Relais Group Oyj

OMXH:RELAIS

Earnings Call Transcript 2022-Q4

[Arni Ekholm, executive]

Good afternoon, greetings from the sunny Helsinki. I'm delighted to have you here following the webcast for the results of '22 for Relais Group. My name is Arni Ekholm. I'm the CEO of the company. And together with me today is Pekka Raatikainen, our CFO. And we have the pleasure to take you through the last year's results and highlights. And since this is a webcast, we hope this is an interactive presentation, you have the chance to submit questions. There should be visible on your screen a button called, Ask a Question. So please be active and challenge us. We will entertain the questions in the end of the presentation.

We reckon the presentation to take about 30 to 35 minutes, and then afterwards, we will make sure that we answer all the questions satisfactorily. Then looking at the content of the presentation, Relais in brief. I'm sure there's a lot of people in the audience who have already seen some of these slides, but I think it's still important. There are very many people, I hope also who have never heard about Relais before, so I will have the chance to talk a little bit more about who we are and what we do.

Then I want to highlight the vehicle aftermarket opportunity. That's our home market and our target market for acquisitions as well. Then we will have a look of how the sales is divided by segment and business area last year. Then the business review for quarter 4 for '22 and then comments as well regarding the full year, and then Pekka will walk you through the financial details of the 2022 result. And then finally wrapping up, Relais as an investment.

But before kicking off a few words about last year, it was -- to put it mildly, it was a challenging year in many aspects for the first half. I don't need to reiterate all the, let's say, geopolitical issues that happened, the war in Ukraine and Omicron, high inflation, fuel prices. But despite of that, I'm really, really proud of my team, the 1,000 professionals in the Nordic and Baltic countries, you really made a tremendous -- I would even say heroic effort on the second half of the year and recovering the business under very challenging circumstances. So I really want to express my heartfelt thanks for you for your efforts.

Also, I want to thank our shareholders for the support you are showing and then our customers who actually make all of this possible for us and then our business partners. So a big thank you for everybody for last year.

Right. Then Relais in brief, we will come back to the numbers, but to give you a magnitude of our operations, we reached about EUR 261 million turnover with a growth of almost 10%. The comparable EBITDA was almost EUR 40 million, and then the comparable EBITA was almost EUR 26 million last year.

What is Relais all about, we are a consolidator and a smart compounder, and I will explain later what we mean with a smart compounder. But the sector focus is a keyword. We know the sector of the aftermarket. So we know the company, we know the business, which makes it easier for us to identify acquisition targets and also help our companies to grow. So we serve as a growth platform for the companies we own. So we don't just buy and forget them. We also built them into great businesses. The usual already are great business. We can make them even more profitable and increase the quality of the company. We are looking at the vehicle aftermarket. We call it the vehicle life cycle, the full life cycle, and we are focused on the aftermarket part of the vehicle life cycle.

I mean, we are not focusing on the production of vehicles or the import of vehicles or sales of new vehicles, we have identified the biggest earnings growth potential is in the aftermarket, and it has the biggest potential for the earnings growth for the company and for the shareholders. And I will also show some details why we feel the aftermarket is attractive for us looking at acquisitions and developing our companies.

How we create shareholder value? We do it by delivering strong earnings growth through a strategy that has 3 reinforcing themes. So they all reinforce each other. We do it by acquisitions. We take benefit of synergies between the companies and we increase the profitability by operational excellence, and I will show some more details of what we mean -- mean with this. So this is the kind of the trinity of our strategy, it's very clear and it's very simple as usually a good strategy is supposed to be as well. It's based on acquisition growth. And there, we are the smart compounder. We know the business. We have identified a lot of attractive companies and subsectors within the aftermarket that we want to be an active consolidator and compounder within these sectors.

Operational excellence, I will open it up also slightly later, but that's kind of how we run the companies. It's not just enough that they are part of a bigger group, but we also have to be very active in finding the synergy benefits, whether it would be that we put together the purchase volumes or we have some operational efficiencies on the systems and business intelligence part. And also that we are having good pricing systems, that we make sure that we are buying the products at the right price and also selling them at the right price.

