ITAB Group AB (publ) (ITAB) Earnings Call Transcript & Summary

Thank you very much. So I would like to say a big welcome to everybody to the first quarter of 2025 and also the first time that we present combined figures for ITAB integrated together with HMY. So just to remind everybody, I mean, I think most people that follow us are aware of the acquisition we made and that HMY became part of ITAB as of 1st of February this year. So we have 2 months of HMY into the ITAB figures in the quarter, but we have decided to focus on the pro forma in order for comparability. But just to remind everybody what we've been focusing on because when you combine 2 market leaders like ourselves and HMY, it's super important to keep focus on business continuity, customers and our people first, making sure that everybody understands what is going to happen, making sure that all customers are being prioritized. And then we focus on getting to know each other, understanding the strengths, the opportunities, the challenges that we have together, so we truly can become better together as intended, but also to start to deliver on the synergies because this will help to make us stronger in front of our customers. It will help to deliver more value to the company. And as everybody knows, we will find these efficiencies and synergies within procurement, cross-selling and general efficiency improvements. So when looking at ITAB Group now combined with pro forma numbers for 2024, those that follow us can see that sales have now doubled. So we are on above SEK 13 billion in sales. We have 24 manufacturing sites spread over 17 countries, and we have operations in more than 40 countries with a total of around 5,400 employees. For 2024, combining the 2 companies, the adjusted EBIT margin was 6.9%. And then adjustments are made for, of course, transaction costs, because this is truly an industry-changing transaction. So we have significant transaction costs, but also then some factory adjustments and divestments of the operations both in Mexico and in China, restructuring in Mexico, not divestments. And for everybody that knows us, grocery is our biggest customer group, followed by do-it-yourself and home improvement. Of course, fashion is very important. But we are in most, I would say, all sectors of retail, we are present. Consumer electronics is big, food to go, pharmacies, et cetera. And our focus is really to go from being very product-oriented, like the whole industry have been traditionally into becoming truly solution-oriented. So focusing on what delivers value for our customers and how can we drive that value even more through our solutions, both existing solutions and the solutions that we develop together with our customers and together with our suppliers. When you look, maybe a little bit closer into the segments that we are active in, you can see the size of grocery in the pro forma numbers. It's a little bit more than half our sales. Home improvement, do-it-yourself is 11% of sales and fashion then follows on 9%. And then as you can see, the other segments that covers all other sectors is quite significant. When you look at just some highlights on the first quarter, you can see that sales grew by 16%, so a really good sales growth. Also, the adjusted EBIT grew by 12%. We have been really, really focused on getting a good start by focusing on our customers and our people, and that has helped us to have a good start also with the integration work, focus on business continuity despite then, you could say, the increasing macroeconomic uncertainty with tariffs one day and maybe not tariffs the next day. And I would say it's more the uncertainty in the world around us that we see as something that this creates added, I would say, added risk. At the same time, I would like to point out that we have limited exposure to effects coming from the tariffs. We have operations in most of our present geographies. So we'll be able to manage this without more than maybe marginal effect. The acquisition of HMY and the whole integration work that comes after a long process, where we have a clear idea of the strategic rationale behind and also a clear plan for the future in how we can help to deliver increased value for our shareholders. But maybe what's most important is increased value, a broader portfolio, more solutions, more capability, more, I would say, experience and know-how to all of our customers. So by that, I hand over to Ulrika to go through the interim report Q1 to focus more on the figures.

