Relais Group Oyj (RELAIS) Earnings Call Transcript & Summary

Very good morning from sunny Helsinki, and welcome to follow the webcast presentation of Relais Group Plc 2021 results. My name is Arni Ekholm, I'm the CEO of the company. And presenting with me today is, as per usual, our eminent CFO, Mr. Pekka Raatikainen.

Good morning.

The presentation will take roughly 30 to 35 minutes. And you will, at all times during the presentation, have a chance to make questions online by pushing the Ask a Question button and then writing your question and then submitting it to us, and we will have the chance to entertain the questions then at the end of the presentation. Before taking a look at the contents of the presentation, when I presented the results for 1 year ago, we had 350 professionals working in the company. And now last year, we have gained 600 more family members, professionals into this team. And I want to thank you all, almost 1,000 people, working at Relais Group for your big efforts during last year. I mean without you, this would have not been possible to reach these results. Also, I want to thank our customers, business partners, shareholders for the trust that you place in us. And as I said the last time, we will do our utmost to earn that trust every day, also moving forward. I think there might be many people following the webcast who do not yet know what kind of animal Relais Group is. And I have the pleasure to walk you through some, let's say, slides that I showed already in the last presentation. But as you know, repetition is the mother of all studies. And our strategy is very clear, and I want to explain also how we operate and what kind of market is -- where we are going to compete and win. Then a short look at the group companies, and then we will have a recap of what's happened last year and then financial review for 2021. Right. When we made the IPO in 2019, when we listed the company on the First North Growth Market, our latest pro forma turnover at that stage was EUR 190 million, and I think the EBITDA was [ EUR 16.7 million ]. We made a strategic goal for ourselves in 2019 to double the turnover in 5 years. And the number I'm showing you now, the reported net sales of full year 2021 is EUR 237.9 million. So it's exactly the doubled turnover from the 2019 level. And I will talk about the new performance bar that we have set to ourselves. So I think all of us should tap ourselves on the shoulder. I mean we reached the goal much sooner than we anticipated. We said 5 years, we actually did it in 2 years. What is Relais Group Plc? We are a leading Nordic consolidator in the vehicle aftermarket. And we have a sector focus in this market, and I will explain what the sector focus means on the vehicle and mobility aftermarket after a few slides. As a difference to private equity companies, we have basically a perpetual ownership perspective. We do not buy companies to sell them after that we have developed them. We develop the companies, but the idea is not to sell them. And we serve as a growth platform for the companies that we own. The EBITDA reported last year was EUR 31.0 million, which is a growth of 62%. And I also have to mention that the reported net sales growth was 84.5% versus the reported 2020. And then EBITA, almost EUR 30 million, EUR 29.3 million, which is a growth of 56.4%. So all in all, a very strong growth and also a solid organic growth behind the numbers, not only acquisitions. I will also come back to that a little bit later. What is our strategy and long-term target? We have communicated this before, but it well deserves to be repeated. We aim to grow through acquisitions. We are a buy-and-build company. That is in the core of our strategy. And we are an active consolidator or some would even call as a compounder in the Nordic vehicle and mobility aftermarket. But not only growth through acquisition is important, it's also important to grow organically. And we aim to grow faster than the markets in average. And I will also come back to the average growth and our growth. How do we envision to grow faster than the market is by utilizing the sector synergies that we have. Since we operate in one sector, we have a bigger chance to draw synergies between the companies, cross-selling of our own products and utilizing the e-commerce solutions. Digitality is and has been for many years in the heart of our business model. I mean we -- for the companies that belong to Relais Group, quite many of them are wholesale companies. And for them, the interface to their customers is really important to be top of the line for the people, for the customers to be able to choose the right product. And finding the right spare part product is not always very easy without a very good digital search engine or catalog that we have developed for the most of our company. So we feel that we have a competitive advantage with a very highly developed digital solutions. And as we have communicated last summer when we did a small recalibration of our strategy, we set the new performance bar of reaching EUR 500 million pro forma by the end of 2026. So we are really speeding up as well on the growth and have high ambition level for future. What does our value creation model look like? I have shown this before. Many of you haven't seen this, though. We are a buy-and-build company. I mean, of course, we also strive for organic growth. That is important. But in the heart of our strategy is to find good companies and consolidate the market, create value and also have a strong earnings growth and a good, healthy, strong cash conversion ratio. We are fairly picky when we choose the companies to acquire. We need to be confirmed by a healthy core in the company. So we are not looking for distressed companies because that would then require that in order to get the return on capital deployed, we would have to invest quite a lot in the companies that are distressed. We have, having said that, done a couple of acquisitions with the companies that have had a recent turnaround process. But also there, in the due diligence process, we need to be reassured that the turnaround process has really been done and the profitability is on a sustainable level moving forward. The value creation potential comes usually from, let's say, the future market vision that we have for that company or the ability to draw synergy between -- synergies between the existing and the acquired companies. So it might be a new distribution channel for our own products or then going into a totally new business sector within the aftermarket. The sector focus I was mentioning in the beginning is really important for us. So we are -- I sometimes use the word sector believers as opposed to sector-agnostic companies who buy companies in different business sectors. So why is it so important? It is also because we know the market very well. We know the people, we know the companies and we can also add value to the companies we acquire. So that is the primary, let's say, the benefit of having the sector focus by the deep knowledge and understanding that we have and also the synergy potential that we have. And then building the great businesses, I mean usually, not always, but many of the companies are run by independent entrepreneurs who have done a fantastic job by making the company grow to a certain level. But then the next step would require a lot of investment in management resources and systems, and that is quite a natural phase for us to come in and to help the company to grow and also to professionalize the running of the acquired companies. Again, having said that, this does not imply that