Organic growth, we see that we can accelerate the organic growth by having this sector focused because the companies can support each other. And also since we have a fair amount of own products, we can also use the wholesale companies as a channel to have a broader distribution. So it's all reinforcing each other. And then, of course, the cash flow generated by these operations then supports the acquisition path as well. Opening the strategy slightly more in detail, the organic growth, as I kind of touched upon, we aim to have a faster than the average market growth. We think -- not only think but our estimate is that generally, the aftermarket growth with slightly between, let's say, 1% or 3% on an annual basis. I mean the inflation has, of course, risen during the last 12 months, so that might push the value growth, not the nominal growth of the sector as well. Combined purchase power, the bigger we get, the better terms we get from the global suppliers. I think there is more gold to dig for us there. And also the cross sales possibilities and one very specific part is also the amount of private label products that we are developing and increasing the share of our own brands within the sector. So this is also supporting the faster-than-average earnings growth.

Then looking at the operational excellence, we have been very successfully reducing net working capital and inventory levels last year, and I will get back to that one, which then frees cash that we can use for acquisitions and development of the companies. And since we are, let's say, 66% of our operations is wholesale and import pricing and inventory management is of crucial importance, that we are really running it in an efficient way and taking benefit of the synergies. Then we are an acquisition-based company, a big part of the growth is coming from acquisitions, will come from the acquisitions. What we can do on acquisitions is either have add-ons to existing platforms that can be strategic or tactical, so tactical meaning that they are smaller add-on acquisitions for our existing companies that as such are also platforms that can grow. I mean it can be a repair and maintenance chain that we have in Finland and Sweden, that then identifies the geographical area where they are not so strong, and then we buy a workshop and put it together with a chain and get all the synergy benefits from that. Then also, horizontally, we can find strategic acquisitions within existing platforms. If you look at the vehicle aftermarket wholesale business in the Nordics, we might end up acquiring some interesting companies as well there and then supporting our purchase volume for the products or then having other product groups that we don't cover at the moment so well. I mean there's always a strategic reason when we -- if we would do such a horizontal move.

And then an exciting aspect of the acquisitions is also new platforms. That is then within the aftermarket. And I will show you a couple of, let's say, examples of what we mean with these kind of new platforms. They don't necessarily offer synergy benefits. They are in their own right a platform that we can then roll further with add-ons. We are and have acted and act in a disciplined manner, meaning that we are not buying stuff at any price just to buy stuff. So we are disciplined. We try to find the correct value of the company, but we are also open for opportunistic deals. I mean you don't -- it's very important to analyze the market, but also we have some incoming ideas and also some very creative ideas of opportunistic deals. So it's not -- it should not sound too disciplined, but we have a very methodological approach to acquisitions.

When it comes to acquisition financing, it's self-evident that we can use all customer refinancing tools when we are making the acquisitions. What we specifically like is to use own shares because that aligns the interest of the seller and buyer in an ideal way. And also, it is value-creating for the shareholders when we find these gold nuggets and good companies and everybody wins from that perspective. We can use own cash vendor financing to also commit to seller, senior financing, even equity or equity-like financing when we come to bigger acquisitions. So the runway is free from that perspective.

Buy and build, I have shown this before, but I think it's a crucial part of our strategy. It's not just buy, it's also building and also then to find the right companies and the right management. I mean we are not a turnaround company buying distressed companies. I mean, it's very seldom that we would even look into that kind of companies, but I'm not saying it's a total no-no. There might be a good path that the company has already started. And if we see a solid growth potential -- earnings potential there, we might go into that type of acquisition as well.

Building great business. We spend a lot of time and effort from the management team as well. We are hands on supporting these companies and raising the performance bar and supporting and they are, let's say, spontaneous groups within the business areas, looking at different sectors. Just to give an example, like the defense sector at the moment is very, very interesting. And a lot of our companies are looking into what can we do together, what kind of products do we have that could support the building of the defense capacity in each country.

