Bergman & Beving AB

STO:BERG B

Earnings Call Analysis

Earnings Call Transcript 2025-Q1

[Operator]

Welcome to the Bergman & Beving Q1 2024 Report Presentation. [Operator Instructions]

Now I will hand the conference over to speaker CEO, Magnus Soderlind; and CFO, Peter Schon. Please go ahead.

[Magnus Soderlind, executive]

So welcome, everyone, to this conference of the interim report for our Q1. And we will do, as always, we will start to present the quarter and the quarter results, and then we will have a Q&A after the presentation.

So let's start with some highlights from the first quarter. We have improved results, profitability as well as cash flow in this quarter -- and if we take some kind of non-figure highlights. So we communicated in June that we have renamed our divisions to mark our expanded acquisition strategy. This doesn't imply, we haven't changed the kind of company that is part of each individual division. So it's this kind of similar structure going forward. It's more like a mark setting that we will have a broader strategy in terms of acquisition going forward.

And also, our acquisition ambition is unwavering. We made one acquisition in the first quarter, and we made one acquisition July 1. So we have a little bit slower tempo than we had last fiscal year, but you shouldn't see that as a signal that the ambition or the conditions to kind of deliver on our target is not there. It's more that we are very cautious about the quality of the acquisition we make and the valuation that we -- and the kind of the money we pay for the acquisition as such.

So if we then get into the highlight numbers, the revenue increased 2%, whereas the organic growth was minus 7%. But the gross margin continued to strengthen, 1% unit this quarter, and we are now at 47%. We also have given the kind of underlying market challenges, we have still a continuous strong cost control. So actually, the organic cost has decreased during this quarter compared with previous quarters the same year or the last year, sorry.

So the EBITA increased 13%. We delivered SEK 119 million this quarter, and the EBITA margin continued to improve, and we now are at 9.5% compared with 8.6% last year this quarter. And a little bit trend which came up neutral is that the EBT now increased and it increased 19% this quarter. So we delivered SEK 74 million EBT this quarter. So this is now we are kind of meeting quarters with a similar type of interest rate levels. And we have some other elements in the financial net that Peter will address later on in this presentation. But anyway, I think we now have easier comparable EBT results in the quarters coming forward.

And also very positively, there are profitability that is measured as profit of working capital, continues to increase, and we are now at 27%. And a 5% is unit improvement compared with the previous year. And this is a result that we have continued to work down the working capital in combination that we increased the profit as such. And this in total also generated a solid cash flow from the operating activities. So we're also increasing the cash flow, ended up with SEK 194 million in this quarter.

So once again, we are quite satisfied with the quarter results with improved results, improved profitability, and strengthen our cash flow despite the tougher market conditions. Acquisition, yes, I mentioned earlier, we may have made 2 acquisitions so far this fiscal year. One is Maskinab that we acquired in the beginning of Q1 and this is part of the Industrial Equipment division, previously Tools and Consumables division, and they are a market leader in the Swedish market in machinery that is used for the industry in this case, making -- sorry, Peter, can you help me, what is the English word? [Foreign Language]

[Peter Schon, executive]

[Foreign Language] sorry.

[Magnus Soderlind, executive]

[Foreign Language]

[Peter Schon, executive]

Sheet metal.

[Magnus Soderlind, executive]

Sheet metal, yes, for machineries. And we already own a company Belano that is the market leader within the construction center in sheet metal machinery, so only now we have strengthened this cluster and take a leading position within the industry segment as such. And here, we can leverage some cooperation between the companies in, for example, service resources and those type of things. We also continue to acquire companies in the U.K., so we acquired 1st of July, Spraylat. It's a product company that will be part of the core solution, previously Building Material division. And this is, I think, is a very interesting product company. They have a chemical or that they actually use to paint or spray windows and then give it protective for window surfaces during construction.

