Relais Group Oyj (RELAIS) Earnings Call Transcript & Summary

Very good morning, everyone. Greetings from the sunny Downtown Helsinki on this very historical day, in many ways. We have the pleasure to present to you the Quarter 1 results of Relais Group for 2022. My name is Arni Ekholm. I'm the CEO of the group and together with me today, as always, my loyal CFO, Mr. Pekka Raatikainen, who will take you through the numbers a bit later. This is the content of the presentation. It's going to take about, let's say, half an hour, 35 minutes, during which you have the chance to submit questions online by pressing the ask-a-question button on your screen. And then our lovely Rosa will take care of the questions afterwards, and we will then entertain them, and answer them at the end of the presentation. The content is going to be the core of Relais Group. What kind of company is Relais Group, I want to reiterate it, and we have slightly modified it as well. Then I want to explain to you the value creation model of Relais because it's very focal and important to understand how we operate and how we create value for the shareholders. Then a short business review of the Quarter 1 from a business perspective and also a deeper look at the financials done by Pekka. And then I want to explain how we go about when we map the M&A target markets, the aftermarket, what is our strategy? And how do we operate, how do we pick the right companies and what is important for us? I think it might also be interesting for you to understand how we do that since it's a very important part of our strategy. And then a short recap of our strategy and long-term targets and then a summary at the end. So what is the core Relais Group? How do we define ourselves? We are sector-focused consolidate, meaning that we know this sector very well. We consolidate the market. We build stronger entities in this market and drive shareholder value by combining strong earnings growth with the creation of a modern and stable long-term player in the changing mobility landscape. The mobility landscape is undergoing a huge change, but they are also very much defensive features in the market. So it's a combination of strong dynamics and also a stable market. And we aim to be a long-term player. It's not a game of quarters. It's more a game of 25-year quarters in this market. Focused on the aftermarket. That is what we know that we have analyzed is the most profitable sector in the market, the best for value creation purposes. We had strong earnings growth through 3 reinforcing themes: acquisitions, which is the main part of our strategy; synergies, which then drives organic growth; and then operational improvements. So we buy companies, we develop them and we keep them in our ownership perspective is basically perpetual in that respect. The overall direction is guided by a solid understanding of the underlying medium and long-term trends. So not only the present development of the market, but also what's going on in the market? How do we believe the market is going to look like in 10 years or 20 years and what's happening in the mobility market aspects like ESG demographics, how does that affect the transport -- transportation business and vehicle sales and e-commerce, which is coming more and more. So we -- with our sector focus, we have a competitive advantage because we know this market very well. The realized value creation model in a way, if you will, is a classical buy-and-build model. And we are -- I've said it before, we are, to be honest, quite picky when we choose the right companies. I mean we need to be assured there's a healthy core in the company that we acquire. This good management, the stable profitability -- sustainable profitability that we can see a path in the company that it doesn't turn into ashes once we buy it. So hence, we spend a lot of time in analyzing the market and the companies. And we need to identify a robust and meaningful value creation potential in the company, either as a stand-alone company, which we also have, or then as a company that can draw benefit of the synergies between other sister companies. And that's a kind of a reinforcing theme in our strategy that we draw benefits of the synergies between the companies, whether it be procurement synergies or cross-selling synergies as we also have product companies with own brands, then we can use the distribution companies with our group to distribute those products. And then to leverage the insider knowledge and in-depth knowledge of the target companies and sectors. So we very seldom need to use outside advisers to come and bring us ideas of which companies to approach. We already, through our own network, have a lot of contacts with different companies. And I'm not, of course, belittling the role of advisers here because we get a lot of good hints and contracts also through the advising community. Then the next step in the buy-and-build process is building a great business. It doesn't stop there that we acquire a company. I mean then the work actually starts and that is, how to run the company. And most often, the companies we buy are already on a very good level. So when I'm saying here, the professionalizing, the running of the acquired companies doesn't mean that they are not professional already, but it means that we can take them one step further in our group and help the companies to grow by setting up certain, let's say, follow-up systems and support systems for the companies to sort of they can focus more on creating value for their customers. We increased focus on execution and strategy, and I will explain shortly a bit more about how we operate from the, let's say, the central management all the way down to the group companies. It's not the bureaucracy. It is more like a hybrid model or decentralized model where we, all the time, see what's going on and are participating in the local running of the companies on a reasonable level, not by taking the local ownership away but by showing interest and supporting the companies. And all this then accelerates growth by enabling this intercompany synergies. And also most of the companies we