Bergman & Beving AB

STO:BERG B

Earnings Call Analysis

Revenue Up, Margin Growth, Acquisition Strategy

The company saw a slight revenue increase of 2%, maintaining its strategy to focus on companies with healthy growth and good margins. This strategic focus, in addition to improved efficiency, has led to a robust gross margin improvement to 48.5% from 45.9% last quarter and a 27% boost in EBITA, reaching a margin of 9.8%. Cash flow saw a significant jump to SEK 176 million, up from SEK 50 million the previous year. Two acquisitions were made, and with a stable net debt to EBITDA ratio, the company plans on further acquisitions, as it has a strong balance sheet and a receptive market environment.

Growth Amidst Industry Challenges

The company navigated through a tepid economic landscape with a strategic aim at growth and efficiency, leading to a revenue increase of 2% compared to the last year, meeting its outlined growth strategy. Contributing to this rise was the robust gross margin expansion to 48.5% from 45.9% the previous quarter, undeniably strengthening profitability. Efficiency measures across their divisions allowed slashing costs and surging the EBITA by an impressive 27%, culminating in a near double-digit EBITA margin of 9.8%.

Strategic Acquisitions and Cash Flow Improvement

The firm strategically bolstered its portfolio with the acquisition of Itaab and Sandbergs, signaling a sustained growth plan through M&A activity. Building on strategic inventory management amidst the post-pandemic recovery, the cash flow exhibited an extraordinary increase to SEK 176 million from SEK 50 million last year, though not fully returning to pre-COVID levels. Moreover, the addition of Tema Norge, a niche player in the welding market, and Elkington, specializing in infrastructure hatches, underscores the company's agenda of integrating businesses with high EBITA margins (above 15%) to fuel profitable growth.

Sustained Profitable Performance and EBITA Trends

The company demonstrated enduring profitability with 15 successive quarters of profit hikes, a testament to the resilience of its business model. This trajectory remained unaffected even in typically weaker Q2 quarters, showcasing the strength of its profit-focused strategy rather than solely chasing revenue. Despite organic decline, acquisitions and currency effects nudged the revenue growth up by 2%. More importantly, a steadfast focus on propelling gross margins to record levels has played a crucial role in upscaling profits. This focus is complemented by a steady increase in proprietary products' proportion, which underlines a strategic inclination towards fostering long-term margin stability.

Divisional Performance and Business Outlook

Building Material, Workplace Safety, and Tools & Consumables divisions all displayed varied performance, with Building Material achieving a double-digit EBITA margin increase and a revenue upsurge of 12%, showcasing across-the-board improvement within the division. Although the Workplace Safety division faced a downturn, the company anticipates its strategic measures will course-correct this trajectory. The Tools & Consumables division reported striking profit growth, signaling the fruition of cost efficiency programs. Together, these results highlight the company's acumen in diversifying and strengthening their operations across segments.

Strategic Focus and Future Aspirations

Facing headwinds in the form of softer demand, the company is steadfast in its mission to augment companies under its umbrella and continue prudent acquisition strategies, eyeing an ambitious EBITA goal of SEK 500 million by '25-'26. With a granular approach of concrete goals and robust capital allocation models, the group is positioned to persistently prioritize profit growth. A testament to their strategic rigor is the B&B toolbox, an internal framework engineered to bolster the execution of plans and the realization of goals across their broad spectrum of companies.

Solid Financial Foundation and Future Plans

Despite increasing levels of debt, the company's BITDA remained stable, inferring a strong financial foundation with continued room for leveraging acquisitions. The narrative emphasizes a keen focus on solidifying financial stability, maintaining liquidity, meticulous cost control, and protecting gross margin improvements as vital components of its forward-looking strategy.

Earnings Call Transcript 2024-Q2

[Operator]

Welcome to the Bergman & Beving Q2 2023 Report Presentation. [Operator Instructions]Now I will hand the conference over to speakers, CEO, Magnus Soderlind and Peter Schon. Please go ahead.

