Bergman & Beving AB (publ) (BERGB) Earnings Call Transcript & Summary

Welcome to the Bergman & Beving Q2 2025 Report Presentation. [Operator Instructions] Now I will hand the conference over to speakers: CEO, Magnus Söderlind; and CFO, Peter Schön. Please go ahead.

Good morning, everyone. This is Magnus Söderlind. And on my side here, I have Peter Schön.

Good morning.

So, we will today present the latest financial report for the quarter ending September 30. And as a starter, if we look at the market conditions we have been facing this quarter, I would label it as we don't see any pickup in the construction nor the industry sector in the Nordics during the last month here. It hasn't gone worse, but it hasn't gone better. We have some positive submarket that has showed some increased demand, but also we have some specific segment that still is struggling quite a lot. But despite this, we have been able to increase the earnings, the profitability, the earnings per share in the quarter. If we adjust them for the nonrecurring items in the quarter of SEK 36 million. And I will -- we will come back later on to explain more in details what those SEK 36 million include. The turnover totaled SEK 1.127 billion, and the EBITA increased 11%, and we now have 23 consecutive quarters with improved profits. We also improved the margins in the quarter from 10.5% to 11.8%. That is a combination of -- that we have divested Skydda that typically has a lower profit margin level in combination with acquiring high-margin companies and also that we see some margin improvement in some of our companies. Our profitability measure, profit and working capital is also moving in the right direction. It increased 4% units, it is now up to 33%. And the earnings per share adjusted improved from SEK 8.3 to SEK 7.5 after dilution. So overall, I would say, we are moving in the right direction, despite that we have a sluggish market on an aggregated level. We have taken some structural measure during the quarter and the quarter before. We have earlier communicated that we had divested the Skydda's Nordic business. But during this quarter, we also divested part of the Luna business operating in the Baltics, and we did that through an MBO and those companies represent a turnover roughly SEK 100 million. The businesses was more looking like a retail store business. So it was not really fitting into the Luna business as such. So this gives Luna a better condition to streamline its business model, but in the deal, we also secured the sales from our product company that is a channel through the Luna Baltic operation as well as the business Luna have with the Luna Baltic companies. So overall, we think, this is a very good setup, enable us to focus our businesses in a better way, and at the same time, secure the business volume as such. We also continue to acquire according to our plans and our targets. So we made 2 acquisitions during this quarter with an annual sale of SEK 170 million. And after the end of the quarter, we did another acquisition in the U.K. of a company called Modus Gauges. And if we look at the acquisitions so far this year, we have acquired SEK 360 million, four company in the U.K., one in Sweden and one in Finland. Some of these companies are add-on acquisition to current platforms and some like H C Coils and Raintite are -- and Ontec are new platforms in new niches that we think is attractive ones. As you can see, we are really focusing on acquiring well-managed companies. So all the companies acquired have an EBITA margin above 15%. And also profit and working capital in all those companies is above 45%. I mentioned it earlier, we now have 33 consecutive quarters with increased EBITA. And in this quarter, we have SEK 133 million adjusted then including the nonrecurring items of SEK 36 million. And we now have a CAGR of 24% in the period starting Q3 fiscal year '19/'20. So we are moving in the right direction. You can also see the red line, the EBITA margin is picking up in a good way, I would say. So we are heading for the targets we have on a group level as such. If we look at the top line, we had this quarter an organic decline of 4%. I would say that is reflecting, I would say, the reality many of our companies are operating in. And we have some negative effect of the currency as well, 2%, but acquisition has compensated for that and is adding 5% to the top line, giving us a net of minus 1 actually on an actual level. The acquisitions we made and the phaseout of low-margin, high-volume products, and the structural changes we made had a positive effect on the product mix, I would say. We now have 77% of own products in our portfolio, and 23% is the other products. This is the wholesaling business and the distribution business that we have. We don't see any reason why we shouldn't continue on this path going forward. So that's a good sign, I would say, and that we're going in the right direction. You can also see on this slide, the gross margin and the gross margin trend as such. And as you can see, it has been a little bit flat now. We have communicated earlier the majority of the phaseout of low-margin products has taken place. You can see that in the period, Q1 2021, up until Q1 '24, '25, but we still have some improvements, but you will not see the same steep curve as we have historically. And also the new companies that we acquired, even if they have a profit margin above 15%, they may not have a profit margin above 47%, 48% that we currently are running at. So that is kind of -- and I'm very happy with this gross margin. It's now about adding volume and continue to adjust cost along the way. So if we look at the group target that we have communicated, the SEK 500 million in EBIT, the 10% EBIT margin and 45% profit of working capital, where we said that the EBIT and the EBIT margin, we had a target for this fiscal year and the profit of working capital for next year. After divesting Skydda, that contributed roughly SEK 45 million in EBITA, we have said that we will not reach the SEK 500 million, at least not likely during this fiscal year, and they will take some additional quarters before we get there. We are on track, but we are not able to increase the profit and compensate for the loss of the EBITA in the Skydda divestiture in this fiscal year. So the target is still there, but we have only delayed the EBIT and EBITA margin some quarters. And we're still aiming for the 45% of profit of working capital in fiscal year '26, '27. With that said, I hand over to Peter.