buy, if not all of them offer great opportunities for add-on acquisitions. So it's a self-fulfilling in a way, perpetual moving machine that then offers and opens new doors for us, which is a huge benefit for the group. A very short recap on history, what has the journey of Relais Group been from 2010 when the group was founded. It was EUR 24 million with the main asset being Startax Auto Electronics in Finland. And since that, basically in 10 years, the company is 7x bigger, almost 8x bigger than it was 10 years ago. So it's been a huge development. Also, the organic growth has been healthy all the way through, and then the acquisition growth has topped that growth dramatically. So we basically doubled our size in a couple of years after the IPO we did, even more than doubled. Good. What kind of group companies do we have? I've tried to group them in certain, let's say, more meaningful groups for you to understand how we operate. If we start with the commercial vehicles, spare parts and equipment, it is mostly wholesale and distribution. That is a big part of our operation. You can see companies called Tunga Delar, Trucknik who sells and Startax. You can see actual Startax in many different brackets or buckets actually because they are operating in a kind of a multi-business -- having a multi-business operating model. Then we have the passenger car related focused companies, ABR, almost solely on passenger cars and light commercial vehicles and the Startax also distribution business. Then, let's say, kind of a newcomer in the group, we made a strategic decision to start building a strong foothold in the independent aftermarket, repair and maintenance for heavy commercial vehicles, which is then Raskone, STS and then the latest family member Skeppsbrons in Sweden. So all in all, we start to have well over 30 repair shops in the Nordic countries, if not even closer to 40. So we are, by far, the biggest operator in this field. And why is it important to be big in this business? You can draw benefits of the economy of scale when it comes to the procurement of spare parts. And also you can benchmark and learn from each other. All the companies are slightly different between each other and some is better in something and some in something else. So we can then take the, let's say, learnings from each chain and develop the business forward and actually then increase the shareholder value by increasing the profitability and return on investment. Then a very exciting part of our business is lighting, power management and equipment where you have brands and companies like Strands, Awimex, SEC and Startax, and this is a huge business for us. At least 1/4 of our business comes from lighting-related own branded goods. So it is a thing that I want to promote and take up every time because from a profitability point of view and also from the future potential point of view, it is really, really important for us. And brands like Strands, they have managed to export their products all the way to North America and Australia, which is like soon a kind of global presence for that brand and also partly Startax brands. E-commerce is mostly for us lighting at the moment. We acquired a company called Lumise, who has a daughter company called DSM in Sweden. So we are learning by doing. We have a solid basis for e-commerce, very good in-house developed platform for that, and we intend to roll that further in the coming years. Okay. Then let's have a look at Quarter 1. It was a rocky ride, I have to say. And this stage, I also want to thank our personnel. I mean, the conditions were harsh, not only COVID but also the -- from our perspective, the bad winter or the winter that never came, made it really tough. And I know there was a lot of sick leaves. And I don't know whether this was the fourth or fifth wave of COVID already, which we -- no one of us could have foreseen that actually hit so hard in -- especially in January and February. The winter conditions, why is that important for us? I think it's first and foremost, because our business is very much focused in the first quarter of the year always in electrical spare parts and electrical equipment, which are temperature sensitive. And if the winter is good, meaning for us good, 20, 25, minus-30 degrees, then it's a huge boost for those product groups. If the temperature is plus 5, then it doesn't really support that business that much. And if you compare '21, it was an exceptionally strong quarter compared with '20 or 2019. So in comparison with '21, of course, this looks soft, and the markets were indeed soft. I mean there was a lot of demand-driven things that affected the market and practical things like if the mechanics are sick, they can't invoice for the jobs. And if the customers are on sick leave, they don't come to the workshops. So it's basically very obvious what happened in the Quarter 1 in January, February. The general cost increases, everybody knows what has happened with fuel and energy prices. They are hitting both the private consumption, which then reflects to our customers' businesses and then also the transportation sector has had tough time with absorbing the cost of the energy prices and fuel prices. So that has stalled some of the investments, especially for the equipment products from transportation companies. I do personally believe that it's more like a delay of consumption and demand than a kind of a permanent lack of demand in the market. So it's more like a time delay caused by the circumstances. And then generally, there was less driven kilometers in January and February, although the amount of vehicles has actually increased. So from that perspective, the underlying market is very healthy. We regard this as a temporary reduction in both repair and maintenance jobs and also driven kilometer. So if everything goes fine, then of course, this is just a delay of demand because if you have to repair your car, you ultimately have to repair it at some stage before it becomes operatable. Good. Then there was slight -- let's say, Pekka will get back to more like the financial details, but then the euro and Swedish krona exchange rate