizing networking capital. We provide them with dashboards and analysis to address their networking capital challenges. That may vary quite a bit between the different companies. If you are a product company, likely focusing on inventory will be very important for you.
If you're a services company, maybe it's more accounts payable or accounts receivable. That is the most important area. We don't see any silver bullets when it comes to optimizing networking capital. We think of this as tedious, meticulous, constant improvement. That's what will make a difference in the long term. The networking capital is obviously a part of the change in networking capital, is obviously part of the free cash flow. Let's look at the free cash flow as a whole. This is the free cash flow bridge for the year of 2024. Vestum generated SEK 204 million in free cash flow in 2024. I want to highlight the starting point, the operating cash flow, where we have backed out tax, net change in networking capital, and financial expenses.
The reason for that is I want to highlight financial expenses a bit extra because Vestum paid financial expenses of SEK 197 million in 2024. That is basically then interest. The vast majority of that component is, of course, interest. It is also important to highlight that we actually had quite a few other financial expenses in the shape of, for instance, when we redeemed a bond in 2024, we have to pay a call premium for the fact that we redeemed this bond earlier than maturity. These kind of one-time expenses, of course, have quite an impact. What do we do with this free cash flow then? To illustrate that, this is a liquidity bridge where we bridge the ingoing cash balance that we entered 2024 with.
Then we have added on top of the 2024 cash flow the effect from the divestments that we announced in November, but actually closed in February this year. We have also added, for illustration, the effect from the fact that we have redeemed our remaining bonds in March this year. I'll guide you through it. If we start from the left, we entered 2024 with a cash balance of SEK 345 million. We generated free cash flow, as we saw on the previous slide, of SEK 204 million in 2024. On top of that, we made an acquisition of PDAS, and we also made a number of divestments, including the divestments that we actually closed now in February. The net effect of all that M&A activity was a positive cash flow of SEK 464 million. Moving on then to debt repayment.
If we include the fact that we have redeemed our final bonds now in March, we have dedicated SEK 905 million to debt repayment. Basically, we have taken our entire free cash flow of 2024 and directed that to debt repayment. We have taken the full net effect from our M&A activities and directed that to debt repayment. We have taken a fair share of the ingoing cash balance we had in 2024 and directed that to debt repayment. I mean, when you take all these components into account, you end up with quite limited liquidity. For the sake of clarity, to the far right, we have added the impact of the fact that we have unutilized credit facilities of more than SEK 500 million. Our liquidity is actually above SEK 600 million if we count the non-utilized credit facilities.
Okay, so what is the impact then of this focus on debt repayment? Simon basically showed this before, but it's worth illustrating once again. This slide shows the development of our financial net debt. In 2022, exiting 2022, we had a financial net debt of SEK 2.8 billion. If you break that down, it was mostly made up of corporate bonds. Moving into 2023, we made a number of divestments, and obviously, we generated free cash flow that we, to a large extent, directed to debt repayment. We started to take down the volume of bonds and switching that into bank debt. That pattern continued in 2024, where we continued switching from bonds to bank debt.
Finally, in the bar furthest to the right, we have added the effect from the last disposals that we announced in November and closed in February, and the fact that we redeemed our remaining bonds in March. When you adjust for that, we were per December at a financial debt of SEK 1.4 billion. With a completely different debt mix, we have no remaining corporate bonds, and instead, we have shifted over to bank debt. What does this generate then? What is the purpose of this? The purpose of this, one main purpose of this is, of course, to reduce cost of debt. Cost of debt is here illustrated by total financial expenses, i.e., that is the vast majority of that is paid interest.
On top of that, again, we have these one-off items, such as when we redeem a bond, we pay a call premium. When you add all that up, if you remember from the free cash flow slide, that number was SEK 197 million in 2024. That was actually lower than the previous quarter on an LTM basis. If you consider that number, and then we put that number in relation to the financial debt, you get kind of an effective interest, you might say. Perhaps not the perfect definition, but yeah, it is roughly the effective interest. That amounts to 8.6% per December 2024. Here we are modeling a scenario of how we see financial expenses developing.
It's not a forecast, so I'm not putting in exact quarters and so on, but it's a scenario based on the capital restructuring that we have done in the past. What we will see going forward then is financial expenses that are dropping quickly and quite substantially. We won't see a huge drop in Q1 based on the fact that we are redeeming the last outstanding bonds in Q1, which of course comes with a one-time cost. Beyond Q1 2025, we will see constant, sudden, significant drop in financial expenses. In this scenario, we model that they might very well land in the vicinity of SEK 75 million on an LTM basis at some point in 2026. That would correspond to an effective interest, you might say, dropping from 8.6% to somewhere between 4%-5%.
This is basically driven by a combination of three factors. One, we have brought down debt and leverage. Two, the debt mix is quite different. We are no longer relying as much on bonds. Instead, we have bank debt. Finally, of course, we get a positive effect from the fact that base rates are lower today than they were a year before. All of these components are driving a quite substantial drop in cost of debt. That concludes my part of the presentation, and I thereby hand it back to you, Petra.
Thank you very much, Olof. Next speaker. Next speaker is Mattias Hellner. Mattias Hellner is Head of Business Operations and started at Vestum in October 2022. He has previously been a Managing Director for almost 15 years, and Mattias has dedicated sailor interest and has crossed the Atlantic in his own boat twice.
The stage is yours.
Thank you, Petra. All questions about crossing the Atlantic we need to take later on because I'm here today to talk about operations. Let's start with an overview of our companies and what we do from an operations perspective. Like Simon mentioned earlier, we are over 1,500 employees at Vestum, working every day with sales, product development, production, and production development. This is where a large portion of the value is generated. That is what we at Vestum shall support when it comes to operations. At Vestum, we're only 13 people, less than 1% of the total number of people. We're working with 35 companies today in three divisions. I think that divisions is a new word for the day. We've been talking about the segments before, the flow technology, solutions, and niche products.
The divisions is structured around the division managers so that every division manager has a number of companies that he or she runs. They are also structured so that they fit in terms of type of company with the background of the division manager. I will guide you through the value generation process at Vestum, basically how we develop EBITDA and how we improve cash flow. Let's start with this slide. We have a direct ownership of these 35 companies. As you can see here, we have another 15 companies that are part of company groups. We have four company groups like this, and they are the result of add-on acquisitions. We will probably have more company groups like this when I meet you guys the next time. Another important note of this slide is the average size of our companies.
As you can see here, it is well above SEK 100 million. That gives the Vestum companies a certain level of structural capital, basically meaning that they have the routines, the processes, and the organization to cope with our standards, our standards in terms of sustainability, health and safety, accounting, of course. Last and not least, they have the capability to deliver the business plan that they themselves develop. That is very important when you work in a decentralized environment because these companies basically run themselves when it comes to delivering the business plan. When we look at this slide in 2026 or 2027, I am quite certain that the average size will be even higher due to add-on acquisitions, platform acquisitions. Hopefully, and probably a very important part of the growth will be the organic growth, of course.