And then the smart compounding that I was explaining in the beginning. What we mean with smart is that we are sector focused and we are not only, let's say, technically compounding capital, we're also compounding competence, so that we learn and we have a deep knowledge of this business and we can support the companies and add value. So that's kind of a self-fulfilling prophecy, if you will, and then we can add on acquisitions to the platforms and accelerate organic growth with synergies. So it is a very clear strategy.

We have spent a lot of time in analyzing the market, looking at the acquisition potential and possibilities in the Nordic and Baltic aftermarket and looking a little bit wider as well. We wanted to have, let's say, a clearer target that conveys also for the shareholders, what we are about. And we -- instead of having a turnover target that we had before of EUR 500 million, a turnover by '26, we felt it more relevant for us to have a profit-based target. So hence, this morning, we announced a new target. We are aiming to reach a pro forma EBITA of EUR 50 million by end of 2025. So EUR 50 million by '25. That's 1,000 days target basically counting from now. And we feel confident about it. We know the market, we have mapped the potential acquisition opportunities.

The valuations have come down, not dramatically, but they have come down to a more attractive levels than last year, which also slowed slightly our acquisition pace last year when the seller expectations and buyer expectations did not meet. We have been able, as I said, free significant amount of cash from the operations that can also be used as part of this acceleration of the acquisition activities on top of the other customary financing tools that I've mentioned. So we feel very strongly about this. We are all committed to this target, and we feel it also conveys the message to you, the shareholders in a better way than the turnover target.

You can see the growth path of the company. It's, let's say, in 10 years, almost 10 doubled. So it's a huge growth, and we intend to grow also in the future. As I said, the target is the EUR 50 million pro forma EBITA by '25. So we intend to do a lot of good acquisitions and also grow organically. So it's coming from 2 different parts, acquisitions and organic with a weight on the acquisitions.

Okay. Still looking at Relais for those who don't know Relais. Technical wholesale and products is the biggest business area, it's about 2/3 of our operations. And then we have commercial vehicle repair and maintenance chains. And we are the biggest commercial vehicle repair and maintenance chain in the Nordics by and large, looking at the combined volume and turnover profit of Raskone, STS and Skeppsbrons. Then looking at the wholesale and product companies, we have ABR, who is focused on passenger and light commercial vehicles per part, Startax, spare parts and equipment for all types of vehicles, mostly electrical. And then we have TD, Tunga Delar [ truck ] sales, heavy commercial vehicle spare parts wholesalers. And then the more kind of product-oriented companies tranched with a very strong own brand on vehicle lighting, Awimex, operating on the power management and lighting part, very niche and specialized business-to-business companies. SEC in Denmark and now also [ SET ]. Lumise and DSM being our online channel operating in almost all Nordic markets at the moment. So 1,000 professionals in 6 countries, it's really the powerhouse that we have.

Right. I promised to talk about the vehicle aftermarket opportunity and what is the vehicle aftermarket all about? I mean it's a EUR 20 billion market in the Nordics. That's our estimation when we have analyzed the type of companies who are there. Actually, it's EUR 40 billion. That includes the OE, I mean, not the independent market, which is the other half, but the vehicle manufacturer dependent companies. But also, this does not include the resell of vehicles, this is just the aftermarket part. And the vehicle life cycle, what do we mean with that? It's from cradle to grave, I would say. So it's from manufacturing to demolition. And we have come to the conclusion, the biggest value to be created for the shareholders and to the company is in the aftermarket from customizing to distribution of parts, maintenance, repair, operations, supporting services. And then you can split the market by vehicle type as well as you can see on the left side, all from 2-wheel vehicles to lorries, passenger cars and then agriculture and construction machines. So it's a huge business with a lot of opportunities. It's stable and steadily growing every year. This is just to show you that there are numerous attractive acquisition targets and niches within these sectors. So it's not like there would only be a few of them. There are literally hundreds and thousands of different companies. Of course, not all of them are on our long list even. So we -- the final line happens looking at the potential and the profitability and if there are synergy benefits and so forth. So this is just to depict that they are in these sectors. There are submarkets and companies all over Nordic countries. So it's a really huge market and relevant for us from an acquisition point of view.

