Lagercrantz Group AB (publ)

Welcome to Lagercrantz Group Q3 Report 2023-2024. For the first part of the conference call, the participants will be in listen-only mode. During the questions and answer session, participants are able to ask questions by dialing pound key 5 on their telephone keypad. Now I will hand the conference over to CEO Jorgen Y and CFO Peter Thyssel. Please go ahead.

Thank you and very welcome everyone to our Q3 report conference call. We released our figures this morning and together with me here is Peter Tissel, our CFO as well. We will usually go over the numbers and our report here this morning for another approximately 40 to 50 minutes or so. with also the Q&A at the end of the session. As you know, we have a year ending end of March. So we today, this morning released our Q3 figures. And we normally go over this in a short presentation, a short introduction to the group. And after that, we'll jump right into the reporting. And then we try to highlight a few things that we feel are important for us going forward as well at the end. And then we open up for Q&A at the end of the session. So let's get going. Well, to give you all of those that are new to the group, a little bit of an introduction, just briefly. I mean, we are an industrial tech group with leading position in expansive niches. You have around 70, 75 companies within the group, and they're organized in these, as you can see here, the five divisions. It's an industrial group. We are looking at companies that have a good performance for many years when we acquire them and we try to build and develop them along the way. Usually looking for companies that are very strong in terms of cash flows and performance. And through that, we generate our own cash to acquire more companies and build the group. Over to the right, you can see where we have our needles and where we're present. It's in Northern Europe mainly, but you can see all the way to the right also that we are more and more working with exports and we have some footholds also in other big markets around the world, in China, India, and especially the US, as you can see there over to the right. We have some revenues of approximately 8 billion and are some 2,700 employees We are very keen and driving our companies with a high proportion of autonomy in a very decent structure where each company are working under their own name with their own markets and their own customers. And we follow up and work with them in business development and board work in order to develop all the companies along the way. challenging them and also helping them in growing the businesses, both in domestically, but also more and more over exports. Acquisitions is of course a very central. We view ourselves as a serial acquirer without an exit horizon. And M&A is very important to us where we try to acquire some eight to 12 companies per year as we grow the business over the years. I think we posted and along the way, as we now see that we work in both with M&A and organic, I think that currently the organic side is a little bit weaker, but we compensate that with strong cash flows from the organic side and generating even more acquisitions along the way, which I think is a is good for us at the moment where we are growing the business quite significantly on a total level, but along the way also now currently more through M&A maybe than through organically. We've been listed on the stock exchange in 2001. We were one of the companies that came out of the old Bergman and Beaming Group and have been doing what we've been doing as a separate company since 2001, but the heritage goes back all the way since 1906. And we've been on the stock exchange in one form or the other since 1976. So we've been very established. I mean, working the way we're working for quite some years now. Looking a little bit into the interim report, I think it's great to see that we had another solid quarter, I would say. We posted some record earnings and record profits. and we closed some four M&A deals in the quarter, which I think is very good to see. You can see here the trajectory we've had over many years, and you can see that we posted another strong quarter with both sort of top line growth and also profit growth along the way. For those of you that have been with us, you know that we raised the bar some years, three years back, raising the bar to doubling from 500 million in terms of profits to 1 billion. But now here lately, we surpassed that in here already this summer. And now here in during the fall, we launched a new program then raising the bar to the 2 billion, which I will talk about a little bit later here during the presentation. But I think that the numbers were strong and solid along the way here. So that is highlighted here on this slide. Yeah, so we move in, looking a little bit in how we commented the business conditions. I think all in all, we felt that the market situation remained stable for most of our businesses. I think that we had some 1% negative organic growth in the previous quarter, now it was 2%. No drama there really, no dramatic changes. I think the order intake for comparable units has been in line with net revenues for the last couple of quarters, and that continued during this quarter as well. So it's been holding up very well for us, better than most, I would say. So I think we're... We're okay and not wrong. We see that we are, in many instances, very well positioned with the security and safety in the segments we're in, with the security and safety, the electrification, the infrastructure segments that we are working with. And we also saw that those main segments continue to do very well for us. We saw that the bigger companies of the group with the EL Press, with the Tormek, with the PCP in Denmark, they all performed very well during the quarter and continued to have good market conditions. Why we see some smaller units more related to construction and a couple of companies also within the electrified more addressing the wind power turbine manufacturers and those segments that they were affected by some boss and structural changes in those markets, but also to weaker business cycle. No dramatic things there either. It's been something that we've been talking about for the last couple of two, three quarters now. We feel that we have a very strong broad based sort of set of companies within the group with many different end customer segments and geographies. And I think that the focus that we have within electrification where we have our main companies, the infrastructure, the security and safety and other specialized niches that we are providing some good resilience and continued good growth opportunities within as we are developing the group along the way. Down to the bottom there, we are usually comment also on the sort of content of what we're having. And the propriety progress, you can see that is at 76. It's been growing there. And that's been the key thing for us along the way. And we can also see that we are gradually, slowly but gradually becoming more international with more sales outside the Nordics. As you can see, there are revenues by geographic market over to the right there. So it's a couple of things that no dramatic things, no dramatic changes, but still gradually sort of moving in that direction along the way. Yeah. Looking at the numbers, Peter, maybe you should comment on the figures here.

