Bufab AB (publ)

STO:BUFAB

Earnings Call Transcript 2022-Q1

[Operator]

Good day, and thank you for standing by. Welcome to the Bufab's Q1 2022 Results Call. [Operator Instructions] Please be advised today's conference is being recorded. I will now hand the call over to your speaker today, Johan Lindqvist. Please go ahead.

[Johan Lindqvist, executive]

Thank you, operator. So welcome, everybody, to the Q1 presentation of Bufab. This call is me, Johan Lindqvist, CEO of Bufab; and also Marcus Söderberg, CFO, of Bufab.

So let's start then. So we, of course, are very satisfied with the result, continued strong growth and earnings, in still in an uncertain world. Once again, we achieved the highest ever quarterly result and of course, it's very satisfying.

We also have recorded the highest sales, operating profit and earnings per share ever for the single quarter.

We see a continued strong demand in the first quarter in -- across all the segments in Bufab. The organic growth is up 21%, driven of the continued strong underlying demand, price increases and improved market share. It's also really nice to see the order intake is above the sales.

We have a stable gross margin despite continued challenges in the supply chain. We slightly increased the share of operating expenses. But it is regarding a discontinuation of the Bufab’s Russian operations, remeasured additional purchase consideration and also acquisition costs.

Despite this, strong improvement of EBITA, plus 37% and net profit plus 39%. During this quarter, we've done 2, you can say, big acquisitions, Pajo-Bolte in Denmark and also TIMCO, the biggest acquisition ever in Bufab history in the U.K., and that's adding approximately SEK 920 million, annual turnover.

And during this quarter, we also -- the Board of Directors appointed Erik Lundén, as the new President and CEO of Bufab, who will join Bufab after holiday, mid-August this year.

So now I hand it over to Marcus to talk about the financial for the group.

[Marcus Andersson, executive]

Thank you, Johan. So we turn to Page #2, which shows the financial highlights for the group, just like Johan said. And if we start to look at the net sales for the quarter, you can see that we grew with approximately 41%, but still order intake was in excess of net sales, which is, of course, good going forward.

The total growth of 41%, if you divide it down, approximately 21% came from organic growth.

Gross profit, as you can see, stable, 28% compared to 27.9% previous -- or in the comparable quarter. This is, of course -- a stable gross margin in times like this is, of course, a proof that we have been successful in pushing over cost increases for raw materials and transportation costs over to customers. So we continue to do that in a good way, meaning a stable gross margin.

Operating expenses, as you can see in proportion of net sales increased with almost 0.5 percentage points. All of that is due to extra costs, you can say, taken in the quarter, SEK 15 million for the discontinuation of our Russian operation. Approximately SEK 15 million corresponds to remeasured additional purchase consideration, connected to the acquisition of American Bolt & Screw, who has had a significantly better development than estimated in the first place. And on top of that acquisition costs in connection with the 2 acquisitions that Johan just talked about, Pajo-Bolte in Denmark and TIMCO in U.K.

All of this summarizes in significantly improved EBITA in absolute figures, SEK 243 million compared to SEK 177 million previous year, increase of 37%. But if you were about to adjust for the 3 cost items just mentioned, cost for discontinuation of Russia, remeasured additional purchase consideration and acquisition costs, the operating profit would be slightly above SEK 280 million, meaning an increase versus the comparable quarter of approximately [ 59% ]. Most of the result generated or basically all of it falls down to earnings per share as well, which increased with 39% compared to the comparable quarter.

If you look on the right graph -- in the right table, you can see our EBITA bridge. And you can see that currency, positive currency effects added approximately SEK 6 million to EBITA. Volume added approximately SEK 46 million and net of cost plus price/mix and other were positive with SEK 19 million. And acquisitions including the remeasured additional purchase considerations and the acquisition costs had a negative impact of net minus SEK 5 million, meaning that the underlying development of the acquisitions were quite good, and they contributed well during the quarter if you exclude the cost for remeasured additional purchase consideration and acquisition costs.

With that, we'll turn to Page #3, and we'll have a look at the 2 graphs showing Quarterly Net Sales growth and net sales and EBITA development long in 12 months. We will start with the left graph. Here, we can see that we continue showing really strong growth figures. As said, 41%. And we have now seen year-on-year growth for 7 consecutive quarters and not only growth but also healthy/strong organic growth, driven, as Johan said earlier, by strong underlying demand, price increases [ steering ] more and more at becoming a bigger and bigger part of the organic growth but also due to that we continue taking market share.

