Indutrade AB (publ) (INDT) Earnings Call Transcript & Summary

Welcome to the conference call. [Operator Instructions] Now I will hand the conference over to the speakers. Please go ahead.

Welcome, and good morning on our behalf as well. We are glad to report another strong quarter and full year from Indutrade. As usual, I'll start with the overall highlights this year or this time for 2023 overall. It was a great year, obviously, primarily thanks to our entrepreneurial companies, people, and our balanced diversification. We had stable high demand with total order intake growth of 13% and plus 18% for net sales. Perhaps more understandable in absolute terms, sales increased from SEK 27 billion to SEK 31.8 billion, almost plus SEK 5 billion, which is equal to a large business area for Indutrade. So very good top line development in the year. We also had a solid EBITA margin 15% and also comforting with record high operational cash flow, driven from the strong result and also that we have worked with capital efficiency and inventory reductions during the year. We have added 9 well-managed and good profitable companies during the year with a total annual turnover of SEK 1.2 billion. And towards the end of the year, we decided to change the group structure, and we introduced 5 international business areas, which I will come back to. And the Board proposes a dividend of SEK 2.85, which is an increase of 10% versus last year. If we focus a little bit more on the fourth quarter, again, strong order intake growth, 14% overall and plus 4% organically. And the segment which stood out is Medical Technology and Pharmaceuticals. Net sales growth of 8%, organically flat versus last year, and continued high EBITA margin at 14.6%, underlying that was exactly the same level as last year. And new all-time high operational cash flow, not least linked to the inventory reductions we have worked with -- we were able to complete 2 acquisitions in the quarter and have made 3 so far at the start of 2024. And I would say that the inflow of interesting companies is on a good level. Then we comment a bit more specifically on order intake. I would say that it continues to be aggregated on a high demand level and improved versus last year. Organically, it's the best quarter since quarter 3 2022. So it's obviously comforting to end the year in that way. There are, however, as usual, variations between companies and segments and almost half of the companies grew order intake organically in the quarter and orders were 3% higher than the sales in the quarter. And if we just mentioned the numbers, so plus 14% in total, plus 4% organically, plus 7% from acquisitions, and plus 3% from currency. And to try to talk a bit more about segments, as I said before, on an overall basis, I would say that MedTech and Pharma stood out in a positive sense. And the order intake was supported by a large order for Flow Technology equipment for pharmaceutical production in the quarter. But there were several companies linked to MedTech who did well in the quarter. We have certain companies working with laboratory equipment, for example, selling to large university hospitals or research institutions and things like that, and there is usually a strong ending towards the year where they basically fill up their budgets also so this year. And then there are several companies working in different applications areas, which have good order intake. The cluster of companies linked to single use was a little bit weaker towards the end of the year, but I think we'll have a better development in 2024. Also good development in the energy sector. There are activities in all energy areas, I would say. There are nuclear improvements, maintenance initiatives around in different places in Europe, also the wind sector, also solar equipment, and LNG terminals being built and so on and so forth linked to the types of companies we have. And I think it's relevant to understand that an average Indutrade companies sell for about SEK 125 million per year, about SEK 10 million per month. So there is not a very significant sort of project level needed in order to fill the capabilities and capacities of these types of companies. So when a municipality improves on water distribution or water sort of cleaning or linked to municipality heating and things like that, there are activities for the types of companies we have in a good way. I would say, the process industry was also quite okay, slightly weaker in the engineering sector in quarter 4, but nothing very dramatic. Perhaps a little bit surprising, the Infrastructure & Construction segment was flat or in line with last year, and there were some companies having a couple of larger orders helping up that segment in a good way. If we look at business areas, Flow Technology and Fluids & Mechanical Solutions stood out and this was again linked to orders in the MedTech, Pharma sector and also in the automotive aftermarket, good development. The weakest development was in Measurement & Sensor Technology, but they've also had more difficult references from last year in a couple of their larger companies. If we then turn to sales. Overall, we are having more of a normalized backlog now and normalized order book. It's approximately 20% of our sales or around 2.5 months of sales. So we have had several quarters where we have had good invoicing from a bigger, larger order book. It was 1 working day less in quarter 4 compared to last year. And as I said, overall plus 8%, organically flat, plus 6% from acquisitions, and plus 2% from currency. And 3 out of 8 business areas grew in the quarter. It was primarily then Fluids & Mechanical Solutions, Industrial Components, and Measurement & Sensor Technology. And if we look at the overall perspective of all companies that were the majority of the companies actually grew sales in the quarter. We should also say now that supply chains are more normalized. And in a group perspective, we don't see any really major significant issues in terms of that. We have also included a slide presenting our sales towards different customer segments on an overall year basis. This doesn't change very much year-over-year, but you can see here that the largest customer segment is MedTech and Pharmaceuticals now, and there was an increase by approximately 1% in that segment. And the second biggest segment is Infrastructure & Construction. And there, we saw a reduction of 1%. Otherwise, it's a stable situation versus a year ago. But it's good to see that our deliberate focus on MedTech, Pharma is paying off and we see good growth, profitable growth in that segment. If we look at sales more in a market perspective, geographic perspective, you can see that Scandinavia stands out positively. There is a plus on Sweden; 2 pluses on Norway; and flat in Denmark. And in Sweden, I would say it's a relatively broad segment development in a positive sense. But obviously, MedTech, Pharma stands out, also Water segment and the Infra segment. In Norway, not perhaps very well-known of the MedTech