Another perspective on company size is the risk part of it, the company size in relation to the total size of Vestum. As a compounder, you constantly monitor risk, of course, both operational risk and portfolio risk. Operational risk, I will come back to a bit later. Risk management sounds really, really dull, but it is an integral part of the value generation process. Here you can see the split of our top companies. Our largest company corresponds to 12% of the sales. They are here today and will present later on. Apart from that, we have roughly 60% of the sales divided on our top 10 companies. Another vital part of the value generation process is the decentralized model. You've heard the word several times today. If you've been attending other compounders' capital market days, you've heard the word from them as well.
Most compounders call themselves decentralized. For us, it's important to both understand and define what we mean by that. Otherwise, it will be a bit confusing, both for the market, but especially for the companies that we help grow. When it comes to Vestum companies, we are highly decentralized when it comes to running day-to-day business. That basically means delivering on the business plan. We are highly centralized when it comes to capital allocation, investment decisions, strategic directions of our companies. Those decisions are taken by the boards. We have the bridge between the centralized and the decentralized, and that's the division managers. Today, we have three division managers. I'm acting as both a division manager and a head of business operation. I have a background from Indutrade. We have Johan Cederstrand, who will talk later today. He has a background from Bergman & Beving.
We have Jonas Borg, who's been a successful MD in one of our companies for 25 years, and now he's acting as a division manager. We have a true belief that in order to help our companies grow in this decentralized environment, you should have a similar background to the companies themselves. How do we cooperate with our companies then? We have quite a basic model. We have monthly management review meetings where we run through financials, KPIs, but also the progress of the strategy plan. We have the board meetings, of course. One of the parts that you do not talk that much about is the other social events or the educational events that we run.
Those are quite important, both to increase the level of knowledge and, for example, working capital like Olof talked about, or just getting the companies to get to know each other. I will spend some more time on how we work with our companies and how we govern them. Corporate governance, let's start with that. Corporate governance in our companies is basically us making sure that we have well-run companies with a high level of compliance and a good level of corporate housekeeping, board work standards, health and safety monitoring, sustainability reporting, etc. Business development, on the other hand, business development shall lead to organic growth and, or depending on what type of company, margin expansion. This is where we spend most of our time as division managers. How do we do this in practical measures then? We try to stay close to our companies.
We follow up on KPIs and strategic development, as I mentioned before. The most important aspect is probably to follow up on the things that do not go as expected: risk, strategy plans that fail, etc., because those are the areas where we can help these companies to accelerate. We spend a lot of time on that. When I am telling this to you, it sounds like it is the division managers that run the companies, and it is not, of course. The most important factor in succeeding here is, of course, having great management teams in our portfolio companies. As a board, you all know that you are responsible for the future organization of the company. This means that we spend a lot of time on ensuring succession plans for MDs and CFOs in all our companies.
Today, we have roughly a bit above, actually, 70% of our sales in our companies is run by external MDs recruited by us. We also have entrepreneurs, the previous owners of the companies, running companies or having other positions in their companies. It's not a matter of what kind of MD you have. It's a matter of having the right person with the right motivation at the right position. We have the boards. The board is ultimately the tool that we use to work with our companies. At Vestum, we have a board composition model where we try to always have three parties in the board, not necessarily three persons, but definitely three parties. It's the company, of course, represented by the MD. Then you have the division manager representing the owner, Vestum.
Finally, you have the external board member or members that we recruit based on the challenges of that company. We see this as a very, very successful way of driving change from family-led companies to top-level strategy, KPI-focused companies. Today, we have over 50% of our companies with a board composition like this, and that figure will also be higher the next time we meet. The last note on this slide, which is not on the slide, is the question that I get most. It's probably the most common question I get. How do Vestum work with synergies? Which is a good question. I get it both from external stakeholders and I get it from the companies themselves.
I think that I'm probably citing one of you in the audience when I say this, but at Vestum, synergies are always welcome, but never forced upon, meaning that if we have two MDs that find the possibility to work together, we are happy about that. We support that, but we're not looking for that from a Vestum perspective. What we do is we create the possibilities for the MDs to have these great relationships so that they will find synergies through different kinds of meetings and educations and segment meetings, etc. Finally, some key takeaways from an operational perspective. Simon mentioned this already, but we have a shift in Vestum from margin and cash flow focus to, and I would like to add, to also focus on growing excellent companies.
We're not letting go of the margin focus, of course, but we do have a lot of companies that have a great set of KPIs. We would like to allocate capital to those companies to help them grow. That is, of course, a division manager's job to help them to take the next step. We have an average size of above SEK 100 million, which means that our companies can cope with the standards that we have. Finally, the most important aspect in value generation is, of course, the management teams. We spend a lot of time on that. That is my last slide. Thank you for that. Back to Petra.
Thank you very much. Now it is time for a 15-minute fika break. Please, for you in here, please have a cup of coffee and a cinnamon bun over here.
We'll get back here in 15 minutes. That will be at 2:46 P.M. Welcome back, everyone. Hope you had a good fika. Let's continue with today's agenda. Next man on stage is Johan Cederstrand. Johan Cederstrand started at Vestum in October 2022 and has been a Division Manager since the spring of 2023. He has over 30 years of experience in product companies and entrepreneurship. He has been the CEO of ESSVE Sverige AB. Now, Johan, the stage is yours.
Thank you, Petra. Nice to be here. Glad to have the opportunity to talk about our product companies. I will have a little bit of a walkthrough for the financial performance from our product companies, a little bit how we see the growth areas, and also a good deep dive into how we look into profitability for the product companies. Today, we have 12 companies.
We've done a total revenue of SEK 1.8 billion, solid EBITDA margin of 16%. The biggest product category is today Flow Technology. That's also a category that we have present in all four of our markets. Today, Sweden is the largest market with around 50% of the total revenue for product companies, followed by the U.K., who have more or less a little bit over one third, then smaller contributions from Norway and Denmark. One important thing is that all these companies, what they have in common here is why the products are quite essential for the end customers. They make up only a small part of the client's total cost. That makes our business quite resilient. How does the financial development look like?
For 2024, during quite tough market conditions anyway, the product companies contribute with 42% of the Vestum total revenue, but an impressive 63% of the total EBITDA. What we can see here is we have a small growth. We have a good resilience in this tough market. We also see some signs of a small recovery, but it is a little bit too early today to tell us how fast this recovery will be. What these figures also show is that we are not so heavily dependent on the underlying construction investments. For example, the Flow Technology companies benefit also from the rising infrastructure investments. We have stable margins, quite stable margins under these conditions. The sales growth also reduced the cyclicality that we can see. If we go further on and deep dive a little bit more about the profitability.
For us, since the product company's business model is quite asset-light, it's really, really dependent on a strong capital efficiency. What we have done is to actually develop a simple model that we call the Vestum model, where we're using a simplified EBITDA over net working capital ratio to measure how profitable our companies are. Why have we done that? Because we need something easy to explain for the company's MDs where they should place their priorities and what they should focus on on the way forward. If we look at this picture to the left, we see the ratio for the product companies today, 72%. In the middle, we see the share of the total product sales per category. We have split this into three different categories: top performer, mid-performer, and low-performing companies. I will get into that a little bit later.