[Magnus Soderlind, executive]

So good morning, everyone, and welcome to our Q2 presentation. So I will start with the highlights from the second quarter, and we had a revenue increase of 2% compared with last year. And this is in line with our strategy that we have communicated before. It's really to focus on the companies that we have having good opportunities to grow with good margins. And this effect, you can see on the next slide here, we have a very healthy strong gross margin development, ending up with 48.5% compared with 45.9% last quarter fiscal year. So this has actually contributed to the strong profit growth we had in the quarter, but we're also taking a lot of efficiency measures along the way in some of our companies, lowering the cost and also improving efficiency in many dimensions. So this in total has then led us to an EBITA increase of 27% this quarter.And we are now on an EBITA margin close to 10%. This quarter ended at 9.8%, which also is a significant improvement compared with last year. And on the EBT level, the improvement is a little bit less there, and that's major reason is for the increased financial costs, but still we have a growth as well on the EBT. We have communicated also earlier that we will continue to acquire a company. We have a strong balance sheet, and we'll also face a more receptive market currently on the seller side. The competition is less and the multiple expectations is a little bit lower. So we have this quarter, acquired 2 companies, Itaab and Sandbergs, and we expect also to continue to acquire company along the way. We also improved the cash flow significantly. It ended up at 176% (sic) [ SEK 176 million ] compared to SEK 50 million last year. And this is the result, of course, of the work with the working capital reduction we have done, and this is major than the stock. We had to build up or we choose to build up extra safety stock during the corona, and we now see the effect of working that down.But we still are not back on the pre-corona level. So that this is a work we will continue going forward as well. So acquisitions, we made 4 acquisitions this fiscal year so far. A new theme is that we are back in acquiring in Sweden and Norway. We felt the kind of valuation expectations in Scandinavia was too far fledged for us 1 year, 2 year ago, but that has come down. So that is one of the reasons why we are more active in Sweden and Norway during this fiscal year. You can see some pictures to the right there on the companies we acquired. We acquired Tema Norge here in Q1. That's a Norwegian leading company within orbital welding. So this is a very niche part of the welding market and it's a very healthy business.And you can see on the slide that is part of our strategy. All the companies we acquired had an EBITA margin above 15%. So of course, Tema Norge is also in that above that range. In Q2, we also bought Elkington. It's a Swedish company, expert in hatches used in infrastructure projects. So this is related to the construction industry. But when you look into the market, they are acting within that we see a growth rather than a decline like we have in the housing market in the Nordics currently. So we see some good opportunities to develop and grow this company even if the overall construction industry are facing some challenges going forward. That is also the theme for the acquisition of Itaab we did in the Q2 quarter. And you can see a picture there, it's quite a little bit small, but they are leading and specialized in indoor roof in metal. And this is used in -- only in commercial buildings, and this is typically a travel center in the city of Orebro in Sweden. So they are also very big within the criminal kind of [ present ] sector and so forth. So this is also a company working within the construction sector, but in a niche in a market where we also see growth this year and also growth going forward as well.And the last one we did was Sandbergs. And they are expert in handling fluent materials like gas or diesel or other type of fluent kind of products that you need to have well managed. So this -- they are focusing on the north of Sweden and have a very strong position there. And also there, there's a great demand related to a lot of investments that has been and are been doing in the north of Sweden. So overall, we think this is very niche companies with a proven track of healthy margins, and we also see some growth opportunities in the sector they are acting within. I talked about the profit in EBITA this quarter of SEK 107 million.On this slide, you can see the trend we have had on the EBITA. We have now 15 consecutive quarters with increased profits. Normally, the Q2 quarter is the weakest quarter for us, but still, we also improved the profit compared with the last quarter. So that I think, is a very good proof of the model we are running and the path we are taking. Once again, also, we have this increased profit margin, and you can also see that has been the same, quarter-on-quarter, we increased the profit margin in the last 8 quarters. And we see some further opportunities to improve that. And the improvement of gross margin is, of course, an important element of this development. The revenue development reflects our focus on our high-margin business and that we also by purpose phasing out low-margin, high-volume products. And you can see here, here it's more obvious that actually the Q2 quarter typically is the weakest quarter for us, at least in turnover-wise. But we have some overlying growth in revenue, but mainly then acquisition driven. So we had an organic decrease of 7% this quarter, and that is kind of in line with what you have seen also historically.And then we have a 2% positive currency effect and then 7% positive effect of our acquisition, ending up with a 2% revenue growth in the quarter. This has been a theme I said before for many quarters, and this will also be seen going forward for some quarters as well. I talked about it earlier, but we have done -- one of the main reasons for our good profit development is our gross margin development that has been steadily growing quarter-on-quarter, and we are now at an all-time high gross margin level. And this is mainly the -- the cause of this is mainly that we once again have focused on our high-margin businesses, but we also acquired new businesses with profit margins and gross margin that improved the average rating of the group. And to the right here, you can see the development of the proprietary products compared with other products, and we have had an increase, but it's not a significant increase if you compare on the last fiscal years. But if you will see any development going forward, you will see the proprietary products grow as a percentage of the total. That is kind of part of the agenda we have to make sure that we, over time, maintain good gross margins.So I will then hand over to Peter Schon.