Thank you, Magnus. And yes, I'm sure all of you have read, we do have a lot of items that are affecting the comparability in the report. So I will just try to go through what those items are and how they have affected the P&L. So if we look at this slide, on the left side, you have Q2 2025 figures unadjusted. So that's how they are reported them. And then you have the Skydda divestments and then you have the Baltic divestments. And then you have the purchase consideration. And then we have the Q2 '25 adjusted or underlying P&L. So if we start out with the Skydda divestment, we did have a capital gain from the deal affecting other operating income by SEK 15 million. And as I'm sure your -- you remembered, we had a write-off of SEK 270 million of goodwill in Q4 last year. And within the capital gain calculation here, we have added additional SEK 200 million of goodwill. So in total, we have now written off SEK 470 million in goodwill. But the Skydda is affecting the operating income by SEK 50 million positive, but then we have some restructuring costs affecting the total operating expense with SEK 66 million, and then we have some tax effect from that as well. And if we move down to the Baltics, we then have had a capital loss of SEK 22 million. That goes into the total operating expense since it's a loss and then we wrote off a loan to the Baltics of SEK 5 million. That's why it's included in the financial income and expense here in this slide. Then we did purchase consideration in -- within the core solution division, but it was more of a one-off consideration or change. So it's here a SEK 37 million affecting the result positive then. So all in all, the EBITA, you can see it at the bottom goes from SEK 97 million then to an underlying EBITA of SEK 133 million where the Skydda deal is affecting SEK 51 million, the Baltics SEK 22 million and the purchase considerations with SEK 37 million. If you look at the earnings per share, it continues to improve. So it's a slow and steady progress. And here, it's the earnings per share adjusted then for yes, nonrecurring items as well. So we're both in Q4 last year for SEK 270 million write-off and this quarter as well for the nonrecurring items. If we look at the inventory level, we do have some effects here as well. The divestment influenced or reduced the inventory by SEK 110 million. So the inventory amounted then to SEK 1. 075 billion compared to SEK 1.136 billion last year. Yes, as I said, divested businesses affected lowered the inventory by SEK 110 million. Organic, the inventory reduction was SEK 30 million and the IPO continue to improve. It's -- as we said before, it's a slower progress from here on as well. So we are working on reducing the inventory level, but of course, it's a bit harder the longer you come on that journey. And if we look at the cash flow from operating activities, I would say it's according to plan, it's not surprisingly strong or weak. It's a good cash flow quarter. The SEK 112 million compared to SEK 87 million last year and the difference being lower working capital, so yes, according to plan, I would say. And acquisitions and dividends increased the net debt in the quarter, even though we had the divestments. So the operational net debt was SEK 1.424 billion compared to SEK 1.115 billion the year before, but it was roughly the same level as last quarter. And the reason for that is, of course, the SEK 205 million in acquisition during the quarter and also the dividend of SEK 100 million. So -- and if you compare to last year, we have now done acquisitions for SEK 737 million in the last 12 quarters. And as we said before, the acquisition target remains intact. The pipeline is still strong. So we'll continue on our path. After the quarter, we also did one acquisition, as Magnus said, acquiring Modus Gauges in the U.K. And with that, I hand over back again to Magnus.