To the right, you see the number of companies we have in each of these three segments. What does this mean then for a Managing Director in a company? If you are a Managing Director for a green company, a top-performing company, you have an EBITDA over working capital way over 70%. There, the only focus, the main focus should always be growth, growth with profitability, of course. If you're an MD for one of the three companies who in this picture are yellow, a mid-performing company, we have an EBITDA over working capital somewhere between 40% and 70%. Here, you should have the main task to improve the profitability. You can actually take some growth initiatives if that clearly supports profitability. If you're a red company, and also it's important to notice here, of all these companies, we have three yellow and four red.
Of these seven companies, four of them today have also been affected by the downturn in the economy. If you are a red company here, you have an EBITDA over working capital under 40%, then the only focus should be profitability. For example, we had a company, a yellow company for a year ago, one of our manufacturing companies. What we do with this is we have a discussion with the management team, and we help them to take the decision how they should actually improve the profitability. We help them to take the quite bold decision to reduce the business and discontinue the non-core business part. What that means in reality last year was that their sales dropped 20%. Just doing that, we also reduced the inventory level, we reduced the receivables, moved them from the yellow part of this up to the green level.
One year later today, what we can see is actually the sales have rebound. The core business has raised so much in the same level as last year. They are still a green company, well above over 70%. One other example for the red company. We acquired a company three years ago, I think, started over 30 years ago by a couple of entrepreneurs, really, really good entrepreneurs. They had a strong EBITDA, high EBITDA, but their business model relied on a really lean and mean organization and a really, really high service level to the customer. Their working capital was not lean and mean.
Here, we helped the new management team to set up a project to actually develop new KPIs for the inventory levels, help them to invest and find a good management warehouse system so they actually could have the same high service level, but we reduced the inventory level by 30%. By reducing the inventory level by 30%, that will, during this year, help them go from the red level up to be over 40%. We take them step by step. Other ways we help these seven lower companies in the green, in the red and the yellow, is make the business model more tight, maybe. We could help them invest in an ERP system. We are working quite heavily with pricing strategy. There are many, many ways for us to help them actually to be better at networking capital.
What we can see here also is today we have 72%, but the long-term potential is much, much higher, both because of the market situation today, but also when we are looking into how these companies have performed earlier, we see that they have higher, higher expectations than 72%. So all our product companies work more or less under two business models. We have the value-added distributor and solutions, and we have the manufacturers. Distributors stand today for 80% of the total sales within product companies. What's actually really impressive is that we have the same strong EBITDA margin on both sectors, both the distributors and the manufacturers. Normally, you see that manufacturing companies have a little bit higher EBITDA margin.
What we can say about our distributors is thanks to their strong premium position and also strong service and aftermarket gives them the opportunity to have a really, really high profitability. 40% of our total sales today consists of own brands. 60% is purchased. Since we have two business models, that also contributes to a really, really balanced portfolio for us. If we deep dive a little bit into the Flow Technology, the Flow Technology segment today has six companies. Here are three examples of them. We have Pump Supplies to the left, a pump solution expert with an unmanaged fleet of submersible pumps. Luke Beatty will talk about that later on. In the middle here, we have Filtrena, a Swedish company based in Växjö, Småland, one of Sweden's largest suppliers of water filters and water analysis.
To the right, we see the contribution from Denmark, water irrigation systems for the agriculture industry provided by Skånring, Denmark's absolute leading distributor of irrigation systems. This segment fits perfectly for the growing demand that we can see for water infrastructure. This demand is not local here in Scandinavia. It is a global demand that we see. Also looking into the EBITDA over working capital, where we say that over 70% focus on growth. When we are looking into this segment, we have over 90% EBITDA over working capital. We have a margin here close to 19%, as Olof said earlier. If we look into the market or the Flow Technology, it is an ideal segment for growth. We see the demand is global. For example, we have quite heavily under investment, and we see also the climate change has also driven the investments.
For example, in the U.K., we see double investments in the coming five years. Since our portfolio consists of market leaders with really superior margins and really high profitability, we feel that this is a perfect way to grow our business. We have a platform today that actually grows organically, but it is also a good step to combine this with M&A activities. If we say have some key takeaways or summarize this, the product companies today that we have in Vestum are well positioned, strong financials. We have historically really, we have always had good product companies with a clear focus on profitability growth across all segments. We are quite confident that this will continue to be a strong performance group. We have a large upside potential in Flow Technology. With all that said, we have a really, really strong platform for growth.
With that said, I hand over to you, Petra. Thank you very much.
Thank you, Johan. Let's now welcome back up on stage Luke Beatty. Welcome. Now I'm going to just tell a little bit of the background about you. You are a Group Managing Director for Pump Supplies. Luke brings over 26 years of experience in the water industry. He has founded and grown businesses from concept to significant revenue. Luke joined the Pump Supplies team in September 2023. Now the stage is yours.
Thank you very much. Firstly, really nice to be here in Sweden and in Stockholm, absolutely beautiful city. Also really great to be here to talk about a company I'm very proud to be part of. Hopefully, you'll see why. Without further ado, Pump Supplies, we are a pump specialist, an electric submersible pump specialist. That's what we do.
I work with a very passionate team of wonderful people, 98 of us altogether. Sales for 2024 were GBP 34 million, with an EBIT of GBP 8.4 million. This is in pounds, obviously. The business was started in 1982 by a gentleman called Andrew John. He was working in the industry, but he was working for a company that specialized with diesel engine-driven pumps. A colleague of his had said that electric submersibles are never going to catch on. It's a flash-in-the-pan idea. He didn't think that, so he invested in that. He bought 50 pumps, actually, from that company. He spent the next 40 years building what is now Pump Supplies. When he did this, he was in an area of the U.K. where there's heavy industry. This was in South Wales.
You've got the coal industry, the mining industry, steel industry, that type of thing. From the very start, Andrew's ethos for the business was make it customer-centric. These clients needed you immediately. They needed you to be on the end of a phone at short notice in an emergency, and you needed to have the kit there very available and ready to deploy. That is kind of the ethos of the business, and it still stands today. As the business has grown, what Andrew has done is he's met people within the industry that are passionate, and then he has built a depot around that person and around that person's connections and supply chain. As you'll see in a later slide, as we moved through the U.K., this was always done based on people, and the business is very people-focused.
That can sound like a cliché, but it is genuinely true. One other thing that I think is important to note is that as primarily a hire company, we do not focus so heavily on utilization, which for most hire companies is what they do. That goes back to my point before about making sure you have got enough kit to deploy, because a lot of the work we do is in emergency situations. If we are always highly utilized, it will be difficult to get kit to people in an emergency. More recent history. In the 39 years that followed, as I said, he built up this business, and I guess he got to a point where he decided that it was time to start looking at retirement, and he decided he wanted to sell the company.