And this is a very cost-effective way to protect windows, prohibit them to be damaged, and damages can delay projects significantly if they need to order new window surfaces. And also, it would generate a lot of costs. So they are leading for this type of application in the U.K. market, and we foresee some good export opportunities, already 50% of the volumes in export, they haven't invested in export. They've been very reactive in that segment. And here, we see some opportunity to be more proactive, both in the current market, they are operating outside the U.K., but also in the Nordic where we already have some platforms that could be used for kind of expanding this type of business in the Nordic region.

And as communicated earlier, we are really focusing on buying highly profitable companies with a hurdle of EBITA margin about 15%. And of course, profitability or profit of working capital about 45%. And this is kind of the kind of conditions we have also to invest for growth. So both these companies on a kind of growth path.

So we had improved profit in this quarter, and we now have 18 consecutive quarters with EBITA increase. And this quarter, we increased the EBITA with 13%. But if you look at the current figures, 30%, if you prolong this period for the 18 quarters. And this also -- we also have an EBITA margin improvement. I earlier said 9.5% in this quarter. And this is kind of the improvement path that we had during the 18 consecutive quarters with roughly an EBIT margin improvement with 1% per year. And that is kind of the ambition level we have also going forward to reach the EBITA of 10% latest fiscal year '25, '26.

This is the revenue. And as communicated, we continue to focus on the high-margin businesses, i.e., doing some outfacing of low-margin, high-volume products. We are getting to the end of that process, but still we have some work to be done that will be in favor for the margin development going forward as well, even if it will not be as big as it had been historically, but we're also facing a weaker underlying market.

And as communicated, as said earlier, we have an organic decrease of 7%, and the majority of this decrease is related to a weaker market -- underlying market as such. And hopefully, we can at least perceive that we have leveled out the underlying market now. And hopefully, it will kind of pick up here in the autumn. And then we have some great opportunities to leverage all the efficiency measurements we have done across the group during this time of tougher times.

We've also partnered this product mix enhancement and focus on the profitable part of the company's business. We have a positive trend also in gross margin development, as you can see here on the chart, and we are now at 47.4% in this quarter. And we also perceive over time that we should have some minor improvement in the gross margin organically going forward as well in combination with margin improvement in the acquisition we do going forward with highly profitable companies that per definition also have good gross margin as such.

And we have continued to focus more on product companies. If we look at the acquisition we made recently during the 3 years, it's mainly product companies. And that is also shown in a mix between proprietary products and other products. So we're now at 72% own product and the proportion of other products has gone down from 32% to 28%. And that is -- if you will have any kind of change [indiscernible] in this dimension, it will be more own product, a higher portion of our own products going forward. That also will be positive for the gross margin development going forward.

With that, I will leave over to Peter to talk about the earnings per share and other financial topics.

[Peter Schon, executive]

Thank you, Magnus. And this slide is actually a bit more fun to present this time than it has been for the last 5 quarters since we have had a decrease in earnings per share, even though we increased the EBITA over time. But finally, it starts to even out, and we now have an increased earnings per share.

And of course, the main reason is the improving EBITA, but also a decreasing net debt and that the interest rate is -- at least is coming down a bit. It's not on par with last year, but it's getting there. So hopefully, now we will see an increased earnings per share quarter-by-quarter going forward.

If we look at the inventory on this slide, you have the actual inventory on the bars, and you have the rolling 12 figure on the red line, and you have the inventory turnover on the black line. So this was actually what I was most happy with in the report. As we earlier communicated, we have said that we do have more inventory to reduce, but that it will go in a slower pace going forward. So I was really happy that we got a good inventory release this quarter as well. So yes, really good. Even though we -- when we're coming to the inventory turnover, we're not on the pre-COVID levels yet. So we're still going to see a reduction in inventory. But as we said earlier, it will go in a lower pace going forward. It's not as easy anymore to release inventory.