caused a slight deficit on the EBITDA compared to last year. How I see it is that the market conditions is a temporary thing. It has not affected the implementation of the group strategy. We are going on with our strategy of active acquisitions. We are drawing synergy benefits between the companies. And then the companies are more and more working together with each other, which offsets some of the cyclicality or weather-related issues. Then if we think about the companies we have acquired, we, of course, very regularly follow up on the company's performance, how they are doing. And I have to say I'm really happy with how quickly most of the companies have adapted to their planned role and how quickly we have been able to harvest the benefits of working together. It's not always like the first month or first half year when the synergy benefits are visible in the numbers, but they will come, and there's a lot of good stuff going on to mention, let's say, spare part cooperation between Startax and Raskone, and also the group benchmarking with STS and Raskone on how to really even further improve the profitability of each individual workshops. Yes. Then regarding the acquisition activities, we continued acquisitions in line with our strategy. Skeppsbrons Jönköping, I have a different slide of that company. I think it was a fantastic acquisition, a real gold nugget in this business, most likely the most profitable workshop in Sweden in this sector. And we are really happy to have them on board and a few words afterwards, more about that one. And that's a strategic growth area, as I mentioned in the beginning, the independent commercial vehicle repair and maintenance sector. So it just reinforces our position in Sweden. We are spending a lot of time, and I will explain to you slightly later of how we work when we look for targets in the acquisition market. So we have investigated tens of different companies already during the last months. And well, of course, you can't see what's going on. We can only announce the deals that are done, but there's a lot of work going on, and we are critical in finding the right companies. And maybe as a statement also at this stage, I would say, now is not the time to rush on the acquisition front because we see the multiple going -- multiples going down on the asking prices, but they always come with a lag. So usually, the sellers still have a bigger or I'll say, a higher expectation than what the market level actually is at the moment. So I reckon the summer will be a good period to negotiate and then come half -- second half year, the asking prices have most likely come into a more normalized level than they used to be last year. We are very disciplined and even methodological in the way we do the investigation of the companies. We need to make sure there's a good strategic fit. And as I explained in the beginning, a good management that we can commit and count on and then also to have a plausible growth path for the company. We don't want to drive into a mine in this business. And we feel a big responsibility for the shareholders' money that we are spending on this that we want to add value on the long term for the company. Sometimes the profitability, if we only solely look at that number, might look lowish but then there's a plan to take it up or then the return on investment is actually then the decisive point of how do we allocate capital for when we go forward. That is very important for the future growth potential of our company. Then a few words about Skeppsbrons, Bengt Hestner, who is the main owner and managing director, has created a really, really impressive operation with his team. Unfortunately, I was not able to participate in the signing. But in the little picture, you can see both me and my regional manager, Juan, online there on the screen and then Bengt and Lennart who is our M&A guy signing the deal. So this is kind of a hybrid deal by being physically there and also online there. So this is a very good solid company in Jönköping, 41 people, out of which 28 are mechanics, a very healthy ratio between mechanics and other staff, and a very good profitability. And of course, here, there is a lot of potential to then do benchmarking with the rest of the workshops in the group. Good. Then finally, before I let Pekka loose, a few words about the outlook 2022. We feel that the sector focus and the in-depth knowledge we have of the vehicle aftermarket gives us a unique competitive advantage in doing corporate acquisitions. So that is going to continue. We know this business. We are going to acquire companies, but we are also picky. It's not about volume. It's about quality. The market situation, we saw already some signs of normalization during March and even so more in April, mostly in Sweden. I see a slight difference between the Swedish and Finnish markets. Nothing to do with the way we operate or our companies operate, it's more the general market sentiment in both countries where Sweden seems to be more resilient economically than the Finnish economy. And also, I think the political unrest and concern has been higher in Finland where people are more cautious in spending. Again, I think it is a temporary reduction of consumption that will then come back during this year. When we assess the outlook, we feel that we are very well-positioned to continue growing faster than the market. Of course, the market at the moment is expected not to grow. Probably going to be flat this year. It's still hard to say whether there's a ketchup bottle effect coming after the summer because you can't stall the repairs forever. But there is still so much uncertainty in the market. And also, I want to remind you that a big part of our strategy is based on acquisition and growth by acquisition. So hence, it is very difficult to give a specific number for this year. And we do not provide a numeric guidance for this year. We can state that we feel that we are well-positioned to continue the implementation of our strategy. We have the products and we have the plans and good acquisition talks going on with different companies. Good. Then Pekka, please take over.