If we look at the right graph, you can see that -- the nice strong trend in earnings development continues for yet another quarter. It's a result of strong growth, of course, together with a stable gross margin and a good operational leverage on the higher volumes, which makes the gray dotted graph, especially to continue this very nice trend that we have seen now for 8 consecutive quarters.

We turn page to page 4, where we have segment North, and I will just go through the segment figures quickly. But segment North had a good development in the quarter. Organic growth, approximately 12%. Total growth 16%. Strong demand in general, underlying demand, they continue also to take market share and price increases is also contributing to the overall growth. Stable gross margin, mainly due to that, they have been successful in pushing over costs for increased cost of raw material and transportation to customers, meaning price increases to customers.

At the same time, they have had very good cost control and the operational -- operating expense is in proportion of net sales decreased with more than a percentage point, meaning also good operational leverage. And all of all, this generates a very strong EBITA improvement of 25%, corresponding to operating margin of 13.1%.

We turn page to Page #5 and have a look at segment West. Also segment West has had a really good development in the quarter, strong overall growth, mainly due to the acquisition of Jenny I Waltle, of course, during the fourth quarter of 2021, but they also saw good organic growth, plus 16%. Also here, strong underlying demand and growth also partially driven by push through price increases to customers.

We're not happy with the gross margin, however, in segment West, it's down, as you can see it considerably compared to previous year. And the main reason for that is that the segment has not been fully yet been able to compensate for increased raw material and transportation costs. So that will be a focus area going forward.

Operating expenses, on the other hand, in proportion of net sales, down quite considerably, offsetting more or less the negative impact of a lower gross profit margin, meaning that the operational results had a really nice development in the quarter, and the operating margin was slightly increased as well.

We turn page to Page #6 and have a look at segment East, Also, segment East had a very strong development in the quarter, growth of 31%, but very high organic growth of 28%. Also this is driven by strong demand, underlying demand, taking market share and price increases. Slightly improved gross margin, mainly due to price increases also in this segment. Higher costs, however, quite considerably higher costs, but this is in all explained by the discontinuation in cost for the Russian business of SEK 15 million. So if you adjust for that, the cost development in segment East was good or stable. All in all, this generated an operating profit of SEK 36 million, corresponding to an operating margin of SEK 12.7 million. But as adjusted for those SEK 50 million regarding Russia, the segment had a good development also in the first quarter of 2022.

So if you turn page to Page #7, I look at the last of our segment that we report on, segment U.K. /North America. I guess, you can say the overall commentary is that this segment for the quarter is the really shining star. They had a very strong growth, of course, heavily driven by acquisitions. CSG made in end of the third quarter of last year but also some working days corresponding to the acquisition of TIMCO.

Organic growth, however, was very strong, plus 42%, and it's driven by a very strong market together with successful price increases to customers. And the development is like last quarter, especially strong in APEX in the U.K. and American Bolt & Screw in North America.

Stable gross margin due to successful work also here with price increases. Slightly higher proportion of operating costs due to remeasured additional purchase considerations as said, connected to the acquisition of American Bolt & Screw. Due to that, they have had a significantly better performance, which can also be seen in the figures we look at.

Focus going forward for segment U.K. /North America is to continue to capturing market share but also broaden the business and continue to handle the strained supply chains and cost inflation that we see more or less over the line.

So we turn to Page #8 and have a look at the EBITA bridge both for the segments and different items. We talk with the left bridge that we talked about, the currencies adding SEK 6 million volume plus SEK 46 million, price/cost/mix and other plus SEK 19 million and acquisitions, as said, together with [ one thing, ] costs for additional purchase considerations like acquisition costs, minus SEK 5 million. And as you can see on the right part here, you can see that North added SEK 18 million compared to previous year. West plus SEK 15 million. East due to -- they were hit with those minus SEK 15 million in Russia costs, had a negative overall impact with SEK 3 million. But U.K./North America had a dramatically strong impact with plus SEK 44 million and segment other, mainly due to higher acquisition costs compared to previous quarter, had a negative impact of SEK 8 million.