Yes. Thank you, Jörgen. I believe our Q3 can be summarized by increased earnings, improved margins, strong cash flows and several very exciting acquisitions. First, the net revenues increased by 6% and acquisitions contributed with 7 percentage units and organic growth was slightly negative, 2%. and currency contributed with 1%. The EBITDA increased by 9% and the EBITDA margin improved from 16.6% to 17.2%. The cash flow was, I believe, quite strong. It was 367 million compared to the 439 last year, which was exceptionally strong last year. Our profits after financial items increased by some 13% in the quarter. And as mentioned, we signed agreements for four acquisitions that add about 595 million in annual net sales. Jørgen will come back and describe these acquisitions a little bit in more detail later. And out of these four acquisitions, the last one, the Nordic Road Safety, is by far the biggest and we have not gained access to that acquisition yet. So if we summarize the financial year so far. The first nine months, the net revenues have increased by 15% and acquisitions have contributed with 11% units and organic growth has been slightly positive. a bit more than close to 0.5%, and currency has contributed with 3% units. EBITDA has increased by some 21%, and the cash flow is probably one of the stronger points here, has increased by 46% to 951 million. our profits after financial items have increased by 17% to 818 million. And our earnings per share increased to four crowns and 0.13 compared to the 370 that we had in the last financial year. Our return on equity was 28%. and our equity ratio was 38%. And our profit over working capital has improved to 77% compared to 73% last year. And we have so far this financial year completed or we have made eight acquisitions that contribute with some 900 million. If we look into the divisions, it's, as Jörgen mentioned, quite broad-based improvements. And I think what's most important in this slide is to notice that all our divisions are now above 17% EBITDA margin in the quarter. That's quite broad-based and quite good, we feel. If I should mention one, it's the international division, which has for a long time lagged behind the other divisions, but is now catching up. And we find this very, very satisfactory. And for the group total, As I mentioned earlier, it has improved from 16.6% to 17.2%. And maybe, Jörgen, you should comment a little bit about the business in each division.