So I will shortly go through the different -- our free divisions and the key thing -- the key highlights from there. This is the Core Solutions division. And overall, they are the division that has the highest exposure to the construction sector, and the biggest company in this group is ESSVE Group, roughly with a turn of just below SEK 1 billion. And they are selling fastening and fastening products and they have seen some small pickups in the market, mainly related to the routes, the subventions that the government is giving in Sweden, but also some pickup in the Norwegian market. And also ESSVE has gaining some customers during the last quarter that has had a positive effect on that. Core Division also acquired the new platform, H C Coils that is doing bespoking, cooling and equipments for the industry, focusing on the U.K. And as you can see on the trends here on the lower side, they have had a very, very positive revenue development, rolling 12, that is mainly driven by acquisitions so far. So when we get some more tailwind from the underlying markets in our current companies, we will see also a positive of that going forward. And the acquisitions and the work that has been done with the companies has also strengthened the profit margin. So this is now with an EBIT margin of 13.5% in this quarter compared with 11.7% in the last quarter. So it's really a good development in the margin, both once again from acquisition, but also from working with our companies in these divisions. And we had an EBITA increase in absolute terms with 51% in this quarter from SEK 39 million to SEK 59 million. And you can also see the rolling 12 figure for this division has a very good traction. So overall, I'm very happy with the development in the Core Solutions divisions, and I see some further opportunities when we get a better underlying market in combination with acquisitions going forward. If we look at the Safety Technology division, their Cresto Group acquired Donut Safety in the U.K. It's an add-on acquisition and Donut is focusing on personal protection equipment for the offshore sector, and it's a good complement to the Cresto Group. And here, we had also an EBITA increase of 14% from SEK 29 million to SEK 33 million. And we also had an increase in the EBITA margin to 11.5% compared with 8%. And if we look at the revenue figures, we also need to consider that Skydda has a turnover of SEK 95 million in the previous quarter, Q2, to have some comparable figures. So overall, you can see on the revenue slide, it's going down a little bit. That is explained by this Skydda divestiture, but we have a positive development now in the EBITA rolling 12 figures. You can see, we had a period with first going up and then going down, and now we are seeing the rolling 12 figure is going up, and we still have some opportunities to improve, both through acquisition, but also organically. And we can also see that the EBITA in absolute terms now have a positive trend, and I don't see any reason why we shouldn't see that to continue going forward. So our third division, Industrial Equipment, this division had faced a tougher quarter, I would say. It's really depending company by company. We have some companies, for example, A.T.E. and Orbital, very niche in the U.K. market that had had a very good development during the quarter, but we have some companies, and then especially Luna and Teng Tools, selling for retailers in the Nordic primary, has experienced a continued weak demand. And Polartherm, it's a Finnish company working globally, producing mobile heaters. They are selling volumes to the U.S. And here, the uncertainty on the kind of tax conditions has affected Polartherm in a negative way during this quarter, and they also have a lot of rental customers that is facing low rental demand, and that has materialized in a very low demand to Polartherm. This is something I expect to pick up when the market gets a little bit more quicker and we get some more demand in the market. And I also expect that part of the Polartherm is going to the defense sector in the U.S., and there are some positive signs there that this special import taxes will not hit Polartherm going forward, and that will enable them to be more competitive towards that sector in the U.S. So this is the only division with underlying declining revenue. And also, you can see this EBITA margin rolling 12 has flattened out. I don't see why we shouldn't have an improvement in this division going forward as well, but we need to speed up the changes and the work we are doing here. As the EBITA rolling 12, you can see has also declined during the last quarter. So we have 3 quarters in a row here, with declining development, and that is, of course, nothing I can be satisfied with, and we are taking measurement to address this going forward. So hopefully, we -- I expect to see some improvement in this division going forward as well. So to summarize, the underlying market, I don't see any recovery here in the near term, but I hope and expect, we will see some more positive signs in the beginning of this year. It's very uncertain, but that is at least the best forecast I can give when I talk to our companies and when they come -- our companies talk to our customers that we can give today, but that's still to be seen, I would say. Anyway, we will continue what we always are doing, focusing on profit expansion over revenue growth. We will continue to allocate capital according to our focus model. It's really company-by-company approach. Some are companies where we're investing for growth. Some of our companies, like Luna, we do some structure changes to enhance profitability. So it's really company-by-company priorities. And we have our B&B Tool Box. It's a way for us to support our companies in the development, and that is something that we will always do, and we will continue doing, and we will continue to acquire highly profitable B2B companies with leading position in growing niches. We don't see any reason if we look at our pipeline and the opportunities in the market that we shouldn't continue acquiring companies. It's very uncertain in what kind of path and how many acquisitions we will be able to do, but that is not, I would say, mainly dependent on that. It's not market with good companies or we have the capacity. But still, it's a lot of things that need to be right and we don't want to compromise with quality. So we then rather not acquire company if we don't feel that we have the right quality and the right valuation. And that will, of course, reflect the number of acquisitions. But overall, I don't see any reason why we shouldn't continue to acquire a company in this fiscal year going forward. And then based on the situation we have in the group, we have some specific group themes that we are working on specifically. And as Peter was saying, we have some improvement in ITO, but we are not finished yet. So we continue to push our companies to get that to the pre-corona level and continue to work on that. That is important for us to reach the profitable working capital target. And given the market condition, we still have a tight cost control, even if the companies that are in the green zone in our capital allocation model, we invest for growth there, but in a general term, I would say, we keep close eyes on the cost and encourage our companies to really prioritize where they spend their money, given the underlying market stations. I mentioned earlier about the gross margin development and the expectations going forward, but that -- to maintain the current gross margin levels, we need to work continuously on the supply side as well as the customer side, and that is something that we continue to focus on, and our companies are continuously working with. I said earlier that we see some, but maybe too few positive signs in the markets where that is heading, but we ensure that we're able to capitalize on the improved economic situation that we expect to improve during next year and hopefully in the beginning of next year. So overall, I think we are in a very good position. We have been able to improve the profit and the profit margin and the profitability, despite a very tough underlying -- declining underlying market. And when we now see, we don't see any reason why we shouldn't keep up this acquisition as we have had historically that has generated, has been a big contribution to this profit development we had. And then hopefully, we get some help from the underlying market that will then boost the profit development going forward. So overall, I see some very good opportunities to continue on the track we have had and even enhance that over time when the underlying market is more supportive. So with that said, I think we are ready for the Q&A.