the companies that we have acquired have not already been on a professional level. Many of them have been on a very superbly professional level. And we can also do some benchmarking studies between the companies in the same sector and develop the business. So it is kind of reinforcing a cycle of development here. The beauty of this model is also that we can do add-on acquisitions. By acquiring companies, we -- new doors open all the time. And Trucknik AB in Sweden, north of Sweden, is a very good example of our first acquiring, TD Tunga Delar, and then expanding our distribution in Northern Sweden by an add-on acquisition. And more examples, hopefully, will emerge in the future. Then from a capital market point of view, the buy-and-build model and the consolidated compounded model also creates value by getting smaller independent companies into a bigger listed company. Then from a valuation point of view, that has some advantages when you go from privately owned to a public company and get access also to capital. From a derisking point of view, risk management-wise, the sector of aftermarket is so diversified and broad that we are not putting all the eggs in one basket, if you will. So there is a fair chance to derisk because the different sector categories have different cyclicality and seasonality, so they even each other out from that perspective. A little looking back on the journey that we have had since 2010 when Relais Group was founded. You can see that there's quite a lot of milestones, I mean 2019 being, of course, one of the big milestone of ABR and Huzells joining the group and then us going public, so to speak. But also the -- if you look at the reported growth on 2020 to 2021, it is really big. And we have also accelerated the pace of acquisitions by doing 5 acquisitions in Sweden and Finland in the last year. So this is really a huge growth. And as we set the next target, the strategic long-term target is the turnover of EUR 5 million -- EUR 500 million. And also at the same time, I would say that our profitability has remained on a good level. So it's always a challenge to combine very strong growth by pertaining the profitability as well. Good. One slide about our operating model. We are not a centralized company. We basically only centralize certain functions where we see there's a benefit. And naturally, from an administration point of view, I mean the top administration and financing control units and everything like that is centralized. As a public company, we need to be able to produce reliable data as well. But from a local perspective, we value local, let's say, entrepreneurship and taking ownership and accountability of the business. I mean we do not have a huge headquarter function that could control all the units and make operational decisions on their behalf. We do, of course, make sure that the strategies are followed from the big picture. The -- all of the executive management team members are participating in the local boards. And they are, by no means, kind of a purely administrative boards. They are really operational boards. We call them like business review teams where we go through 4 to 5 to 6 times a year for the companies, we go through the plans and see how they have realized the plans and have we really reached the synergies that we have been planning between the companies. Then we have some group-level initiatives where we will do more, let's say, joint work together, product information management and information exchange between the companies and also range decisions between the wholesale companies, we can really draw benefit of that. And one focal point is the purchasing function where we negotiate with all the major global suppliers with one voice. I mean Relais is that the partner to talk with. And there, we can agree the, let's say, the terms and pricing. So when we look at our volumes, we are a prominent player in this market in the Nordic region. Then, of course, being a public company, all the key policies are the same for everybody and code of ethics and some ESG policies and so forth. So it's a balance between when to centralize, when not to centralize. But I would say it's a hybrid model. It's -- you should not misunderstand, it's not some kind of a laissez-faire type of strategy. It's more like to have a good balance between central and decentralized functions. One picture about the vehicle aftermarket, it's about 19 million vehicles. We call the core of our focus area life cycle enhancement, basically, anything that happens to the vehicle after it has been imported and resold to the customer or even before reselling it. And in some of these sectors, if you think about customizing and equipping, we are operating ourselves and in -- or through our customers. I mean we do not equip the -- a lorry with nice lighting solutions, but we have customers who do it for us and then we sell the lighting. I would say most of our companies fall into the box of import and wholesale of parts and equipment. And we did a lot of strategy work last year when we really dug deeper in each of these sectors. We don't have the time to go through that today, but we really made a deep dive in looking at the subcategories of each sector. And how does it look like in the Nordic markets and what kind of business opportunities are there? And that lays the foundation for our acquisitions moving forward. I mean we know fairly exactly what type of companies they are and what kind of value creation potential there is. And we did some openings last year. We went into the service and repair sector for the heavy commercial vehicles, which is now one of the support pillars of our company. We are strong on lighting. About 1/4 of our business is coming from lighting products, which are mainly our own brands. And if we think about the market size, even a cautious estimate of the aftermarket takes us to EUR 20 billion in the Nordic markets. And there's, of course, always the question whether you include the so-called OE market, the vehicle importer market or just the independent market. But looking from the helicopter perspective, we ended up in a management estimate about EUR 20 billion. And if you think about our turnover, we still have loads of chances to consolidate in a profitable way in this market. One thing I would also like to point out in this picture is that the weight of the commercial vehicles is really big. I mean it's about 2/3 of our business in one way or another. It comes from, let's say, if you think about the end use of the product, it comes from commercial vehicles. I would not be surprised if that number then actually, after the recent acquisitions, also increases this year. The market trends, the big trends are there. I mean if we think about the last time we were presenting the quarter 3 results, not really a lot has changed on the big underlying trends of what's happening in the mobility. A lot is happening, of course, in the economy and the geopolitical situation. I will come back to that later. But the basic needs and the basic market is there. The underlying market is very stable. It's growing steadily. The aging of vehicles has one effect on this, but also, let's say, the complexity of the components if we think about the price of -- and the cost of the components and the spare parts moving forward in this market. I mean the electrification is imminent. It's going to happen. We see it as a potential and a huge business opportunity. At the end of the day, a very small amount of our business comes from internal combustion engine at passenger car parts, which is the sector that is going to be affected with a, let's