Thanks, and good morning. As well described by Arni, the Quarter 1 can be said to be a real test for us in many ways in circumstances where many unfavorable market events beyond our control were happening at the same time. And given the level of challenge we were facing, the development in key figures can be described being understandable. But of course, it's always a great disappointment for us not to meet and exceed last year's figures. But as said, the circumstances for this short period and start of -- for the year make it more understandable. And we are and have been focusing for the rest of the year. The first period now is over, and there are 3 more to come. Given the circumstances, the EBITDA margin reached -- kind of demonstrate certain resiliency of the business even in the hardest conditions. So that is worth mentioning here. I move on to balance sheet. The changes in the group's balance sheets are mainly driven by the acquisitions. And more recently, the development in net working capital is also worth mentioning here. But all in all, in comparison with the last year's first quarter, these changes were modest this time. Equity ratio remains well in a level anticipated. Cash assets, here, we can see the development related to net working capital in building up inventories intentionally. As we know and have been seeing that the circumstances in international supply chains and international logistics remain challenging, we have not been able to emphasize on cash conversion, but been continuing investing in the inventories to maintain the ability to deliver. For those reasons, the cash flow from operations is plus/minus 0. Practically, it's below the last year level and the main reason being the inventory situation and the investment for the delivery capacity for the rest of the year. On investment side, there are no acquisition-driven activities, except one, the additional consideration related to STS acquisition. And on financing, the most important news is actually not visible in the cash flow as we announced the extended our senior facility agreement by 1 year to be valid until May 2024. At the same time, additional limits were introduced EUR 7 million committed, EUR 25 million uncommitted limit to in April, the further -- potential further acquisitions. Earnings here was reflected by the financial development, but not that much on EPS, excluding amortization of goodwill level. So given the circumstances, we could defend this reasonably, I would say.