With that, I leave the word to you, Johan, again, to talk about our acquisitions with.

[Johan Lindqvist, executive]

Yes. Some more comments about the acquisitions we have done. So if you compare with the same quarter 2021, then we have done -- 5 acquisitions done. CSG, the Component Solutions Group, the Jenny I Waltle, [indiscernible] and TIMCO. And the last 2 there done in this quarter is Pajo-Bolte was added and all of them added more or less, at least new areas for Bufab to take benefit of. So we see, as always, with these acquisitions that we do, big benefits coming in later on and when we have started the cooperation with them, close -- more closely with the book of a company, you can say. So for Pajo-Bolte, with the -- in [ Construction Bolt ], big opportunities for us, especially in the north of Europe, I can say. And in TIMCO, we have created now a much better platform to continue to grow in the U.K. And we think this is a good thing, of course, due to, I mean, the [ Brexit ], couple of years ago, creating a little bit, let's say, special market in the U.K. So we think it's good to have a great platform in U.K. to continue to grow that.

So all in all, I think we have been done good decisions now. And as Marcus mentioned before, some of the actions done before have contributed quite a lot now to the result in this quarter. So that's, of course, really nice to see that.

So let's go to the next page, Page 10, and do the summary there. The first quarter still operationally challenging due to this supply chain issues, you can say, this COVID in China. There is still high prices and lack of some raw material components and so on so that continue, but we have made it really good so far, and I think we can do it [ also ] forward, but we also have a strong growth in sales and also profit. That's really nice to see, of course.

We have a press release before we close down our business in Russia. And you can say once again that all in all, it has been a really successful quarter. I think, for Bufab and we are very proud of that in Bufab.

Outlook then. If we look forward here, we have a higher order intake compared to net sales. That's, I mean, at least for now, showing us a good figure for next quarter also. We will continue to deal with the strain supply chain, as we have done now for, I don't know, the last 18 months, [ some of that ], but we do it in a good way. I think we can supply customers very well even if they have a tough time.

Priorities going forward is we would like to go to our customers much more now since the COVID [indiscernible] in Europe and U.S. is not longer affecting us in that perspective at least. So hopefully, we can go out to see the customers and try to create new great business together with them.

Price will still be a big focus here to defend our gross profit and gross margin. So we will still discuss it with our customers. And of course, we will still also continue to invest in the team and Bufab operation going forward because I think it's really important to be more efficient and be more relevant for our customers there.

So I think that was all from us. I'll leave it over to operator if we have any questions.

[Operator]

[Operator Instructions] You have a question from the line of Robert Redin of Carnegie.

[Robert Redin, analyst]

A couple of questions, if I may. So I mean that organic growth in U.K./North America was super strong, and it was Apex and ABS, you said. But could you say something about any outlook comments there? Are you worried that they are performing now at levels that they won't be able to hold in the next year or 2? Or is the outlook still positive?

[Johan Lindqvist, executive]

Of course, Robert, thank you for this question. Of course, it is -- they have a really strong figures right now, and that will be -- as always, when you have really strong figures, a challenge to defend, so to say, for the future, but we don't see anything right now. They also have a strong order intake and so on. So we -- as we can see today, they will continue with great figures. And of course, as we have said in the report also that it is a strange world right now and anything can happen and so on. So it's, of course, impossible to promise anything.

[Marcus Andersson, executive]

And maybe I can add also, as we have written in earlier quarterly reports, I mean, Apex is a bit more into the stainless C-parts business, which has been very strong, obviously. And American Bolt & Screw is slightly more into the [ RMB ] or recreation of vehicle industry, which has been very strong, basically during the last 1.5 years. So I guess everything depends on the development in those 2 industries, especially when it comes to those 2 companies, so to say. But as Johan said, strong order intake in the quarter as well. So it looks to continue, for at least a while.

[Robert Redin, analyst]

Okay. Perfect. And then on TIMCO, I heard you say that it's an acquisition that fits really well into your ambitions in the U.K. Is that how we should view that acquisition that it's something that fits well for the [indiscernible ] U.K. ambitions? Or is it more a start of something going forward as you would want to acquire companies like TIMCO. It's a sort of broader product offering and maybe more into construction.