Right. I'll just pick a couple of points from this slide. It is the disruption also that's happening in the market that makes it very interesting. I mean there are new ecosystems around charging, there are new ecosystem around mobility as such, private leasing fleets, advanced driver assistance systems, connected car. There will be also a need for components for retrofitting and aftermarket, not only the OE type of business.

New powertrain development, I mean, it offers new possibilities for battery recycling and also biofuel solutions coming for the ICE, internal combustion engine. So it's a rapidly moving landscape, and we are following it very actively from an acquisition point of view and from a product range point of view for our existing companies. And as I said, the market is about 19 million vehicles, it's steadily growing. It's very stable and it also has some countercyclical characteristics, which is very good under these kind of economical times. So we are not that dependent on sales of new vehicles. So it's more like the aftermarket where the money is made.

Right. Then a few facts before coming to the review of the quarter 4. As I said, technical wholesale and products is about 2/3 and then repair and maintenance is 1/3. And the weight of the technical -- sorry, repair and maintenance has grown from 1/4 to 1/3 during the full year 2022, and that is a result of the acquisitions we have done. So we have focused the acquisitions on this sector to become bigger and also to get some synergy benefits and volume benefits out of that sector.

Looking at the product group level, spare parts, 30%. That is not including the spare parts that are fitted into the repair and maintenance channel. So that repair and maintenance, which is 1/3 consists of roughly half work and half parts. And then we have lighting products, which is stable. I'm really happy to say that under these really challenging circumstances, we managed to keep the very important lighting sales stable and even in the comparable exchange rates, a slight increase. And then the equipment is mostly electrical equipment, installation equipment that is used for the lighting products.

Then geographical segment, very interesting thing happened last year. Finland and Baltics have always been -- with a heavy weight in Finland, historically, the biggest geographical area of our business. So now for the first time ever Scandinavia is now the biggest where the Swedish market is then naturally very big, but we are also very big now in Sweden. And then that is, I would say, a historical moment and interesting because also I think the Scandinavian markets are at the moment more resilient than the Finnish market from a demand point of view.

Good. Then looking at the business review for quarter 4. Strong cash flow growth and a solid sales result. Two themes I want to pick up, also the biggest turnover ever in the history of the company, EUR 75.2 million, 2% sales growth, 5%, actually, if we take comparable exchange rates because Swedish krona, as we all know, has weakened during the last year compared to '21. Comparable EBITA at 10.5%, and then a real big and important part was the net cash flow from operations that we managed to free cash by reducing the inventories in a very controlled manner without losing gross profit. There, you can also see a difference between Scandinavia and Finland and Baltics, which is, I would say, quite remarkable when it comes to the markets, that we grew organically in Scandinavia with 5% but declined in Finland with -- declined in Finland with about 8%. And we estimate this is more or less in line with the market development, maybe we grew slightly faster in Scandinavia than the market, but the Finnish decline is clearly in line with the market for most of the product groups.

Right. I just reiterate basically one point here, which is the 3% comparable growth of the Lighting business. We are one of the biggest actors within the European vehicle aftermarket lighting business. I mean Relais has grown rapidly and significantly in Europe and elsewhere and also the rest of our lighting products have fared well. Where did we not succeed that well was unfortunate, the online business in Finland, which was very heavily competed for the kind of consumer discretionary business, i.e., mostly lighting. And the online business is very, very cruel in that respect that for the lighting, the season is very short. I mean, from Black Friday almost to Christmas, you either make money or you don't make money.

And then if you are not competitive with your campaigns and your offerings and products, you basically lose the business because it's very rapid, and people don't usually come back again, they just buy another product. And then you then put more marketing money to try to boost the sales and that kind of makes a very challenging combination. So I would say this is one of the specific areas that we will make sure this year that we are competitive when the season comes. Curiosity, maybe about the Swedish krone/euro ratio had a negative impact of roughly EUR 200,000 on profitability for the last quarter. And then not a huge change for the full year numbers, Lighting was slightly reduced, as I mentioned in the quarter 4, so that kind of contributed into the result. But then again, repair and maintenance, I'm really happy that we managed to really stabilize that business and get it rolling in a very good manner.