He brought in another industry expert, a gentleman called Peter Lewington, who was my predecessor, who had spent a lot of time working for Xylem and other similar companies. Peter helped Andrew to get the business ready to be sold, because obviously, it is a very different thing from a daily lifestyle business to a business that can be sold. Peter did that until Vestum eventually acquired the business in 2021, in September 2021. Peter stayed on as the Managing Director for a couple of years just to see that process through. Peter, with some involvement from Johan at Vestum, recruited me in September of 2023. 2023 and 2024 were both record years for turnover and for profit for Pump Supplies, so no pressure on me.
No sooner as I started, literally just getting around to meeting everybody, we were already talking about our first acquisition in the U.K. One of the reasons that I actually joined the company is because I had been involved with acquisitions in a very small way previously, and that was something that really interested me. That was a big part of the conversation with joining. Like I say, I'd only been there a few months, and we were already starting the conversation about a company called PDAS, Pump Design and Service, which I will talk about on a later slide. Just a little overview about kind of what we do and try and explain what sectors we work in. 50% of what we do is in the municipal market.
When I mentioned earlier about the steel industry and the coal industry in those early days, it's very similar to the water industry in that the water industry doesn't stop. It's a 24 hours a day, seven-day-a-week process, generally. The water industry fits quite nicely with what we do in terms of offering that service that can react very quickly. We built up relationships with companies like Welsh Water and Wessex Water. Some of you in the room may know that the water industry in the U.K. is about to start its next, what they call, AMP period or investment plan period. That starts in April, and it's a five-year process. I think Johan talked about it briefly earlier. They are looking to spend around GBP 104 billion.
We're making sure at strategic level in the business that we are keeping those relationships strong, positioning ourselves well to take our part of that spend, essentially. That's 50% of what we do is in the U.K. water industry market. The other 50% is kind of mixed across those other sectors that I mentioned there. The environmental sector, we hold a national framework with DEFRA, which is the U.K. government's governing body around environment. That is normally to do with big flooding incidents or major infrastructure failures, that type of thing. We get heavily involved in those scenarios. We also still work in the heavy industry, like the quarries and the steel industry, those things. Then really a mix. Construction is more about the housing market.
Just recently, I think only a few days ago, Rachel Reeves announced that there is going to be an extra GBP 2 billion spent in the U.K. on affordable homes. That is really good for us because we do a lot of installation work around new housing developments. How does the portfolio split across those sectors? We are predominantly a hire business. That is what we want to be. 50% of the business is hire, and we try and keep it like that. Hire is the most lucrative part of what we do. We want to keep that at 50%. The rest of the business across that is 30% sales and then 20% of service, installation, repair, and maintenance. Those things are also really important to us. It is to kind of keep the lights on money, is what I call it.
Because although these big hire jobs, these emergency jobs are very lucrative, obviously, they rely heavily on the weather or certain disasters to happen in the environment. What we are trying to do at the moment is make sure that we still have a steady, profitable amount of business across the other split of portfolio. Why are we successful as a business? I think hopefully what I have already said kind of demonstrates some of that. The 24-hour thing, it really does make a difference. My colleague who has traveled with me this week was on the phone at 3:00 A.M. two nights ago just because a client wanted to speak to somebody important and wanted to get the answer he needed. That is the kind of business we are. Everybody has got their phone on. Everybody is willing to react to the customer's needs very quickly.
We're that kind of agile, quick-to-react company that Andrew set out to create back in the early 1980s. We're still very much the same in that respect. Actually, our structure is relatively flat. We're at the moment working on some succession stuff, which is really, really good and positive. Equally, there's not some huge management chain of bureaucracy to get the answer. We like to make decisions quickly, and that's one of the reasons why we're so successful. Employee welfare. We do have really high staff retention. On average, it's 15 years, which is really high for the U.K. Since I've been there, three people have left. Two of them retired and then came back anyway to work for us part-time. The other guy that left emigrated to New Zealand.
Unfortunately, for him and his family, that did not work out, and he is now back working as well. Nobody has left the company since I joined, which is great. I cannot take the credit for that necessarily, but it is really positive. Again, I will mention it, not focused on fleet utilization. That is a really key thing. The reason I have repeated it is because I think it is one of the most important things. A normal hire business will be looking at 80%-90% utilization. We generally run about 60%-65%. We do measure it. We do keep an eye on it, but we do not hammer it home to the salespeople to make sure that they are overutilizing so that we can react when we need to. A little bit about the financials.
You can see here on the graph, in 2018, we were doing GBP 18 million, with an EBIT of GBP 2 million. Across those years up to now, up to 2024, GBP 34 million, GBP 8.4 million. Something that we are really proud of as a business is this 11% compound annual growth rate. I think when you compare that to the U.K. average, certainly for the industry that we sit in, in terms of utilities and hire, that is significantly higher than the U.K. average. That is something that we are really proud of. With that as a backdrop, we are not going to stand still. We have some big targets, but I think they are achievable to get to GBP 61 million in sales by 2028. That does include the PDAS acquisition, but it does not include any other acquisitions that may happen in between.
That is just with PDAS and organic growth. That is very much achievable. We will also keep investing back in the fleet, as I said before, to make sure that we keep that ability to react. The acquisition of PDAS, as I briefly touched on earlier, was a really interesting one because actually it was led kind of by Pump Supplies. Peter, my predecessor, and I both knew the company from previous, both had relationships with the company in other parts of our career, and kind of brought them forward to Simon and the team at Vestum. I think it is testament, to be honest, to a lot of the things that have been said today. Very quickly, they took us seriously, which was good.
I think we started the conversation in March, which was the first time we saw any real information on the financial information on PDAS. By September, or August, sorry, we made the acquisition. It is a really, really good, positive acquisition for both companies. We have had some great synergies. Matthias said earlier about not forcing these synergies, but actually we have seen lots of synergies happening organically, which is really, really good. Depots all across Pump Supplies are working centrally with PDAS to utilize, because they have a very strong design and engineering team that can actually, we can use that leverage with our other clients in Pump Supplies, which is fantastic.
Also, because of the location of PDAS, again, you'll see on the next slide that PDAS are more based around the London area, whereas traditionally, Pump Supplies has been down the west side of the country. We're going to utilize the sort of supply chain and the contacts in and around PDAS, in and around London, to springboard into that area regionally, which is a really big, exciting thing that we're doing right now. As I said, you can see the green dots down the west side of the U.K. You can see the one in Wales, that was the original Port Talbot depot. Down in the very southwest in Cornwall and Bodmin. Gloucester is the head office in the middle. It's clearly obvious that we haven't got much down the east side of the country.
As we speak, we are having conversations with some key individuals, much like Andrew did in the past, to try and build depots around a person and around that person's skill set. We are talking basically industry experts. That is something that we always do, bring in industry experts. As I said, you can see the PDAS, the furthest south PDAS location is just outside London. We can utilize that. Obviously, property is very expensive in London. We can utilize that to start that depot and start bringing clients in. At least we have an address and an area to store kit and that type of thing. That is really exciting for us because it is happening right now. Typical depots, some pictures there of Gloucester. Oh, we will go back, sorry. At Gloucester, this is our biggest depot.