say, we estimate maybe a few percent points per year moving forward. But then again, it's offset by the price of the components and spare parts and the value and complexity that will go up. But basically, the people have a need to move from A to B, and so do also the goods have a need to go from A to B also in the future. So in that respect, we also say that the market has fairly strong defensive characteristics in different type of economical times. Right. Just one page summoning our -- or summing up our group companies after the latest acquisitions. On the top, the companies that are concentrating on commercial vehicle spare parts and equipment, I mean, wholesale. And as you will see, Startax is in quite many areas here because they are, let's say, a multiple company not only focusing on one area. The only purely passenger car-focused and partly light commercial vehicle-focused company is ABR, AB Reservdelar in Sweden, and then also Startax provides the spare parts for passenger cars. Raskone and STS. Raskone, I have talked about already before, we bought roughly 1 year ago, 19 -- or 18 workshops at the moment. STS, 15 workshops, joined the company in November. A warm welcome to all STS people if you are listening. It really complements the picture that we are now the biggest independent heavy commercial vehicle repair chain in the Nordics with over 30 outlets and workshops. And then our strong lighting, power management and equipment division with Strands, Awimex, SEC and Startax. And Strands is growing very rapidly. Also, a very warm welcome to the Strands people. And I mean you've done an amazing job last year, and I will get back to that one as well. Also, I'm happy -- I mean, as I said, we welcomed 600 people last year to this group. So I want to also say welcome to the Lumise and DSM people and the Trucknik people because it's -- we clearly can see -- I mean, if you look at this chart, we have certain focus areas where we really see a big potential in the future. I mean lighting is obviously one of them with our own brands and then the e-commerce where we see global potential. So we start to have a very, very good coverage on this business. Right. Then 2 pictures of last year in brief. I already mentioned that we grew with 84.5% compared to last year, and it was a combination of successful acquisitions. And overall, the market situation was positive. The 2020 market was affected by COVID-19, the big picture. And I think 2021 meant a kind of rebound from '20 numbers. So I would say in most markets, we saw -- although there's not a lot of reliable statistics, but our own estimate is that the markets grew anywhere between 4% to 6% in our main markets. And we were able to produce a low double-digit organic growth. So we grew faster than the market, and that was driven by the synergy benefits and cross-sales, especially in the lighting segment, but not only there. I would say also the cold winter, both in quarter 1 and quarter 4, helped certain product groups, the kind of what we call the winter products to give a boost for the market. COVID-19 hasn't really affected. I have to be cautious with what I say. Of course, it has affected, and we have had people who have had COVID-19, but not a serious version of it. So in some cases, I think the workshops have suffered from lack of manpower at some stages. But all in all, from a demand perspective, the markets have been stable when it comes to COVID-19. The big part here is, of course, the delayed deliveries from mainly Asia, longer delivery times and disturbances on the logistic chain, which has also then led to us to make a, let's say, conscious decision to invest in working capital, that is inventories to make sure that we can help our customers also in the future. But this is, let's say, a situation that will normalize. Although in the current situation, world political situation, it's really hard to say anything about when the component supply issues will normalize. And nobody knows, to be fair. But we are well positioned with our inventory levels at the moment and have a close dialogue with the providers of these products every day, I would say. Right. I already stated that the impact of the acquisition was a major factor in our growth combined with organic growth. And just to give one good example, I mean, the Strands Group is really, really fast-growing company and has succeeded in exports in Germany and Canada and New Zealand and so forth. And this has been a strategic acquisition that has also strengthened the weight of our own brands. And that is, of course, very, very important, and we are very happy for that. We are working on the synergy between -- synergy benefits when it comes to spare parts procurement with both Raskone and STS. So one of the main drivers for the strategy of going, let's say, further in the value chain of the commercial vehicles was that we can cater these companies to a fairly large ratio with our own imported spare parts. And that is, of course, then we can get a bigger part of the value chain. Of course, this means that we will still have partners also helping Raskone and STS. But this is a clear synergy benefit. Web-shop sales for Lumise grew strongly, especially in the Swedish market. And by acquiring Lumise, we have gained very valuable, let's say, competence in the e-commerce sector that we intend to capitalize in the future also on a global marketplace. STS, as I mentioned, a very good complement to our heavy commercial vehicle repair chain in the Nordics and an important strategic step in our expansion. Right. And then as I mentioned, as an example of bolt-on acquisitions, Trucknik. Northern Sweden is experiencing a huge boom by the Northvolt battery factory and also by the mining industry is booming. And we predict that there's a good need for commercial vehicle repair also in that region. And hence, we went there with Trucknik. Right. A few words about sustainability. For us, it's practical and meaningful everyday actions. I mean we take good care of our employees, customers, business partners and the environment. And as I told the last time, we have clear ESG-related criteria for our suppliers. During the COVID-19, it has not been possible to make audits in the factories in Asia. So that is, of course, something that we will ramp up when it's possible again. And as I have told before, quite a big part of our spare parts are included in refund and recycling systems. So from a circular economy point of view, there's a certain, yes, relevance and big relevance here as well. When it comes to electrification of vehicles, I mean I think I said also in the last presentation that we did a quick check of how many spare parts we already today can supply to, for instance, the Tesla S Model. And I think we ended up somewhere between, let's say, EUR 3,500 to EUR 4,000 value of spare parts. And people usually have this misconception that the full electric vehicles don't need any spare parts. But that's, of course, not true, and they need maintenance and repair. Just to mention, air conditioning and heating and that kind of product, suspension and brakes and lights, so there's a big potential also there. And we're also ramping up our ability to repair electrical vehicles, commercial vehicles both in Finland and Sweden for Raskone and STS are already doing that. We will set clear targets for reducing our carbon dioxide footprint during 2020 (sic) [ 2022 ], so I will get back to that later when we are ready to communicate. Then I will hand over to my colleague, Pekka, here. There's a lot of numbers here, but I'm sure he will be able to choose the right ones from there.