[Peter Schon, executive]

Thank you, Magnus, and we'll continue with the earnings per share. And on this page, you can see the earnings per quarter, but also the rolling 12-month value. So -- and the main reason you see the slight decrease in earnings per share is, of course, the rapidly increasing interest rates. And this will level out going forward as the interest rate gets more stable.And if we move into the balance sheet. Magnus talked a bit about inventory, and this graph shows both inventory value quarterly and rolling 12 months and also the inventory turnover, that's the black line. And that we focus a lot on since the price increases increased the stock as well, but also the cost of goods sold. So a lot of focus in this area. And the main reason for the reduction from last year. Organically, this is SEK 300 million. And the main reason is, of course, destocking lowering the safety stock as Magnus told you before. But we have also worked a lot with this since Magnus came aboard as well, improving product mix, streamlining assortment in all companies. And that also has started to pay off. But still, we're not yet back on the pre-COVID levels of [ ITO ]. So the work continues.And then another strong point coming from the same source, so to say, is the cash flow from operating activities that was really strong in this quarter, amounting to SEK 176 million compared to SEK 50 million last year's quarter. And here, of course, the improved profitability is a big factor in this, but the main one is the improvement in inventory levels. Still, we do have some lower accounts payable because we stopped to purchase goods. And as we increase our purchases, we expect that to also add to an improved cash flow when we get the suppliers to finance some of the stock. And then we move on to net debt. On this slide, we have the operational net debt, and that's the green ones, and they are then excluding leasing and pensions. But when it comes to net debt through EBITDA, we included the leasing since the depreciation is included in the EBITDA. But here, you can see that the net debt EBITDA is fairly stable, has been fairly stable, even though the debt has increased. So still, we are not -- we could add on more debt short-term in order to make more acquisitions. And we will continue to make acquisitions, as Magnus said before. We do have a strong acquisition pipeline and have an ability to add on more debt.

[Magnus Soderlind, executive]

