Addtech AB

STO:ADDT B

Earnings Call Analysis

Stable Market; Revenue and Margins Grew

Addtech reported a 10% increase in net sales, continuing its growth trajectory with a significant 25% rise in results. Margin expansion is evident, with margins reaching 14.9% when adjusting for unrealized FX gains, up from 30.2% in the prior year. The solid 67% improvement in cash flow reflects a successful strategy focused on high-value acquisitions and currency effects, bolstered by a strategic shift away from lower-margin businesses. This comprehensive approach led to a remarkable 20% growth in earnings per share, showcasing the company's financial strength and strategic decision-making.

Solid Quarter Amidst a Stable Market With a Focus on Value-Added Growth

In their latest earnings call, the company reported a robust financial performance for the second quarter and the first six months of the year. Net sales grew by 10%, including a 1% organic component. The results reflected a favorable scenario with a significant 25% increase in profit, leading to a strong margin improvement; margins were up at 14.9%, and even after adjusting for unrealized foreign exchange gains, they stood at a healthy 14.3%. This uptick in margins was attributed to strategic alterations in product mix, margin-accretive acquisitions, and a focus on added value. Despite varying outcomes across segments, the overall high level of customer activity was evident, and the company's market position was deemed stable with a well-filled order book promising good visibility into future quarters.

Business Areas Diversification Drives Growth Despite Macroeconomic Uncertainties

The business areas including Industrial Solutions and Process Technology showed particularly strong numbers. Strategic decisions, like the reduction of low-margin business in the Energy business area, were made for long-term gain. The company's diversification strategy allows it to remain resilient, benefiting from sectors with sustained growth such as defense, electrical vehicles production, and medical energy. This approach has proven effective despite the headwinds from tough comparisons in the last quarter and certain industry-specific challenges such as overcapacity in lead-acid batteries and disruptions in the supply chain.

Strategic Emphasis on Accretive Acquisitions and Financial Discipline

The company has continued to grow through strategic acquisitions that add significant annual turnover, maintaining alignment with their financial target of over 15% EBITDA growth from these ventures. This has been particularly true with recent acquisitions offering higher margins, contributing to the overall bottom line even if the top line growth is less than the historical average. The management also highlighted their focus on profitability over simple revenue growth, indicating a disciplined approach to mergers and acquisitions even amid an uncertain macroeconomic climate.

Efficient Management of Working Capital

A key operational focus has been on efficiently managing the working capital, which has resulted in a robust cash conversion rate of 67% for the quarter. Inventory levels, which increased due to sales growth and supply chain constraints, show signs of leveling off. The company maintains a strong financial position with a stable debt ratio despite dividend payouts, and changed market interest rates are not expected to hamper their strategies in the near future.

Looking Forward: Confidence in the Business Model and Future Growth

[The company is optimistic about its future performance despite an uncertain macro environment, which has persisted for over a year. Leadership is confident in their diversified business model and ability to adapt swiftly to changes, which is seen as a foundation for seizing new opportunities. The focus remains on driving profitable growth and doubling profits every five years. Looking ahead, the company is positive about its M&A prospects, maintaining a healthy pipeline and a strong balance sheet, while continuing its emphasis on EBITDA growth.

Earnings Call Transcript 2024-Q2

[Operator]

Good morning. This is the conference operator. Welcome, everyone, to Addtech's Second Quarter Report Presentation. [Operator Instructions]

At this time, I would like to turn the conference over to Niklas Stenberg, CEO; and Malin Enarson, CFO of Addtech. Please go ahead.

[Niklas Stenberg, executive]

Good morning, and welcome, everyone, to this webcast. We will summarize the quarter and also the first 6 months of this year and then go over to Q&A. And if we start with just some brief highlights. The customer activity remains high. There are variations between the segments. But overall, the market situation is stable, and we see no signs of a general slowdown as we write in the report.