Thank you. Thank you, Arni. And luckily, most of the highlights of the last year has already been mentioned by your analysis and presentation. But let's take another look behind the scenes in a way. This year, we are facing a very significant growth. It was mainly driven by the acquisitions, but also a very good performance in terms of organic growth in basically every market area and the group company. The weather circumstances that are not the whole game, but part of the game, were favorable both in the first quarter and during the fourth as the winter came early. It gave a certain boost in the sales figures. And as once again mentioned before, lighting sales, very good progress in them. And the success of Strands Group were a significant part of the organic growth. Actually, Strands is represented an inorganic growth as well, but some of the companies contribute on both sides in this respect. Profitability can be described as solid when it comes to EBITDA or EBITA. There are no drastic changes in recurring costs. It's natural that the development of the governance and group structure is affected by certain nonrecurring costs, which we don't separate here, but companies are running on a very solid cost base when it comes to the operating expenses. On balance sheet, we can clearly see the impact of acquisitions both on assets and equity and liability side. The last year was very intensive on the area of acquisition, and it can easily be seen here. The acquisitions are -- or were mainly financed by raising new senior debt, but partly also by issuing shares in terms of directed issues for the sellers. As an end result, the -- we saw an increase in equity and, of course, in net debt and gross debt as well and gearing. Cash assets were significantly decreased during this year. A very big part of it was the measures taken to ensure the delivery capacity by increasing inventories drastically. And it was a good decision to make as it made us possible to enable the organic growth. But in normal circumstances, the cash position at the end of the year would be significantly better or the cash assets higher. Part of the acquisitions to mention were also financed by cash assets. So if I summarize, roughly half of the change in cash assets was due the -- by the inventory and another half due to the acquisition or cash considerations not financed by debt. This slide demonstrates the intensivity of acquisition. Cash flow from investments was almost EUR 62 million. Compared to last year, it was a significant growth. And as mentioned, it was financed by partly by debt financing and partly by equity and cash so that the cash flow from financing is roughly half of the -- representing roughly half of the financing of investments. Earnings per share. This was the first year that the EPS, excluding amortization of goodwill, exceeded EUR 1. It was EUR 1.17. And as a basis of dividend policy and dividend calculation, that's the figure we are focusing in these considerations. And now we are back to the section, Arni takes over once again. Many thanks.