And consequently, the cash flow was also really good in the quarter. And of course, that's mainly due to the increased profitability, but also the inventory reductions. So really strong cash flow, SEK 194 million compared to last year, SEK 179 million. So that was also a thing that I was really happy with. And of course, looking at the net debt, it also came down a bit. It was SEK 962 million compared to SEK 1.065 billion last year. So it came down quite a bit.

And if we look at the level, it's around par with the Q1 2022, 2023, even though we made acquisitions for SEK 0.5 billion. So yes, really strong performance cash-wise, I think. And also, net debt to EBITA is going down, of course, due to lower debt, but also that the EBITA level has increased with SEK 125 million since '22,'23.

So yes. Good. So Magnus, back to you in the divisions?

[Magnus Soderlind, executive]

Yes. So the previous building material is now renamed to Core Solutions. And if you see on the curve down there, this was actually the first quarter for some quarters that actually the performance was a little bit weaker. And this is, I would say, solely due to demand effects. And ESSVE is the biggest company in this division, and they have had a kind of a weaker demand in Q1 compared with previous Q1.

Even if they are not exposed to kind of the consumer market or neither to the new construction of housing, but still the kind of construction market, they have some effects of a weaker general construction market that we hopefully -- I'm sorry, it's tough here. And hopefully, we will see a pickup here even already during this quarter in ESSVE. And if that will not materialize, we need to look at some efficiency measures also in ESSVE going forward.

But several companies within this Core Solution division had some weaker demands during this quarter. But once again, I think we have kind of leveled out on this level. And if something will happen, it will kind of be a little bit better demands going forward. Positively is that the newly acquired Itaab and Elkington have a very strong top line growth and the order book is also strong. So this acquisition has performed very well since they came into our group, and that's very positive.

And as said earlier, the Spraylat is part of this division since July 1, this quarter, for this fiscal year. So this kind of demand effect is showing that the revenue was a little bit weaker. It was SEK 5 million below previous year. And the EBITA was SEK 5 million lower as well and the EBITA margin was a little bit weaker. But once again, we kind of will wait and see. But if the market doesn't pick up, we need to address that and take some efficiency measures in some companies in this division.

If we look at Safety Technology division that was previously Workplace Safety, they are now on par with last year. And 5 out of the 7 companies in this group is increasing the profits. This is a division that has had a deteriorating profit trend during some quarters, and now they are on par with last year. And my expectation is that this division should improve over time here and get into a positive trend going forward.

And here, Skydda one of the bigger companies in the group, and we had taken some efficiency measures here and product phaseout. And they have some weaker underlying market that is kind of affecting Skydda in this quarter. And this is one of the 7 companies that doesn't have an improved profit in this quarter. But on a group -- on the division level, the revenue increased still by 3%. And the EBITA, as I said before, is on par with last year with SEK 34 million. And also, the EBITA margin is roughly on par with 8.2%. And as you can see on the graphs here, the EBITA percent and the rolling 12 EBITA now has leveled out. And as I said before, my expectation is that this division should pick up over time.

And lastly, but not least, the Industrial Equipment division, the previous Tools and Consumables that continue its steady trend of improving profit and have another quarter with all-time high results. And the Nordic industry customer demand is stable, but on a lower level. So this is not kind of an effect of that the underlying market has picked up. It's really about we have made some good acquisition that delivered good profit and margins in this division. And we continue to work with Luna with some efficiency measure and product phaseout. But still, they are facing a slower underlying market. And so the result in Luna is in level with previous year quarter in this Q1 quarter. So we still have some struggling with Luna and need to continue to work on efficiency and product mix changes in this company.

So in this division, the revenue increased 4%, but the EBITA increased 48% and is now SEK 46 million in this quarter. This is a very strong result. And once again, this is due to that, for example, Luna revenue is going down, both due to the product phaseout, but also to a slower underlying market, and we have replaced that with high-margin companies in the acquisition we made that is giving this high leverage on the EBITA improvement despite that the revenue only is up 4%, but the increase in revenue is related to the highly profitable companies.