Yeah, let's do a little bit of a deep dive here into the different divisions and look how it's looking. And looking at the electrified EBITDA, they're increased from 71 to 80 million, an increase of 13% over the years. I think that we still see some good favorable market situations driven by the investments in electrification and infrastructure for many of the companies. And especially the bigger ones when we're talking about EL Press and a couple of others, Norvesco and a couple of others did a very good quarter here. But we also saw that some of the companies had some more project related volumes last year, not that big, but still affecting the total growth figure. And we also saw that some deliveries related to the construction sector in Finland was slightly lower. And we also saw that the wind power industry and the wind power turbine manufacturers, those volumes were still lower this year than last year. So that is affecting that. Within the infrastructure part of Electrify, we saw that Swedwire and QD delivered strong profits. And especially QD did very well with also the project deliveries this year. And the recent acquisitions Tycoflex and Letty that we acquired here in August and Tycoflex last year, both reported good results with or even slightly above expectations. And we also continue in building the electrification, electrified division. So in December, we also signed the Nordic Road Safety, which adds another 350 million to the division on an annual base. The acquisition is subject to some approval from authorities and we expect to close that or complete that deal starting from 1st of March in 2024. So that has not affected the numbers that you can see here so far. That is ahead of us. The control division then posted actually the same amount of revenues this year as last year. The beta was slightly lower. They had struggled a little bit over the year here, but we feel that overall it's been a stable market situation. We see some slowdown in demand in some business units. The pressure meter, which is a very important part of control, were affected by the reduced aluminium production in Europe due to increased energy prices that has affected their end market. They're addressing, they're also present in the US and also in Asia, so that is holding up good for them. But the European market has been decreasing over the year during this quarter, affecting Also, the 1 PF companies were affected by weaker construction market, which there are smaller units, but still affecting the total here. That is in Norway and in Denmark, that is related to. At the same time, several businesses reported a positive development. We see rather NOVA, which is also an important part, and Direktronik is also an important part of control, holding up and developing very well here during the year. So we unload the indicator is for a unit that did it very well here during the quarter as the egg bars and lead time did as well. The third division is maybe the best performing division is the tech sector increased the beta by 27%, reaching almost a hundred million. They were some of the smaller divisions a few years back, but has increased in size and importance to the full group. I think they're very well positioned with driving sort of more security and safety type products. and have found some good acquisitions along the way. Revenues were up 14% and organically also some growth there. So a lot of good things happening within the tech sector vision. We saw on broad base that the PCP had a strong good market and a good strong quarter. ISG Nordic, ARAS, IDESCO and also very much a door and joiner in the UK performed particularly well. The CW Lundberg was impacted by negative seasonal variations and a weak construction market, which is affecting them. They are also very much related to the summer sales or spring and summer sales. But we see some effects of the business cycle there in the CW Lundberg along the way. The new acquisition Firecoin UK also delivered increased earnings according to plan and now in December division also closed another one which was a suman diesel volume in finland was acquired which is a leading supplier of generator sets for backup power solutions and also have a sprinkler solution uh pumps uh which we had earlier on in orcon in in in sweden and this is a similar company so some cooperation opportunities between the companies as we are now also addressing the Finnish market through the Suomen Dieselvoima company along the way. So TechSec is really good for us. The niche products division has been very strong for us for many years. They posted a somewhat weaker quarter here. I think the order intake has been holding up very well from these products, but they were not able to really translate that into good profit growth here along the way. So the EBITDA was actually down a little bit here, but still on a very good level. And you see the EBITDA margin there is still a slight improvement. They're still doing it very well in most of the businesses. The business situation, there's a lot of different parts of this, but overall it remains stable for most entities. We saw some good earnings improvements in Tormek, Asept and SID, where especially our Tormek company, which used to be our second most important company after Elpress, now really looks at heading for another strong and record year and might be the most important part of the group as they're growing quite good here for some time. Generally speaking, the North America and we also saw some good performance in North America, which we have a number of companies within these products in there. Vapro is doing very well there, but also ASEP is doing very well in North America. So it sounds like we saw some weaker business cycle in the Nordics for some of the companies. And here we also closed an acquisition here in December, MH Modules, a Swedish company, which I'll come back to later on. But that's also adding to the numbers a little bit here during the quarter, but only for December. So very little part. And the international then, here the EBITDA grew by 20%. And as Peter already pointed out, the international has been doing it very well for some years now, growing along the way. And with some really good acquisition coming in, you're also pushing the EBITDA margin. Used to be significantly lower in the international division as opposed to the other divisions, but along the way is pushing now and reached about 17%. And we all, as I said, we have all five