area, but we have had a few MedTech companies doing well in Norway in the quarter. But also on the energy side in Norway, it has been positive. And in Denmark, mixed development and nothing really stood out versus a year ago. Finland is a bit weaker, a lot of base industry in Finland usually are early weakening in a business cycle and also a bit weak in Infrastructure & Construction for us. U.K. and Ireland, strong references from high sales to the Pharma segment in Ireland last year, didn't really materialize those types of larger projects in this quarter, but still a very positive outlook in terms of activities in Ireland in 2024. Holland, Belgium, also strong references from sales to the Pharma customers last year, and that was more these clusters of single-use-oriented companies. Germany. Weaker demand in engineering. And again, a little bit more challenging references linked to single-use Pharma in Germany. Switzerland and Austria, declined, driven mainly by Infrastructure & Construction, and we had some projects to the pulp and paper industry last year, which hasn't materialized this quarter. And we are quite small in Asia and North America. So here, certain specific project businesses can impact the numbers. And last year, we had some good projects into North America, it was a bit less, less this quarter. And on the other way around now, we had some good engineering-related orders to Asia, which brought sales to Asia up in the quarter. If we look at our organic sales growth over the different quarters here. We have now had 14 consecutive quarters with growing or stable organic sales, which is good. And as I said before, a majority of the companies actually grew sales organically in the quarter and 3 out of 8 business areas. And on a rolling 5-year average, organic growth is now above 5%. Obviously, recognizing that inflation has played a certain role in that. Then we turn focus to our EBITA performance. And it continues to be a high profitability level. EBITA was slightly higher than SEK 1.1 billion in the quarter, an increase with 6%. A bit weaker organically minus 5%, plus 8% from acquisitions and plus 3% from currency. And the underlying EBITA, as I said before, was in line with last year's level at 14.6%. And last year, we actually reported 15.0%, but we had some one-off effects from earn-out releases in that quarter. I think, yes, we can also say which Patrik, I think, will comment on that, the gross margin was also more or less stable on a good level in the quarter. If we then turn to the business area perspective and start with the sales. As I said, organic growth in 3 out of 8 business areas and in a majority of the companies. And here will be similar comments to the market perspective, I already spoke a bit about. But Benelux, there we had some strong references in the Pharma sector and also in the Energy sector. So hence, a bit weaker numbers there this quarter and also a bit weaker in terms of Infrastructure & Construction in the Benelux region. DACH and Finland, a bit similar, weaker sales in the majority of the companies with Infrastructure & Construction segment standing out negatively. Flow, strong sales in the majority of the companies, but also stronger references in certain pharma-related companies offsets. Fluids & Mechanical Solutions, a majority of the companies grew sales also in this business area. And as I said before, good development in the automotive aftermarket and also in Water and Wastewater. Industrial Components, positive sales development in the majority of the companies with MedTech and Engineering as the strongest contributors. Measurement & Sensor Technology, mixed sales development between the companies with good development in, for instance, engineering and HVAC. And finally, U.K., slightly less than half of the company's grew sales in the quarter with the Marine and Infrastructure & Construction segment standing out negatively. Then we have the profitability in a business area perspective, actually, 5 business areas improved EBITA margin. DACH really ended the year in a fantastic way. And then Finland, Fluid & Mechanical Solutions, Industrial Components, and the U.K. all improved. A large EBITA margin declined in the Benelux area, again, driven by lower performance in the Pharma sector and Energy-related sector and a bit also linked to Infrastructure & Construction. And the large improvement in the DACH area. We had strong contributions from some newly acquired companies. And then we also had a bit of a one-off effect linked to pensions. And in Finland increased EBITA margin, even though sales declined organically, but thanks to a really good gross margin development and contribution from a newly acquired company. The margin from Flow Technology declined as a result of lower organic sales in combination with some cost inflation. And Fluids & Mechanical Solutions, they actually expanded margin and mainly from good development in the automotive aftermarket and MedTech and Pharma segments. And MedTech and Pharma was also the factor driving the performance in Industrial Components. In Measurement & Sensor Technology, the decline came primarily from slightly weaker gross margin in a few companies. And the EBITA margin for BA U.K. increased, thanks to good gross margin development, among others, connected to a positive development in the defense customer segment. Then if we leave the business areas and turn our focus to acquisitions. As I said before, 9 well-managed, really good companies acquired during 2023, combined annual sales of SEK 1.2 billion. We made acquisitions in 6 out of 8 business areas and 5 out of 9 of the acquisitions was made outside of the Nordics. Since the business climate, business cycle was a bit unstable in the beginning of last year and also our cash flows were not really at the level where we wanted them to be, we deliberately prolonged some of our acquisition process during the year and hence, the result being 9, otherwise, it could have been higher. We did 2 acquisitions in quarter 4. And now we have started the year in a really good way and made 3 acquisitions already so far. And we are in a number of projects still and you should expect a good continuation in terms of acquisitions here in the foreseeable future. And as we have said before, we have strengthened acquisition capabilities, both centrally in our team in Stockholm, but also in the business areas, and we have good and high ambitions in this area. And we obviously follow our acquisitions over time, as you can see on these charts here. And most of you know that we have an ambition to make 2 to 3 acquisitions per business area per year. And 2021 and 2022 were strong years, and last year, a little bit weaker. And the 3-year average is currently at 14. And if we look at the financial effects, the bridge effects from acquisitions, the last 12 months, very strong ending of the year for many companies, positive one-offs in there as well. By that, I leave the word over to Patrik to comment a bit more specifically on the financials.