So getting into the different divisions, we have 3 divisions in the group today. So Building Material. This is the division with the greatest exposure to the construction industry, but they deliver an all-time high result in -- and a double-digit profit margin in this quarter. And they also increased the revenue with 12%. That is partly due to some of the acquisitions that is brought on to these divisions. But we have a very strong EBITA profit growth here of 42% and also a very strong EBITA margin. We are now about 10% here in this division with 10.7% margins. So that's a 2.3% increase compared with last year. And the positive thing is that all units within this division improved the results compared with the same quarter last year. So this is not a kind of one of the companies doing very well, it's kind of improvement across all the group companies in this division.And also, as I said before, we are running different programs in different companies, and some of them are running improvement efficiency programs, and that has been also a major driver behind the improvements in this division themselves. And as you can see here on the low end, you see the sales development as well as the EBITA and the EBITA margin rolling 12 months figures. And this is not an improvement just for this specific quarter. We have a positive trend over several quarters in this division. So that's very, very good to see and is showing the strength of the companies within this group.The second division we have is the Workplace Safety. This is the division in the group that has the highest dependency on Nordic retailers. I mean, most of the volumes for all those companies in this division is run through the Nordic retailer chains. And we have seen some patterns that affect this division during the quarter. One is that they're still working down their stocks. They also built some safety stocks during the COVID period. And they're also a little bit more cautious due to the uncertainty in the business climate. So they postponed some orders that normally we see in the [ Q2 ] quarter.So it's very uncertain what we could expect going forward. But in -- the upside here is that the volumes start to work down the safety stock and the start to order. So we get some momentum here, but still, it's very uncertain. We don't have weak kind of order backlogs here. It's really order coming in and order delivered in a few days. So it's very difficult to have a perspective on what we can expect here going forward. So here, we actually have a revenue decrease. We have a profit decrease, both in terms of EBITA but also the margin is going down. That's mainly due to then the volume. And due to the uncertainties, we have made some cost optimization activities before, but we have added during the quarter some additional measurement here to adapt the companies to a lower demand going forward. So this is the division that not is delivering according to our expectations. And here, we need to make some -- take some actions to make sure they get back on track.The Tools & Consumables division also had an all-time high result and a double-digit margin. So they are also above the 10% for the first time. And here, we have a very strong EBITA growth of 108%, despite the revenue is more in line with the last year. So this is mainly due to improved gross margins in combination with lowering costs in the companies in this group. And the major effect on this profit improvement is related to Luna. We have been running as communicated earlier, kind of a larger restructuring or cost efficiency project here that now is paying off.So now Luna has improved the profit margin significantly despite they have a much lower volume. So this is a very positive effect on Luna, and we expect now Luna to be on this level going forward for the rest of the fiscal year. So you can see here the sales within this division has been flat or even down, and this is mainly due to Luna and that we are phasing out low-margin, high-volume products. But you can see on the margin and the EBITA, we have a good rising curves in both of those aspects. And that is something we're very proud and happy of. And we can see that this is not a single quarter that Tools & Consumables had these improvements, but still, you should be aware of, and that has been communicated. Last year, Q2, Luna, external logistics supplier had an IT attack that stopped their ability to deliver Luna products. And we communicated in the last year Q2 that had a negative effect of SEK 10 million on the result of this division. So that is an adjustment you should make to the profit improvement. But still, it's a significant profit improvement in this division despite that adjustment.So to sum up, we see a good potential to continue to improve earnings. We have a tougher business climate. We had a tougher business climate in Q2 as well. But we see that we can kind of compensate for lower demand by improving the companies that we have and also add on acquisitions along the way. So what we see today, we still have the ambition to deliver the SEK 500 million EBITA latest by '25, '26. We are on track on that. And we continue what we always have been doing. It's to prioritize profit growth over revenue expansion. And we work -- it's not about making good strategies. It's really to be down to earth and have concrete short and long-term goals and activities in all the companies to ensure that the company keeps the eyes on the path without losing the sites on the summits. And we really have a company by company strategy. We have our capital allocation model, the [ BB ] focus model that stipulates the priorities for the different companies dependent on how efficient they are in capital. So that is also a model that has had a great impact on the company's agendas and the strategies going forward.And we, as a group, have the B&B toolbox that we assist and help our companies in realizing the plans and the activities and the goals that they have. So this is kind of what we always do, but we also have some group themes across the group based on the kind of the business climate and the position we are as a group. So we will continue to increase the focus to improve liquidity. And that's mainly as Peter was showing here, we are not back on the pre-COVID levels in terms of stock and ITO. So we'll continue to work on that, and we still have some potential to improve that. And we have taken the position to be very cautious on asset investment given the business climate and the uncertainties. So that will have helped us strengthen the liquidity as well.And we also have several cost reduction programs running in the different group companies. But we continue to have a tight cost control across the group to make sure we don't -- the cost isn't running away and not being in line with the revenue development. And last but not least, we have had a very good gross margin development, but it needs a lot of work to protect that development, and that it has to be done in different ways. So that is something that we continue to focus on and really make sure that the company have the eyes on the ball on the gross margin and to make sure that they maintain or even improve that going forward.So that was our presentation, and we will have the next session for the Q3 quarter on February 9. But we are now ready to open up for questions.

[Operator]

[Operator Instructions] The next question comes from Emanuel Jansson from Danske Bank.

[Emanuel Jansson, analyst]

Yes. I hope you can hear me.

[Magnus Soderlind, executive]

Yes.

[Peter Schon, executive]

Yes.

[Emanuel Jansson, analyst]

Great. And I starting off with congratulate you on a strong report, I think on giving this difficult circumstances with both the construction and the industrial market, for sure. So I have a couple of questions from my side here. I think like most people or investors, there is a concern about the development in your end markets. And if we look at the historical performance of the major units such as Luna, ESSVE, Skydda, they have been relatively sensitive to economic downturns historically. And you mentioned, I think this was in Slide 3 or so that you have acquired units that have the potential to continue to grow despite weaker markets. I just wonder, is it possible to quantify the percentage of group sales or which you think can continue to grow despite weaker end markets, if you understand my question?