Yes. Good morning, everybody. As Andreas already mentioned, to illustrate the financial effects of the acquisition and give you a representative view of the development of the business, we have mainly focused this presentation highlighting the pro forma development. And you will, of course, find all details on the reported figures with HMY consolidated 1st of February in our interim report. So, zooming out on the development over the recent years, you can clearly see the effect of the transformative acquisition of HMY, doubling our size. In the first quarter '25, we have a pro forma sales growth of 16% despite the hesitant market and also given the fragile macroeconomic stability. Pro forma sales in the first quarter was SEK 3.3 billion compared to SEK 2.8 billion last year, and adjusted EBIT, excluding nonrecurring costs and also amortization of acquisition-related intangible assets, amounted to SEK 209 million. If we look at the rolling 12 full year pro forma sales, we had SEK 13.7 billion in first quarter '25 and an adjusted EBIT of over SEK 900 million, corresponding to an EBIT margin of 6.8%. Summarizing the financial highlights for the quarter, we see growth across most geographies and customer sectors, especially within legacy HMY. Due to higher sales of retail technology products, we had historically higher margins and result within legacy ITAB, and we are coming from a very strong comparable result in Q1 '24, driven by the favorable product mix where we last year had the highest EBIT margin in ITAB's history. So in all, increased sales had a positive impact on earnings. At the same time, the merger with HMY impacted the product mix with lower share of Technical Solutions during the quarter, also affecting the combined margin for the new ITAB Group. Pro forma adjusted EBIT for the combined group in Q1 of SEK 209 million corresponds to an EBIT margin of 6.3%. Looking at our customer sectors, we can see that grocery and fashion sectors have been driving the sales growth in the first quarter with a growth over 20%. Our sector exposure in the group is now further diversified after the acquisition. And within the grocery sector, it's especially the discount segment in Central and Eastern Europe that has been driving the growth, but also Fashion has invested in new concepts and refurbishments across geographies. The market is continuing to show considerable interest in the group's technical and digital solutions for loss prevention, and the sales trend for customers shop customized shop fittings were also positive. We have recently signed agreement with one of Europe's largest home improvement and gardening chains for shop fitting solutions in 5 new stores, and also a new agreement was signed with one of the largest grocery chains in U.K. for the rollout of new Smart GATE in over 200 stores. If we look at the combined group market exposure, we can see a shift from Northern Europe to Southern Europe, where this acquisition is complementing and clearly strengthen our presence in Spain, France, and Turkey. So as you can see, in Northern Europe, we previously had around 30%, 25%, 30% within the old ITAB Group, and Southern Europe was around 20%. In the new combined group, we have sales in Southern Europe of above 40% and a little bit more evenly divided in the other geographies. Looking at our cash flow, this was affected. We have in the first quarter, SEK 26 million. This was affected by higher operating capital. And this is also excluding the month of January for HMY. So the cash flow is not on a pro forma basis. Rolling 12, we still have a strong cash flow of SEK 586 million with a cash conversion of 80%. And also, that is not on a pro forma basis. And by that, I hand over again to Andreas to conclude on the presentation. Thank you.