And here, we are now steady above the 10% margin. So we have an EBITA margin of 10.1%, and that is a 3% units increase compared with previous fiscal year. So a very strong performance within the Industrial Equipment division.

So as communicated earlier, we still stick to our targets. We're delivering an EBIT of SEK 500 million latest fiscal year '25, '26 and an EBITA margin of at least 10% the same year. I think we are on track based on this quarter results and what we see going forward. And also, we have some improvement in the profit of working capital, as communicated, and that is to be 45% 1 year later then.

And we have a good improvement path on the profit of working capital, and we need to do some more things, and we have plans and activities around that. So I still feel confident that we should be able to deliver on the 500/10/45. And as I said earlier, we have had a little bit slower acquisition pace so far, but we stick to the target of acquiring SEK 50 million to SEK 80 million in combined annual earnings per annum. And the path you have seen so far is more a result of we sticking to high-quality criteria on the companies that we acquire and that we will stick to the evaluation range that we have set for ourselves. And the market -- underlying market is there for us to deliver on this, and we still expect to deliver on this SEK 50 million to SEK 80 million during this fiscal year.

And as you saw on the graph earlier also, we continue to increase our percentage of our own products, and that will help us to improve the EBITA margin over time as well as the profit of working capital dimensions. So that is also a target that we aim to deliver on fiscal year '25, '26.

So how to reach those 500/10/45, there is not really anything big news here. It is continue to what we always do, profit expansion over revenue expansion. We have our capital allocation model, the focus model that is really steering where we allocate capital and the agenda that the company should have. For example, Luna that is below the 25% profit of working capital. It's not about increasing the revenues. It's about increasing efficiency and improve the product mix and by that, the gross margin. And instead, we allocate growth capital to the companies that is above the profitability of 45%.

And once again, the focus model in our capital allocation is really a company-by-company strategy, and they have got an activity accordingly. And that was just some example, the way I talked about Luna, about their strategy and goals and activities based on where they are in our capital allocation model. We also have our Bergman & Beving toolbox. I will not get into that. I presented that earlier. It's kind of how we can support our companies in the kind of development and that is something that is very appreciated by our companies, but also when we're out in the market acquiring company where they really see that we can bring some great benefits to them and for them to be part of the Bergman & Beving Group.

And I already talked about decisions. The ambition is on the same level as the target, and we will continue to work on that. And if we look at the kind of market and conditions to deliver on our target, we think they are kind of there. So once again, we stick with our target in terms of acquisition, but we're really focusing on acquiring high-quality companies to -- within our valuation range.

And then we have some current themes. It's still about strengthen our cash flow. It's still some work to be done on the stock that Peter mentioned earlier to get us back to the pre-corona level. And from that, they continue to improve and optimize our stock. And we're also very cautious in investments currently in our portfolio companies based on the kind of underlying market is still kind of not picking up. We made some selective investment in the highly profitable companies. So it's not that we have an investment freeze. But I would say we're a little bit extra cautious based on the kind of underlying market situation as such.

And that is also reflected in the very tight cost control we have. As communicated initially here, we have an organic decrease on cost since we take some efficiency measurement, especially in the companies that doesn't have a profitability on the level that we would like to see. And finally, but not lastly, we had a very good solid gross margin improvement over time, but we are really kind of making sure that we protect that going forward.

I earlier said that the big portion of the phaseout has been done now. We have still some kind of product mix improvement that we can make over time. But we also need to make sure that we protect the gross margin on the healthy business that we have, and that is something that we have a strong focus on going forward as well.

So with that said, once again, we are kind of happy with the quarter with this increased profit, increased profitability, and the strength from cash flow. And we still see some good opportunities in the market, despite it's kind of a tough underlying market in some companies in some situations, but we also see a good kind of opportunity for us to continue to improve over time and also to deliver on the financial target that we had set and communicated.