divisions about 17% now, which I think is very good. We see here some favorable market situation for the marine businesses, the Libra in Norway, ISIC in Denmark, But also for the German company Schmicks Technik and E-Tech in the UK also contributed with some strong earnings. We also saw some other companies that were a little bit more struggling and also had very good tough comparables from last year, which is the NST and some of the other companies that we have in different markets. um we also saw that the global rail and supply plus in the uk the global rail in denmark and supply plus in the uk and delivered some good earnings contributions according to what we expected when we company acquired a company and here we also closed an acquisition in december which was the dp seals which i'll come back to later then so that was comments by division uh and a deep dive uh as as sort of a a um another sort of way of illustrating. I think we've seen some really stable all in all for Lagerkrantz it's been a stable market and you can see how that's evolved also by segment and you can see the differences here in the nine months are very small as opposed to how it was for full year last year. So just for reference you can see how that's developed over time and you can see that where we have our dependencies. It is within the power and electricity distribution is the biggest segment. You can also see that the infrastructure is very important to us. We have some building and construction related businesses, but it's mostly in residential sort of in commercial industry, as you can see. And then we are scattered around in a number of other segments, which I think is sort of highlighted through how we talk about our business in terms of it's very broad based and a lot of different segments, both product wise, but also geographically speaking. So that might be good for you to see. And looking a little bit further, I think most of you have already heard, I think, that we are raising the bar to the two billion. We set the bar at one billion some three years ago. And now here during the summer, we surpassed that. We should have done that in five years. We did it in two and a half years. But now we're raising the bar to the two billion that we hope to reach within or aim to reach within the five years. I think we have set up the group in a very dedicated way to reach that. We are very clear on what strategies and financial goals we're working with, both on a group level, but also on a subsidiary level. We're about now to set the targets and discuss what we're aiming for next year. We don't do budgets, but we try to keep it very simple, but still have great ambition on what to reach next year. We also set up the five divisions with very clear growth ambitions, segments where we would like to be, how we would like to grow, and that is, I think, been the key thing in reaching the 1 billion, and it will continue to be that reaching the 2 billion. So I think that is also very important for us. The increased capacity and scope within M&A is also important. We are building the divisional level, and we are increasing sort of the pace raising the bar from 6 to 10 to 8 to 12 acquisitions per year along the way. And the focus of sustainability, we are building that organization somewhat with someone really responsible for that and been hired and we are now working to meet the CSRD directives for next year. So we are well underway with that type of work as well. And the building towards the 2 billion then, well, it's about to continue to deliver on the targets we've set in terms of growing the EBT earnings before tax with 15% per year. And we have highlighted that we expect one third to come from organically and the rest through 8 to 12 acquisitions per year. When we see a slower market, we will compensate that with stronger cash flows from And what we normally see, we've seen in many downturns, that we see that the cash flows are even stronger in those periods. And that opens up for more acquisitions along the way. And you can see that we've closed an eight acquisitions already this in nine months now. So we have, and we expect some, yeah, two thirds should come from that, and it should be around 10% then. And we are also, we're ahead of that goal as well this year. Return on equity. We should do all these things in a very profitable way. And the return on equity, the bar is up there at 28%. And you saw here in the numbers that we provided, it's at 28 at the moment. So we are well above that as well. So I think that's key to highlight. I think we will continue then building the five divisions in the 2 billion program. I think we have now sort of set focus to all of our divisions. Building positions in sustainable segments with underlying structural growth is how we talk about it internally and how we really would like to set out what we aim to do. I think we're very well positioned in the electrification through our Electrify and the infrastructure companies that we have within Electrify. Here we expect some 5% to 15% growth along the way. Within the control division, we're working with measuring and control solutions. usually measuring and steering things from a distance, and IoT-related type companies that we have within the control division. The TechSec is, as I said, one of the fastest growing divisions, or maybe the fastest growing division within the group, finding good opportunities through M&A, but also building organically along the way, as you saw from the numbers there. The niche products division is where we would like really to grow. We set up that division in 2012 and since then it's been becoming the profit-wise the most important division still, but being challenged a few others, but still a very good position finding proprietary product companies that we can build through. aiming to do the same thing with the international. And we see now when we go abroad looking for other companies to add to the international group that we see improvements and margins picking up within the international division. So I think a very sort of attractive niche to be or attractive segment to be in as well through the international division. Here we will build quite a lot within in different markets, but we have also set feet on the ground in the UK along the way here, building the international division. So we move on from there. Yeah, just highlight that the aim for 85% proprietary products used to be 75%, but now we've raised the bar to 