Thank you, Ulrika. And so all in all, I would say, we're proud to have, I would say, a good start to the year. We've had the integration work so far have been over expectations. People are really connecting. People are speaking the same language. Sometimes we use the same words, but we mean different things. Sometimes we mean the same things, but we use different words. So we're really in the process of getting to know each other. And so far, it has been an overwhelmingly positive experience. Just 2.5 weeks ago, we had 90 of the 90 senior leaders coming together in the first time to discuss how we become better together, better as a company, better as an organization in empowering our people, but also then better in our value proposition to our customers. And usually, when we have these presentations, I start to talk a little bit about what we are doing and where we are going, and why we believe that we are doing the right things. So I will end the presentation today a little bit on that note. So, as we all know, retail is truly transforming, and so is ITAB. This all comes from changing consumer expectations. And this has accelerated, as we all know, fueled by the democratization of technology and of information and networks of information, and expectations no longer maybe come from your retail competitor. It comes from an online experience, maybe not at all in a retail situation, or in a situation where you're purchasing. So it's all about me, my experience, my needs, my expectations. And this poses a true challenge, especially for traditional retailers, and that's the focus for ITAB. So traditional retailers, they need to invest in new channels. They need to change their priorities. They have to reduce their costs. At the same time, they have to invest in expanding and enhancing the experience and the convenience in their brand experience, and keeping up with the pace in the ever-changing needs of the customers. This really creates a cost versus experience dilemma in how to get the best return on capital for most retailers. And this is also where our opportunity comes to really be curious, consumer-oriented, and understand this, and focus on what drives value for our customers. And by that, then help them by being more agile and more focused on their needs, and less romantic about our own portfolio, and more on which solutions we need to develop together. And since a couple of years back, when we have been improving step by step, it really comes from focusing on the outcome that we create with our customers. So, what is the desired consumer brand experience? How can we help to improve the physical store experience, driving the footfall and driving then retention of consumers. But that is not enough to create a great brand experience. You also have to drive increased sales and conversion. And no longer is that enough. For many years, that was fine, but you also have to improve the efficiency of the store and the service level of the store, because consumers is not just happy with having convenience that doesn't benefit them, it has to benefit them. And at the same time, these investments need to benefit also the retailer. And then if you also then can help to reduce the operational cost for the retailer, you have really found a sweet spot. And this is what we talk about when we say an outcome-based value proposition is to focus on how we can drive these values for our customers, and then being confident in that, that will also drive value for us. And this is a slide that I like to use, and for some people that see it for the first time, maybe it's a little bit busy. But it's on the left side, you have kind of where we are today, and how we also influence through our proposition. We really influence a retailer's consumer journey, be it inspirational, be it the convenience, and we also influence the retail operations, how do you operate a store, how do you operate the fleet of stores. So that is ITAB's influence today. And we believe that, that will continue also in the future. But it will not be enough for us to do that through our traditional solutions of interiors, lighting, retail tech. We need to do that with more and more services, more and more insights that comes from being connected, being able to use data and insights that comes from other stakeholders, other ecosystem partners and combine that with insights that comes from our solutions and to bring that to the benefit of the retailer because the retailers, they have this dilemma. They need to take out cost at the same time, they need to invest in experience. So it will no longer be enough just to do that in the store format or in the fleet of stores. You have to do that across the retailers value chain. And then you need more data, and that's what we are investing in, becoming more and more strong there. That is also what is driving the logic behind ITAB and HMY joining forces because the demands of data safety, technology, connectivity, integration, those demands become increasingly tough and needed, and it becomes also difficulty if you don't have the right size to be able to invest in these areas and provide the safety and the innovation that our customers require. And just kind of reminding everybody about our strategy that we've had for a couple of years that was really about coming from a position where we were struggling a bit. So we had to stabilize. We did our cost and capital restructuring. We have a tick box there. We really simplified what we are doing. We clarified a lot of things. Then we amplified by investing in new capabilities, new go-to-market, new services, new proposition to our customers and then to expand growing organically and growing through acquisitions. And I put a tick box there as well. So our strategy for the last 5 years have really served us really, really well, and we have realized most of these things. There is still more to do in order for us to drive our maturity and to be the leader in our industry that we now are. But we also need to set a new direction going forward. So what about the next 5 years? So towards the end of this year, we expect to have a new strategy that we will be ready to communicate. And by that, I close the presentation part, and I open up for questions and answers.

[Operator Instructions] The next question comes from Erik Sandstedt from Kepler Cheuvreux.

Erik Sandstedt here with Kepler. Quite a few questions here. But if we start off with the sort of ITAB old company, if you like. It seems that sales growth organically was up around 8% in the quarter, and that follows some 10% growth in Q4. And still you talked about the pretty hesitant market. So to me, it suggests that you're performing pretty well recently. So maybe just help us understand a little bit what's actually driving the strong sales growth here in the past couple of quarters for the organic business or the old business, if you like.

I would say that the sales growth that we see now is coming from, I would say, the recovery of the market that we saw. And then the uncertainty we've been talking about for a longer period that comes from, I would say, the macroeconomics, and that creates hesitation. So even though we are growing in total, we also see the underlying current of hesitation and that sales processes take longer, decision-making takes longer time. And it puts it makes predictability more difficult than maybe historically. And I think everybody that is kind of following the macroeconomics these days are aware of the, I would say, volatility. So that's how you should read that. And then the growth that we have, that comes from, I would say, from quite long sales processes that have then materialized. So yes, but we have seen a positive underlying kind of confidence coming back from the difficulties that was in 2023 when the market took a downturn. So we have not seen a strong kind of recovery yet, but we have seen that our efforts and our actions have helped to improve.