[Magnus Soderlind, executive]

Yes. I mean, we haven't made any kind of detailed calculation, all of that. But as you're saying, we have some of the biggest units within the group. We have significant focus on improving the profit rather than improving revenues. You saw that [Technical Difficulty], the major part of -- we have very positive development in that. So even in ESSVE, the focus is on cost [Technical Difficulty] in Luna. So if you add those 3 up, you end up about [ SEK 50 million ] today. And of course, if they are focusing on profit rather than revenue expansion, that will have some indication on the organic top line growth going forward.

[Emanuel Jansson, analyst]

Yes. Sorry, Magnus, I'm not -- I'm losing you update on the conference call here, but -- and can you say something about the other units and what you think of how they will be able to perform despite weaker markets? I mean, you mentioned that they are very niche in -- with high profitability. So maybe they are able to perform quite well compared to the other bigger units, for example.

[Magnus Soderlind, executive]

Yes. As we can see -- as you mentioned and I also said it before, we see a weaker demand in the construction sector. We see a weaker demand in the Nordic retailer and our customer base. We see some [Technical Difficulty] in the industrial sector in the Nordic as well but still, we are delivering this result. And that is, of course, partly due to that -- a lot of our companies have a good profit development during the quarter that is [indiscernible] by the acquisitions we have been doing. But really, if you look at our 27 companies, you need to go into each specific company [Technical Difficulty] their market, their customer base, and they are very different. So it's very difficult to give kind of a general answer on that question. Sorry.

[Emanuel Jansson, analyst]

Yes. No worries. I completely understand. Just curious. Okay. If we move on, I think previously, it has been stated or maybe not stated, but with the ongoing phaseout of low-margin products, it has been said, I think roughly that this transformation or ongoing process will be done by the end of 2023. Is that still the case? And after that, what can you continue to do in order to increase the profitability in-house or like-for-like?

[Magnus Soderlind, executive]

Yes. It's a very good question. I mean, we also need to take into the business climate development into that question. Of course, we have a weaker climate going forward and weaker demand, generally speaking, that will also have an effect on the turn of that, but the structural work, phasing out the low-margin is difficult to say, but I think there are some few quarters left.

[Emanuel Jansson, analyst]

Okay. Perfect. That's fair. And so I mean both internal efficiency improvements with phasing out low-margin products are important in order to continue to see the profit development. And I think that is also important for you to add acquisitions, which seem to have a very strong impact on the -- in this quarter on earnings. Can you describe the current acquisition market? And also how you think it will develop in the short-term here if we continue to see weak markets within construction and manufacturing?

[Magnus Soderlind, executive]

Yes. As I said, I think I said it the last quarter report, I mean 1 year ago or 2 years ago, we didn't acquire any company in Scandinavia. We acquired companies, for example, in the U.K. and in Finland since we thought [Technical Difficulty] a little bit overheated in terms of valuation expectations. And the market was quite crowded with buyers. The market is -- we [Technical Difficulty]. It's much fewer buyers. And we think -- and that's the reason why we acquired in Scandinavia recently is that the valuation expectation is coming down. So it is a quite good market currently for us.Fewer buyers and the valuation expectations has come down on the seller part. And we think we have a strong offering to companies to be part of our group and need them to develop and grow and still be an independent company, keeping their name, keeping typically the management and not making a lot of integration in the business. So as Peter, you were saying it earlier, we have a strong pipeline, and we can be selective in [ the third quarter ]. So we look very positive on the acquisition market as such currently.

[Emanuel Jansson, analyst]

That sounds good. And you think it's fair to expect around 5 to 6 acquisitions per year going forward?

[Magnus Soderlind, executive]

Yes, we have said 4 to 6 acquisitions.

[Emanuel Jansson, analyst]

4 to 6 acquisitions. Sorry.

[Magnus Soderlind, executive]

And we have made 4 acquisitions so far this year, but as I said before, we don't exclude to make more acquisitions this fiscal year.

[Operator]

The next question comes from Rasmus Engberg from SHB.

[Rasmus Engberg, analyst]

Can you hear me?

[Magnus Soderlind, executive]

Yes.