[Johan Lindqvist, executive]

Yes. Regarding TIMCO, a couple of good reasons, of course, from the beginning, it's a really great company and profitable and fit in our acquisition strategy, so to say. Number two is that, as I said, a great -- a big or a good platform, you can say, in the U.K. I mean, due to operational or finance or, I mean, a lot of these things that we can share in a good way as we do in Bufab, we try to share a good experience and so on. That would be good for the whole team and the group in the U.K., but also think, as TIMCO today is only operating in U.K., I think there is opportunities for us to launch that some other products, at least in other Bufab companies especially maybe across Europe, I think. There is opportunities also there to improve their sales, so to say, via the Bufab companies in Europe.

[Robert Redin, analyst]

Right, right, right. Okay. One final question was on price hikes. So I mean we sort of, a while back, thought that maybe price tax was going to be less of a thing this year, but it seems like it's a little bit of a real around last year. Can you say something about the necessary price hikes going forward that you're now talking to customers about something about the magnitude compared to last year?

[Johan Lindqvist, executive]

Yes. It is also -- I mean, as I said about the supply chain, there's -- at least right now, it's a little bit of a never-ending story in there because it's popping up new challenges. [indiscernible] , we've thought maybe after the COVID [ that ], coming down a little bit and go back to some kind of normal situation, but then the Ukraine war come up instead, and that's also created a lot of headache for us, of course.

And then we have said at the beginning that we need to defend our profit gross margin, and we will do it also going ahead. But of course, it is a challenge, and we need to continue with that to move these cost increases that we see in price increases also to our customers. But now also, we be bigger and bigger in many or maybe all the [ countries], we are in bigger inflation, of course, with energy prices and salaries and all that stuff. So we will need -- I think we need to continue with that for at least the next coming 6 months, something that, but we have been so far successful, I think. Except as Marcus mentioned, West, we are a little bit behind there, but we hopefully be catching up this quarter. But it is all of the line, I think, the same situation.

[Robert Redin, analyst]

All right. Perfect. And then anything, I mean, generally speaking, I mean, sales was really strong in Q1. You outgrew the market, taking market share. Still, order intake was a bit higher than sales. So do you say something about the trend throughout the quarter? Was order intake strong throughout the quarter or...

[Johan Lindqvist, executive]

Yes. So strong in the quarter, and that was -- I mean, that's really nice, of course, in these days when it's also uncertain what happens. We feel also, in general, I mean, as I said, we're trying now to at least for existing customers, and I'll go back to some kind of normal ways that we visit existing customer and try to get new business on board. So that, I mean, as is for me, it's a good start when you will have -- try to get more orders, so to say. So if we can increase our activity level at the customer side, hopefully, also we can get more business in later on here. Even if it's, of course, at a time between when you get the customers and get the orders, so to say. But I think we have a good position, but -- and what we see today, it looks good. Yes.

I don't know, Marcus, you will add something about that for.

[Marcus Andersson, executive]

No, I think it's basically just like you say, of course, and as we write in the report as well. I mean we have seen a strong development trend. Net sales-wise, stable gross margin, good earnings, et cetera. And on top of that, order intake in the first quarter was strong in general. So -- and in excess of net sales. So based on that, I guess we can at least say that the possibilities for a good development also going forward is there, so to say. But then like Johan said, there is no lack of challenges. And it tends to pop up more and more of those challenges as we go, but we can do much more than just try to handle them and so forth like Johan said, we have been handling them quite good. And we also aim to do that also going forward.

[Robert Redin, analyst]

Right. And you haven't seen any -- I mean that order intake daily or weekly trends, they've not been slower in the second half of the quarter?

[Marcus Andersson, executive]

It's hard for us to draw any conclusions regarding a certain week or so. We need to look at it at least over a couple of months because it's -- depending on how customer moves, orders and things like that. But -- so we stay with the comments for full quarter, that order intake was higher than net sales.

[Operator]

Your next question comes from the line of [indiscernible] of [indiscernible].

[Unknown Analyst]

I just wanted to have more detail on the segment West, if possible. So you say you're trying to take some action in terms of increasing gross margin through pricing. Can you give any details about what you have actually done and how those are sticking? I know you just haven't got -- almost not got around to improving the pricing in this area so far. So can you give any sort of -- quantify what you have done so far in the last 2 or 3 months?