Thank you, Pekka. Yes, again, recapping the long-term financial targets and dividend policy, as I said, our long-term financial target is to reach sales of EUR 500 million by the end of 2026 in pro forma terms. And the dividend policy, as we have stated in 2019, stays the same. We're targeting to pay annual dividends that exceed 30% of the average comparable profit of the group. And now in the box down here, you can see that the Board of Directors proposes to the AGM that the dividend to be paid would be EUR 0.36 as opposed to the -- or compared to the last year's EUR 0.30. And that highlights the kind of following the policy that we strive to do every year. Then looking at 2022, a few words about 2022. We feel we are well positioned, as well positioned as we can with our own actions. We don't know what's going on in the outer world. I mean there's a lot happening at the moment. Unfortunately, the tragedy in Ukraine is, of course, something that is very difficult to foresee how it will affect the market. We have done what we have been able to do by ramping up the inventories. So we are in solid position to deliver to our customers, and that was a constant decision -- conscious decision to make. M&A activities will continue. It's hard to say exactly when and how many, but we have a good, healthy pipeline. We are working very hard on that one and broadened even our scope. And again, we are critical. So it's not always the quantity, it's the quality. That is the decisive point here. And we need to make sure that, say, the capital we invest gives return for the shareholders. We also announced earlier this week that we have now concluded, based on the study that we made regarding the transfer to main list that we announced last year, that we now strive to make this main list transfer no earlier than the second half of 2022. And we see a lot of positives by doing that step, as we have also communicated before. I mean it's like -- gives a better access to financing and also probably will, as we believe, make Relais more known within the investment community also in the Nordic perspective and give us a better chance to use our own share as a means of payments in the future acquisitions. But we will get back to that once we have more decisions made on the timing. We do not give a numeric guidance for 2022 as a big part of our strategy, anyhow, are the acquisitions. So it's impossible to estimate exactly when they are going to happen and how they will affect the financial performance of the company. I think everybody is aware of the global situation at the moment and the difficulties that already now existed in the global supply chains. And now the geopolitical situation has made the vision much more fuzzy at the moment. So we retain in not saying or not giving a numeric guidance for this year. I mean energy prices can also affect some of our customers. So it is, all in all, no numeric guidance for 2022. The long-term perspective remains the same. As I have stated, I think, a few times already this -- during this presentation, it's the EUR 500 million turnover by the end of 2026. And then thanks for bearing with me. I'm doing 5 minutes over the time I promised. And then just the last slide, what is Relais? I mean as an investment, if you think as an investor, either having Relais shares or planning to invest in Relais, we are an active, sector-focused consolidator. And you saw the track record that we have been able to produce when it comes to successful actions in the Nordic and Baltic regions. We have a strong cash flow and profitability historically. We have a growing and strong underlying market in the vehicles, EUR 20 million -- EUR 20 billion estimate. Our lighting business is growing. I said it's about 1/4 of our business and it's mainly own brands. And we also have own brands in other product groups. But it's really a good solid base for future growth. E-commerce solutions, we have now in-house knowledge of how to operate a web shop, and I think we will have good use of that knowledge moving into the future. And then our operating model is not slowing us down because it's decentralized and fairly light and effective. So all in all, this is how I would like to describe Relais as an investment. And now I think, [ Rosa ], you have, I hope, some questions that the audience has submitted. So now we would be ready to answer the questions. So please go ahead.

