ITAB Shop Concept AB

STO:ITAB

Earnings Call Transcript 2024-Q1

[Andreas Elgaard, executive]

Okay, thanks. Hello everybody. It's Andreas Elgaard speaking. We are very happy to have you listening in on our report for the first quarter of 2024.And those of you that follow us, you know that we like to go through a little bit about who we are and we do this as kind of educational for those that are new. So for those who already know us, you will recognize the most of our slides that comes now in the beginning. And I will go through that rather fast, so we can focus on talking about the Q1 results. And Ulrika will lead the presentation when we come to that part.So the agenda in brief is that I will just do a brief introduction to who we are, how retails -- yes, how the changing consumer behavior is making retail have to change and transform, what our strategic response to that is, how far we've come in our strategic execution, and also where the growth lies and what the opportunity is. And then we'll come into the Q1 report before we take questions and answers.So just ITAB at a glance. In 2023, we have a turnover that is just above SEK 6 billion. We have an operating margin in 2023 of 7%, which is just in line with our financial targets. We are approximately 2,500 employees. If we count in our temps, we are a little bit more, but we use that as a leverage up and down. We have a mix of own produced products that we sell and also sourced products. And of course, we don't just sell products, we also sell services. And we like to package it everything up into solutions that meet the needs of our customers.And our customers, they are organized in the segments that we report are the following. So it's the -- the biggest one is the grocery, it's do-it-yourself home improvements, followed by fashion, and then we have other customer groups. So it's basically all parts of retail where maybe a shout out can be to pharmacies, health and beauty, consumer electronics, and also more and more food on the go where we are making a significant business.So just to put some numbers on that in '23, so you can see that the Grocery segment is more than half of our turnover. And then it starts to become quite evenly distributed. And we don't report the size of the segments beneath Fashion. Maybe that's something for the future, but right now, we stick to the way that we have been communicating historically about our segments.And we'd like to say that we are what we create together with our customers. So depending on the need the customer have, depending on the sector they're in, the strategic dilemma or opportunity that they might have, our effort looks very different than our -- the outcome and the result of our work together looks very different. And it can be everything from a car retailer, to consumer fashion brand, to pharmacies where the need for trust and confidence is very different depending on what the situation is and what the consumer is looking for.Retail, as you know, is truly going through transformation and it has been -- it has for a number of years when -- and I will come into that a little bit during this sector here or section. But first I want us to just take a minute to look back and reflect a little bit where we're coming from. So this is a new slide that not everybody has seen before. So it's kind of taking a 10-year view on where we're coming from. And of course, we had a tremendous growth through acquisitions in our history. We had good margins, but those were also the days when the market was very predictable. Most retailers had large expansion plans and large portions of our industry and also ITAB was focused on capitalizing on those expansion plans. Things was predictable. It was quite easy to plan and to move forward and you could kind of estimate how the future would look like.The margins that we had back then are a little bit difficult maybe to understand because they were really infused by very, very high margins that we had in our lighting segment in terms of products. That was, at that time, was very profitable.What has happened since then is that we have moved away from halogenic lighting solutions into LED. LED is much more efficient. It's much easier to produce. So even producers like us with key competences have been faced with a lot of competition. So lighting is very easy to source today and that has really put the pressure on the margins and changed the whole industry for retail lighting and lighting in general.But the market changed where retailers went away from large expansion programs into more trying to figure out how to please the changing consumer needs that really put the strain on our whole industry and also on ITAB. And for a number of years, ITAB were struggling to keep up margins, even though turnover was stable, margins were dropping and combined with high debt, that was a situation that was not good for the company.We started to restructure ITAB towards the very end of 2019. And we launched in February of 2020, our new strategy, the One ITAB strategy that has -- that I will come into a little bit later, but it really aims at modernizing ITAB, both in how we go to the markets, but also how we function as an organization.And you can see that despite the tricky years that followed after COVID, that was really tough for retail. Everything with supply chain disruptions, inflation, Russia's invasion of Ukraine, all these things that kind of have made the world around us more unstable. We've managed to gradually increase our results and that has also continued now, despite the high interests and the economic downturn that we see across Europe. And you can also see rolling 12 we have put in our Q1 results, but we'll come back to that a little bit later.So what is really driving our industry is the changing expectations that consumers have. And consumers expectations are not set by maybe your normal competitor if you're a retailer, they're set by TikTok, different types of social media, different types of new ways to interact with brands that is more personalized, more unique, more individual, using much more data.And of course, for traditional brick and mortar retailers, this is difficult because it means that others know more about their customers, so they have to change, and they are doing that. So they're investing in online, they're investing in omnichannel, they're trying to stay relevant. They're also -- some of them, they stopped investing in their stores and saw that they started to lose even more. So they're also then, I would say, repurposing, refurbishing, updating their stores.And sometimes you talk about that retails are struggling and there are fewer new store openings, but that's just in the lens of looking at how things were before. Retail right now is a very, very dynamic landscape where there's a lot of change going on and there's a lot of investments going into retail, but it's not the same type of investment as it used to be. And that means for us, that we need to transform, we need to become more agile, we need to be faster, we need to be more efficient, and we also need to be more relevant, so we need to be even closer to our customers and develop the things that they need because the retailers are truly in a cost versus experience dilemma where they need to invest in all