[Operator Instructions] The next question comes from Zino Engdalen Ricciuti from Handelsbanken.

Thank you, Peter, for clarifying the one-offs. I've just got a follow-up on this earn-out revaluation in Core Solutions, which you label as a one-off. If you can nuance it a bit on why it is so large and if it's a few companies or targeted to 1 or 2.

Yes, I can do that. It's -- as you're aware, we are very, what you say, restrictive what we pay the companies upfront, we pay on what we feel is the historic level that they have been. And we have, of course, built in a lot of safety in that when we're in this business climate right now. But of course, it has been for these 3 companies that it's related to -- has been quite discrepancy between the seller's view and our own, which has made the division book, quite a large, let's say, add-on payments on these acquisitions. But with the current market condition, we feel that they will not reach the -- those targets. So we felt it was -- yes, time to do this revaluation on that one. But yes, still, they are performing relatively good to what we paid upfront. So they will come back when the market turns as well. So that's the reason why it's quite a large number this quarter.

Just to emphasize what Peter is saying, we use this add-on payment as a bridge between the sellers' expectations and our willingness, what we would like to pay upfront. And as Peter is saying, the seller typically have high expectations on the future earnings growth, and we are very cautious in calculating earnings growth when we pay upfront. And in this specific situation, as Peter was mentioning, this is -- the result of this bridge hasn't materialized, i.e., that the sellers' expectations hasn't been met. It's more like they have met our expectation and what we have paid upfront.

That is very clear. Jumping -- I got a couple of questions on the margin starting in Industrial Equipment, as you said, Magnus, you think, you're working on improving the margin and expected to do that, but how quickly do you think that's going to happen? Is that something we're going to see in the short term or something that we're maybe going to see more next year?