Right. So the buy-and-build strategy in action, as I explained our strategy in the beginning. So we are a consolidator, a smart compounder. We did see a mismatch last year with a seller expectations and buyer expectations. Nevertheless, we made 3 acquisitions. I think all in all, we bought EBITA for, let's say, worth of EUR 2.5 million worth of EBITA we managed to acquire last year with 3 smallish but very profitable companies, which then are contributing with the full effect this year. So that was very positive and strengthened our position in both Denmark and Sweden. And as I said, we are the leading operator for the independent repair maintenance workshops for commercial vehicles in Sweden and Finland.

And then as I explained also in the beginning, it is the buy-and-build strategy. You have to also remember, there's the element of building, not just buying. And I'm very happy that we managed together with the teams, I mean, they run the programs themselves, but we supported them that both STS and Raskone made a very good result for last year. And we even managed to recruit, I think, all in all, about 30 mechanics. That was a kind of bottleneck we had last year in the first half year, that we didn't have enough resources quite simply. So we managed to recruit 20 in Finland and about 10 in Sweden, either externally or then by internal training programs that we have for instance in Finland. So I'm really grateful for the teams for your efforts on that sector.

Good. Then I think one point I want to really emphasize here was that when the H2 started, we communicated that we have some additional activities that we are doing to improve the profitability of the company and cash generation of the company. So what we said in the Q3 report was that we have a program in the Finnish wholesale operations, where we lower the level of net working capital and mainly on the inventories and then also increase the efficiency of the pricing process. What was the impact? We did several price increases. We managed to get them through in the absolute majority of them. We implemented this net working capital and pricing projects where we actually then also implement new processes of forecasting and pricing. And it has shown really good results, and we will roll them further in other companies as well at a coherent group level approach to inventory management and also pricing, and give some tools for the companies to use as well.

We expected the net working capital to go down during quarter 4 as we optimized the inventory levels and also then we expect the profitability to increase during this year now for 2022 (sic) [ 2023 ]. So as a result of these activities, we decreased the inventory levels from the peak level in July, August with about EUR 14 million, which is significant. And also contributing very much to the cash flow and all this without compromising the gross margin levels because it's another thing to get rid of inventory by dumping it and selling it like hugely cheaply, and then your gross profit goes down. It's another thing to make it qualitatively so that you have good commercial activities and really find new customers and so forth. So all in all, we managed well with the net working capital. And also we increased the commercial activities, and that is also shown in the top line.

The outlook, before I let Pekka to take you through the numbers. We feel that we are well prepared to continue the implementation of the strategy. The strategy is very clear. We are continuing with the strategy. We are confident with our situation that's also reflected with the proposal that the Board of Directors will make for the Annual General Meeting of a dividend of EUR 0.40, hence to be paid in equal installments. As I showed, we have recalibrated our financial target, long-term target, '25 target, means that we are accelerating further acquisitions and organic growth, combining it with operational efficiency measures. All these 3 together will contribute into reaching the EUR 50 million by '25, 1,000 days target that we have, and I'm feeling very confident about it that we will make every effort to get there with our strategy.

Right. Then over to the financial review. And Pekka, the stage is yours.

[Pekka Raatikainen, executive]

Thank you. Thank you, Arni, and welcome to follow this sort of financial review regarding '22 full year figures. EBITDA development is our starting point here. And as described by Arni in his business review, the main drivers behind the development where the relatively slow first half of the year, then recovery during the third and fourth and still some slowness in the consumer demand-driven businesses, especially online business. But in total to perform on this level requires many successful performances along the companies. There were many good performers, especially in wholesale lighting and majority of the repair businesses did very well during the year, especially during the second half, as can be seen in the figures. The difference between reported and comparable figures are explained by items affecting comparability that are acquisition related mainly and this year also listing expenses that incurred mainly during the fourth quarter.

For the second consecutive year, the items affecting comparability were on a significant level, almost EUR 3 million, and that reflects the activity mainly on the acquisition side and as well the listing activity that was last year's, one of the major events for the company as we transferred to the main list as of first of December. The decrease in profitability is explained with the very same drivers and also the increased portion of commercial vehicle repair and maintenance business changes this profitability structure as the profitability there is typically a bit lower than in wholesale and product-driven businesses.