So with that said, I will leave over to the Q&A.

[Operator]

[Operator Instructions] The next question comes from Zino Engdalen Ricciuti from Handelsbanken.

[Zino Engdalen Ricciuti, analyst]

I would like to start out on a bit general on where you're seeing we're going ahead. So in this quarter and also in the last one, you were expecting a stable market and hoping for a pickup in the autumn. I would just like to hear, since the last quarter, basically, if you have gotten -- have you gotten more or less confident in that sort of pickup if you're seeing these ground sprout, so to say, coming now during the start of summer?

[Magnus Soderlind, executive]

Thank you, Zino for the question. If you look at the kind of macro indicators, there are some signals that the buying index for the industry is kind of picking up. The interest rate is coming down. So I think there are a very good kind of macro indicators that the general market will pick up over time. But to be honest, we don't see that actually in the company during this quarter, is not that customer is indicating that they will increase the kind of purchase in a dramatic way. We get some signals that some customers foresee that the market is starting to pick up. But in terms of orders and deliveries, we haven't seen that in this quarter.

[Zino Engdalen Ricciuti, analyst]

And just on the comment on a weaker demand from some of your industrial customers, which you highlighted and you also did last time as well. I'm wondering if the continued weakness from what you're hearing from your companies, if it's broadened or if it's relatively, I would say, concentrated?

[Magnus Soderlind, executive]

I think, in a general way, I would say it kind of have stabilized, but stabilized on this lower level. The difference in this quarter is the Core Solution and the ESSVE division. I mean, they have had also in the Q4, a little bit weaker demand, but that continues in this quarter and maybe a little bit strengthened actually, this kind of a weaker underlying market.

[Zino Engdalen Ricciuti, analyst]

So in -- if you're looking in the quarter specifically, was it basically done the same -- was it constantly -- constant during the quarter? Or was there a change within the month, so to say?

[Magnus Soderlind, executive]

I would say, on a group level, I would say it was constant. And I think you can see that also if we compare with the organic kind of development this quarter compared with previous quarter as well.

[Zino Engdalen Ricciuti, analyst]

And just lastly from me on Safety Technology, where you highlight that we should expect to see some kind of pickup. Would you say that it's more related to efficiency gains, which will come through or some of the slight improvements you have noted?

[Magnus Soderlind, executive]

I expect it to be a combination of a lot of things actually. The efficiency measures that we take, we have still some -- that you don't see in the figures yet. We also see a slight pickup in some companies that hopefully will give some effect. And we have made one acquisition Ateco that is contributing in a good way that will support this development. And hopefully, we will have some acquisition in this division going forward that will help and support the growth -- profit development as well.

[Operator]

The next question comes from Emanuel Jansson from Danske Bank.

[Emanuel Jansson, analyst]

I think we can continue to touch upon the Safety Technology division. I think you're mentioning in particular that you see a slight improvement, primarily if company is delivering to resellers. I think for quite some time this division has struggled since a lot of, I think, at least the Nordic retailers have worked a lot with reducing their inventories. Is it this what the primary source of the slight improvement here is that the Nordic retailers are starting to maybe fill up the inventories again? Is that what you see? And is that also the trend that you expect here in the near term as well to continue to improve?

[Magnus Soderlind, executive]

Yes. That relates to the comment I had with on Zino's question. We see some companies in this Safety Technology that is actually having a slightly higher demand from the Nordic reseller. But if that is kind of a trend, that will continue or not, that is still uncertain. I think it's too early to say that this is a constant trend that will kind of continue over the next coming quarters.

[Emanuel Jansson, analyst]

And I assume that we should expect that this division will -- we will be one of them, like main contributor to the earnings development going forward since its previously quarters with quite some struggles, right?