I mean, this is a long game. You have seen our margin development over time. So over time, I would expect to see a steady improvement then it's very difficult to forecast the speed and the steepness in this curve. And we could have a quarter in the future where actually the margin is going down. And then there will be some specific reasons around that, but I feel very confident that we, over time, we will continue to improve the margins. The tempo and when exactly what would be the effect in each individual quarter is something that is very difficult to forecast. But I expect that you see the same development over time that we have seen historically.

Very good. And quickly in Safety, if there is -- on the margin improvement, if you calculated how much is related to the Skydda divestment, particularly in the quarter?

I mean, we don't give that type of information, but I can say that much. It's a combination of the Skydda divestment and the acquisitions that has been made in this division. So it's a combination of both.

Understood. And just very lastly from me on the loan divestments. Firstly, is the roughly SEK 100 million impact is counting with eliminations and such. And also if the divestment has been closed in the quarter or just signed and if we should expect any other one-off costs related to the divestment going forward?

Yes. The divestment has been closed. So there will be no additional costs related to the Baltics. And the SEK 100 million is what their turnover is. There is, of course, slightly elimination effect, I don't know, around SEK 30 million maybe. I don't know, something like that.

And you should also note that the Luna Baltic is not only selling products from Luna and our product companies. So their turnover of SEK 100 million is not 100% equal to buying those products from other of our companies.

[Operator Instructions] The next question comes from Emanuel Jansson from Danske Bank.

I think a lot of them have already been answered, but going back to the one-off items, I don't want to hang on that area for too long, but given the large continued consideration within the core solution, would you describe this as an extraordinary occurrence? Or should we expect similar sizes moving forward? Or is this just an extraordinary event, you would say?

No, I would definitely say it's an extraordinary event. So you shouldn't expect any large considerations going forward?

Okay. Great. And also, I think you're mentioning within the Core Solution, which seems to develop quite well listening to what you're saying about ESSVE et cetera, and given the initial signs of recovery within the route deduction of the route markets, and the significant increase we have seen applications in Sweden this year for the market in general, should we expect that growth maybe to accelerate moving forward for ESSVE in the coming quarters, you would say?

I mean you should remember that ESSVE, as a company has an exposure towards the Nordics. They are quite big in Norway. They also have an operation in Eastern Europe, in Poland and [indiscernible]. And they also have a business win-a-prefabric housing. So route in Sweden, yes, it seems to grow as a market and that has a positive effect on ESSVE, but on a total ESSVE level, it's not that important or that big, I would say. And overall, even if we talk about the positive development in route, it's not accelerating. So I don't think you should expect an accelerating growth on top line or profit in the ESSVE in the next coming quarters. I expect to see some improvement, but not an accelerated improvement.

Yes. So if we had the organic growth in the quarter, but it was driven both, of course, small part of this route to market, but also to the new customers that ESSVE acquired last year, so yes.

Great. That's very helpful. Maybe last question from my side. Magnus have been talking about the markets. You hope that it will start to recover at least in 2026. No one knows, of course, but would you describe that the market as stronger or weaker compared to what you observed in the last quarter in general?

In general, that's a very difficult question. I mean, I have some examples of companies that actually face a little bit weaker demand in this quarter and some has shown a stronger demand. So I mean, as I said before, I think our organic development is on aggregated level, reflecting what we see as such. I mean I noticed one of our peers, their division, they had a report where they indicated both an order decline and a top line decline in the previous quarter as well, facing the construction and infrastructure sector. So I think generally speaking, that sector still have some challenges. The industrial sector is even very diverse, I would say. Some markets there are growing and some are flat and some is actually declining. So I think if you have the group level, I think you should look at the aggregated organic top line development in this quarter.

Yes. Okay. That sounds fair. And I assume that you also see very big variations between the markets from -- the end markets from acquired entities and older companies within the group? Or do you still see higher momentum from the end markets from acquired entities, still a big operation?