Yes. And then also in terms of the synergies here relating to the acquisition of HMY, I appreciate things has really only just started here. But maybe talk us through a little bit the confidence levels in reaching the synergies and also how we should think about the phasing up to full run rate by 2027?

Yes. So I mean, like I said, so the start has been better than expected. People have really been open. So a climate of sharing seeing the same thing. So the opportunities that we you can say that now we are much bigger than before. But previously, before we made the acquisition, we made a number of assumptions of synergies that we would be able to extract and deliver. And so far in the integration work and remember, we have only 2 months of work in these figures. We have not seen anything that makes us kind of shy to deliver on the promises. So the promises we have made before still stands. Then, of course, when we made the promises back in when we announced this, that was based on the assumption that maybe the closing of the deal and would come maybe even in 1st of December or something. So maybe there is a slight delay of a couple of months, but we have not changed our target for 2027. So that remains like we have said. So synergies of EUR 30 million compared to what we presented then back in September compared to '23.

Then just changing topic a bit. You recently announced a new order win, I think, amounting to EUR 8 million, right, to be reported or delivered in Q2 now. More generally speaking, I mean could you share any details of the type of profit margin that you have on these contracts? We know that the comparison figures have been quite impacted now for 3 quarters by the Australian order. So maybe just help us a little bit understand the type of profit levels that you have on these projects.

Yes. We don't comment on individual orders, profit levels. But at the same time, the solutions that we have with this customer care solutions that helps to prevent shrinkage in stores, so yes, product loss or theft. So it's smart products that use a combination of, I would say, sensors and different types of technology connected to the checkout solutions. And then these products open or close depending on behavior and transactions, you could say. So that's the type of products that we announced. And if you followed us in the past, you know that those are products where we have higher margins than for traditional shop fitting. So I think I cannot guide you more than that.

Fair enough. But is the Australian order now completely out of the books, so to speak, it has impacted now the comparison base for 3 quarters, right? Will there be any more comparison effects going into Q2?

I would say maybe not from that single order that you referred to. But I mean, we take these types of orders all the time, but then we communicate them when they are, I would say, EUR 8 million or larger. Otherwise, we don't communicate them. So it's not just depending on large orders, even if they are important, but it's also about the mix, the general mix of the, I would say, the underlying business. And as you all know, our business is a project business, projects and programs that we win and lose. And when we develop and deliver those projects, they don't come back in exactly the same shape and form. Sometimes they do, but most often, they don't. So it all needs to be developed and won together with our customers. So it's there is no kind of that underlying stability. But we do expect that there will be more. Once the macro is a little bit more predictable, we think that the underlying stability will become more solid given the increase of size and the diversification across retail segments and geographies. So we believe that we will become less sensitive to variations in demand, I would say.

Then just finally for me, 2 sort of financial questions here on the quarter, on the detailed side, perhaps. But financial expenses in the quarter in the P&L was at least higher than I had expected. I think you comment in the report on currencies and hyperinflation. Could you give any more details as to sort of the more underlying financial expenses or how much these impacts were in the quarter?

Ulrika, would you like to see if you can answer that? Do you have that?

Yes. Of course, as we mentioned, we have an underlying increase in interest cost. But for the quarter, we saw some impacts on currency and hyperinflation that were more related to that. I don't want to give any numbers on that because it could be quite big variations in different quarters, depending on how the currency and how the hyperinflation is accounted for. It's easier to look over time, I think, and not single quarters on the financial cost.

Fair enough. And then just finally, was there in this quarter or will there be going forward any sort of noncash amortization of intangible assets following the acquisition of HMY that you will report on the EBIT line?

Yes. As we said in this report, we have in the adjusted number also adjusted for this estimation we have done. As you have seen also in the pro forma communication, we have not yet finalized the purchase price allocation. So this will be done. And the final payment for the deal is estimated to be in Q3. So what we have done now is try to make a high-level estimation of the amortization for the 2 months, but this will be developed during the next quarter and the third quarter. And we will continue to show the adjustments without this kind of amortization.