Net sales is up 10%, of which 1% organic. I will come back to that. The result grew with a very satisfying 25%, and we continue to grow the margins. 14.9% compared to 30.2% same period last year. And adjusting for unrealized FX gain, the margin was 14.3%, still on a record high level. So a strong margin across the board. And this is our focus on increased added value, improved product mix and also margin accretive acquisitions. These are the 3 factors materializing in these figures.

Of course, we would also like to highlight the solid cash flow during the quarter and that [ R/RK ] improved to 67% from already high levels. So that's a very strong figure. As I said, net sales increased, all in all, with 10%, primarily driven by good contributions from acquisitions and currency effects. And the organic growth of 1% is primarily explained by lower organic sales in Energy business area, and that is due to a strategic decrease in low-margin volume business year-on-year. I will come back to that a bit later.

As you can see in the lower graph, the growth was supported by all business areas where Industrial Solutions and Process Technology sticking out very strong numbers in the quarter. And again, as we should remind us, we have very challenging comps overall in this quarter. As I said in the beginning, the market situation is stable in most segments. Our order book remains well filled and with good quality, and we have good visibility in the coming quarters in the book.

We saw a slight decrease as we write in the report, and this is due to a mix, I would say, of a normalization of order laying, some signs of customers destocking and to some extent, hesitations for new investment decisions.

If we then go over talking about the EBITDA developments. The positive trend strengthened in the second quarter, very solid EBITDA growth in all business areas also here, particularly strong in Industrial Solutions and Process Technology. And we have focused on improving value adds and improving the product mix by which we have increased the gross margins also in all business areas and the EBITDA grew with, as I said, 25% and with a strong EBITDA margin year-on-year improvement as well.

The cash flow thanks to a combination of the strong results, of course, but also a strong focus on improving working capital. A few comments on each of the business areas then. Starting with automation, not much acquisitions in these figures. It has been stable in general terms during the quarter. Strong demand for the company's delivering to defense industry continues, process mechanical industry have flattened out and the medical weakened against very tough comps.

And here, we see some signs of destocking, as I mentioned in the beginning. Very satisfying to see the margins improvement, and that is partly thanks to an increased sale of own products in relation to traded products.

In electrification, also here, all in all, stable development. Of course, variation between segments. Electrification have a very broad-based spectrum of markets. Again, here, defense strong. Special vehicles solutions for electrical production also strong, and that market is due to the trend of the globalization, moving home production from Asia. We have a number of companies that are having good development due to that.

Data telecom, medical weakened further. Wind power in electrification was kind of flat during the quarter. We have some short-term challenges within the battery group. I mentioned this also in the Q1 report, and that is related primarily to overcapacity of some lead-acid battery types, and that remained during this quarter. In combination with value chain disruption, if you could call it that way, we have -- we are missing one cell type affecting one of our main customers in the Medical segment. So that's all in all led to a bit weaker development in the battery group in the quarter.

Moving on to energy. As I mentioned earlier, we saw a weaker organic growth compared to last year. And this is mainly due to a strategic decrease of lower-margin volume business year-on-year in primarily two of our companies. Sometimes it's strategically right to take such business and sometimes not. But this is also reflected in the increased margin in energy year-on-year.

Looking at the energy, we have this grid exposure and the investment plans here as we've been talking about for many, many quarters, are massive in most geographies. However, there are bottlenecks in the market that I also usually talk about in this webcast. So it's access to entrepreneurs and especially the permit processes leads to a stickiness, and that has somewhat kind of increased, I would say, lately. We can really see that this is affecting the rollout here.

We can also see an effect of projects becoming larger. So it's larger products coming out on the market, especially in the Nordics, I would say. And this makes the procurement times longer. So what I'm trying to say is that this market has moved kind of sideways during the year, which we also expected to continue to be so stable and high levels here in coming quarters.

And finally, on energy, still weak wind power market. We do, however, get some positive signals from our customers for a stronger period later, '24-'25. Remaining part of Energy continued to be strong also in building installation.

Industrial Solutions, good sales trend in the quarter, really, especially towards the sawmill industry. So a number of completed projects here with strong margins. The low demand for new projects in that market remains, but it's important to keep in mind that our projects is not that it's standing still. And we actually won a couple of new nice projects in the quarter. So the market is still there.