[Johan Lindqvist, executive]

Yes. I mean as you see on the gross margin there have been not so successful as the other segments there. And they are a little bit behind, as I said there. And I mean, we are many companies, plus 50 in the group, and some of them are super good in this area and some of them not really as good and need to have some more time for that. It's also maybe due to what kind of customers you're dealing with. I mean some of the customers we have, maybe a contract that we can't do anything about pricing within half year or something like that. So it's a mix of that, I think.

They also have -- I think we have also communicated in some reports last year here that we also strengthened that organization in West. I think they're more and more in place now so they also can take care of this kind of action, so to say, because it's people that need to do that and the team need to do that. So I think it is in place, and I'm quite confident that we will see better results here coming forward.

[Unknown Analyst]

Okay. When you say strength in the team, do you mean there were some management changes? Or do you mean [ changes in ] autonomy?

[Johan Lindqvist, executive]

No, more adding people. There have been a lack of people in some positions. So I would not say we haven't done any changes in the management in that perspective, more like adding more skilled people so to say.

[Unknown Analyst]

Okay. Do you think it's possible to get back to sort of 26% gross margin or...?

[Johan Lindqvist, executive]

Yes, I think it definitely, our target to do so. Definitely our target. And I think, I mean, if you're just comparing, as I said, there is a little bit difference, of course, between every company and segment. But if you compare the other segment, if they can do it, I think it's possible for West also to do it.

[Operator]

And your next question comes from the line of [ John Hiltner ] of [indiscernible].

[Unknown Analyst]

A question on competitors. Have you noticed any competitors not been able to deliver during these difficult times regarding all supply chain issues and perhaps you have gained some new customers due to that?

[Johan Lindqvist, executive]

Yes. That's, of course, a tricky question in one perspective. But I think, at least, my feeling and also what I hear, at least some of the things that I hear in the market that we so far have been really successful. Of course, we have also struggling and really fighting to supply our customers. But I think we have been more successful in our competitors. That is my opinion. And that, of course, will maybe already now give us some market share, so to say, but hopefully, also even more in the future because then I feel that we are a reliable partner, I think. So I think we have been a little bit better than competitors. That's my view.

[Unknown Analyst]

Okay. And how -- regarding C-parts, how difficult has sourcing been for you?

[Johan Lindqvist, executive]

I think, I mean, I've been here in 24 years now in Bufab, and I've never seen that situation. I mean it's not only lacking of parts or raw material, it's also higher price increases and also the COVID thing and the Ukraine war, and I mean you can add a lot of things in this bucket, so to say. So it is really tough. And that's maybe, I mean, one of the parts that we see in the operations side now in the group. So as I said, we really need fight for this, but we also have, I mean, dedicated people and the cycle [indiscernible] Bufab, I think, and the right attitude. So that's why I hopefully think that is one of the reasons that we can take this market share and be a little bit better than market.

But I also think, I mean, we are a specialist in this area with C-parts. We're dealing with this, that it's our super main business compared to our customers, they are dealing with this one -- we said is A, B and C-parts. I mean they take care of the A and B-parts and we take care of C-parts. So, they should do it by themselves to have, I don't know, behind a big customer, there's maybe 100 suppliers, 150 suppliers, if they can handle -- if they should handle it, 150 suppliers by themselves. It will be a total mess, I think, to be honest. So I think we have a big role there to play. And I think we do it -- I mean, the biggest [ tell off ], that we do it in a good way.

[Unknown Analyst]

And your customers, I know in some cases, you're connected to their warehouse systems and you automatically refill some C-parts. Have your customers changed in terms of perhaps wanting to have a bigger safety margin. So you refill earlier than before or any other cost [indiscernible] you see now?

[Johan Lindqvist, executive]

I think that's a good, maybe not the question that way, but I think it's relevant. We have that discussions with many customers that how do we secure -- have higher margins because it -- if you remember the [indiscernible] for example. I mean, who knows that? And that suddenly creates a lack of components for a couple of weeks or whatever. So -- then we discussed that question with the customer if we should increase the safety stock in their place, I mean, in their warehouse or maybe in Bufab warehouse. So it's a combination there. But it is definitely a hotter topic today compared to a year ago was something. And also maybe I can add that maybe we also talk with some customers about dual sourcing. So we have separate sourcing for some parts of them.