Thank you, Bo. Yes, let's dive into the financials a little bit more. Total growth for orders and sales was plus 14% and plus 8%, respectively, in the quarter. And if you look at the full year, growth was plus 13% and 18%. And absolute value. Full year sales amounts to SEK 31.8 billion then. Orders were 3% higher than sales in the quarter, supported by a larger order of flow equipment for Pharma production, as Bo mentioned. Continued good price work from our companies resulted in a stable and high gross margin for the quarter, 34.8% versus 34.9%. For the full year basis, 34.7% in line with last year. EBITA grew 6% in the quarter and 16% for the full year. And the EBITA margin was 14.6% versus the reported margin of 15% last year. But there are some one-offs embedded in the result connected to earn-out revaluations and goodwill write-down. The net effect did not -- the net effect was not that big this year and did not affect the margin, overall margin. But last year, it was slightly more positive and had an effect of 0.4 percentage points on the margin. The gross amount, they were, however, slightly larger this year with both revaluations and write-downs of slightly more than SEK 400 million. This relates mainly to 2 larger acquisitions in '22, which have had a slightly weaker sales and profit development and the ambitious plans at acquisition. And the reasons behind this. This slightly weaker development for one of the companies is much connected to a weaker construction, a generally weak construction market. And for the other company then a slower pickup of the Chinese market. The long-term prospects of both these companies are still assessed as positive and good. But to summarize, the underlying margin for the quarter was in line with last year, at 14.6%. And for the full year, margin was 15% versus 15.2% last year. Further down in the P&L. Finance net, up 71% versus last year because of the higher interest rates. For the full year, the increase was even higher, but of course, from a very low level. Tax costs for the quarter are actually lower than last year, mainly related to tax effects on this, the one-off items I mentioned before. Full year tax costs are up 9%, corresponding to an underlying tax rate of 22%, which is basically in line with last year. Earnings per share increased 5% in the quarter and 7% for the full year, and I'll come back to a slide on that. Return on capital employed continue at a good level, 21%, above the target that we have, slightly lower than last year, driven by increased capital tied up. Working capital increased during '22 and high acquisition pace that we had in late '22 or beginning of '23 impacts the capital tied up. Cash flow. All-time high, above SEK 1.5 billion, driven mostly by a more favorable working capital development than last year. All this then turning into good development of our debt ratios. Net debt-to-EBITDA declined from Q3 to 1.4 versus 1.8 last year. So moving on and looking on the cash flow more in detail. As you can see there, record operational cash in the quarter and slightly above 1.5 improvement versus last year relates to the favorable working capital development. And if you look at last year, we actually had a small increase in working capital in quarter 4. But this year or '23, the capital declined during the quarter. This was supported then by continued inventory reductions in the quarter, which is very encouraging to see, of course. The inventory levels are, however, still somewhat high. And we continue with the work to further reduce it looking forward. The working capital efficiency measured as 12 months rolling working capital in relation to sales improved versus Q3, which is good then, but remains slightly lower than last year. So still some work to do in that area. Earnings per share increased in the quarter with 5%, as I mentioned before, then from SEK 1.86 to SEK 1.95. And looking at the full year basis, it increased with 7% to SEK 7.86 per share. And the increase, of course, relates very much to the EBITA increase, then it's somewhat offset then by the increased finance net and also higher amortizations. And the more longer-term perspective, if you look at the last -- the 3-year average or the 5-year average, we have good growth of 20% and 16% per year, respectively. And then lastly, then looking at the debt and the financial position. The interest-bearing net debt decreased sequentially from quarter 3 to SEK 7.7 billion. The decrease is mainly connected to the strong cash flow, but also because of slightly fewer acquisitions the last year and in the last quarter. The earn-out revaluations also, of course, impact this as we normally include earn-outs in the net debt calculation. All-in-all, then our net debt ratios then declined versus last quarter and are now low from a historical perspective even. Net debt-to-equity ratio was 53% and net debt-to-EBITDA, 1.4. And if you exclude earn-outs, they are -- it will be 1.3. And in conclusion, financial position is very strong, strong cash flow, low debt ratios and also the maturity profile is well balanced, I would say, over a longer period and only small part of the debt is short term. And ample amount of guaranteed unused credit facilities as well. So a strong financial position. So by that, I say thank and leave back to Bo.