It covers an area of about 10,000 sq m. There's about 35 people employed there. And there's about 8,500 items of stock. That's pumps, panels, accessories, and all sorts of things that go with it. There is also some centralized functions there, sort of typical head office functions like health and safety, sustainability, group finance is all managed from the Gloucester depot. I wanted to just give you a couple of case studies just to show you some tangible things so you can see what we actually do out there. This is an area some of you may have heard of, not sure. This is an area in the U.K. called the Somerset Levels. By the very nature of its name, you can guess what happens.
This is an area of 65 sq mi of land that probably should never have been built on, but it's now heavy agriculture. There are houses as well within this area. Unfortunately, what happens if a perfect storm scenario occurs, you get a prolonged Atlantic storm or several Atlantic storms coming in at once, it floods this area. Like I said, it's an area of 65 sq mi, up to 20 ft deep in some places. In this case, what happened, we had about four days' notice to deploy all these pumps in the bottom right-hand corner. At the peak, we were pumping 10,000 liters a second. The reason for that is because at the end of just outside of that photograph is the Bristol Channel. It coincided with the spring tides. You had the worst scenario. You had all these storms.
You had a really high tide. Obviously, when the tides are really high, they have to shut the sluice gates to avoid flooding towns with the tide. We were pumping all that water on that side over the tidal gates out to sea during the high tides. The key takeaway from this was just how quickly this was installed within like three or four days, which most companies, in fact, no company in the U.K. can do that. I stand by that. Most companies would want two or three weeks to install something like this. What happens when this type of thing happens is we bring labor in from all the different depots, if required. If one of the depots has not got a certain item, the lorries go and get it. It all happens like logistical clockwork. It is really good.
This one was a really interesting one. It made national news. You can see that we worked closely with the Royal Air Force on this one. Basically, this was a reservoir up north of the country, Talbot Dam. The actual dam structure collapsed. Just downstream was a small village, actually, of about 1,500 people. They had to evacuate all the people because they were worried that the dam was going to completely collapse and obviously wash everybody away. We, again, were brought in on very short notice to supply these 10 pumps. All that, again, went in in like four days, five days, working with the RAF. We had to bring the reservoir level down to 10% and hold it at that level so that they could safely make the repair of the dam. That job is actually still running now.
It's into its third year of the repair, which is remarkable. Obviously, it's been a really good job for us. No one got washed away, so that's a success. A little bit about innovation. Quite often in the pumping industry, innovation is not really a big thing. We always try. Everyone in the water industry wants to be talking about innovation, but it's a very difficult thing to do. This is a genuine situation where it happened. A client came to us with a need. I won't bore you with all the details, but the traditional way to have done this job would have been with a diesel pump. It's what they call a surface-mounted pump right next to the location of where the suction was required.
They did not want the diesel anywhere near the reservoir because, A, it was a drinking water reservoir, and B, it was also a special scientific interest site for habitat. What we came up with was basically a submersible pump that is dry-mounted on the side of a vacuum priming system. This is actually very unique. We are talking at the moment about trying to get this patented. The Blue Chip client was very, very happy because it worked very well. It is more flexible than the diesel-type pump, so you can do different ranges of flows and pressures, which is really good. The proud thing for me is that it has happened since I was at the company and I watched it unfold, and it was genuine collaboration between two depots.
One depot doing the engineering side and literally building stuff on the kitchen table at home and bringing it in. Another depot doing all the programming and the PLC programming to make this thing do what it's supposed to do. It is really nice to see that when that happens, when two depots work together. We have now had interest from several of the U.K. water companies about this product for another use that they think it might be really good for. We are trying now to try and get a few of these into the fleet so we can get them into our rental market. That concludes my whistle-stop tour of Pump Supplies. Thank you very much. Thanks for listening.
Thank you for that look. Now it is my pleasure to welcome back to the stage the CEO for Vestum, Simon Göthberg. Welcome.
Okay, thank you so much, Petra. Last section of today's Capital Markets Day. Please bear with me. I'll try to make this interesting for you. Let's talk a bit about our M&A strategy. M&A is really about two things: sourcing and execution, and ensuring that we have a thought-out acquisition strategy with the right people running the deals. We have a very structured approach on how we go about this. We look for these pockets, these niches where there's organic growth, not just today and tomorrow, but in decades over time. We are leveraging our existing platforms to source new deals. As you can recall, we have 35 companies across Vestum today, 50 subsidiaries in total. The way we sourced PDAS is typically how we want to go about this.
When Luke and his team found the company, they've been working with PDAS and the people for quite some time. When it comes to the short-term focus for Vestum's acquisitions, I'd say that in the next 12 to 18 months, we're going to dig where we stand in terms of our markets: Sweden, Norway, Denmark, and the U.K., with the U.K. being our most favorite market over the next year, I'd say, given the large underinvestments that are going on in water infrastructure. Step-wise, we will expand into additional geographies. What we'll look for is underinvestment, preferably in water infrastructure, and fragmentation. We're extremely humble about going into a new country. We've done it before. We know it's really difficult. When doing so, it's important that we do it with a platform.
A company with SEK 150 million-SEK 200 million in sales, super good reputation, been around for decades, we can use that platform to continue to grow, both organically and in additional acquisitions. We do not wish to make an acquisition of a company that consists of 10 smaller companies with SEK 50 million each in sales or just one company with SEK 50 million. It would have to be a company with structural capital. When it comes to evaluation, we're highly disciplined. In order for our return on capital, return on invested capital to be sort of above weighted average cost of capital, we need to maintain multiples at maximum eight times. I would say that typically we're between six and seven times. This only tells half the story. The other half of the equation is the earnings. The earnings we multiply with.
We spend a lot of time on understanding the earnings profiles of these companies we're acquiring and the earnings projections. For that reason, we'd like to see substantial history, preferably 10 years, so we know how the company has performed over a business cycle. It's much easier to assess the future when we know what's going on in the past. We really don't wish to acquire companies and apply multiples on peak earnings, obviously. It's crucial to understand the earnings profile of these companies. KPI-wise, we're looking at organic growth, both historicals and projections, margins, obviously, and cash flow and return on capital. Most of these companies are asset-light that we're looking at. They have not a lot of fixed assets. The simplified version of return on capital employed is return on working capital, basically.
EBITDA over working capital, which is at 72% today for our prior companies. This is something we're looking closely at when we make acquisitions. Financing-wise, I talked about this before. It's all about free cash flow to fuel growth and ensuring that we maintain leverage at reasonable levels. What do we look for when we acquire companies a little bit more specifically, both commercially and financially? We like these asset-light, high-margin B2B suppliers that are providing value-added products and solutions for their customers. We want companies with leading positions, preferably number one, two, or three. It's crucial to understand the strength of the market position. For example, if we have a value-added distributor with a consolidated customer base or a consolidated supply chain, then they have a rather weak position. That company can become obsolete overnight.