No, I'll go back to the different markets. I mentioned the English company, Orbital and A.T.E., they have a very strong order backlog, and they have a very strong top line development, but that is more related to the markets they're operating in. A.T.E., for example, is quite exposed to the defense sector in the U.K., and that has a strong demand currently. Orbital has exposure to high-tech production companies, and there's a lot of investment made in the U.K. in that sector currently. So it really goes down to what type of market are the different companies addressing. And some of those are growing and some of those have a little bit tougher situation currently. So I can't give any kind of general perspective that is relevant for the whole group or all our companies.

The next question comes from Linus Alentun from Nordea.

Just a few quick couple of questions here for me. First, I was just wondering if you could give a little bit more flavor on the gross margin improvement there. I know you said some of it is due to the divestment of Skydda, but the other part, is it a mix shift or cost deflation or pricing power?

Then, I was -- previously, it's really a company-by-company approach, and I would say, the gross margin development in the latest quarter is partly due to the Skydda divesture. It's partly due to the acquisitions we've made. Some of them have had a very good gross margin that is then helping the group margin development, but also that we have had a structural program across the group, working on gross margin enhancement for many, many quarters. And in many companies, we see a positive effect of that, also in this quarter. So it's -- sorry, I can't give a specific answer and a specific explanation, single explanation to the development. It's an effort of many things in parallel.

Okay. Another question on the working capital efficiency here that reached 33%. I was just wondering, looking forward, if this level is sustainable or if we should expect some normalization if -- or when demand recovers, and you rebuild inventory?

I mean, we will have a short-term effect when we rebuild the stock. But at the same time, we really worked across the last quarters to improve the purchasing processes across the group. So I expect to see a positive effect of that work. But of course, in some companies, we will have stock buildup initially when the market starts to pick up. But once again, I said it earlier, we still have some improvement opportunities from -- on the stock level in terms of ITO as such. So that will also go in the other direction in terms of the working capital levels. So we are still committed to the 45% next fiscal year. The figures you currently look at is rolling 12. So you have a delay effect of the improvements we do in working capital. So we may temporarily have, in a single quarter, some stock buildup effects, but I don't expect them to be significant.

Okay. Super. And just on the M&A. Can we expect the same pace here going forward for the rest of the year and into 2026?

I mean we have communicated the target to acquire SEK 50 million to SEK 80 million EBITA per annum. We are committed to that level this fiscal year as well. We will have to increase that level, that span over time as we get bigger. So when we are at the SEK 510 million, the EBITA of SEK 500 million -- sorry, EBIT of SEK 500 million, we need to step up the acquisition path, and we have already prepared for that, and you can see some effects during this fiscal year so far. We have acquired the number of companies we have historically acquired in 1 year in 2 quarters, but once again, it's very difficult to just prolong a curve like this because it's so many things that need to be in seeing it for us to go all the way and acquire a company and to forecast if that will be the case in the same path we had so far this year, it's very difficult to say. But over time, we are committed to deliver the SEK 50 million to SEK 80 million this fiscal year. In the near term, we will increase that span and we have built the resources to step up. We are prepared to step up, but that will not be, I would say, step up, it will be a continuous increase in terms of EBITA acquired in the group going forward.

Okay. Super. Understood. And just one last question here for me. I know you've talked a lot about the number of FTEs in the construction industry sectors in the Nordics here, how has that developed?

We haven't got any figures for the last month or the last quarter. So it's -- we don't have the data yet, expect to get the data here in November, December, and then we will know. I don't see any -- I don't expect any big changes.

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

Yes. I will go through a few written questions as well. The first one is then what is your view on U.K. macroeconomics? Not worried. You're focused on that region when it comes to acquisitions.

Yes. I mean once again, it's very difficult to generalize when we talk about the markets that we are acquiring within. If we, for example, Cresto Group did add on acquisition on this company, Donut is based in the U.S. -- sorry, in the U.K., but it's very exposed to the oil and gas sector in the North Sea. If you look at that specific market, we see positive kind of demand for security, generally speaking, that will be positive for this company, Donut. And also over time, we see -- if we talk about number of people working in the oil and gas sector in the North Sea area, that should be positive. So the macroeconomics for the U.K. maybe doesn't look that promising going forward. But that is very important when we acquire a company that's not looking only on the macro level that specifically, we do the majority of the work to understand the underlying market in the specific market, the company we're looking at address. And so I talked about this A.T.E. company, Orbital company in the U.K. that has a very positive development that is not aligned with the macroeconomics in the U.K. And that is approach we take in all our acquisition, independent if it's the U.K. or the Nordics. So you really need to dig into, I think, the specific underlying market that you are looking into. But as a general view, I think the macroeconomics in the U.K., to my understanding, at least, even if I haven't looked into it in detail, it is not very strong in near term at least.