Very good. We also announced a new group structure towards the end of last year, introducing 5 international new business areas. And this is an evolutionary change in our perspective. We have the overall ambition, as you know, to double the size and top line of Indutrade in a 5- to 8-year perspective, depending on business cycles. And when we work strategically, we assess what we potentially need to do differently or change. And now we felt that it was time to review our group structure and build a platform for our next growth phase. And the new structure is clearly focused on business sectors and business segments. It's a clear outside-in market-driven perspective. And the individual company is still very much at the core, so no philosophical change in terms of that. Indutrade is all about being entrepreneurial, decentralized long term as before. But we basically aggregate our companies in new areas. And the benefit is not going to be short term, more medium term, long term, and we feel that there is potential for our companies to increase the knowledge sharing dimension between them, but also strategically when we work with specific segments, we see that we usually have maybe 2 or 3 companies in a certain niche in 2 or 3 markets, but then there are sort of white spots in 5 to 10 other markets in Europe where we potentially could use our capabilities. So I think this will drive both organic growth and also making our acquisition growth a bit more structured. So I'm extremely sort of enthusiastic about this and look forward to step-by-step realizing these potentials. I also think it makes it easier to understand Indutrade from an external perspective. I think these 5 areas are quite clear what they mean and what they are and all of them represent underlying growth opportunities based on the technology areas they represent and the need to grow in different types of application areas. So we will comment more on this in our Q1 report, and we will obviously restate the numbers like 2 years back or so, so you can understand the recent development in this new structure as well. So then if we summarize. A very good 2023 for Indutrade and a strong ending of the year in Q4, continued high and stable demand situation. However, still uncertainty around the general state of the economy for the coming quarters. And we are aware that we face some tough references. But there is also a strong underlying market drivers, not least linked to this green technology transition we have spoken about and perhaps mostly so in the Scandinavian areas, but also a growing MedTech and Pharma sector where we are extremely well positioned. And again, bearing in mind that we predominantly have smaller, midsized companies with a opportunity-oriented mindset being agile, finding business in different niches in a good way. Solid EBITA margin, an all-time high operational cash flow, 9 acquisitions in 2023, adding SEK 1.2 billion in sales and a really good pace and good start in terms of acquisitions also in 2024. And we have introduced a new group structure, which we are eager to work with going forward here. So by that, we end our formal presentation.