I have a couple of questions here. First one comes from Joni Sandvall. Staff expenses increased clearly year-over-year. Was there any extra cost related to the acquisition?

Thank you, Joni, for the question. Basically, the staff cost increase is purely a result of the acquisitions. Then when it comes to -- and Pekka, you can correct me if I'm wrong, but then again in the 2020 numbers, there were some alleviation from the government regarding the COVID-19 pandemic that then were not there in 2021. This is how I would state it.

Exactly right, yes.

Yes. Thank you. Then we have a next question also from Joni Sandvall. You mentioned that you grew clearly above market. Can you elaborate on organic growth pace during Q4 and 2022 -- '21? Sorry.

Yes, that's a correct observation. And as I said, we grew clearly faster than the market. I mean we estimated the markets to have grown roughly 4% to 6%. And as I said, we have a, say, low double-digit growth organic last year, and it was mostly focusing on quarter 1. But also quarter 2, we managed to grow faster than the market. So it's evenly distributed across the year. But main focus on quarter 1 and quarter 4, partly because of the cold winter, but also the very successful launches of new lighting products starting from quarter 2 -- quarter 3 to quarter 4.

Joni Sandvall continues. Inventory continued to increase. Have you've seen any easing in supply chain? Can you comment on your freight costs and contracts?

I think we have not really seen an improvement during the last months. I mean the signals we get from -- and to explain, I mean, mostly, this is a question at the moment or in the last back half of last year has been mostly Asian suppliers, where we saw quite a lot of the lighting and equipment products, not so much for the European suppliers of spare parts. Although also there, there have been some dealers. But the most, it's coming from Asia. And I think the signals we have been receiving is that the expected delivery times rather have grown than gone down, I would say. And the freight costs have really soared in quarter 3, quarter 4, but I would say there's a slight decline of what we have sensed at the moment. So probably the situation in China has improved slightly. And then when it comes to the freight cost, we try to push it forward into the product price. And it's a constant, of course, dialogue with the customers and the freight companies. But now it's impossible to say with the energy prices and oil prices, I mean, nobody knows. I mean I think the indication they are rather going up than down.

Thank you. Next question comes from [ Jan ]. What is the sweet spot reg size of acquisition?

Sweet spot, what size?

Reg size.