[Magnus Soderlind, executive]

Yes. My expectation is actually that all of the divisions over time should have a positive and good profit development. And of course, then Safety Technology had some quarters previously, we had kind of actually declining profits and now we are on par. And my kind of expectation is once again that they should kind of improve the profits over time if that will materialize in this current quarter or it will take some more quarters to kind of materialize that or I think it's also too early to kind of say.

[Emanuel Jansson, analyst]

And if you just compare the 3 divisions, which you see -- which one do you see have the highest potential here in achieving the highest EBITA margin in the longer term?

[Magnus Soderlind, executive]

If you talk about the EBITA margin?

[Emanuel Jansson, analyst]

Yes, exactly.

[Magnus Soderlind, executive]

Yes. That's a very good question. Of course, that will be dependent on the acquisition that -- and the level of acquisition that we make. It's not that we have set specific targets for each individual division in terms of acquisition. We like to have let the best candidate win. So it's really what type of acquisition opportunities the different divisions will have going forward will, of course, be one very important part of the kind of development going forward. If we look at organically where we are today based on the platform, I don't see it's a big difference between the opportunities for them to improve in terms of margins. I think that will be very much affected about the acquisitions, the amount or the level of acquisitions that we'll be able to make going forward.

[Emanuel Jansson, analyst]

And regarding the acquisition environment and M&A environment, we're also seeing some macro indicators are improving and maybe hopes of lower interest rates going forward. Do you also -- have you started to see some slight uptick in valuation multiples when you're trying to acquire a company as well? And could that be some of the reasons also with the slow start of the M&A -- M&A pace so far in this year?

[Magnus Soderlind, executive]

I can't say I see a clear pattern. But for me, there are some indications that in the Scandinavia market, it's picking up a little bit in terms of valuations. And now we made this Swedish acquisition, Maskinab, but we also made one acquisition in the U.K. And we think that the U.K. market is -- there are many very good companies, industrial companies with very good financial figures. And the competition isn't as intense as I think the competition is in Scandinavia. So I think time will tell. We don't see any clear, once again, pattern in kind of competition currently, but it should be interesting to see what will happen now over the next quarters.

[Emanuel Jansson, analyst]

And I think last question on my side here. Can you maybe give us some flavor on the demand between the different regions here? I mean, probably Sweden seeing the maybe a slightly better improvement, but also supported by the M&A, of course, but could you maybe give us some flavors between Sweden and Finland, maybe U.K. as well and Norway in terms of overall demand?

[Magnus Soderlind, executive]

Yes. We communicated that if you should have one KPI on a kind of group level that indicates the underlying market development, we will say it's the number of employees in the industry and in the construction sector. If you look at those indicators, the kind of weakest market is actually the construction sector in Finland and that we can see. And then we have some weakening and this is calendar year Q1 figures. That's the latest available figures that I referred to now. But we also see a decline within the industrial sector in Finland and Sweden as well, whereas Norway is kind of flat. And also in the construction sector in Sweden, it's weaker, but not as weak as in Finland. So if you look at -- if you aggregate this on a kind of -- on a group level, we talk about in the range of 4% to 5% fewer employees in the Nordic sector within the industrial and construction sector.

[Emanuel Jansson, analyst]

And what's your view there on your market shares in this market environment? Are you maintaining market shares or gaining?

[Magnus Soderlind, executive]

Yes. I mean, if we look on a kind of overall level, I would argue that we actually gained some market share. We haven't had any companies losing any big customers. Instead, we have some companies gaining new market share. Yes, for example, ESSVE, as we enter [indiscernible] that's quite a big customer and it starts to build up now. Just one example of customer that we have kind of won.

[Operator]

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

[Karl-Johan Bonnevier, analyst]

But one, maybe you could elaborate a little on the minus 7% organic growth? And how much of that impact you saw coming out of the phasing out of the high-volume, low-margin products in ESSVE [indiscernible] during the quarter?