We like to see and understand the strength of the market position. That's very, very important. We want these companies with extensive experience. As mentioned in the beginning, the average age of a Vestum company is 28 years. They've been around for decades. This is something that we want to see going forward as well. In the value chain, as talked about throughout today, we have companies that are niche manufacturers and value-added distributors. We also have these specialty rental companies. They are great. They do have some more fixed assets, but they are very non-cyclical. They've been around for decades, meaning they have a bunch of assets off balance sheet. That's great for profitability. They have some really, really high margins. We do have a high threshold on structural capital. We like to see low dependency on key individuals.
This is especially true for us when we make platform acquisitions. Obviously, management teams with entrepreneurial mindset. Now, Luke was not the founder of Pump Supplies, but he is an entrepreneur. He sees opportunities, not challenges. This is the type of MD that we have across our portfolios: innovation and creativity. Financially, we want to see companies between SEK 50 million-SEK 500 million in sales. Platform-wise, usually above SEK 100 million. We have raised the bar for profitability. We want companies to have at least 15% EBITDA margin and obviously strong cash flows and high return on capital. As mentioned, the financial track record is crucial when we try to assess and understand the projections of these companies. We want to see how they have performed over our business cycle.
We do have some priority areas for Vestum now going forward, I'd say over the next 12 months or so: water and wastewater and energy. Again, specifically in the U.K. for us now. Why these two sectors? Because the companies we're now looking at usually have two end markets, both water and wastewater and energy. That's due to the customer bases here. The customers here look basically the same on regulation, on customer dynamics, customer behavior. These companies usually work with both these two end markets. We have segmented the value chain to understand where profitability is highest. I've talked about niche manufacturers and value-added distributors and specialty rental, but also monitoring and controlling. The PDAS acquisition we did last year is focused on monitoring and controlling. This is super hot right now in these sectors due to digitalization.
These operators can now understand their equipment in real time with these monitoring and controlling assets, hardware and software. They do not need service technicians to go out on site and have a look at the equipment to understand what is going on with it. They can now control it behind their desk, which saves a lot of money for the operators. Again, in the short term, we are focused on digging where we stand in our four core markets. What you should expect from Vestum is that we will, again, make platform acquisitions in the U.K. going forward. The next region for us to attack is Benelux. The reason for that is because it is almost as underinvested as the U.K. It is a heavily underinvested water infrastructure market. There is a fragmentation going on there.
We're now doing a commercial market study to understand the market, the customer dynamics, competitive landscape, value chain, where the profitability lies, etc. We're now creating long lists that will lead to short lists that will lead to meetings that will lead to acquisitions. Sourcing-wise, we have two buckets, right? Internal sourcing and external sourcing. When it comes to internal sourcing, this is mostly done throughout our platforms and with our existing network built up over decades. The best part about sourcing deals from the internal source is not price or valuation as one might expect. It's because the biggest risk of the transaction is reduced, and that is people. The biggest risk of any M&A transaction is always the people behind that business.
When we buy a company from an M&A broker, you can only dig your way through so much and get to know these people so closely, doing lunches, dinners, playing golf, do whatever. If we have a company like Pump Supplies that's been working with PDAS, the acquisition we did last year for decades, and they know the people behind the business, they have a customer and supplier relationship. They know about the reputation that it's truly strong. That really helps. That's how we have sourced most of our deals, and that's how we think about this going forward as well. Obviously, we look at deals coming from M&A brokers. We typically want to see that we have some sort of angle when we go into it. Otherwise, it's difficult to be competitive.
What is so great about these companies is they are by definition for sale. They have a professional advisor sitting on their side of the table to tell them that what Simon is saying about the share purchase price or the share purchase agreement makes sense. It is market-based. It is not trying to fool you. That really helps. We are now positioned for some value-creating acquisitions. How exciting is that? Some value-creating acquisitions. We have a clean, lean, and mean balance sheet that is ready for growth. We will now again allocate capital towards acquisitions. We have not done that in over two and a half years, except the PDAS acquisition. We have several ongoing discussions and a shortlist and a strong pipeline of these asset-light, high-margin players. One should expect that platform acquisitions will come out of Vestum this year, hopefully in the short term.
We are doing some ongoing work to eventually expand into additional markets. Our target is to acquire an EBITDA of SEK 50 million-SEK 75 million per year. These numbers come from our projections on free cash flow generation while maintaining a reasonable level on leverage. That is how we get to the SEK 50 million-SEK 75 million. I think that makes sense to have as a target for at least this year and next year. We will see what happens. What is Vestum? Vestum is a value-creating supplier in growing niches of infrastructure. How do we create value? By being best in class in sourcing and executing these high-quality, high-returning acquisitions and doing that at reasonable valuations. We then reinvest the cash flows generated by our companies at high returns using both our growth engines organically and in further acquisitions.
We talk a lot about the margin in Vestum. The question mark should be a one, not zero. We're currently at 10% EBITDA margin. Our target is to reach minimum 12%. We can get there just by working with the portfolio, doing organic stuff. Our ambition doesn't stop at 12%. We want to take this to something substantially higher. That is possible by being successful with our M&A strategy. If we can be successful in maintaining a solid free cash flow and continuously finding these good acquisitions and acquiring these at reasonable valuations and financing these without being dependent on issuing equity or taking on too much debt, we will eventually showcase a high earnings per share growth and a high return on capital employed. That concludes the last part of this capital markets day and our presentations.
We will now go into a Q&A and, to the best of our ability, answer all the questions you may have. Petra will lead the Q&A section.
Yeah.
We'll do our best to answer. Okay.
My first question to you will be, why do business owners choose to sell their business to you? What's your selling point here or buying point?
Yeah. Yeah. I'd say that the typical company that sells to Vestum is a company with an owner, 58 years old, looking for succession planning, looking for the next home for his or her business. They usually rule out private equity because they have no interest in positioning themselves for exits immediately after selling their business. They're looking for someone who can do this for a long period of time.
There are other sort of compounders around there that are having similar business models as us. The reason usually comes down to people. If we have the same price as someone else and we're selling the same story, what will happen to the company post-transaction? It usually comes down to if we share the same values, share the same culture, and that we have the same sort of entrepreneurial mindset as they have. I would say that very few entrepreneurs are impressed by business leaders of big companies, but usually impressed by other entrepreneurs. They want to see that drive and enthusiasm for running a business. I think we're doing okay with this.
They see that in you.
Hopefully.
Wow. Could you describe the typical ownership and management structure of a company that you would consider buying?
Yeah. Yeah, exactly.
Yeah, it's usually a family-owned business, entrepreneur-led business, where the owner has thought about this for the last three to five years, maybe worked three-day work weeks over the last three years, and they have a succession planning in place in their minds. When we come in to acquire this company, there's usually a plan for who to take over the business after the MD steps down, the current founder of the business. We usually structure these deals with potentially an earn-out to have an incentive for that entrepreneur to continue to lead the business throughout the succession is complete. I'd say that's exactly what it's like in the PDAS acquisition we did last year. The current companies we're now looking at, they basically have that same profile. Yeah.