I would say it depends. If we look at bolt-on acquisitions, they may be, of course, smaller. But the -- when it comes to -- realistically speaking, I would say, if we think about turnover-wise, between EUR 10 million to even maybe EUR 100 million. But EUR 10 million to EUR 30 million probably are where we find the most interesting companies. But it's really hard to give an accurate rule about this. But it's somewhere there, I would say, if I understood Jan's comment correctly.

Then we have a question from Joni Sandvall again. Can you comment on possible synergies from Raskone and STS acquisitions? And when these should be fully visible?

Yes, I can comment. It is -- I would say the synergies between the 2 companies are mostly operational where we can benchmark between the 2 companies, how they are run and make it even more efficient. When it comes to spare part deliveries, of course, the synergies come from us being able to be a bigger buyer towards the heavy commercial vehicle spare part producers and suppliers. So that comes from there. But it's -- I think our learning from the synergies is that it takes time to realize them because, I mean, changing the product assortment and everything, it takes time. But I mean we usually see that the first year, you learn to walk and then the next year is stronger. Then the third year, I would say, is the heyday of the synergies in any acquisition.

Then we have another question from Jan. I suppose net debt do not include off-balance sheet items as leasing, correct? What would the effect be if included?

This is then a question for Pekka.

Yes, that's a correct assumption. The offside -- off-balance sheet items are not included. And once we -- as announced by the end of the year 2020, we'll transfer to IFRS. We will restate the -- or state these liabilities according to IFRS 16. So it's too, unfortunately, too early to comment that.

Thank you. Then we have a question from [ Jarno ]. Can you compensate rising cost through price increases? And how long is the delay before the prices increases becomes effective?

Thank you, Jarno, for the question. The answer is yes, yes and no. Of course, we do our best, and we have been managed to raise prices. It's not always possible to do short term because of long contracts with some of the customers with guaranteed net prices. But with time moving, we will and can and have been able to include the price increases. But it's -- of course, there's competition as well, and we need to monitor very closely that we are competitive in each of the product groups. So it's not always a mathematical exercise that you just shift the cost forward because there's a pressure also coming from the competition. But I would say, so far, we have managed fairly well to include those in the prices. And -- but it's not happening just by us sending an e-mail to the customers. So it's also the question of negotiation when it comes to longer contracts.

Thank you. Then we have another question from Jarno. What is your exposure to Russia and Ukraine, sales presence and any supply from those regions?

Thank you, Jarno. A good question and a very, very, let's say, burning at the moment. We have minimal exposure when it comes to direct business. We actually have no direct business to either Russia or Ukraine. We have a customer who has a customer in the Baltics who is supplying to Russia, but that is now stopped. And it's like a -- from our turnover, we are talking about 0.0-or-something percentage. And Ukraine, we do not have a business or supply directly from Ukraine as far as I know. But then I have to say that the disturbances in the global supply chains can affect us indirectly.

Then we have one more question -- okay, 2 more questions just come in. Jan is asking, how is the cost inflation, for example, increase of raw material prices, metals, et cetera, affecting you at the moment?

Thank you, Jan, for the question. I mean, of course, it is affecting, although it is not always pushed forward by our suppliers either directly. There are differences between the product groups. I mean when it comes to starter batteries, the producers were very quick to increase the prices when lead prices went up and so on and so forth. It's a mixture of different timings. But we see it all across the line that the prices are increasing, some more dramatically, some a little less, depending on the security stock of the suppliers. But it's a mixture. It's hard to give one exact number of how much, but they are affecting, of course.

Jan is asking also, what risks do you see in supply chain if aerospace, train roads, et cetera, continues to be closed due to Russia-Ukraine crisis?

Again, I have to be careful. But basically, we try to avoid airfreight because of the price of the freight. So most of our goods are, if we are thinking about the Asian-produced goods, are coming on sea transfer. And currently, there is no indication that, that part would be affected. I mean we have tested the train connection from Russia in a minimal scale. And we, as I said, only transport something with airfreight if we really need to. But it's not, at the moment, as far as we know and we see, we do not see the aerospace restrictions or railroad restrictions to affect us.

No further questions.

Thank you very much for being active, and thanks for who made the questions, and thanks for following the presentation. And I wish everybody a good March month. All the best. Thank you very much.

Thank you.