I will spend a few minutes on explaining how the aftermarket looks like from our perspective and how does it tie into our M&A strategy. And this picture I have shown you before for the ones who have followed this webcast before. We consider our group focus area to be what we call the vehicle life cycle enhancement. I mean if you look at the value chain, up on the part of the slide, you can see that this is a kind of a life cycle of the vehicle from cradle to grave, if you will. So manufacturing import and reselling and then the orange colored parts are the focus area for us. From the vehicle comes into the country or the market, it undergoes usually certain type of customizing or changes and equipment. Then you tend to have to maintain and repair the vehicle and also to get some spare parts for it. And then there are also supporting services, which support these functions. And then at the end of the life cycle, there's demolition and recycling, which we are at least currently not considering as a focus area. And then on the y-axis of the graph, you can see different types of vehicles where we currently actually are not in the 2-wheeled vehicle department that much, but everything underneath from passenger cars to heavy vehicles and agriculture and lorries and buses. So as I just explained, you can approach the market from different angles. I mean, it is a huge market. If you take the whole market in the Nordics is anywhere between EUR 20 billion to EUR 40 billion, depending on the definition of the aftermarket. That's also partly including the OE business, but I would be probably on the safe side, if I would say, EUR 20 billion would be the addressable market for kind of independent aftermarket because you can really find a lot of different subgroups and the categories under each of these markets that I just described, the value chain as such. And then also inside the vehicle type, you can focus and specialize on trucks or buses or military vehicles and so on and so forth. On distribution, you can have a national role or regional hole or local retailer. We are not in retail at the moment. And then you would have different customer types of segments, business-to-business, business-to-consumer, fleets versus owner operators and so on and so forth, private sector, public sector. It is a huge market to put it short. This is an illustrative picture, and I won't dwell too long in it. It's just to show you the myriads of different type of businesses you have in each of these sectors that we are focusing on. Just to show you what the full potential is to consolidate. So it's not only about -- I mean, we are often referred to as a spare part company. It's nothing wrong with that because we also distribute spare parts. We also operate workshops, and we have global brands as well. But if you look at the different types of businesses within customizing, you would find different type of vehicles that are equipped with different types of power management and lighting products. And then on the distribution part, you have different types of spare parts and equipment that are sold. Maintenance repair, can be general repairs, can be specialized repairs, can be damage repairs, glass repairs, service or other equipment and also equipment for the service part. And then you would have also the kind of support and services like fuel, energy, fleet management, washing of the cars, car care, roadside assistance and everything. We consider this all as the addressable market. Even if the core at the moment is centralized probably mostly into the 2 middle parts at the moment. But this is the addressable market that we find opportunities to consolidate in the future. How do we then go about when we assess these different companies and categories and markets? This is a kind of topline approach of how we are looking at it. I mean it's, of course, the market size is one part and then the independent aftermarket operate the share of the total. If I give you an example then commercial vehicle sector is largely dominated by the big OE players of anywhere between 60% to 80% is controlled by the OE operators. While the passenger car aftermarket is roughly 50-50 OE, original equipment or a car vehicle manufacturers and then 50% is the independent operators. We see a huge potential in the commercial vehicle sector for the independent operators to take market share. Then we look at the growth? Is it a stable growth? Is it possible to grow faster by consolidating the sector somehow cyclicality, there are certain cyclical markets as well and product groups that we then compare with. I think we have moved more and more to look at EBIT rather than EBITDA. Of course, we want to understand the CapEx needs and the cash flow. And then looking at ROIC or ROCE is important for the sustainable value creation from a shareholder point of view. So it's not only always about EBITDA, it's also -- I mean what is the -- when we deploy capital, I mean, how do we get the best possible value for the shareholders and for the company to then develop the company in the future. Market-wise, how fragmented it is, is already very consolidated, then probably we wouldn't go there because then most likely also the price of the companies would already be quite high. But I'm not saying no also to look at bigger acquisitions with already quite consolidated sectors. Availability of platform companies. I mean if we go into a new sector, we want to also have a vision what we are going to do in that sector. I'm not going too much to detail, but I mean if there is a sector that we would look at, okay, this might be interesting. But if we then only managed to buy 2 local companies in one of the countries in Nordic, it doesn't really bring us anywhere. We want to also have a vision. Where do we want to go with these companies? Can we grow? Can there be a platform also for add-on acquisitions. And then market dynamics, how completed is the market. We already now see differences between the Nordic countries where you have between Finland and Sweden. A totally different competition picture at the moment. Then the attractiveness determined primarily by -- for the company, the target company purchase price, expected synergies, we always kind of take into consideration in the equation. And then what I said, the growth platform, we make a projection of how much can we grow organically and then to have add-ons. I mean it's the responsibility of all our group company, managing directors is to bring us ideas and suggestions on add-ons all the time. So it's kind