[Peter Schon, executive]

Yes.

[Rasmus Engberg, analyst]

Very good. Very good. I had 2 questions. You mentioned in Workplace Safety that you are considering more actions. This seems to be a business, which is very volume driven. And so I'm just trying to figure out what exactly would you -- what are you hinting that you might do there? That's the first question.

[Magnus Soderlind, executive]

Yes. Once again, when we are approaching activities and so forth, it's really company by company. So it's really a different approach to different companies in the group. But one of the major theme is cost reductions in those companies to kind of adjust to a lower demand. But it's also you can work with many dimensions. You can improve your purchasing. You can improve the way the assortment you are bringing out to the market. It's many things that you can do to improve the efficiency. So we have different type of activities across the group. But one common theme is actually to reduce costs. And that is -- then in addition to that, we have other activities in the different companies.

[Rasmus Engberg, analyst]

So you're not hinting at something very kind of large scale, but it's more that you're continuing to take out unprofitable products, reduce costs, et cetera, it's not on a kind of a structural scale of things that you're talking about here?

[Magnus Soderlind, executive]

No, no, no. It's more company by company doing -- improving their development.

[Rasmus Engberg, analyst]

Very good. And the second question relates to the comments about Q2 being the weakest in revenue. One would have thought that Q3, given that you have lower volumes also is weakest in terms of margins. Is that something that still holds true, given the changing composition of the group that Q2 has both the weaker sales and typically the weakest margins as well?

[Magnus Soderlind, executive]

Yes, I would say so.

[Operator]

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

[Karl-Johan Bonnevier, analyst]

Yes. Congratulations to fantastic profit margin development in the quarter, no doubt about it. And it would be good to hear if you could maybe bridge the gross margin improvements likely for us and looking at what you think is your own internal kind of efforts there, what are coming from the acquisitions and still what kind of pricing elements you see coming through there compared to the cost? Is this just -- is this a catch-up, so to say, from a delayed in perspective there?

[Peter Schon, executive]

Yes. I would say that when it comes to the gross margin improvement this quarter compared to last year, it's mainly organic driven actually, even though the acquisitions add on to that, but it's -- it is -- yes, it has a lot to do with this, yes, call it, project with reducing unprofitable business, large volume business. But also, of course, there's a pricing effect in that as well. And I don't have an exact number on the pricing, how much the pricing is on that. Yes.

[Karl-Johan Bonnevier, analyst]

But listening to your comments, Peter and Magnus, it sounded like you are still enacting, say, price -- pricing moves out, even though maybe both the FX side in the -- and I guess, the input costs might have rolled over for you?

[Magnus Soderlind, executive]

Yes, we are -- it's also company by company, but in some companies, we continue to face increasing prices that we need to compensate through price increases out in the market. And in some companies, we have a more kind of a stable situation. And -- but I would say it's very few companies where we now face cost reductions still. So I mean, it's a continuous battle to be able to compensate.

[Karl-Johan Bonnevier, analyst]

And I'm not sure if we can get you to take the assortment streamlining, maybe a step further indicating of your organic decline of 7% in the quarter, how much might have come out of your active work there, so to say, rather than take the other components you discussed?

[Magnus Soderlind, executive]

I would say the majority is from our active work.

[Karl-Johan Bonnevier, analyst]

Excellent. Good to know. And you said you still feel confident that the majority of, say, the active work then is going to be completed basically during this year?

[Magnus Soderlind, executive]

What I was saying is that this -- we have been -- we're working with phasing out this low-margin, high-volume products for several quarters now. And that is something that we have not come to an end yet and that will continue for some quarters. But that is just one element of this mix is really, as Peter was saying, optimizing the assortment. It could -- it doesn't have to be a low-margin assortment. It could be -- you get some effect, you concentrate your -- some categories to make it higher volumes, yet lower purchasing prices, you can type of pricing your products in different ways. So by phasing out these low-margin products, that will come to an end, but there are still things to do improving the margins in the companies as such. So it's not only dependent and will not only be dependent on this phaseout. It's a lot of things you can do in addition with the assortment and the products we will keep over time.

[Karl-Johan Bonnevier, analyst]

Excellent. And just pick your brain a little on a good move on the working capital side in the quarter obviously. And you're indicating that you could get inventory back to pre-COVID levels. Taking out these kind of low margin, high turnover products, is that -- isn't that a little counter-intuitive to -- or do you need to do a lot of extra things to really realize that kind of inventory turn?