The second big segment for Industrial Solution is special vehicle, and that varied a bit between both companies and segments, but all in all, I would say, it's stable on high levels.

Finally, on Process Technology, another solid quarter, good momentum for Process Technology. And I would say the company supporting customers within Medical Energy/Marine segments were strong here especially service aftermarket to the latter segment, so the Energy/Marine segments.

Mechanical segment weakened from high level. Forest process all in all, stable. And we can see that the demand of measurement instruments within chemical industries, especially oil and gas were -- continue to develop very strongly.

So all in all, trying to summarize everything I've said here now. It's a stable quarter in the key segments and geographies. And as I said the customer activity remains generally high and solid contributions from acquisitions.

As I said, we are summarizing the first 6 months here, and we can conclude a very solid period, sales growth of 13% and fairly evenly distributed between organic acquisitions and the positive currency effects. EBITDA came in very strong, 23%, up with a strong margin of 14.3%, good contribution all over the business areas. Cash conversion, again, the cash flow very satisfying. Malin will come back in a minute with some details here, and solid performance and the low net debt generates a strong earnings per share, so an increase of 20% approximately during the first 6 months. We are very happy so far this year.

A few words on acquisitions before I hand over to you, Malin. So we continue to acquire according to plan. We have completed 6 acquisitions so far. One additional now after closing. Last week, we signed with a Norwegian company Control Cutter, which is a very exciting company I would say, with an offering where they primarily support the oil and gas industry in the Phase III of decommissioning of wells. So primarily working with conductor recovery. So very happy to sign that company.

In total, including Control Cutter adds an annual turnover of approximately SEK 650 million, and this is very much in line with the plan. And the comment on that -- our financial target is EBITDA growth that should be over 15% over a cycle where have to come from acquisitions. And this means that when we buy companies with higher margins, that is our focus, clearly, to have accretive margins in the acquisitions. We obviously don't need the same top line acquired to keep our targets.

Of course, we have the mix here is good. But my point is that if you look at the year on acquired growth after 6 months, we are well on track looking at adding EBITDA even if the top line is below, if you look on kind of the historic average. So as always, our focus is on growing profits and not the top line.

We continue with possibilities outside the Nordics. We continue to deliver on that, and we can see a steady increase of opportunities on the markets where we have extra focus. So that is a very positive development.

And we have, going forward, continue as I always say, we have a positive view on the M&A market, a very healthy pipeline, strong balance sheet and good cash flow. So we have a positive view of continuing our journey here on acquisitions. And we still see reasonable multiples and that we can close deals even if it's kind of an insecure macro climate. So we continue according to plan.

Over to you, Malin.

[Malin Enarson, executive]

Thank you. Our focus on keeping a firm grip on the cost base continued to improve our cost efficiency quarter-by-quarter in comparison to sales, as you can see in the left graph here. This, in combination with more value-add and improved product mix and good leverage from acquisitions, improved our margins from already high levels.

The second quarter EBITDA margin came in strong at 14.9%, when adjusting for the unrealized exchange rate gains, which had a net positive effect on profits by approximately SEK 25 million, we still end up at a very satisfying 14.3% for the quarter.

Inventory levels remain a concern and a key topic for the management team, obviously. The buildup over the last 2 years is primarily driven by the strong sales growth and fueled by the supply chain restraints. The inventory level in absolute terms is flattening out and it's, of course, very satisfying to see a decrease organically and the continued improvement in relation to sales.

This is something that I also know that my colleagues in the business area teams have full focus on. Thanks to profit growth, margin expansion and overall efficient management of working capital. [ R/RK ] improved from high levels to 67% in the quarter.

I'm very pleased to conclude the strength in cash flow also in this quarter. The continued improvement is primarily driven by the high margins and the improved working capital development relatively to the same period last year. Our financial position remains very strong. And it's a clear sign of strength that we have kept the debt ratio fairly stable during second quarter. This quarter is all constrained due to the payout of dividends, et cetera.