[Operator Instructions] The next question comes from Carl Ragnerstam from Nordea.

It's Carl here from Nordea. A couple of questions. Firstly, looking at the organic order intake growth, that 4% certainly surprised me at least. Could you give some flavor whether this to any extent was driven by, I mean, any type of unusual order pattern from your customers we should be aware of? And -- or if it's just an underlying sort of better market you see? And also you mentioned a larger order in Flow Tech, could you perhaps quantify it? And also maybe if it's towards Novo Nordisk?

Yes. We see good demand, I would say, from certain parts of the MedTech and Pharma sectors in the quarter. And yes, Novo Nordisk is [ one ] of the customers helping us and supporting this positive development but obviously not the only one. And we don't comment specific individual companies or specific individual orders. But it -- in terms of the pattern you asked for, I would say it's not unusual. I mean these companies work with these types of customers and receive these types of orders on a regular basis. And sometimes it's a bit more sizable, which it was in one case here. But I would also say that we will probably see more of a positive continuation in that area, both 2024 and onwards.

And if you exclude the big order, would you say that order intake is still positive? Or is it that magnitude it changes just sort of the order trend we have seen so far?

Yes. It's a bit less, but still accretive and is sort of stable on a high level.

Okay. And you said that the big order is the CapEx for Pharma production, right? Or did I hear it correctly?

Yes.

Okay. Very clear. And also, I think another -- on orders, you at least have reported that Infra & Construction is showing positive order intake growth. Is it for comparable units as well? And is it that you finally see some better sentiment for that subsegment after a tough period or how should we look at it?

Yes. It's obviously a very relevant question. And it's like usual with Indutrade. There are some companies who have success in the market. And so I wouldn't say that the sentiment overall is changing. It's more linked to that certain companies in our structure have a successful situation and that adds to an overall situation, which then becomes stable. So no dramatic positive signs overall in the Construction area. But we are a bit more linked to the Infrastructure situation. And that is actually not really bad. I mean, and as I said before, the size of companies we have, there are infrastructure projects going on. If you walk in an airport, in a railway station, in a harbor area, there are bridges being either built or maintained and so on and so forth. So there is a fairly high level of activity still for our companies.