of self-feeding machinery that we have created. And then market segment attractiveness, looking at the margin growth and ROIC. And of course, the availability of the targets is important. In some markets, you have more targets than in others. But all in all, Nordic is a huge aftermarket. There's a lot of potential for further consolidation. Then to make it a little bit lighter, then it's not only slightly, the boring-looking slides. I mean I tried to describe how we do deals, and I personally have now been in this company for 7 years doing quite a few acquisitions. I just want to make a point that deals are always made with people and by people. So it's -- you negotiate with people. And especially when we talk with people who have created the companies, their baby, we want to make them stay on board or then that there's a next generation taking over. So it's just not only numbers, it's not only the DD processes and such, it is building trust and rapport with the people we negotiate. Look behind the numbers, I mean, the truth is not always like the numbers look like. We all know that and you have to dig deeper to understand why is the specific number what it is. Why is the profitability? If there's a hockey stick, why hasn't it -- why has it all of a sudden gone up? And is it probable that it's sustainable? And hence, we spend a lot of time also in turning the stones for the companies that we really want to have a closer look. So this building trust and rapport is very important for the negotiation period because then that lays the tone of the cooperation afterwards. If it's a very tough and acidic negotiation, then I think the situation might be a little bit inflected. But sometimes, I mean, it might be a tough negotiation and then fine it's settled, and then we go and create a wonderful business together. I would also then say that we have become better in spending time on commercial and HRDD. So classically, we just spend a lot of time in tax and finance and legal, which are important, of course. But it is still the people in the company who do the business. No matter what condition the company is -- I mean if the numbers are great, and there's governance is fine and the legal contracts are there, but if the team who is supposed to run the company is not top quality and committed then we have a problem because we don't have central extra resources somewhere to put in there. That's not the part of our business because that would just add on costs for the operation if we just kept resources waiting for these kind of things. So we are really, really spending a lot of time in meeting the management. And to the extent it is possible, of course. It's not always possible, but we spend more and more time on that. And then at the end of the day, no deal can sometimes be better than a bad deal. We are not here to make bad deals. We feel a huge responsibility also of the future success of this company. So we don't just acquire companies for the sake of acquiring companies. We need to make sure that they fit in into the company and have a long sustainable profitability ahead. And then kind of slightly jokingly quoting Kenny Rogers in The Gambler that you have to know when to fold them, know when to hold them and know when to walk away. And to give you a concrete example, we had a big negotiation last year continuing all the way this year as well. I can't name any country or names, but I think we walked away twice during the negotiation. And then finally, actually, we didn't buy the company because well, for many reasons, but it didn't -- the tick in the boxes didn't match our quality. So sometimes you win some, you lose some, but we are not going to do bad deals. Good. And then just before wrapping up, I just wanted to recap the strategy. It has not changed from what it has been from the beginning. Yes, slightly, it has changed. We have broadened the scope of the aftermarket definition, but we want to be and we continue to be an active consolidator in the market with a long-term perspective in the Nordic mobility aftermarket. And the sector focus that we have gives us a competitive advantage, which is unique. We aim to grow faster than the market in average. We have been able to do that. Of course, the last 2 years have been very special years. And I think during my career, I've not seen so many discontinuities like the COVID and now the Ukrainian war has caused in the market. But I think we are going towards a lighter period. And then creating added value for the customers, it is important because we are in the heart of the operation, there is a big distribution business. And as Pekka was stating, we have consciously invested this year and also last year, in making a safety stock of the products because the world is unpredictable. We don't know what's going to happen with the COVID situation in China. And some of it's -- a big part of the equipment products is coming from China. So we have successfully been, let's say, managed to preempt some of the problems by making the shipments come earlier to our markets. And we've been able to secure that we have the goods for the coming season. Then when it comes to the digital solutions, we spend a lot of time and energy and invest in our own digital platforms and more to come in the following years. And our aim, the long-term aim is to reach the EUR 500 million pro forma turnover during 2026. So the last slide, thanks for bearing with me. It was a little bit longer than 35 minutes that I promised. I will soon let Rosa to post the questions. Yes, Quarter 1 was the rocky ride. None of the fundamentals have changed. We are an active sector-focused consolidator. We have a strong, solid track record of successful acquisitions. We have a solid cash flow, profitability track record. The market is growing. Despite everything, it is growing on a long-term over business cycle. The amount of vehicles is growing. It has defensive characteristics. The history shows that during hard times the repair and spare part business has been resilient. We have a growing lighting business with very interesting opportunities even for global rollout and geographically. And also with our e-commerce solutions, we are learning every year how to operate more efficiently. We have a good company, Lumise, which we can use as a basis for further development. And then our operating model is and remains very effective and lean, and that is the way we tend to operate also in the future. So for my part, thank you. And then Rosa over to the questions if there are questions.