[Unknown Analyst]

Okay. And regarding the order intake or your order book, do you have -- is there a longer lead time than normal in your order book today, as customers perhaps place orders for later delivery just to be on the safe side?

[Marcus Andersson, executive]

Yes. it depends on customers, you can say. But what you should know when looking at the order intake of the Bufab, that's the development of the 3-month order book. That's how we measure order intake, so to say. So if customers place orders more -- longer in the future, it does not necessarily affect the order intake. And the reason for just looking at the 3-month order book is due to that orders placed later than that are too uncertain, so to say, due to that customers tend to move them back and forth, so to say. So -- but it's like you said, I mean, due to lead times has increased in general, also customer places order in order to make sure that they get hold of goods.

[Unknown Analyst]

Okay. So the order intake you report in the quarterly are referring to orders that are supposed to be delivered within the coming 3 months.

[Marcus Andersson, executive]

Yes.

[Unknown Analyst]

Okay. I didn't know that. It's good to know. Final question on the cash flow. And I read the report, it sounds like you're quite disappointed on working capital. But at the same time, it's pretty similar working capital, higher past Q1 last year. And this year, I assume, is still more difficult. And the big item is on the receivable side. Are payment terms the same as before? Or do you need to pay suppliers a little bit earlier and don't get compensated by getting paid by your customers at the same time? Or is this just normal?

[Marcus Andersson, executive]

I would say that the payment terms both for suppliers and customers are more or less the same, like during the same quarter previous year, like that.

When it comes to cash flow in general, of course, I guess we can't really be happy as long as we are not showing strong cash flow, which is something that we haven't done historically for a very long time. So we're looking forward to coming back to that. But just like you say, I mean if you look at where the money is tied up in, it's in basically in the quarter in accounts receivable, which is a result of a very strong growth. So that, I guess, you can say that it is what it is. And as long as customer pays, it will run through the -- and become cash due in the coming months, so to say.

What's kind of important to maybe mention is that even though we saw weak cash flow now in the first quarter, we also saw it in the fourth quarter last year, but there is a difference between those quarters because the weak cash flow in the fourth quarter of 2021 was due to inventory buildup, meaning a normalization of inventory levels due to that they were really low in the beginning of 2021. But now then during the first quarter of 2022, the main net [ one ] capital buildup is just like you said, in accounts receivables. And we hope now that the inventory buildup or inventory normalization is about, and we look forward and hope to see the good cash flow, which is kind of a signal for Bufab to come back, hopefully, during the second quarter but at least during the third quarter.

[Unknown Analyst]

And could you please remind you of the seasonal pattern or your cash flow?

[Marcus Andersson, executive]

Sorry.

[Unknown Analyst]

Could you please remind me of the seasonal pattern of your cash flow? Do you release in Q2 or Q3 typically or...?

[Marcus Andersson, executive]

Normally, we have quite of an even split. I mean there is no seasonality in terms of customer mix or anything like that. So normally, it should be pretty even over the full year. There is no certain inventory buildup in a certain quarter or anything like that, historically. It's quite even.

[Operator]

[Operator Instructions]

Your next question comes from Rasmus Engberg of Handelsbanken.

[Rasmus Engberg, analyst]

Congratulations on a very solid type of numbers again. I was just wondering about the price issue that you have in Region West. Is that due to some companies that you have acquired? Or is it due to, for historical reasons, you're overdependent on certain large industries there? Or how does that come about? And secondly, is it correct in thinking that rather than slowing down, price increases in the second quarter are going, very likely, to be bigger than in the first quarter with what we know right now? Those are the two questions.

[Marcus Andersson, executive]

Yes. I think you want elaborated -- first of all, hello and good morning, Rasmus. I think you want to elaborate a bit on it on one of the previous questions. There is, of course, several reasons. But the main reason for it being weak in segments where we're weaker than the rest of the group is that just like we were also writing report, they have not yet come so far with price increases like the rest of the group, so to say. And there is various reasons for that. No one really explaining the majority part of it. But it's everything from, that they have some work left to do, maybe slightly or more how we put it -- tougher customers to deal with, et cetera. But in general, I just guess you can put it like this, that I mean, we're, for sure, not happy with the development in segment West, but we are yet not really that worried.