Profit development and earnings per share. They are very well in line this business development. There's nothing specific regarding those and we didn't reach those levels, especially earnings per share. But on the other hand, when we come to the cash flow, we could perform significantly better, but it's the next topic not this.

Balance sheet. It remained mainly on the same level compared with [ very one ], many of these key items here. If we start with the balance sheet total, it's almost the same. It happened a lot during the year, acquisition that increased this total -- balance sheet total profit distribution, dividend distribution, loan repayments. But all in all, the changes equity, almost the same equity raise. So exactly the same cash assets we shortly come to the cash flow analyses, but there is a small increase there, explained by the extremely positive cash flow development during the fourth quarter. And that enabled us to perform the acquisition of SET without any external financing and it also enables many things in these businesses, among the other, the increased dividend that the Board of Directors is proposing.

If you compare cash flow from operation with the previous year, we see a significant increase that was as Arni described, mainly driven by inventory reduction, what is the most significant component in our net working capital development and monitoring and analysis but also supported by trade receivables development, the trade receivables portfolio was healthy and performed very well in these uncertain market conditions that is definitely worth mentioning here.

Biggest investments during the year where from the biggest -- the smallest -- the acquisition of Skeppsbrons and SET, the most recent acquisition in Denmark from December. The acquisition of minority sales of SEC and [Foreign Language] and some investments regarding machinery and equipment that is typical for repair and [ works ] business.

Cash flow from financing, the most recent acquisition, as I mentioned, was not made by using any external financing. There were some earlier acquisitions where we used our senior facility to finance them. We paid a total of EUR 6.5 million in dividends during the second quarter and the normal regular repayments of our senior facility loan program.

[Arni Ekholm, executive]

Thanks, Pekka. And also in this context regarding the main list transfer, it was a very crucial event for the company and also enables us to address a wider group of investors also internationally. And in this connection, I'd like to thank you, Pekka and your team for the heroic efforts, let's say, behind the scenes. Now if people don't know let's say, time-consuming an IPO process is, that we surely know and the team really went let's say, far and worked very effectively to make that happen. So a big thank you, Pekka and the -- the team for that. So it's a historical step for the company.

Then the final page before I let the audience loose with the questions. Summing it up, Relais is an investment. As I explained, sector focused consolidator, a smart compounder, we know the business. We have a good and strong track record of successful acquisitions, we can really get the benefits of building these companies. Solid cash flow, as just demonstrated last year, had a good profitability track record. Countercyclical market with underlying defensive characteristics, which should support the business during these types of times. And there are indications, I would say already from the beginning of this year that this looks to be also imminent in -- during these circumstances that we have in the Nordic countries at the moment.

There's a growing lighting business with own brands with huge potential, I would say, internationally to leverage on that one. Very innovative, good designed products. We have own e-commerce solutions that despite the challenges on this very heavy heavily competed market. We see a lot of potential in the Nordic markets for getting our message through with sharp offers and products. And then we have efficient and decentralized operating model that then is very cost-effective, but also supports the countries and the companies that we have in each market.

So all in all, this describes Relais as an investment and with also the, let's say, calibrated new earnings target that we have, I think we are very strongly conveying a message of our belief in the future and the strength of our strategy.

Right. So now I think we spent, well, 37 minutes, a little bit more than I said. But [ Rosa ], please, questions. I hope there are many.

[Unknown Attendee]

Joni Sandvall is asking, sales to other countries increased close to 80% in which export market you have succeeded and how you see -- how you expect this to continue in 2023?

[Arni Ekholm, executive]

Yes. If -- thanks, Joni, for the question. I think you're referring to external sales not the intercompany sales because there are kind of 2 different things depending on which angle to look, especially if you look at the lighting export growth that is coming from Central European markets, say, Germany, Benelux, partly some other markets, but also we have made some good progress in the Nordic market. So that's, let's say, the more specific I can be.

[Unknown Attendee]

Okay. And then let's continue with a couple more Joni's questions. Were there some additional depreciations during Q4 as depreciation were up EUR 0.5 million from Q3.