The next question comes from Karl-Johan Bonnevier from DNB Markets.

First, I was slightly late into the call. So if I ask a question that you already have answered or detailed in the original part, excuse me. But just to start off with the EUR 8 million order that you described so nicely. Looking at the short kind of time frame for delivery of that kind of order, is there really any other players out there that could do those kind of short-term integration that now you are able to do? A real competitive advantage.

I would say that, I mean, this is one of our strengths, this particular kind of deal. But also, I want to remind people of what I've said in the past that these types of orders, they have very long sales cycles. And then I mean, step-by-step, you kind of grow the I would say you reduce the uncertainty if the deal will happen or not, but you don't know until you get the actual order and you can communicate it. But of course, then you try to prepare your readiness to be able to deliver. But this has been one of our strengths that it's not just to win the sales, but also to implement and then deliver the outcome for the customer because the customers are doing this in order to reduce their shrinkage. And then once they've taken their decision, it is of essence that it happens fast. And that is what we have been really focused on to quickly then turn around and deliver it. But it's I would say, these are very customer unique because it depends on the situation of the retailer. It depends on how tailor-made the solution is and depends on kind of the focus the retailer have and the pace of the rollouts that each retailer have. So there is no kind of clear pattern that each time one of these orders is won, it will be implemented within a quarter or within a month or something. So it's all project-by-project based. Sorry to be boring in the answer there.

No, no, it sounds fair. But it also, I think, really proves your strength where you are at this stage with your relative size in the market that you are able to do an implementation on such a short time cycle. At least it feels short for me, but maybe I'm wrong.

No, but it is. I mean, we've had another example where we helped a large fashion retailer in 2022 to change all the lighting in all their stores in U.S. and this was done over just a few months, and it was all done during the night when the consumers were not shopping. So all the lighting in the stores were changed overnight and then you do store by store. So of course, it requires a lot of preparation and it's part of being a solution provider that depending on the needs of the customer, you have to find ways to do this with the best kind of yes, the best solution for the customer. And in that case, that example, it was to reduce the downtime of a store, so they don't lose their commercial hours where they're selling to consumers.

Sounds very market driven. Thank you very much also for the pro forma breakdown now given for 2024. And just to get a feel for it though, I guess we have a better knowledge about your specifics that happened during 2024. Are there something similar that we should be aware of that you have seen now in HMY that maybe make, say, a single quarter unrepresentative for the underlying performance? Or do you see, say, the pro forma numbers as a good base, so to say, for judging you during the development during this year?

Ulrika, do you want to take this?

Yes. No, I don't think we will see any significant impacts from product mix and so on in HMY. But in general terms, we can say that we had a very favorable first period of '24 with a positive product mix in ITAB and HMY on the sales side were a bit weaker in the first part of '24. So they had a stronger finish in '24. So in that sense, for the combined group, it more evens out in the pro forma numbers. I think you can see that in Note 8. If you look at ITAB stand pro forma.

Yes, that's why I asked because I saw Q2, Q3 looks to have been fantastic in HMY.

Yes. It was driven by...

[indiscernible] a highlight there that makes you worried about meeting those numbers now, so to say.

No. I would say that it's like Andreas commented before, we have a project business, and they also have a project-related business. So sometimes it's more about what kind of projects you win and how that is phased during the year.

And also, I want to remind everybody that we're 2 months into the integration. So far, everything has been, I would say, over expectations. So we're starting to see how great this will be. But we also want to remind everybody that we are still not, I would say, we don't have the same kind of deeper understanding of the underlying legacy HMY business as we have for the underlying legacy ITAB business. Of course, as an organization, we have without a doubt. But for us who do the consolidation and look at the business from the helicopter, we, of course, have a lot to learn during the next few months. And we also expect that we will need to come back with you with further details and further clarifications on our plans moving forward. But the message today is that so far, everything is in line with expectations and everything between people have been above expectations, I would say.