Okay. Very clear. Also on the new group structure. I mean, it's not been in place for such a long time, right? So -- but I'm a bit interesting to know a bit more about the synergy potentials you're talking about. Is it primarily cross-selling? Or is it also on the purchasing/cost side and could they sort of be visible already in 2024? And then the second note and that question is a little bit when I look at the new divisions, it looks like the MedTech, Pharma division is clearly showing a quite substantial margin drop of 130 basis points despite the quite solid top line. If you could give some reasons behind that?

Yes. As I said, when I spoke about the reorganization of the new structure, I don't -- we haven't done this, and we don't expect very short-term positive contributions from it. It's more, I would say, medium term, longer term, and it's more on a business development growth orientation where I think the benefits will come not really from cost synergies. There is no philosophy change in terms of that we don't really start cost synergy projects ever in Indutrade. So there needs to be 2 or more companies who agree by themselves that they want to cooperate and do things together. And -- so that's not the driver. But as I said, there are usually a couple of companies in the same segments, areas who could learn from each other and talk about innovation, product development, customer demand trends, and perhaps share suppliers and things like this to cater towards growth initiatives.

And also on the Life Science or MedTech part, the margin drop, what's the reason? Why this is quite substantial in the quarter, in the new segment structure?

Yes, our intention is actually not to comment that on the pro forma structure at this point. We'll come back in quarter 1 with more elaborate on the financial development of the one. But in general, Life science and the MedTech, Pharma sector is a good margin, good margin business area, even though it sort of may fluctuate between quarters slightly.

Okay. Very good. And the final one from my side, just a little bit on M&A. You said that you postponed quite a few discussions here during 2023. Should we expect a catch-up effect from this during the first half of '24 or maybe it doesn't work like that? Or -- yes.

No. but maybe a little bit towards that. We feel much more confident now in terms of our balance sheet or cash flow and to some extent, also the market outlook. So it will be very surprising if 2024 wouldn't be a better acquisition year than 2023.

The next question comes from Zino Engdalen Ricciuti from Handelsbanken.

Just a short follow-up on the question you just answered on M&A and catch up, where you said that you are a bit more confident or at least comfortable with market situation. Can you give some color on what you see has changed that makes you feel more comfortable?

No. But I think we are closer now to macroeconomic stabilization. There probably will be interest rate reductions at some point, maybe during the spring-summer time here, which step-by-step will improve certain business cycle dimensions. And if I compare it to a year ago, we were much longer away from that point. So -- and then, we have a confident outlook in terms of some of our core segments being the Life Science area, the process Energy and Water, strong perspectives there, also on the Infrastructure side and certain parts of general Engineering as well. So it's perhaps not more dramatic than that we are a bit closer in times to maybe turning points.

Okay. And you mentioned that some -- I think you said that single-use in Pharma, for example, ended the quarter on a weaker note. But on an aggregated group level, can you give some indication on how the development was in the quarter?

For single-use, you mean? Or...

No, no, sorry, on an aggregated level. So did you end on a high or low, so to say, or was it stable throughout the quarter?

I can't really -- I think not talking specifically about order intake, but the quarter overall was strong October, strong November and weaker December, I would say.

And -- but I shouldn't maybe play too much into that because December also had fewer working days and December is always slightly volatile. So I think no dramatic changes during the quarter. Relatively stable in this, except the sort of more calendar issues.

Okay. I understand. And just a small question on the positive one-off impact related to pension. How big was it?

It's -- I don't know, I don't think I have that here. It was relatively -- on a group level it was definitely marginal, and it had some maybe 1 percentage point or so on the DACH margin, I think.

The next question comes from Robert Redin from Carnegie.

Can I just ask again on that order intake in the MedTech, Pharma business. I think the comment also in Q3 was that order intake was good in that area. So that's now a comment that you've had now for 2 quarters and maybe there were some specific larger orders, but is this now a trend that the demand in this area has picked up, you think? Or is this more of a one-off?