What would be a typical question from an investor these days to you?
A typical question from an investor these days? I think it's really about where we stand today. Now, when we have refinanced the balance sheet and go into growth mode again, how we're about to allocate capital organically versus acquisitions and how we think about this capital allocation model, because it all comes down to efficient capital allocation with our business model. I think we do have some clear set of targets for how we're about to do this, both organically and in additional acquisitions. Hopefully, today has answered some of those questions.
Is there any special questions? Is there anything that is misunderstood about Vestum that investors might not understand, or is it anything you often need to clarify?
No, I think we're crystal clear on everything. No, I think there's been so much going on in Vestum.
Yeah.
I think for some investors, for many investors potentially, it's been something in the drawer that's been a little bit difficult to sort of pull out and then go through and try to understand this animal, what's going on here. I think we've done a lot of the legwork now. We're back to being in a position where everything is quite lean and clean. That wasn't the case a year ago and two years ago. We're super excited now about the future and everything that we can do with this platform.
We have a question here from the audience online to Luke, actually. 50% of revenue from hire with a utilization rate of around 60%. How come the revenue volatility is so low between the quarters? Can you answer that?
I've never been asked that question before.
Never
Ask it again.
How come t he
50% of the revenue from hire with a utilization rate of around 60%? How come the revenue volatility is so low between quarters?
Okay. A lot of the other, so I had 50% of hire. In that hire, there's also lots of planned work. We do planned hire work as well. The emergency stuff is the stuff that is volatile, that can come in and is very lucrative, but we can't plan it and it just happens. Equally, we do a lot of planned, where you have infrastructure works where they might be doing a large capital maintenance scheme on, say, a big sewage works, that's planned sort of two, three years in advance often. We'll do hire work to overpump sections of those processes then. That's why that's like that.
Okay.
That makes sense, doesn't it?
Yeah. Yeah.
Simon, you are also divesting in some companies. How come and what companies are these?
Yeah. Yeah. So the companies, yeah, so we've done basically three major divestitures over the last two and a half years. The reason was twofold, both to refinance the balance sheets and the capital structure and to streamline operations, to become more specialized and to increase focus on core business. The type of companies we've divested have been companies with large projects, not products, but projects, doing typical sort of infrastructure or construction work, usually outdoors. These companies have structurally been stuck at lower margins, usually because they're local service players. Growth that's been going on in that specific region has been going more towards generalist work and not so much specialist work. That has led them to generate basically low returns and low margins.
This is specifically shown if you look at our balance sheet two years ago. You look at sort of contract assets in relation to sales. Compare that to now, it's something substantially different. I think it was close to 4% a couple of years ago, and now it's down to basically 1.5%.
If I'm an investor, what would you think? What would you like me to take away from this day?
Yeah. I think the number one thing is that we have now recapitalized the balance sheet. It's clean, it's lean, and it's mean. Leverage is low, and cost of debt is now coming down.
This means that we are looking at acquisitions more so than we did a year ago, two years ago, and that the platform that we have today is something substantially different than it was two years ago in terms of specialization, in terms of financial profile. This means that we can, again, invest both organically in a very good way and maintain a high return on capital while also ensuring that we leverage these extremely nice platforms that we have in Vestum to continue to make acquisitions, much like the acquisition we did last year. That is what one should expect going forward from Vestum, that we attract more of these asset-light, high-margin players. Okay. I think that concludes the last question. Okay. Very good. Yeah.
We have one here in the audience.
Thank you. Simon Jansson from ABG. And thank you for the presentation.
I hope you can hear me. First for you, Simon. I mean, it's less focus on divestments, more focus on growing the business from here. I just wonder if one or two years ahead, solutions or the service companies are back at 10% margins. Do you think that those companies can still be, or you can still be the long-term owner of those companies, or can you still consider to divest more of the service companies?
Yeah. Thanks, Simon. Good question. I would say that it depends. We have a part of the solutions segment that is generating very high margins, above 15% in a normal sort of economy. Those companies are also very asset-light. They don't tie up a lot of working capital, and they don't have a lot of fixed assets. Those companies obviously generate some really strong cash flows.
I think those companies are definitely something that we're looking to own indefinitely. Things always happen. I would say the only time we would look for divestitures and divesting a company is if we have a company that we find is structurally stuck at a margin that is below our financial target. If we do not see that we can make operational improvements and that the volume pickup in the market will not help that company to improve margins and the return on basically on their capital, I think it would be wise for us to reallocate that capital to something else where we can achieve higher organic growth, higher margins, and higher returns.
Thank you. That is clear. A few questions for Luke. Can you maybe talk a little bit more about the competitive landscape for you in the U.K. and talking about your growth?
Is it mainly like an underlying market growth, or have you taken market share and maybe compare you to, I think, Selwood is your biggest competitor, right?
Yeah, I'd say Selwood are almost too big to be considered a competitor, actually. They specialize in diesel pumps, which is something that we don't do. I would say in terms of market share, something we've done recently, we've done a really good deal with Xylem. Xylem, we've become a partner with them. That has had a big effect on the sales element of pumps. Also, without getting into too much detail, there's a sort of a niche pumping station installation market that we work in as well through PDAS and Pump Supplies. We've done a deal there with Xylem as well. That has been part of our growth plan. That has been really, really strong recently.
Organic growth, I did not go into too much detail, but we are trying to put those two different regions in at the moment, one in the east and one in the northeast. That is easily another GBP 10 million-GBP 15 million worth of untapped market that we do not do at the moment. It kind of is an obvious place to go and look. Equally, acquisitions. We are always having conversations with these guys about acquisitions. There are some companies that we are looking at at the moment, which would also be obviously added into that growth plan. Competitively, like I said, we do not really compete with those other companies because they do not really do what we do. They do more of what we would call a drop-and-go service. If a company needs a pump, they will deliver it to the gate and leave.
What we'll do is we'll design a system that's robust. We'll install it. We'll monitor it. We'll keep an eye on it for them. It is a very different service to what those competitors offer, to be honest. Yeah.
The end customers, they're not really choosing between the diesel pumps or the electric pumps, or?
No. Normally that's driven by the type of job, although the submersible pumps that we specialize in are generally more flexible in terms of if you've got a complex job. If you just need to move water from there to there, a diesel pump can do it. Often what happens is they'll bring the diesel pumps in an emergency from one of our competitors.
If that job, if that emergency or that problem is going to last a long time, they'll then call us in and say, "Right, can you now design something that's going to last six months or eight months?" Sort of semi-permanent. I mean, we're on frameworks with the likes of people like Selwood, with water companies. Generally what happens is the end user, the client, the guy that's on the other end of the emergency, he will know, he or she will know, "This is a submersible or this is a diesel." Sometimes we work with them as well. We do cross hire with those guys, and they cross hire with us. It is quite a, even though we're competitors, I suppose, we also have to work together for the client quite frequently as well.
In terms of bolt-on acquisitions, can you be a bit more specific? What are you looking for? What opportunities are there? Are there local distributors that you want to?