85 there when we are aiming for 2 billion. And you can see we are pushing it a little bit here in the last three quarters or so. And with the acquisitions we made, most of those are proprietary prototype companies. So this will increase by adding those companies that we just acquired here in the coming months and quarters. So that will work in the right direction for us. We are also very keen on driving our focus on value add. And here you can see how it's developed over time. This is very important for us using the pricing power that we would like to have in our niches and that we do have in our niches. And you can see how that evolved over time. And of course, everyone that adds numbers here understand that this is really important to keep the good and high margins that we have within the group and pushing them even further. And we have seen here in the last few quarters that we have been able to push it up a little bit further as you can see here lately to the 39.3% that we're currently at for the first nine months of the year. Working quite a lot with pricing, quite a lot of sort of scrutinizing the business that we already have and working through that in order to push even further. Yeah, coming into acquisitions then. I think this is a key thing for us along the way and maybe more so now than when we see a slower market. But we are planning through the 2 billion to acquire 8 to 12 companies per year. we see a strong cash flows as you saw from the numbers uh sort of fueling this um we can see that in 2023 and onwards you can see that we we closed some uh yeah it's eight acquisitions since the first of march which is the global rail and onwards there and adding some 905 million in annual sales and and we said it should be ten percent and and this is actually more than ten percent ahead of our own ambitions here. Great to see, I would say. We have along the way also expanded our scope. So we are looking more at acquisitions in Northern Europe, Germany, Benelux, and the UK especially. We're putting some feet on the ground, especially in the UK. You can see that we are working more and more and closing more deals in the UK than we have done. Working the same way as we do in the Nordics, step-by-step, company-by-company, but along the way building a strong presence and a strong group also in the UK, which is the aim currently. So we closed the Supply Plus, the Fire Co. and the DPCs are all in the UK. So it's great to see that we are also expanding geographically along the way here. Yeah, to comment a little bit on the companies we acquired here in December, the Nordic Road Safety is the biggest one, which we, as we said already, we are expecting to be, we expect it to be part of the electrified division from March. This is not in the numbers yet. This company is a supplier of permanent road safety and noise barrier systems. They are working with certified products all alone, have a very strong market position in Sweden, and are also working in Finland and in Norway, especially with these type of products. A very strong management team there that has built this company in a fairly short time, located in Timro. And the previous owners are remaining with 15% shareholding along the way here. We felt that this was a very good company for us. It has some growth, has been growing quite nicely. And we can see also a reasonably good or very well profitable working capital at the 60%. And we managed to acquire this company at an EBITDA of 6.5, which we felt is a reasonable level for a company like this. So that will be important for the Electrify division and for the group. when it comes into the group. Yeah, we'll move to the next one. The second one I'd like to introduce is the material handling modules, MHM, which is a Swedish supplier of different type of material handling systems. You can see the price over to the right there. and also a strong performance over a few years, over many years, and had a very good 2023. We don't expect that to really continue in 2024, and that's why we highlighted that with also some forecasts for 2024. I think the 12 million there is more of a reasonable level for next year than maybe the 2023 was. So I would like to indicate that to you guys. So that will be part of the niche products division as starting from December here in 2023. And the next one is the Suomen Diesel Voima coming into the TechSec division, which is a Finnish company with these type of generated sets and backup power solutions. And also another segment, which is the fire sprinkler pumps, similar to the Arcom business that we already have. Also nice growth and also some good margins in the last couple of years here. really got their act together which we feel is sustainable and also then very well positioned when it comes to building infrastructure around these type of things in Finland. So good acquisition coming into the group in Finland and to the tech sector. Also a minority shareholding there where management is keeping some 14% of the shares. We usually do that with also some put and call options along the way so that we eventually will be 100% owner, but it might take some years before we get there. Last but not least is the DP Seals, the UK company, which as you can see there is performing very well there with the EBITDA margin down there. Some products that are There are leading supplier of rubber ceilings, gaskets and moldings for high specification applications. Somewhat similar to Schmitt's technique that we already own in Germany. So there will be some mutual sort of collaboration between the companies in the market. Have some annual revenues of some 5 million pounds and will add to the international division. and have already done so in here in December. So just to round off the whole thing, I think the financial overview and we look at it, the earnings per share growth is at the 18%, well above the 15 that we are aiming for. We are now fueling our growth more with acquisitions as we see that the market is somewhat slower, but along the way, we definitely keep up the pace in order to grow the 15% per year. We've had some exceptional years, and we've seen a slightly slower growth rate, but still at a very good level and performing well with record high earnings in the quarter, some strong cash flows, some improved margins, and some poor acquisitions. So we feel pretty happy with the quarter we just closed. Thank you. I think that was all from our side at the moment, and we will open up for Q&A then.