I'd say a very relevant question, Robert. There are some subsegments in the Life Science area, which we work with. There were -- in quarter 4 now, there are some companies, as I said during the call that work with lab-related equipment to university hospitals, research institutions, and they work towards their full year budgets, and they want to don't sort of leave any room for not filling those budgets. So usually, Q4 is good for a certain level of companies or category of companies in terms of this. So that was also so this year for some of them. Then there are a few Pharma companies who have extreme success like Novo Nordisk, but not only Novo Nordisk, and they are extending their capacities and several of our companies are riding on that positive journey, and that's -- that will continue, I think, for quite some time. So it's not Q4 one-off sort of activity. And then we have these clusters of more single-use related companies who have had customers with fairly high inventories and they have reduced inventories and haven't ordered as much. But I think that will, at some point, during '24 be a better situation.

All right. Cool. That sounds pretty positive. And I mean order intake was good, but how long a lead time is it normally in this segment? Is it shorter or longer than Indutrade average or when is it converting into sales?

No, I think it's fairly average actually in the segment. I don't know, Patrik, if you have any other...

I think that the larger order you -- we talk about here and the larger orders in general are maybe slightly higher than the Indutrade average wallet and backlog. If the backlog now is 2.5 months, I mean these larger projects are slightly longer total lead time, but they are all scheduled to be fully delivered during '24.

That's correct.

All right. Perfect. Another small question was that you wrote in the first section of the report that demand improved in Q4. Is that sort of just a variable version of the organic order growth of 4% or was there some kind of pickup that you saw gradually during Q4?

No. It's -- I would say, that these parts of the Life Science segments we have discussed has strengthened a bit, and there is a positive outlook in terms of that. In other segments, maybe not too much of a sentiment change. But it's still comforting to see that, for example, Infrastructure & Construction is not for us declining, it's rather stable. And then there are certain other sectors like energy, defense, certain parts of the chemical industries and so on, which, yes, definitely are not less positive now than before Q4. So yes, fairly okay outlook in that sense.

The next question comes from Johan Dahl from Danske Bank.

Just a few questions. Starting on the Infra & Construction business. It's interesting to see the margin levels here. Would you say that the deviation in Infra & Construction compared to the rest of the group, is that a sort of a cyclical issue that you're seeing at the moment? Or should we look on these divisions more from a return on capital perspective? Or is the above 14% margin target equally relevant for all? And secondly, I was also wondering in this new structure, you said have you changed in any way incentives or sort of financial planning for these divisions compared to how you did things previously?

But I would appreciate if we can take a bit more of these strategic perspectives on the new structure and segments at our next call. I think, that's going to be more relevant. We will have more numbers and more insights at that presentation. But very briefly, Johan, the Infrastructure & Construction business area is absolutely relevant with a 14% target level also for that area, and I'm sure we will step by step reach that. So -- but let me explain a bit more about that in the next call. And what was the other question? It was...

No, we can take those bigger sort of division piece later. But can I just ask you also on these write-downs that you make? I mean, to be isolated to a few larger deals made lately, have you in anyway -- what sort of lessons have you learned from this? I appreciate there was very ambitious financial plans for this acquisition. But we're -- I'm guessing at least that this was a slightly larger acquisition, more highly priced. Have you drawn any conclusions from this and which may impact the way you operate going forward?

No, it's a relevant good question. One of the situations is linked to a business cycle turn in a negative perspective, which we were aware of and expected basically at signing of the acquisitions and -- but we believe in the company. Medium, long term it's a competitive, strategically well-positioned company. So we basically expected and knew that we would see a weaker situation short term for that company. And the other company is more a situation linked to that, that they have a portion of their sales linked to China, Asia, and that hasn't materialized in accordance with their plan. But otherwise, the company is -- it's a fantastic company, performing very well and have really great strategic opportunities. So there are, I would say, very clear explanations to this. But I wouldn't say that we have changed our mindset about the companies or the acquisitions, but it was also a time where we did quite a few large transactions in like a quarter's time-or-so. So that is obviously not maybe desirable. It's better to spread them out a bit, but other than that, right now, no other fundamental change in perspective.