[Magnus Soderlind, executive]

Yes, you have a point. Typically, you have a higher inventory turnover rate on high-volume, low-margin products. But I would say we also -- and that is part, and we have been working with for several quarters, and we will continue to work on that to improve the processes in the companies related to managed stock levels. And it has to do buying points, buying volumes. It's a lot of things you can work on, on top of this phaseout.

[Peter Schon, executive]

Yes. Even if you look at pre-COVID levels, there were some potential in improving that in the current business then. So yes.

[Karl-Johan Bonnevier, analyst]

Excellent. And on Workplace Safety, looking at, say, the headwind you have with the resellers taking down their inventory points for the moment. If you're looking at your positions with these resells, the listings and the number of [ SDGs ] you sell into them, there has been -- has there been any major change that might make this a more of a challenge to regain your old positions or -- because I know a couple of them are talking about, say, creating own brands in your space in Workplace Safety and so on?

[Magnus Soderlind, executive]

Yes, it's really rolling material this with the retailer is still continuously ongoing different type of activities and things. And some are going in the positive way for our companies and some are going in the negative way. And we have some new agreements with some major Nordic resellers that will help us to build some volumes that we see in some of our companies actually gain new outlets in the retailer network. We haven't actually lost any major. But then, of course, we have this trend, as you say, some retailer chose to build some own brands and that has some effect on some of our companies and will have effects.

[Karl-Johan Bonnevier, analyst]

And I understand you also indicated that there might have been a delay in their buying, say, the, I guess, the high value-add products that you normally have in your inventory for the second half. Is that something you would expect to be shorter cycle this time around? And is it possible for you to, say, cater for that volume maybe in a better way than they can do themselves with their own brands then?

[Magnus Soderlind, executive]

That is one option. And if we talk to the retailers, the feedback we get is that they are really focused on working down their working capital levels and stock levels. And of course, if we can help them to bridge that with faster deliveries and lower stock, that is a positive element that we can contribute.

[Karl-Johan Bonnevier, analyst]

So good weather effect in Q4, that would definitely be helpful also for you, I guess, then in that respect?

[Magnus Soderlind, executive]

Yes, it will. And as I said -- as Peter said it earlier, we kind of perceived the retailers to be a little bit cautious now. The business climate is uncertain. So they don't want to take any risk buying products now to stock up and hope for the best. So they choose to really push that forward as long as possible to add additional stock.

[Karl-Johan Bonnevier, analyst]

It makes sense. It makes sense, but it sounds like you have an interesting opportunity in the next quarter anyway from refilling that within the quarter rather than having it as preorders, I guess?

[Magnus Soderlind, executive]

It could, but it's not something we know for sure.

[Karl-Johan Bonnevier, analyst]

Obviously. And just one housekeeping question as well, Peter. The IFRS 16 impact on operating cash flow, if you could detail?

[Peter Schon, executive]

It's [ SEK 140 million ].

[Karl-Johan Bonnevier, analyst]

[ SEK 140 million ] year-to-date?

[Peter Schon, executive]

Yes.

[Karl-Johan Bonnevier, analyst]

Perfect. Thank you very much, and all the best out there.

[Magnus Soderlind, executive]

Thank you.

[Peter Schon, executive]

Thank you.

[Operator]

There are no more questions at this time. So I hand the conference back to the speakers for any written questions or any closing comments.

[Magnus Soderlind, executive]

Yes. So we have one written question from Hywel Franklin at Mirabaud. Do you see scope for multiples to fall further in the M&A market with the economic backdrop or would you expect them to be stable?And I would say we are only buying well-run companies with a proven track record of generating good profit and profit margins and cash flow. And my experience tells me the multiples doesn't get much lower if the economy is a little bit weaker. So I think the market was a little bit overheated some years ago, but it's more like now normalized what I experienced during the last decades. So I don't expect the multiples to fall any further. I think now they are more in a normal level historically wise, and that is the level I expect it to be going forward as well.So we don't seem to have any further questions or more questions. So we thank you for participating in this Q2 report presentation. And hope you listen in on February 9 when we present the Q3 quarter. Thank you very much.