Sounds excellent. And when you now look at the combined group, Ulrika, what kind of tax assumptions should we use, so to say, with also getting HMY into the numbers? It looks slightly higher that you're accounting for in Q1 at least. So what was your view?

Yes. This is of course, taxes and especially tax rate as a percentage is really difficult to look at in a single quarter, especially also since we only have 2 months. And it also depends on where in which regions you have the profit and where you have maybe tax losses carry forward that you can or cannot utilize. So I think we need to understand a little bit more on the rolling 12 and full year figures in the new combined group. But I have no reason to estimate that there will be very big differences compared to previously when we look at it over time.

So an adjusted tax rate around 25%, that's still a good proxy.

Yes. As I said, it's really in the beginning of the consolidation, and we need to work a little bit more on the combined business. But I would say that it's not the reason to draw very big conclusions looking at just the Q1 numbers because it becomes a bit twisted.

No, that's fine. That's why I asked the question as well. And looking at CapEx, I saw when I read your annual report that you obviously continue to do quite large investments on the platform side, ERP system and so on. Is say, a proxy of 2 to 2.5x sales or percent of sales, a good CapEx proxy for this year as well?

I think that I mean, if I take this one, I would say that what we have said to the market previously is that we want to be sure that we get a stable year. So we are staying a bit cautious when it comes to investments. Some things we have to do and should do because it's helping us. But we are also being a bit careful and cautious with some investments because we want to know that we do a good integration, and we get good control of the underlying business. But if everything is as usual, then I think you should assume the same type of investments as historically, I would say. But me and Ulrika we are a little bit cautious as an approach this year just to make sure that we get control of the company. So yes, I hope that answers. So we don't...

No, it's a good indication. It sounds very logical as well.

Yes. So we don't we usually are very careful with forecasting and because of the project nature and the uncertainty in the world around us. But the only forecast that we do have given was when we announced the intention to acquire HMY and that we confirm today as well stands still stands firm, and that is that during the coming, I would say, 30 to 36 months, we will deliver synergies that should have a full run rate effect of EUR 30 million.

Excellent. And one more question on slightly more the details. When you've obviously done very good work on working capital in the old ITAB structure. Is there anything to do on the HMY side on that part? Or were they as efficient as you were, so to say, towards the end?

I think if you go back and look at the I mean, the numbers that we are presenting, you can see that ITAB have historically had a higher profit level. So if you turn that into efficiency, I would say that ITAB have probably been a little bit more efficient. On the other side, H&Y legacy have been stronger in driving organic growth. And we all know that ITAB came from a position where profit levels were not so good. So it's been a lot of work because you need to stay competitive in front of the customers, you need to deliver more value. And at the same time, you need to improve your profit so you can invest in the future. I mean, the synergies will not just come from the H&Y side of the business, the legacy H&Y so we are one group, we are one company. We are integrating. The synergies will come sorry if I'm repeating myself, but the synergies will come from that we are doubling our procurement portfolio. So it will come from purchasing. It will come from efficiencies in SG&A, of course. And it will also come from cross-selling opportunities that the combined customer portfolio get access to more capabilities from ITA side, more solutions, and that will drive positive effects commercially as well. So those are the sources of this. And that will come from the combined group. It's not coming from, I would say, single parts of the group. But we see that there are room for improvements for the combined group in territories like France and Turkey. There are room for improvements in regions in Europe like U.K. So we are focusing on those areas. And then there's also room for improvement, I would say, in North America and in South America. And we are working on all of this, of course, like we have the last couple of years to continuously become a little bit better every year is our goal. But we want to remind people about the size of the acquisition and the complexity that comes with it and also then that we see that so far, everything is playing out according to our plan.

Excellent. I'll stop bugging you on the acquisition, very good details and a lot of good new numbers for you. But just on the comments you made on the market environment, say stable without really seeing any growth out there yet. Could you give us some more granularity which segments you see maybe being showing best potential for strength and where you still see weakness and maybe geographic kind of perspective for that?