I mean the companies have planned. They have their mindset on fixing this. But for various reasons, it has taken them a little bit longer than other segments in the group. It has not to do specifically with any specific company running with a lower gross margin. It's an even split, but some companies are better than others also within the segment. There are more companies that needs to do the homeworking, segment West rather than the other segments.

[Rasmus Engberg, analyst]

All right. So it's nothing really structural at all. And then the second question I mean, the reason for asking is that my gut feeling is that we're facing even more input cost pressure in the second quarter than we did in the first. Is that a correct assumption as far as we can see right now?

[Marcus Andersson, executive]

I don't know if it will be worse than we have seen before. But just like Johan also said before, new challenges or issues tend to pop up all the time. And it has been -- the normal working day for a salesperson is to negotiate and discuss price. It was not like that at all for like 2 years ago. And it's become a part of the daily work, and we have made it in a good way and so far and a way to do it also going forward. I guess that's the only thing we can say. What the future brings, who knows. But we are fully focused on continued pushing price increases over the customers. That's, of course, what we can say.

[Operator]

Your next question comes from the line of [indiscernible] of [ CMAN ].

[Unknown Analyst]

A few questions on my side. First on price increases. Could you maybe elaborate or give us some color around the price increase effect on your organic growth during the quarter?

[Marcus Andersson, executive]

Yes. Yes, of course, that's a very good question. And it's also a very hard question to answer, really, given the fact that we are selling 180,000 different items to 15,000 customers, and many of those customers buy the same items. So it's hard to keep track on such statistics, so to say. So -- and that's also why we do not share a certain percentage of the organic growth that comes from price increases. It's too -- I'm sure if we put like that.

But what we know for sure is that as we now go into 2022, price increases becomes a bigger and bigger portion of the total organic growth, but we still see good underlying demand as well, so to say. So it's -- the strong growth that you see, organic growth, as you see, it's a combination of strong underlying demand than I would say after that, price is next. And then we, just like Johan also said earlier that we will continue to take market share. So unfortunately, I can't give you a percentage.

[Unknown Analyst]

No problem. Very clear. Second question on the distribution expenses. Can you please comment on the decrease in this expense? That seems to be quite low, around 8.5% of sales. Is it kind of one-off during the quarter? Or do you see the distribution expenses this quarter at the sustainable level as a percentage of sales are maybe explaining why is it that low?

[Marcus Andersson, executive]

I guess I wouldn't say that there is so much of a change, really. But of course, when you're looking at those kind of costs in comparison to net sales, you need to take into consideration that net sales are more and more impacted by price increases, which is not necessarily driving distribution costs, right? I guess that's what we can say.

[Unknown Analyst]

Okay. And final question on your target -- on your margin target. I have in mind 12% margin. It seems that you are quite higher since few quarters. Now if we exclude sort of one-off like this quarter, do you have any comment on this target? Do you see any maybe risk in the future when we will see a kind of normalization of the economical environment or do you consider this 12% are quite conservative. Do you have any comments on that?

[Marcus Andersson, executive]

Of course, that's a good question. And I guess if you would have asked us the same question 2 years ago, I would say it's a very challenging but also reasonable target, those 12%. What we have said is that we should reach those 12% long term from 2023 and onwards, and that the main increase in the operating margin should come from internal efficiency, meaning cost savings and digitalization and things like that. And that's what our existing strategy is focusing on delivering those 12% stable long term. But delivering 12% long term, it could, of course, mean higher operating margin in one quarter and lower in others, so to say. But right now, I guess you can say that there's a lot of things going in the complete right direction, so to say, causing us also to deliver a very strong result, which is, of course, very satisfying. But whether it was 12% should be 13% or 14%, of course, that's a Board question, really.

But we're not really focused on that. We're trying to really delivering results, do it over a long period of time, continue growing and deliver in accordance with our strategy. I guess that's what we can say about that.

[Operator]

There are no further questions coming through on the line.

[Johan Lindqvist, executive]

Okay. So thank you very much for this [indiscernible] for the Q1 report of Bufab. So, yes.

[Marcus Andersson, executive]

Thank you very much. Have a nice day.

[Operator]

Thank you. That does conclude our conference for today. Thank you for participating. You may all disconnect. Speakers, please stay on the line.