If you wish to ask a question, please dial pound key 5 on your telephone keypad to enter the queue. If you wish to withdraw your question, please dial pound key 6 on your telephone keypad. The next question comes from Max Bacco from SEB. Please go ahead.

good morning jorgen and peter well done on the quarter especially on the cash flow um a couple of questions from my side uh so first regarding the the quite high acquisition pacer in the quarter um is it possible to quantify how much transaction cost you had during the quarter which most likely had a negative impact on ibiza

I don't have that number, but you're right. Since we have had several acquisitions, there are transaction costs in the quarter.

Would it be fair to say that it was most likely higher than usual, at least?

Yes, definitely.

And the next question, I guess it's a bit related to the first one. So the adjusted EBITDA margin, if we adjust for the 6 million that you had in a positive impact from revaluation of continuing considerations, was down some 90 basis points here, quarter over quarter, so compared to Q2. And looking historically, Q3 tends to be on par or even better than Q2. So why the sequential decline? Was it due to the higher transactions cost or was it something else?

It was unrelated to the transaction costs, I would say. It's something we do regularly. Okay. Those were not correlated at all.

And something else that drove that margins declined sequentially? Or was it just unusually high margin last quarter?

Yeah, we had a good quarter in Q2. We think that this quarter is also good. Good improvements from last year, but slightly lower than the previous quarter. And of course, these quarters cannot be compared since we have the December in our Q3, which is a relatively slow month.

Yeah, I understood.

I think it's worth highlighting that, I mean, most of the differences you see there is related to the mix, right? The sales mix. And it's hard to even comment on sort of, I mean, acquisitions costs are there, but we also made some acquisitions last year and last quarter. So it's hard to really get into that level of detail really. I think all in all, we have a lot of sort of small things adding up and down in the different things. So it's hard to really sort of isolate something like that. I think overall the market was very strong

Yes, yes, indeed. And a few more, if I may. So just to interpret you the right way, should we interpret that you had a book to bill of one in the quarter the way you worded the water intake? Is that correct? Yes. Yes, perfect. And I noted here during the presentation that the acquired companies during Q3 are a bit margin dilutive to the group. Do you over time expect to bring them up to profitability as you tend to do?

Yeah. We many times have an improvement ambition and an improvement plan, and that is the case here as well. They shouldn't be margin diluted. Even though we have set the bar at 15% rather than 17%. We are constantly pushing all our companies, but the margins should be adding to the total. That's the intention.

And of course, what's important, if I may add, is the return on capital employed. I think it's important.

valuation and the valuation multiple that that we pay for for the companies rather than the the starting point margin yeah yeah uh and then on the cash flow as you said really strong cash flow here in the quarter and you had a positive impact from the working capital all components on the of the working capital was positive is that just normal seasonality you would say

I would say it's our continuous struggle to always do what we can to have good, strong cash flows. I think we're quite happy with some part of it where we have to work a few more quarters to get inventory and stock down to the levels we want. Apart from that, I think a lot of things.

We have a seasonality effect, so it's usually stronger in Q3, Q4, and then our Q3 and Q4 as opposed to Q1 and Q2, or especially Q2 is usually a little bit weaker. This year it was stronger, but we are also then, when you see the lower top line organic growth, that is also affecting the cash flows in a positive way.

Yeah, of course.

Usually we've seen that when we went through the financial crisis or we went through the COVID crisis or all those. We saw strong cash flows from the operations. We don't see that dramatic thing here now, but we still feel that we are generating some good cash flows from the business. So there's also a structural thing. On top of that, I think it's also worth commenting that we are working with our inventories and the components, but especially inventories. And as Peter is pointing out, I think we are in the right direction, heading in the right direction with our inventory, but there's still more to do there.

Yeah, understood. And just two more quick ones. As you stated during the presentation, Tormek is now perhaps the most important company in the group. and it's heading for another record year, which is quite impressive given the consumer exposure it has. Is it possible to say now how much Tormek accounts for group sales or off-group sales and EBITDA? Perhaps a bit tricky.

Yes. I don't think we... We don't disclose that.