I would say that retailers that have a solid foundation that have a strong, I would say, a strong balance sheet themselves, they are investing where it adds value for them. I mean, they reduce cost, they improve efficiency, they improve the consumer experience. Where we see hesitation is more with customers who have maybe a strained balance sheet and that are maybe going through, I would say, integration or acquisition or they have been recently sold or been bought. Those ones that are more sensitive to their capital, they need to prioritize even harder. There the business case and the payback becomes increasingly important. And because they are sensitive to the effects of margins, they are sensitive to the effects of uncertainty. So I would say that is how we cannot identify that consumer electronics, everything is fine, but in fashion, everything looks difficult. It's not like that. It depends on who is the retailer, what's their plan, are they winning? Do they have the means to accelerate? That is more playing in. But the overall macroeconomics makes it more tricky than before to get, you would say, the order in our books. But it just means that we need to work harder. We need to deliver stronger business cases. We need to be even closer to our customers to help to understand why they're hesitating and how we can help them to overcome that hesitation so they can deliver and unleash the value.

Just one final for me. When you're looking at the tariff environment we are seeing and the discussions out there, does this have any direct or indirect implications for you maybe on direct side on your sourcing model somewhere or on the indirect side that customer orders that you see being pulled that you might have seen otherwise?

I would say that our estimate so far is that I mean, the direct effect will be marginal. But then if the macroeconomic kind of preconditions change, then we will be affected as an industry or as all industries in the same way as other companies are. But the direct effect for us is marginal. So it's a very small effect. Ulrika, would you agree to my description? Or would you like to add some flavor to that?

No, I agree. It's more related to the effect it could have on the total environment and in direct ways delivering or sourcing from U.S. or countries affected directly is very small.

Yes. I mean one thing that we can see, I mean, during the last couple of years is increased interest in European sourcing. And the majority of our manufacturing of our supply base is in Europe. Of course, we also have operations in I mean, on all continents except in Australia. But we see that I mean, if you take North America, I mean, as the clear and obvious example, U.S., the products that we are selling there deliver very high payback and very short paybacks on loss prevention. And we see some effect, but not that it would change the decision to invest. Then we see that it's more, I would say, cultural challenges that you need to overcome before you maybe invest in loss prevention solutions. or we sell lighting solutions with very high energy efficiency and quick paybacks. Those could be affected, but marginally, and we see that most competitors would be affected in a similar or higher way. So that's why we say this will have a marginal effect on us in the direct way.

Good to hear that this is something we don't need to worry about at least in our case to a larger extent than the general market kind of environment.

Yes, exactly.

Okay. There are no other callers waiting. We have a couple of questions in writing. And the first one is, do you have any plans to consolidate offices or production facilities in Southern and Western Europe to gain economies of scale?

In the synergy plan that we have, there has been no, I would say, factory closings or stuff like that in our plan. We believe that, if that becomes relevant, it should be the result of normal optimization and capacity efficiency efforts through investments. So the synergies doesn't come from efficiency on the factory side. It mainly comes from the procurement and SG&A side. There could be some, the question was twofold. So it also had offices. So in some places, we have maybe dual offices, and then we will try to make sure that we have what is best for our people. And I'm a firm believer in people sitting together. It's always the best, but bringing people together, allowing them to get to know each other. But that is not a huge part of the SG&A savings. And it also it will be the result of work that happens locally, I would say. So that's how we kind of deliver the synergies. It's from local actions.

I have a couple of questions on the HMY side. The first one is, I note that HMY's EBIT margins in Q1 or Q2, and especially Q1 were lower than in Q2 and Q3, which was not the same exact same case for ITAB. What happened here? Or is there any seasonality for HMY?