Our interest rate sensitive is low and we don't foresee that the market interest hikes will impose any restrictions on our strategy in the foreseeable future. We have comforting headroom to support our ambitions also going forward.

[Niklas Stenberg, executive]

Thank you, Malin. So finally, just looking ahead, I mean, although we have, as we all know, an uncertain macro situation, that, by the way, we have been saying now for more than a year, I would say. But even considering the macro situation, I have high confidence in our ability to continue the successful journey we have been doing for many, many years in Addtech.

And I would say it's basically 3 main things that I have in my head to support that. One is the diversification, both in terms of small-scale business in the whole business model and in terms of markets and geographies. Secondly, as you can see in this picture, our focus on establishing strong positions in areas driven by underlying growth linked especially to the green shift that we can see in this picture. That also gives a lot of comfort.

And thirdly, not least, our strong and well-proven ability to act quickly and adapt to new situations. Of course, we always have the ear on the ground as we say it. And I mean in challenging times, we also know that we -- it means opportunities. So with our small-scale focus, our companies are always on their toes to take opportunities that arise.

So again, no general slowdown in customer activities and our order book, we should not forget, I mean, it's well filled. We are following developments very closely and are, of course, humbled about the situation. But also very important to remember when looking at us, the business model is based on the long-term approach, and that is our everyday focus to continue to create profitable growth in line with our targets, which is to double the profit every 5 years.

So with that in the back, I'm very pleased also with this quarter development, of course. So to sum up before going over to Q&A, high customer activity, pleasing improvement of profitability across the line, always main focus. Cash conversion, as Malin said, remains strong, and financial strength remains on a very attractive level, continuing acquiring according to plan. Focus on EBITDA growth rather than top line that I explained on that.

So with that said, let's open up for questions. Over to the operator.

[Operator]

[Operator Instructions] The first question is from Karl Bokvist of ABG.

[Karl Bokvist, analyst]

My first one, partly related to the comments you made there, Niklas, on difference between sales growth and earnings growth and your focus on margin-accretive acquisitions. Even if we assume this kind of same effect that acquired earnings have had a bigger impact on earnings than sales. Would it also be fair to assume just when we try to back it out, that organic earnings have continued to grow faster than organic sales?

[Niklas Stenberg, executive]

Yes, that's the right conclusion.

[Karl Bokvist, analyst]

And on that subject, you did mention some areas there, such as focus on product mix or -- and own products, value-add strategies and so on. But -- do you think there are any particular area where you feel that this has had the biggest impact? Or is it -- that it has been good, kind of just general growth in certain high-margin businesses? I understand the kind of unclear question from my side, but it would be interesting just to see the strategy and how you grow organic earnings.

[Niklas Stenberg, executive]

Yes. I mean, no, I understand your question, of course, but it's difficult to give a simple answer to it. But I mean the earnings growth here and how we can continue to increase the gross margins, it's a mix of many things. I mean, of course, the whole price effect discussions, which, by the way, we believe from now on going forward, the price part of the growth is probably not big or at all, more or less.

But -- and then when you look at the product mix and the more focus on higher added value and own products, that is really, I would say, kind of broad-based. It's not any particular business area that has more focused on that than others. In the quarter that passed, I would say it's clearest that change in automation. I think I mentioned it when I talked about automation.

So I think in this quarter, we see it more clear there. But over time, that's our goal in basically all business areas. Industry Solutions has the highest amount of own products and as of now. But the improvement is going, I would say, all over.

[Karl Bokvist, analyst]

Understood. And then just if we look historically at Addtech and also during the past couple of years, if we just look at the disclosed gross margin. It hasn't really moved much during the last years and not even during the last 5 years, it more seems to be an improvement in the OpEx line.

So just the comments you made there on improving gross margins, but is it also that you can find companies that have roughly similar gross margins as you have now, but they are more efficient on the OpEx line, and that is what is driving higher operating profit margins.