But it's not like it's standing out. It is the biggest, but it's still... We have EL Press, we have PCP, and a few others that are also very important. Libra in Norway is also very important to us. So it is fairly broad-based, but there is always a leader, right? And currently, Fulmec is in the lead.

yeah and i guess it should be somewhere in the range five to ten percent of group edita yeah perfect and then finally uh if you may do you have any comments on the organic beta growth during the quarter i know we had this discussion the last time also but yes to try

okay understood thank you very much for taking all the questions and have a nice day thank you

The next question comes from Zeno Engdalen Ritchuti from Handelsbanken. Please go ahead.

Good day, Jorgen, and thanks for taking our questions. A couple for me. Firstly, could you give some kind of indication to the price contribution to the organic component this quarter? And if possible, share your views on the price expectations in 2024.

I think the price contribution has again, as you know, we are a group of some 75 companies, right? And we don't run ERP systems common together. So I think most of what you see is differences in mix and we don't aggregate the sort of pricing component. So it is a rough estimate and a guess from our side. And I think the price component has come down significantly. I think that we see some companies, we have quite a few companies that are more metal based and we see raw materials or metals coming down, so we see some increased sort of yeah the price component can't be very big at the moment. And what we see on the other hand, see is that we see the. You've seen the gross profits and the EBITDA margin has come up a little bit. And that is also, I think that that's how we work with it in order to push getting to the right level in our companies. So I think we have done a good job with sort of compensating and things like that. But I don't think the price component is very strong in this quarter. Not at all. It might be very close to zero, I would say, or maybe a little bit more than that, but not very much.

Yeah. And with regards to order backlog, you said, of course, that the intake was in line with sales, but I'm wondering, I don't know how much of an indication you have on this, but if you're seeing somewhat that orders are being pushed or canceled in a different extent to before.

No, nothing new there. I think it's been normal over this period. We usually have visibility of two to three months or so, and that has been the case now as well.

Good, that was my follow-up. And lastly, you mentioned that you have several attractive transactions in the pipeline. Is there any particular areas which are more there are more attractive targets or is it uncorrelated in that sense?

Yeah, I would say it's uncorrelated. I mean, we are working now in multiple markets in all the divisions with finding new M&A deals. And we feel that we have a strong position with our balance sheet and the cash flow we're generating. So I think we are looking and we are quite active in that market. So I expect more deals to come here.

Good, thank you. I'll get back in line.

The next question comes from Carl Bockvist from ABG Sundal Collier. Please go ahead.

Thank you and good morning. My first one is on margins within Electrify. Would you say that the The margin shift in this division now in this quarter, the last three quarters really, has it been mainly due to accretive effects from M&A or has it been to any mixed effects within certain businesses performing well and others not performing as well?

In our world, it's always a little bit of both, right? I think some of the bigger companies that have very good margins are continuing to have that. But we also have a couple of companies that actually have made some turnarounds here in the last year or so. Especially with the infrastructure, we have a couple of companies there that are really pushing their margins to the right level and that is affecting the margin in the division.

Understood. And then more of a strategic question when we think about how you disclose proprietary products and trading and niche production. First one, just on what you call trading. I noticed that sales growth has come down there a bit. Do you think it's that part of a strategy where you're facing out some low margin units or is it that this part of your business has been more affected by weaker markets or inventory adjustments or things like that?

I think it's actually more of the latter. I think that what we see is that when we talk about trading, it's what we normally call the value-adding distribution part of the business. And that has been more related. We talk about the warranty companies, for instance, within the control division addressing more of the construction sector. So we see a few of those losses in volume. So I think it's more of that they're sort of more affected and they're also more related to maybe the domestic type markets, while some of the proprietary products are more broad based and also have some more exports. And as commented here already, some of them are more related to the US and other markets where we see better growth at the moment.

Understood. And my final one is on the M&A side. Have you seen any form of hesitation either from your side or sellers due to potential impacts from weaker macroeconomic conditions that either reseller or you want to see some more numbers before agreeing on the deal or any of those kinds of factors impacting M&A?

Yeah, definitely. It's a big concern and a big focus of ours when we acquire companies that we want to make sure that we know what we're buying and the outlook for those companies. So that's a major concern for us. But I don't think it's changed in this quarter. I think we're always addressing that. And it depends on what type of segment where you're in and what we see. We've seen some decline and some continuous hassles when we talk about sort of the private sector of construction, private housing and that type of thing. While we see still a good sort of continuation when we talk about infrastructure or more commercial type buildings in that sector. So it's definitely, and that might, it might affect the price of the target. It might affect sort of the structure of the deal where it might be more earn out or so, or it might affect some minority shareholding or it might affect other things as we sort of structure the deal.