Good. And then the next question, it seems to me that you have paid 5 to 7x EBIT for the acquisitions upfront. Could you comment on what the multiples typically are on the incremental earnings growth for the companies when you pay the earn-outs? Is this also a range? And if so, what are the drivers for paying a higher or lower multiple on incremental earnings growth?

That's a very good question, I would say. That's correct that we pay in the range 5 to 7 EBIT on the acquisition upfront. And when we pay that, we don't pay that on an EBIT level that is -- that the seller is expecting to generate in the future is really based on what they have historically delivered, and it should be an EBIT level that we feel confident that they will be able to deliver going forward. Then typically, the earn-out component is a bridge from the seller expectations and the great forecast they typically present. And this historical earning level that we are well willing to pay for. And what we typically do, we use the lower multiples on the earn-outs. And that -- if you -- generally speaking, it's in the range of half of the upfront multiples, roughly speaking.

Next question. Could you comment on your ability to continue to invest at such high in reinvestment rates? You have the capacity from a balance sheet and credit point of view to continue the pace over multiple years to come?

Yes. If we talk about the credit point of view, I don't see any reason, and there are no restrictions in that. Of course, we need to -- we have said that we should be on a net debt-to-EBITA level of roughly 2.5% in that range, but we have also said that we temporarily can exceed that level. We are currently at 2.5%. So that is currently not prohibit us from continue acquiring. We are generating good cash flows, and we expect to generate good cash flows going forward. So currently, nor the credit nor our balance sheet is restricting our acquisition capacity as such. And as I said earlier, we have strengthened our acquisition capacity in the group, preparing for stepping up the acquisition path in the next coming years. So currently, I think we are in a good place in terms of our acquisition tempo and our capacity and the underlying market to doing good acquisitions going forward.

Good. Next question, are you thinking about further divestments of structural weak companies that will never reach your profitable working capital of 45 target. If so, how do you think about a multiple you would be happy to receive for selling those operations? Should it be in line with what you're paying when you deploy capital or below or above multiple arbitrage question mark?

Yes. We have said internally to qualify to be part of the Bergman & Beving Group long term. You need to reach a profitable working capital of at least 45%. We communicated internally as well externally. I think it was 2 years ago.

Yes, I think.

2 years ago. That we have a time frame for reaching that to 4 to 5 years. And of course, you cannot judge all the company on the level they are delivering currently based on the underlying market situation, but we need to see and believe that the company should reach the 45% within that time range along the way, not for us, not to take some structural actions. We have communicated earlier that the Skydda divestment was a result that we, together with the management of Skydda, we didn't believe that they should be able to reach the 45% in that time range, and that was one of the reasons why we divested that business. We also look individual at separate business intensity. So that I would say was one of the reason also we chosen to sell Luna Balticon in this MBO, because that operation were not on the level that we expected, and we couldn't see that they would reach that level in the time frame we had set. So we are ready to act on companies that don't deliver on the profitable working capital of 45% within the set time frame. Going back to the multiples we are expecting to get, unfortunately, we are not decided on the multiples we get. It's really about the market conditions. If we look at the Skydda, we have communicated the SEK 300 million EV we got for that business. And that has an underlying EBITA level as we also communicated of SEK 45 million. So that is in the range that we roughly pay for companies, but if we look at the Luna Balticon for example, that investment was below the range that we typically buy. So in the end, it will be the market that decides and we have to judge are we willing to sell to the multiples we are offered. But I don't exclude that we could sell companies below the range we are paying for companies. And hopefully, we are not -- we get better than that, but that is still something that the market decide in the end and we need to then decide if we are willing to proceed with that based on the valuations we get.

Good. And that was the last question -- written question.

So thank you very much for listening to this report and looking forward to connect to you when we present the Q3 report in February.