[Malin Enarson, executive]

Your question is why the gross margin can be so stable. Is that...

[Karl Bokvist, analyst]

No. The question is more your comment there on focusing on targeting companies and to improve the gross margin. And just when we look at it historically, the gross margin has been fairly stable. So it more seems to be that profit margins have improved from more efficient and better discipline on the kind of cost base between operating profits and gross margins?

[Malin Enarson, executive]

Okay. I understand. I think that the focus is maybe -- I mean, the main focus is, of course, to grow the EBITDA margin. Then, of course, it's an ambition to buy companies that adds also to the gross margin, but it can be a bit different. If you look at the acquisition target before we buy them, then of course, we analyze the business that they have from a gross margin perspective and also overhead efficiency.

Then when we report here, we also do some changes to this because we believe that we put quite a lot of the costs into the gross profit because we believe that's the right way to measure our companies and benchmark them, so that the gross margin actually has a quite stable development compared to the EBITDA margins. It's due to different things. But lately, as you can see, it is growing steadily, even though the EBITDA margin grows faster. So it's not really the ambition here to grow the gross margin as such, but the value add is very important. So then, of course, it depends also on how you report this.

[Karl Bokvist, analyst]

Understood. That's very clear.

[Niklas Stenberg, executive]

No. Yes. I think what Malin is saying, I mean, one part of this is how we actually report. We do buy companies sometimes where in their reporting figures have really high gross margins and higher cost of sale. And then when we put them in our figures, we'll make it a little bit different.

I think we've been talking about this in another call sometimes. So basically, again, EBITDA growth is -- EBITDA growth and ensuring that we buy companies with high value add. That is our focus.

[Karl Bokvist, analyst]

Okay. Good. My final one is just on the end market dynamics as a whole. It seems like building and installation across the entire group is still performing well. And why do you think that is, given what we kind of read and hear from other companies present within Nordic building installation applications? Is it due to a certain part of the segment that you're specifically targeting? And then my follow-up is just on the battery cluster and the energy transmission projects. When do you think this can return to growing strongly again, so to say?

[Niklas Stenberg, executive]

Okay. I mean if we start with the first question, I mean, as we have said many times, we don't have any exposure to residential buildings. We are in commercial and public buildings like hospitals, railway and this kind of infrastructure related.

So when we talk building installation, that's -- I think that's the main reason because that has been holding up in a very good way. So that is the reason why we can see overall a good development on building installation. But it varies, as we also write in the report.

In electrification, we see some slight reduction there, while in energy, where we have the main exposure on building installation, it continues to develop very strongly. So it's about what kind of exposure you have in the building installation sector.

When it comes to your other 2 questions, I mean if we start with transmission and energy, this is an extremely strong market. The inflow of new projects is really, really good. We are building a kind of a long pipeline here. Now we look into projects that are coming in next year and also some projects for the year after that. So it's a really good, stable inflow of projects.

But in a huge market like this, and that's what I tried to mention regarding the quarter that passed, we are -- we have a strong position here. We are picking the projects that we feel are enough added value and with good margins. And that's why it can vary a bit over the quarter.

So we, as I also mentioned in my little speech, we expect it to grow steadily on a kind of a high level the coming quarters. And this development will continue most likely for a long, long, long time. But we have said many times, it's most likely we will not see a hockey stick here because of even if the underlying market is extremely strong for the various reasons we've been talking about, it's a slower pace of deliveries than you might expect if you look on the underlying demand.

The battery side, of course, we have a really good positions on batteries. I mean we're one of the leading companies in industrial batteries in Northern Europe, and batteries is a strong market, for sure. The short-term kind of effect, especially I talked about this overcapacity on lead-acid batteries, that is a restraint for the growth at this time.

How long time that will continue? Difficult to say. Actually, it's a bit difficult to say. It might have some impact also coming quarters. But other parts, as I also mentioned, one of the main customers in the Medical segment, that should most likely ease up going forward. So a little bit difficult to guide concretely on that. But I guess my point is that our view of the battery market is still, of course, long term, very good.