Understood. That's all from my side. Thank you.

Thank you.

The next question comes from Nicholas from Red Eye. Please go ahead.

Hi, Jörgen and Peter. Hello. I have a question on the control divisions. You have had some problems with component shortages in that division for a couple of quarters, but you didn't mention that in this quarter, so I just wants to know a bit more about the situation there and what you see ahead.

I think we have, yeah, to some extent that is related to the control division. I think it's also affecting the international division. Those are the value adding distribution type companies that are relying on suppliers in forest Asia where we saw a stock build up during the COVID. and to some extent, maybe halfway or so, it's come down again. I think that we've seen lead times and things improving. So I think the destocking of that whole phase is mostly past us now, and that's why I've decided not to comment on it in this quarter.

Okay, good. Last question from me is on the tech sec division, which has been a great performer for quite some time. Looking ahead for the fourth quarter, you had 25% organic growth in the last fourth quarter. I just wanted to check there if there were any large projects or, I mean, like one-time items that mean tough comparables for the quarter ahead for the division.

Yeah, I think we have some tough comparables there. It's usually... We had a couple of companies doing it really well there last year. And so I think we now are with some of the acquisitions we made will add to that division. We also have some companies that did it exceptionally well in Q4 last year within that division. And we're challenged now to beat that, but we're working on it.

Okay, great. Good luck for the quarter ahead.

Thank you.

The next question comes from Jacob Marken from Danske Bank. Please go ahead.

Yes, hello. Peter and Jörgen, so just a quick question from my side on things. On the international segment, you have seen some quite good margin development during the last years, and even though you had a negative organic line in this quarter, you still managed to perform very good margins and kept improving it. I'm just wondering, do you think 17% Or above, is that the level where you think you can be for a longer time? Or is this like a, do you think this was the best quarter, so to say? Or should we expect this to be at this level?

um well time will tell right well let's see where we where we end up i think that some of the companies are doing it very well in within the division but we still also have some companies lagging behind so it's still there are things to work with what we have done in the last few years that we have made some really important acquisitions within within the division I think the Libra acquisition is very important. The supply plus is adding to the performance. The bull in Finland is also adding. And if you buy one of those companies, that might be sort of, yeah, more sort of, yeah, one quarter is good and the next one is worse. But I think as we grow the portfolio companies, then you can expect more of the margin level to be sustainable. So let us keep at it for a while more before we answer that question and prove ourselves that this level is sustainable. But let's give it a few more quarters before we see that. Yes, perfect. That was all from me.

Thank you. Thank you.

The next question comes from Aline Garten from Carnegie Investment Bank. Please go ahead.

Yes, hi, thank you for a good report. Most of my questions have already been asked, but I want, looking ahead, is there any division that you're more worried about in the coming quarters?

Well, not really. We feel that we have a strong portfolio of companies organized into these five divisions. I think that, of course, we are concerned or not concerned, but we are focused on understanding the different market segments that we see. But we don't see it as more sort of difficult in one than the other. They're all broader based. So I think it's more of where the general market will go in the next quarters and so as we speak as we said in the in the communication here we feel that all the with lower inflation rates and lower lower interest rates along the way I think the investment investment willingness will will improve along the way but I'm also it might take a couple of quarters before we really see it in in the numbers we really see it in the markets we're in some of it is more infrastructure or more project related And from start to finish of a project, it might take a while. And therefore, I think it will pick up. I think the outlook is long term is better now than it was a quarter or so ago. But still, there might be a time lag between what we see now and the improvements that we've seen until we see it in the numbers.

All right. Thank you for that.

There are no more questions at this time, so I hand the conference back to the speakers for any closing comments.

Thank you all for listening in. I think we closed a solid good quarter and I think that the pace is picking up and holding up very well. And we are, as said already, we are sort of generating some good cash flows and we're using that to do some more M&A. I think the opportunities there are really good at the moment. And we will continue building a group towards the two billion. That's the aim we have. So thank you for listening in. And please come back to us with any additional questions you might have. We are all available. Both me and Peter are available over the phone here during the day. So thank you very much. Bye-bye.