If I just add a small comment. I think also a lesson is that having this type of earn-out setups in the contract is good, sharing the risk with the seller. And also here, I mean, you have a net effect, which is very limited of these transactions. And so we are safeguard a little bit with the earn-outs. That's one comment. The other comment is if you look at the aggregated sort of acquisition performance, it's still good. So -- and we have even if these companies then are slightly underperforming versus plan, they are on aggregate on a good level and other -- the other acquisitions are performing well. So we have -- we are accretive in total when it comes to acquisitions.

The next question comes from Karl Bokvist from ABG Sundal Collier.

My first one was also a bit on M&A. Just looking at the initial paid multiples, at least, it looks like the multiples have come up a bit this year and in 2022 compared to some of the years before that. Do you think that multiples could be a bit higher going forward when you target companies with characteristics that you said you were looking for at the Capital Markets Day?

I would still say that we are more around the 7-ish multiple still and no dramatic significant change in terms of our multiples creeping upwards. And we also have comfort to think that we will be able to continue to acquire at recent historic sort of multiple levels. So no dramatic changes expected.

Understood. And then just a kind of clarification there, but the ambition to do 2 to 3 acquisitions per business area, does this also now apply for when you decrease the number of business areas to 5?

No. But then we -- then they should probably more make 3 to 4 per business area.

Understood. Just a bit on demand. The automotive aftermarket, maybe not the biggest one for you, but are there any kind of particular effects here since we might interpret some of the signals that the automotive market in general is not really improving at least?

No. It might be a cycle effect that certain parts of the car fleets are held a little bit longer in a weaker business cycle. They don't -- they keep the car another year or 2 years, and that older car needs a little bit more repair than a newer fleet. So I think it's more linked to that.

Understood. And then my final one is just on the kind of organic earnings development in some of the existing divisions. They've been a bit organic EBITA has lagged organic sales in Benelux and measurement that's been very strong in Fluids & Mechanical. So are there any particular aspects here that we should consider going forward?

I wouldn't say so. I think, it's more a situation where maybe some individual companies are underperforming, having some trouble, having some problem, and that links up to that situation rather than anything else.

Okay. Just a follow-up there. Maybe you said so. But how do you feel the pricing environment is currently? It's not the same perhaps level of price increases as we had at the start of the year.

No, it's more difficult to increase price than it was during the phase with supply chain constraints and so on. So for sure. But our companies are extremely good at protecting gross margin. If you look at Indutrade's gross margin in a historic time perspective, you see that also over business cycles. So they offer quality products, they know they offer value to the customers and they have confidence in defending their price and gross margin. So I feel fairly comfortable that we will also continue to be able to do that.

The next question comes from Daniel Johansson from Pantechnicon Advisors LLP.

Maybe this has already been discussed, but I was wondering on the very impressive working capital release that you saw. If there was any margin impact from that either positive or negative?

In general, no, I would say. And as you maybe know, then most of our -- we have sort of half of the sales basically is coming from manufacturing companies with manufacturing. But the manufacturing operations we have are more assembly oriented. And there are seldom these sort of big and over or under absorption. So those effects are normally quite small for us. So no, is the short answer.

And I was actually thinking about it the other way. Maybe that where you keep inventories more as a distributor kind of -- has that been helpful to margins?

In general, I can say that, that sort of the overstock situation, if you look more, it's no longer -- long-term broad in the last year, has been good for many of our companies, and they have been able to safeguard delivery service to customers, maybe take market shares. So I think that has protected and even -- and helped us top line-wise the last -- last year. And of course, that translates also to a better margin.

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

Yes, then we thank you for listening in and coming with really insightful and good questions, and we end the call and wish you a great day.