[Operator]

The next question is from Johan Dahl of Danske Bank.

[Johan Dahl, analyst]

I was wondering if you could possibly say something else on that order intake. It seems to have been slightly below growth in sales. Was it sort of mid-single digits, high or low? Or can you give any comments there?

[Niklas Stenberg, executive]

Yes. Hello. Yes, you could say mid-single digit low. And if you take into account the sawmill project that is a very special comp and also what I talked about the short-term kind of battery situation, it improves a couple of percentage there as well. But it's below -- the order intake is below sales.

But I would say that all in all, we kind of see this as a healthy development because it's partly at least due to a normalization of the order laying in the customer. So no dramatic -- no dramatic part here. It continues to be stable and as we've been seeing some -- I mentioned some hesitations on investments. And so what I -- what we mean by that is that it is a lot of activities on the market, but we can see that the time to make final decisions is taking a little bit longer on some segments, and that is also giving some effect here.

[Johan Dahl, analyst]

Got you. On Industrial Solutions, very impressive margins. You talked about finalizing a couple of large projects. To what extent is this sort of end of project with your adjustments as you finalize these projects, i.e., you're not recurring in that sense? Or is it just the way you look at it, sort of normal business as such here in the second quarter?

[Niklas Stenberg, executive]

Well, it is like you say, when we finalize the project and here we have this kind of fixed price projects, the projects that we signed maybe 1.5 years back. So when we now finalize it, we get a bit hike on the margin.

And that kind of -- well, of course, depending on when you sign the project and so on because it's been so very specific situations the last couple of years. But we have a strong order stock and so it's more like the normal business, I would say.

[Johan Dahl, analyst]

All right. On this FX gain that you sort of talked about perhaps making an adjustment to what exactly is that? Is that a revaluation of the things? Or is it just the translation of profits? I didn't get that, unfortunately, [ it will be very good ] if you could explain.

[Malin Enarson, executive]

Yes. It's a revaluation of the derivatives that we have -- that we hedge large projects. And as long as they are just hedged and not realized, we have to reevaluate them every quarter. So that gives an unrealized effect on the profits.

[Johan Dahl, analyst]

What is that number year-to-date on the 6 months?

[Malin Enarson, executive]

Good question. .

[Johan Dahl, analyst]

We can take that offline if possible.

[Malin Enarson, executive]

Yes. I actually -- I don't know what we had in first quarter on the top of my head. I think it was...

[Johan Dahl, analyst]

But it is 25 here in the second quarter, was it?

[Malin Enarson, executive]

Yes, it is 25 positive effect in the second quarter. But on the top of my head, I actually can't answer that question. What it was in Q1.

[Johan Dahl, analyst]

I will take it later. Yes. Just finally on the -- what is an appropriate interest net in the second quarter for Addtech?

[Malin Enarson, executive]

Come again, please, you...

[Niklas Stenberg, executive]

Interest Net.

[Johan Dahl, analyst]

Yes. Well, we saw financial [indiscernible] in the legal P&L. I was just wondering, I didn't find that written in the status, what is the interest paid or interest net in the second quarter?

[Malin Enarson, executive]

The interest net is around 60.

[Johan Dahl, analyst]

Around 60.

[Operator]

The next question is from Johan Sunden of Carnegie.

[Johan Sundén, analyst]

Niklas and Malin, a few questions from my side as well. If we go back to the kind of strategic decision on the energy side, is it possible to quantify the impact on top line from this decision in the quarter?

[Niklas Stenberg, executive]

No, I think that, that is to go to too much in detail. But I mean it's quite clear that to put it this way, is -- it is really affecting the outcome of energy. So it's not just a minor part.

[Johan Sundén, analyst]

And I guess was thinking on the group level. Is it so big that it impacts -- have a tangible impact on the group organic growth in the quarter?

[Niklas Stenberg, executive]

Yes, it has an impact on the whole group.

[Johan Sundén, analyst]

And the kind of margin on that business, just to get a sense, is it below, say, 5% EBITDA margin? Or what's the profile on that business?