[Magnus Soderlind, executive]

Yes. If you look to those minus 7%, a big portion, I would say, even the majority of this decline is related to Skydda and Luna. And part of that kind of -- part of their kind of decline is related to this phaseout. But part of this, and I would say majority of this is also related to a weaker underlying market. But that is also a kind of giving a positive gross margin effect on the group level as such. It's those type of companies doesn't have kind of, they're below the kind of group average gross margin level. So those are the 2 major kind of reasons for the organic decline.

[Karl-Johan Bonnevier, analyst]

And when you look at the business propositions of Skydda and Luna, it sounds like you still see good opportunities, and you still see it being a part of the group. Is that the right interpretation? And maybe also elaborate a little on what kind of growth opportunities you might see in that portfolio also over time.

[Magnus Soderlind, executive]

Yes. The first answer is yes. We see improvements in both of those companies, and they are now facing weaker markets. So we are taking a lot of efficiency measures in those companies as well as improving the product mix to kind of prepare them for a stronger underlying market as such. If we look at Luna, I've said it before, they have a monopoly situation as a wholesaler in Norway. And there is no other wholesale alternative to Luna and they only have [indiscernible] in Sweden as a competitor, and they are focusing on the construction sector.

So Luna more or less has a monopoly situation as a wholesale industrial segment. And that, as such, is giving them a strong, good opportunity to leverage that over time. And that is something that we have kind of increased the focus on actually segment the markets, the reseller markets and make sure that we have competitive offerings, but also give Luna good margins and such. So there are a lot of activities that has taken place and preparing them for a stronger market that such will help them to improve the profit as well as the profitable working capital ratio. So there is a lot of things and a lot of activities has taken place and is taking place in both of those companies, and we see they give effect and we have an improvement. And I have a belief that they should all be -- both be able to approve over time.

[Karl-Johan Bonnevier, analyst]

And just to come back and picture a little more on the hope for the -- maybe the outlook for a pickup in general demand coming in autumn. Which segments do you already see that you are maybe fully loaded at this stage, so you can't really take on more? And what areas do you see normally the biggest swings when market demand comes back again?

[Magnus Soderlind, executive]

I mean since we have 31 companies now, and they are addressing different type of segments within the industrial and construction sector, is really need to go into company by company because they have different types of exposures. But generally speaking, the biggest one is Skydda, Luna, and ESSVE and of course, if kind of the construction sector and number of employees within the construction sector start to pick up, and that will have a positive effect on the underlying demand for ESSVE. And they are exposed to the Nordic and the Baltics. And all of those markets has been weakening over time. And when the interest rate comes down and the activities start to pick up, there should be a positive effect on ESSVE.

And then Luna and Skydda is more focused exclusively on the Nordic region and exposed both to the industrial and construction sector. And that will have -- it's not a specific segment. They are in all segments, more or less. So it's more like when the general pickup will pick pace within those type of -- within the construction industry, we will see that effect in Luna and Skydda. And then the other ones are more kind of niche market oriented. So there you need to get into each individual underlying market to kind of see what triggers a pickup in the demand.

[Operator]

The next question comes from Markus Almerud from Carnegie.

[Markus Almerud, analyst]

Markus Almerud here. Most of my questions have been answered, but maybe just one quick one on the margin. So just looking at the driver of the margin here in terms of the gross margin in last quarter was mainly driven by internal measures. And then you had the acquisitions driving the EBITA margin or the combination of the 2. But given that the phasing out of products is almost done, should we expect that the internal work is more or less done and there's going to be acquisitions going forward, driving?

[Magnus Soderlind, executive]

Yes, I would say we still have some work to be done, but the kind of the low-hanging fruit is done and you shouldn't have such big organic gross margin improvement going forward. Still, there are some opportunities, still that there are some expectations to improve that going forward, but the majority will be acquisition-driven.

Okay. I think that was the last question. So thank you very much for listening and wish you a very good summer holiday.