Yeah. Yeah, I mean, I guess based on everything that's been said today, we're looking for companies with a similar culture, companies that already have that kind of client, that strong relationship with the clients as well. And synergies, although, as we've said, we do not force synergies.
There are lots of, I suppose, medium-sized companies, engineering companies, fabrication companies that we work closely with already in the water industry, particularly, who would be prime acquisition targets because of things like Simon was saying about where you might have an owner who's got to the point where they want to sell the company, but they're sort of unsure about just selling it to private equity, and it's just going to be, "What's going to happen to my baby?" kind of thing. Whereas the model that we do is more around that kind of working with those teams going forward.
Thank you. One last thing about the public investment plan now in the U.K. What do you think is the sort of near-term impact for you guys more specifically coming year or one or two years?
In regards to the investment plan, you mean?
Exactly.
Yeah.
That number that gets talked about, it kind of changes from anything between GBP 90 billion-GBP 105 billion, depending on who's saying it and on what day. The general number seems to be about GBP 104 billion. Most of that money is to do with capital maintenance schemes, big capital maintenance schemes, or there'll be lots of small ones, things like where you've got sewer spills in the famous ones in London from Thames Water, that kind of thing. They'll be looking to improve those situations. A lot of that money is just the plan money. Even though that's a really big number, and we're trying to make sure that we're well-positioned with those other water companies to basically be involved in as much of that as we can, that's just the investment money.
It does not include the day-to-day operational money that is still going to be spent on emergencies that happen. Basically, I think for us, it is key. That is why we are moving regions. That is why we want to move into these other regions, because Thames particularly is a huge untapped market for us. I mean, we do a handful of jobs for Thames, and every time now we are starting to get the question, "Why do not you do more here?" We are almost being pulled into the region anyway. It is the same in the northeast. I think the water industry needs us as much as we need that work, to be honest. It is a prime time to do it.
Got it. Thank you so much. That is all for me.
Thanks.
I have an extra question here. How is the Vestum brand standing on the market currently?
Any differences between the countries?
Yeah. I wouldn't say that many of these entrepreneurs that we typically approach have any idea of what Vestum is or any of the other co-founders for that matter. Yeah, that's usually not a thing. When we attract these companies, again, we source many of them using our platform. If anything, it's really our platform companies in the existing portfolio that matters. When we sourced PDAS, it was Luke and his team that sourced that company. We acquired PDAS thanks to Pump Supplies, the Pump Supplies brand. Many of the companies that we have in the M&A pipeline that we will execute on this year, same thing. It's about the brands in our portfolio and not so much the Vestum brand.
How much are you willing to pay for a bigger platform acquisition?
Yeah, I would say that regardless of add-on acquisition or platforms, it's that sweet spot between five and eight times. We usually find ourselves at six or seven times. Yeah, platform or add-ons or 10 years ago in 10 years' time, I think it'll be roughly the same.
How much can you organically do on the margin side without construction market turning?
Yeah. I mean, I guess that's a tough question to answer and to quantify it. There are things we're doing organically with the portfolio to expand the margin that I think will be happening regardless of volumes picking up. Of course, if construction investments come up and we'll see a better sort of investment cycle from both commercial properties and constructions in general, that's going to help the margin to come up.
Okay. Any more questions here? Yeah?
Yeah.
I try here as well. Yuan Lyu, who's in there from Carnegie here. Three questions from my side. Maybe we can start the first one to Luke from me as well. Just to get a little bit more kind of color on the SEK 61 million in revenue target for 2028. How much of a straight line do you think that will be from the current level, or how should we kind of envision that to take place?
That includes the PDAS numbers as well, which obviously is not included in the SEK 34 million. They are doing about SEK 16 million in sales already. That is a big step. The rest is in that 5% organic growth that we target anyway. Obviously, that does not include any other acquisitions that we might or might not be talking about already. I mean, it sounds like a big number.
It looks like a big jump on paper, but I think it's really quite achievable, to be honest.
Cool. The second question, either to Simon or Olof, I think it's regarding the organic growth profile. And from the presentation today, it seems like you're a little bit more optimistic regarding the outlook than we heard earlier. How is the visibility for, to say, first half of the year? Do you dare to believe for organic growth already before midsummer, or is that still something for second half?
Yeah. Obviously, we're not going to guide and tell you that it's going to happen in March or in June. What we're seeing is that sequentially, the portfolio as a whole and also the segments that have faced the toughest market have improved over the last year or so. Q2 was a bit better than Q1, etc.
We're basically seeing that trend. It follows the same trend this year as it did in Q4. Will Vestum as a group showcase organic growth in Q1 or in Q2? That's not something we're going to guide on here, but we are seeing the same trend in the portfolio.
Okay. Your own visibility, how good kind of order book visibility do you have for first half?
Yeah. The order book is today, in comparison to a year ago, better. The order book really just tells the story for the Solutions Segment. That's where we typically have order books that go more than three months into the future. These product companies usually don't have a lot of order book, obviously.
Both in terms of how these companies have performed over the last year and what we can see in the order books, visibility-wise, it's better than it was a year ago.
Okay. Great. On the margins in both Niche Products and Solutions segments, you highlighted during the presentation that Niche Products should be able to achieve 15% and Solutions should be able to achieve 10%. Also here, touching upon earlier kind of questions on what can you do yourself, what is needed from the market, but also kind of how should we really trust that now it will pick up rather than continue sliding as we've seen for quite some time?
Yeah. I think I'm just going to echo what Olof said.
I mean, we are seeing, okay, so if we take both these two segments, they have historically been above 15% in each product and above 10% in solutions. That is not to say that we will reach 10% and 15% in Q1 or in Q2 2025. What we are saying is that volumes are picking up, and margin-wise, it is looking better for the full year 2025. For the volumes that we are now seeing that sequentially improves, it is not the exact same thing as saying that margins actually improve in the same way because competition and price pressure is still there, especially if you look at the installation part of the Solutions Segment. Those companies are having better volumes now, but the price pressure and the competition is still quite fierce. Most likely, it will not be 2025 when we reach 10% margin in the Solutions Segment.
A follow-up there. Has there been any kind of structure change within these two segments compared to history that should make these companies not be able to achieve the historical margins or rather get higher?
There has definitely not been any structural changes that would limit these companies on margin expansion and for them to reach their full potential of where they have been in the future or in history. Yeah, we are doing a bunch of things to improve margins in these companies organically. I mean, hopefully, they improve once they get into the Vestum portfolio, although it can take some time before that actually happens. It is especially difficult to do so when the market is challenging.
Excellent. That was all from me. Thank you. Thanks.
Okay. That concludes the last question of Vestum Capital Markets Day 2025.
It does. Yeah. Thank you so much.
Thanks, everyone, for being here. Thank you, Petra. Thanks, everyone. For everyone watching at home as well or wherever you are, thanks so much for paying attention. Yeah, this will be, as Petra mentioned, it will be on our website after today if you guys want to watch it again. With that, thanks so much.