[Arni Ekholm, executive]

I think that's more like for Pekka to answer if there were any.

[Pekka Raatikainen, executive]

There were no exceptional items in depreciation. There is one acquisition that we started to consolidate from the beginning of December that might be behind those. And of course, there may be some minor year-end activities, related depreciation, but nothing special in this regard, I think.

[Unknown Attendee]

Okay, then. How much impact from SEK to financial cost in Q4? How effective tax rate was negative in Q4?

[Pekka Raatikainen, executive]

It's very interesting and perhaps worth studying further. I don't have anything specific in mind related to those, but this is typically where I view the accruals that always should be in place and acquisition-related bookings, but let's investigate that further.

[Unknown Attendee]

What is the average interest rate at the end of 2022? And are you hedged against short rates?

[Pekka Raatikainen, executive]

We are hedging part of the loan portfolio. And of course, the rise of interest rate affects us in the long run. But they represent the interest rate more in detail in the financial statement, full financial statements that we are publishing on 14th of March.

[Unknown Attendee]

Yes. Then one more question from Joni. You are accelerating your growth plan. How much M&A firepower you have given your debt level?

[Arni Ekholm, executive]

I think it's more the question of what tools we have to finance the acquisitions. As I explained, it's a combination of using own shares, using senior financing, using vendor loans, using equity, equity-like instruments. So I mean, it's impossible to say an exact amount. It is what is needed, so to say, in each case depending on the combination of the instruments that we use.

[Unknown Attendee]

And we have a question from Rico. How does Relais take care of its reputation as acquirer among its target companies?

[Arni Ekholm, executive]

Thank you, Rico. A very good question. I mean, we, of course, have group level policies regarding code of ethics that we are making sure that the management also follows. We have whistle-blowing channels that can be used anonymously in case somebody wants to report anything from the companies. It's more like we have a very down-to-earth culture in the company and try to take good care of people in everyday connection and contacts with the people. So I mean, it's a culture that is very -- we should be easily approachable. And then, of course, we make sure that we implement the different processes and then also make certain audits in the company.

So it's more like I have a very pragmatic approach to -- that we want to treat each other well, and that should be reflected as well in the newly acquired companies and at least when I'm doing the walk, walk the talk. I have to admit all too little during the last half year because of the IPO process is that I want to talk with people. And usually, I hear very quickly how things are going. And so far, at least all the companies we have both, we have felt that the people have liked to belong to the Relais group. The culture has been, as I said, very pragmatic, very approachable person-to-person. So not bureaucratic. So this is at least what we hear. So I don't know if it quite answered your question whether there's a real systematic approach to launch the culture. It's more like we rely a lot in our people, and we put that responsibility into the front line and give a lot of trust and accountability to our managers.

So that usually does the trick. And we usually hear very quickly if it's not working.

[Unknown Attendee]

Yes. Then a couple of questions from Petri Gostowski. You mentioned price increases. Can you give some idea how much prices increased overall in 2022?

[Arni Ekholm, executive]

It varies a lot between different product groups. And for some products, we had to increase the prices many times. And also here, it's not only the inflation but also in Sweden, the challenge with Swedish crown versus euro rate that made us to raise the prices. But I would say it's -- it would be atypical. It would not be usual to raise the prices, were like 10% every time. But there are, let's say, single digit, high single-digit increases and for some product groups, even multiple times a year, but we are not talking about 20%, 30% increases. So overall -- this is really hard to say overall, but I mean, a little bit shooting from the hip. I think it would be somewhere between 2%, 3% to 4% effectively across the line. But it's -- with the exchange rate effects, it's really hard to say.

[Unknown Attendee]

Then continuing with Petri's questions. What kind of pricing actions are you thinking of doing this year? Can the market digest more price increases without losing sales volumes?