I would say that now we are one group. So we are ITAB Group, and we have 2 brands. But, on the legacy side, like we have communicated before, ITAB's product mix is slightly different compared to HMY. So within ITAB, there are more of technical solutions that maybe have a higher margin. Also, ITAB have been really focused on improving margins the last couple of years. So I wouldn't say that, that explains it more. Then there has been a positive development within legacy HMY. So '24 had better margin than '23. But I would like to remind those that follow us that looking at individual quarters is always difficult because of the project nature and the program nature. So if we have a delivery to a major brand, usually, it's a quite focused delivery. So it has a big impact in a quarter and maybe there's a spillover effect into 2 quarters. But then usually, that disappears. There is a natural seasonality that everybody wants everything to be done before the Christmas period and then nothing should be disturbed the consumers during Christmas. So there is a normal seasonality with a peak leading up to Christmas and then a slow period, December, January. That is the normal seasonality. But we have seen in the last couple of years that these patterns are changing a little bit. They're changing because services are growing. They're also changing because they're challenging the status quo and the normal things of conducting their business. So we see some small pattern changes here. Then also when it comes to more tech-heavy implementations, they are usually not following the same logic as maybe being ready for the Christmas shopping. They more follow investment decision cycles, budget allocation, readiness to implement, et cetera. So that is breaking a little bit the seasonality. But normally, there is a peak leading up to Christmas.

Okay. Thank you. Another question concerning HMY. HMY has a high share of interior fixtures. Would you say that this company's gross margin is representative of ITAB's interior fixtures product category?

I would say that in many aspects, we are very similar. So that's why it's so easy when you put colleagues together because we are the same. We act in the same business. I would say that the fact that ITAB is a public company and the focus that we've had the last couple of years of restructuring and focusing on capital and cost out have helped us to drive the margin. I would say that explains more differences than anything else than like a cultural difference. And in the future, we are going to be laser-focused on profitability and capital efficiency. But of course, it will take some time before we act as one, even though we are one, we still need to get to know each other. We need to set a culture that is shared, common way of leading. And as I mentioned previously, we need to explain also where we set our aim the next 5 years because that needs to be reworked during this year. So we can explain that to the market because we have delivered on the strategy that brought us here. Now we need to make sure that we will set ambitious targets for the future as well.

Okay. Thank you. Finally, I have 2 more detailed questions concerning the legacy ITAB operations maybe. One is what are the reasons behind the divestment in operations in China? I assume that concerns the divestment done in Q4 2024. And the other question is do we hedge for fluctuations in raw material prices such as metal prices?

Yes. So in China, we divested our manufacturing of drivers for lighting that we had in Shenzhen. And we divested that to a partner that we are now sourcing from. So we are still being supplied from the same factory, but we decided that it was better for that factory to find more customers than just ITAB. So that is the Shenzhen divestment. Normally, we agree on periods, on the purchase price for a given period. And that's always, you could say, something that is tricky. And then we try to use indexes as much as possible. We also like to mirror that together with our customers. Sometimes our customers agree, sometimes they don't. But usually, it's better when everybody has kind of a backward protection because then you follow the ups and downs of the raw material because our value adds should not be if we are lucky in purchasing or not, it should be because we are strong in delivering added value and that we can deliver the outcomes that drives value for the retailer. So we try as much as possible to work in a very dynamic way, both acting on opportunity in raw material, but also then to secure so we have stability and predictability. And this, as I think whoever is asking the question might kind of allude to, now when we bring the 2 companies together, we have a combined purchasing that is more than twice as high as before. So of course, we have high expectations to drive not just efficiency and cost savings, but also improvements in how we allocate and use capital.

Okay. Thank you. We're coming up to the hour now. So I will answer any more questions in writing after this meeting. So I'll hand it over to you, Andreas, for any final remarks.

Yes. So sorry if I sometimes answer by not giving all the clarity that maybe whoever is asking the question once, but we are careful when it comes to future predictions. At the same time, I'm super proud of what all our coworkers have achieved because it's quite a big thing when 2 of the largest companies in our industry who have been fierce competitors for decades, just because we sign a piece of paper and a transaction is made, we are all of a sudden best friends. Because it's still people. I must say that I'm so proud over these first months together, both the legacy ITAB part and the delivery in the business, the legacy HMY part and the delivery in the business, and also then our leaders coming together and our coworkers coming together, really being curious, being open and eager to learn and bring the insight and the value to our customers. So a big thanks to all our employees and also a big thanks to all our shareholders and for you guys who have been listening today. So that's it from our side. Thank you.