Morning from my side as well. Yes, there are quite a few questions. First one comes from Sanna Perälä. To get a better view on the market and your performance, could you disclose something about your organic growth?

Yes, we do not report organic growth, but let's say, between I wouldn't say shooting from the hip, but roughly, it is a minus single-digit number, which is in line with the market development.

Then we continue with Sanna Perälä. You mentioned that your inventories were higher than normal -- precautionary measure. How do you see the supply chain developing going forward? And how will that affect your inventories in the near term? What do you see as the normal level of inventories?

Yes, it's a good question. Thank you. I think from the supply chain point of view, we are seeing less constraints regarding the spare part market because the main principles are situated in Europe and the lack of components mostly has hit the OE market before it has gone to the aftermarket. So there's not too much worries on the spare part. I'm not belittling it, but it's not too much of an issue at the moment. The biggest question mark is the supply chain issues in China where most of our lighting products are coming from. We have a good schedule of deliveries coming, and we know more or less exactly when they are supposed to come. What we can't control is the logistics situation in China. If the harbors are close to anything, then, of course, it can delay some of the shipments. But we have -- at least for the next 6 months, we have a fairly good overview of the shipments coming. What would be, let's say, a normal -- normalized inventory level, maybe, Pekka, shoot me if I'm saying a wrong number, but I would say maybe 10% to 15% lower from the current situation would be a normalized situation. Then, of course, the group is all the time growing. So that's a percentage of the net working capital as a percentage of the net sales is not actually affected that much, to be honest.

We continue with Sanna Perälä. What is the market situation at the moment? And how do you see it developing? Sales of spare parts, commercial vehicles, repair and maintenance, will these still be damped by the high energy costs?

We see some positive signs, especially so for Sweden, as I mentioned in the beginning, it seems that the Finnish market is slower to recover. And I think we saw it also during the corona times that the Swedish market was quicker to recover. And I mean, for us, Norway and Denmark are still less important markets because our foothold in Sweden and Finland is better. For the commercial vehicle repair and maintenance, it's fairly stable. I'm not seeing a change there that much because the COVID was the main reason for the delayed repairs. For the equipment business, the big, decisive period is coming on H2, starting from August when the lighting period is most active. So that is still too early to say anything about the market. But I personally think that the worst is over. But then again, it's impossible to really know it.

Thank you. Then we go to Mika Karppinen and back to organic sales. What was the organic sales growth rate in Q1 2022? And what was it in Q1 2021?

Yes. Thanks, Mika, for the good question. As I said, without going too much into detail, the organic growth was minus growth, which was in line with the market growth. It was a single-digit number. For 2021, I have to say that I don't have the number here now, but it was -- I'm probably not too wrong if I say it was about 10% to 15% at that time. If not even slightly more because the full year organic growth for the group was about 10%, 11%. And for the first quarter, it was a heavier start, especially for Finland. So it might have been even closer to 15%. But this is with a slight caveat, Mika.

Then we go back to -- then we go to Petri Gostowski, and he has quite a few questions. I will read them one by one. So how have the prices developed lately? Are prices going up in the market? And to what extent does the pricing environment differ by businesses?

Thank you, Petri, for good question. Yes, the prices have gone up, both we have increased prices, anything between 2% to 10%, depending on the price of the product group. The purchase prices have also gone up. So it's a kind of battle that you have to run to stay where you are. I think it's fairly difficult to read our numbers as the group is changing all the time. And the share of the repair business has grown, which has a higher gross profit, but then a lower EBITDA. So that is something that probably from an analyst point of view, is not always easy to get a transparent picture. But yes, the prices have been increased. They are still, there is a need to increase pricing. We are doing it continuously. It is a huge effort to change prices in this business with hundreds of thousands of SKUs, but you have to do it basically. So anywhere between 2% to 15% even for some products. But it's on average, it's not always visible on the net price because also the purchase prices go up.