[Arni Ekholm, executive]

I think it's more the question of what the net price is. And without going too deep into the details, it's not only always a question of increasing across the line the list price, it's more like to be tactical for each product and to be smart when you price, and there's also the stock rotation aspect in each product. The spare part business is a bit of an, I would call it, oddball, but it's in it's own ball game where some of the products are actually have to have them and the customer has to get them. And then you have these kind of fast runners where maybe their sensitivity for the price is higher. So it is more the net price, maybe also discount matrixes between different customer groups. So more specific than that I can be, but it's more like a smart pricing than just across the line brutally with a 1% -- or a certain percent that you increase the products?

[Unknown Attendee]

Then you were able to push inventories down clearly in Q4. Can you comment on how much more room do you see to reduce working capital?

[Arni Ekholm, executive]

There is in the wholesale business, of course, a limit of, I would say, pain that -- when do you start to lose your service level towards the customers? I mean you should not shoot yourself in the leg either by going too low on the inventory. It's again a little bit of a smart inventory management game that the fast runners that can be replenished quicker from the suppliers in Europe, you can maybe have a thinner layer of them, but a broad layer. And then the seasonal goods that we take from Asia, then you can work a lot on the, let's say, account payable side where you can go for longer payment terms or then a letter of credit, then the inventory may come in, but then you don't have to pay before you have actually sold the goods.

How much more room? Actually, I think the inventory has actually reduced still during quarter 1, but I'm thinking we are probably approaching a level that it's not going to be that significant this year than it was last year. Definitely -- because why we could reduce so much last year was that we had ramped up the inventory in the advent of supply chain issues, then there was still a strong season that we could sell the products in a good manner. But now we are not ramping up the inventory. So we are very effective at the moment. So again, sorry to be a little bit unspecific. I hate to give a certain number at the moment. But there is some room, but it should not be exaggerated because then we are compromising our service level towards the customers.

So it's more like the full net working capital optimization with the payment terms and times as well is part of the equation, not only inventory.

[Unknown Attendee]

Then the last question from Petri. From which market is the growth of strengths coming from? And what should we expect going forward?

[Arni Ekholm, executive]

We have a very good solid growth plan for Strands. It's a company where we see a lot of potential because of the track record and the power of the brand, having millions of YouTube contacts and showings and then over 100,000 Instagram followers. It is really a strong brand. The growth I predict, we still have some niches in Scandinavia that we can grow mostly, I would say, West Europe and then even countries like Australia and that type of markets where there's traction, maybe North America as well. But there is a good growth plan for Strands and still a lot of runway.

[Unknown Attendee]

Then the last question from Joni. Should we expect similar EUR 1.5 million capital expenditure in 2023 as seen during 2022?

[Pekka Raatikainen, executive]

Yes, thanks for the question, Joni. I think this is representing pretty well the current investment needs. They are, of course, affected by any potential season, especially if they happen to be in the business repairs [ works ] area. But this is a modest level, and we have a certain history regarding it. So I don't expect any or we don't expect a drastic changes.

And if I may get back to the Joni's previous question, I apologize my slowness regarding the tax rate and the effective tax rate, especially now that I thought it twice. It's, of course, related to the group contribution bookings that took place during the fourth. They are not evenly distributed along the year as it is the taxable income is mainly generated during the second half, and it is most likely the reason behind this.

[Arni Ekholm, executive]

Yes. I would maybe also comment, Joni, for the CapEx question you had. It's fairly stable if we look at the repair and maintenance change that we -- time after time, of course, you have to renew certain equipment. But then, of course, we might also have some systems development projects going on, on the warehouse management and some business intelligence type of investments that will give us benefit from a synergy point of view, having better visibility in our functions and identifying the savings potential and synergy potential. So there might be a slight increase there on the systems side, but not so much is kind of a heavy equipment for the workshops that would be [ major ]. But it's not like -- it's not going to be double that or anything.

[Operator]

There are no more questions for now. So I give the floor back to you.

[Arni Ekholm, executive]

Okay. So I would just like to say thank you for following the presentation. I hope you all had the chance to make the questions and also thanks everybody who made the questions. And of course, you are free to approach me by e-mail if you have any further questions. My e-mail is on the website, even my phone number. So grab a phone, and I might even answer if you have some questions. So with these words, I think both of us want to thank you very warmly and wish you all the best for the future and see you in roughly 3 months again or 2.5. Thank you.