[Niklas Stenberg, executive]

No, it's not that low. We never take 5% margin business. But it's I mean gross margin-wise, it's clearly below like the average margin, if you say, in energy. And as I said previously, depending on the project and the customers and so forth, sometimes it is relevant to take that kind of project anyway, if you look on the whole -- look on the whole. So -- and that is why we have that kind of comp this year when we have decided not to take those projects to ensure the margins in energy.

[Johan Sundén, analyst]

That's fine. Staying at energy, you talked a little bit about the wind power business. This has been a vertical that has been struggled in the last few quarters or year. And looking at kind of Vestas and the wind power industry, they are a little bit more optimistic for 2024. And you also said that there's indications, positive indications.

When should we think this kind of market turning around? Is it entirely for -- after the summer next year? Or can it be even before the summer? Or how is the kind of discussions sounding?

[Niklas Stenberg, executive]

Well, I think my answer to that would be that you have to call the wind power market customers like Vestas and KK Wind and Siemens Gamesa because we are basically in -- we are following them and their development. But I agree with you, we get positive signals from basically, the whole market that it should be a positive development starting basically in '24. And when the wind market is improving, we are improving because we are -- we have strong positions on those customers. So it will really follow their development.

[Johan Sundén, analyst]

Great. And then a question also on the sawmill business, where you said that you have won a few projects during the quarter. What geographies are those project wins?

[Niklas Stenberg, executive]

Those are in the Nordic market, so both in Finland and in Sweden.

[Johan Sundén, analyst]

And you earlier talked about maybe pushing for growing in North America and the U.S., for example. How is those discussions developing over -- during the last few months?

[Niklas Stenberg, executive]

That is developing good. We have increased our presence in that market is both Canada and North America so -- or U.S. so -- and I mean the market potential there is very, very good for us. But it's also a very conservative market. The sawmill market is very conservative. So it takes time to get the foothold. But there are projects and the long-term potential is good for us here.

[Johan Sundén, analyst]

Great. Just one final question to Malin as well, and that's on the gross margin theme, which has been impressive over the last at least 2, 3 quarters. And now your comment on pricing to be less of a tailwind ahead. How should we view the gross margin during the coming 2 quarters then, if pricing will not be as much of a help? Are kind of input cost falling so you can maintain the gross margin step up? Or how should we think that?

[Malin Enarson, executive]

I think that we should consider the gross margins to be stable and also, as I said, of course, the ambition is to grow them steadily over time, but the gross margins, I believe, will be quite steady going forward.

[Johan Sundén, analyst]

When you say steady, you mean from the current step-up or from the same quarter last year.

[Malin Enarson, executive]

Yes.

[Niklas Stenberg, executive]

Sequentially, basically .

[Malin Enarson, executive]

Yes.

[Niklas Stenberg, executive]

Yes. So no, I just wanted to add. I mean, this is about the price effect is getting, of course, less and less. And I guess a follow-up question on that would be if there is discussions or if we see a risk of price reductions. And that is something we've been looking into and talking about internally. And all in all, we don't see that as an exposure. Of course, we have some companies. We have 150 companies in the group. We have some companies having that kind of situation, but other companies with the opposite situation. So all in all, we believe from that perspective, it will be stable as well.

[Malin Enarson, executive]

Okay. I can just maybe take the chance to answer Johan's question on the unrealized exchange rate gains. In the meantime, and it's Industrial Solutions that is affected. And there, we have a positive effect by SEK 20 million for the period -- 6-months period. So it was slightly negative in Q1 and now SEK 25 million positively in Q2.

[Operator]

[Operator Instructions] Mr. Stenberg, there are no more questions registered at this time.

[Niklas Stenberg, executive]

Okay. So thank you for good questions and listening into this report. Have a good day.

[Malin Enarson, executive]

Thank you.

[Operator]

Ladies and gentlemen, thank you for joining the conference. It is now over. You may disconnect your telephones. Thank you.