We continue with Petri. Can you give some color on what kind of impact on margins did the cost inflation have which is expected to be somewhat persistent? And what was the impact of corona-related sick leaves in the service businesses?

That's a tough one. I'm not seeing or predicting a margin erosion on a continuous basis because we have -- being able to move the prices up and the price hikes that we get from the suppliers. Having said that, I think the toughest environment has been Finland and the spare part business as opposed to the repair and maintenance business. Repair and maintenance business, I'm not seeing changes in the gross margin because there also the labor is the decisive point of the gross margin, not so much always the spare parts. But when it comes to our spare part business, I think Finland is the market where it's toughest at the moment, whilst in Sweden, I'm not seeing any erosion moving forward. So it will stabilize most likely. I mean, we know at the moment. I mean, of course, if there are some huge energy fuel prices coming. The fuel price issue with our customers is mostly in January, February hitting the repair and maintenance business. Partly because of the COVID, people could not come into the workshops and we didn't have the mechanics in place. But I have to also acknowledge that some of the smaller transportation companies having 2, 3, 4, 5, why not 10 trucks, are really suffering at the moment. And then I think also we would encourage the politicians to start looking at some kind of professional diesel pricing or whatnot because the transportation sector is vital for the economies in our countries.

Then, do you see current market environment supporting cross-selling synergies and organic growth potential despite an expected flattish market for the year?

Yes, we do. We are nowhere there yet when it comes to the cross sell. We have full potential with STS on lighting, equipment sales also regarding Raskone. We still have potential with Strands and other lighting brands, both in Sweden and Finland for cross-selling and finding new potential. So we are -- we don't rule the market in that respect at all yet. We are strong but not that strong that we can't find new customers. So we can do still a lot, and we intend still to do a lot. So the potential is nowhere near fully exploited. I'm not saying it's a walk in a park, that it just happens by snapping the finger. So it requires a lot of work and heavy work to find the customers. But there is potential. So I don't -- I'm not afraid of the market development there.

Can you comment on the growth potential of Skeppsbrons? Can they grow in the current facilities? Or will growth be driven mainly by group synergies?

I think how we consider Skeppsbrons is a stable business, sustainable business. Of course, they will aim to grow. But for us, we do not see for that specific unit that it would be something that we will copy and then build similar workshops in Sweden. It's rather than to benchmark what they are doing and then try to improve the profitability of the existing workshops in other chains that we have in the company. So Skeppsbrons was not acquired to be growing 20% a year. Don't get me wrong. Of course, we wish and see them growing, but more in line with the market and to retain the high profitability. And then like -- I mean, just the example, Bengt, who is the owner and managing director, he's going to consult us in the other chains as well on to running a very operationally effective workshop. We have already very operationally effective workshops, don't get me wrong, but we can always do better.

Then continuing with the Skeppsbrons. So Skeppsbrons profitability seems really high. Can you talk about the drivers of this profitability and the historical track record?

Yes, it is result of a very good ratio between work and spare parts. That is decisive, let's say, they're working our invoicing, they can do a pricing of the working hours is on a very healthy level. And I think it ties in to the niche player type of operation. They are specialized in certain type of customers. So I think that is one part of the story. And also probably by expanding that niche segment is to a certain extent, explaining the historical development.

And then we go to the last question from Sanna Perälä. How does the cost inflation we are seeing now affect your profitability?

Provided that we can move the prices forward, it will not affect the profitability, but that is also with a caveat. It's provided that the market conditions allow it. I mean if the competition as a result over, let's say, a recession becomes very aggressive, then it's always tougher to get the price increases through. But provided that we managed to do that which we should have a possibility to do then it should not affect the profitability but that is with a caveat. So I mean if the market conditions get even tougher and you can't push through the price increases, then there is always, of course, a theoretical risk that it will affect. But at current, how we regard the market, we are not predicting that.

There are no more questions.

Thank you. Thank you very much. Thanks for the audience for bearing with us. It was way more than 35 minutes, but still a lot of good questions. I thank you for that. And I wish you a good end of the week. Thank you very much.