parts of their business and at the same time they cannot expect the same long payback as they were used to. So they really need to make sure that each investment they do also deliver operational efficiency and lower their cost base.And this leads us into our strategy. And we like to kind of condense it into that retail has to rethink. So we say rethink retail and do that together. Together for us means together with our customers, but it also means together with our suppliers and partners.And our ambition is to become the leading solution provider. And we have a strategy for that. I will not go through the 7 strategic priorities, but I will go into kind of explaining what the essence of the strategy is. It really is to position ITAB better when it comes to growth, so we can grow both organically and we can grow through acquisitions.And our ambition is to be a solution provider. That means that we don't always have the product that the customers may be asking for, but we need to understand their true dilemma and together develop the solution that fixes their problem.And I will come into how we deliver value and how we do that in the next few slides. But that's kind of the aim for our strategy. We do that through our products and services. We do that with our know-how, of course, and we're taking a different way and a different path to the market in doing so. But also, it means that we need to build an ITAB that is much more fit for purpose. So establish common ways of working, modern updated tools and information internally.And for those of you who don't know us historically, since we consist of so many acquired companies, we had very many different cultures, very many different internal ways of working and support systems. And we are changing that gradually towards becoming much more efficient and transparent internally and updated.And our ambition as solution provider is really to strengthen our position and develop our relationship so it becomes more sticky and that it adds more value to the customer. And not through our products and services, but through our know-how, our insight, and our ability to be creative and help retailers to succeed. So that means that we need to develop our relationships towards a much more strategic partnership, and we really need to be able to leverage our know-how that we have from across Europe, sometimes also out in the world around us, and bring those experiences faster to the retailers because they might feel that they are alone or unique with their dilemma, but many others are in the same situation or they have been in the same situation or about to come into that situation and we can help them with our experience that we have from other clients and make sure that we do it in the way that each brand is comfortable with.And we do this by focusing on not what we have in our portfolio of products and services, but really focusing on how can we deliver value. So we have developed a value proposition since a couple of years back that is -- that we are working on. And that means that we need to deliver the desired consumer brand experience. Each brand has their own values, their own ambitions that they want to communicate through the consumer experience. And the built environment in stores is still the most powerful way of building a brand experience. So that needs to be delivered. And that's very different from retailer to retailer.Ideally, the solution should lead to increased sales and higher conversion. If they do that, it's perfect. If they also then improve the efficiency and the service level to customers, then it's even better. And can it also then reduce the operational cost of running that store or running that chain or running that warehouse? Then it becomes truly valuable for the retailer. And we believe strongly that if it's valuable to the retailer, it will be valuable to us as well. And we will create that sticker relationship.So that's kind of our strategy in a nutshell. And to make it a little bit -- I'm not sure if I make it concrete, but that's an ambition with a slide. It's real that today, we support retailers in stores or across their chains with the lighting solutions, interiors, retail technology. And in the future, we're going to continue to do that, but we will add more services.We will add more connected products that can leverage our, I would say our solutions, but also be agnostic and leverage other supplier solutions. So the retailer can get an overview on their total set of assets that are connected in the store. And that can leverage data from own sources or other sources. And that can also deliver data that makes the retailer take better decisions. Because the retailers are truly trapped in a dilemma where it's no longer enough to take out cost in a store or across a chain, they have to be able to take better decisions across their whole value chain, which means that they need to use data in order to do that and also enable their suppliers to become more efficient.So far in our strategy execution, I would say that we have a tick mark on the stabilized phase. The stabilized phase was all about ITAB doing the homework, making sure that we were financially sound and profitable. Because remember, we came from a high debt, low profitability situation and also a bit unclear what our role was. That we have done in a really good way. We have simplified ourselves. We have also started to work on how to become stronger on our customer. And that's really the next phase, the build and invest.Most of these tasks that we have here on build and invest, we have done. We have developed our value proposition a couple of years ago. We have started to roll out the new go-to-market model. We are adding new services, new technologies. We are driving excellence in operations, but we feel that we're not really there yet, that we are ready.And one big part of that is we are investing in a new IT landscape. It will take us at least 3 years before we're ready with that, before we can say that that part is ticked. But we're not doing this sequential. We're doing this in parallel.So we are also then looking into the next phase that is all about growth. How can we grow organically? How can we continue to be the consolidator of our very fragmented industry and lead through acquisitions? So that's what -- yes, that's just short about our strategy execution.And all of this aims towards us becoming the leading solution provider within our industry. And there is plenty of growth. There is a clear opportunity for us. First of all, the market that we are addressing is really massive. And if we just go down to, if you see the 3 green boxes to the right of the map of the world, the one in the bottom, that's how we assess the addressable market. And so it's a SEK 100 plus billion market where we are just scratching the surface. And we believe that there's plenty of opportunity for us to grow in Europe. That is our core. And then of course, we're taking the opportunity to also grow in outside Europe when the opportunity is right.And we have these kind of 3 main chapters that we're working with. One is to penetrate the core market. So where we're already existing, where we are strong, where we have our teams and our assets, let's make sure that we sell more of what we're doing already in other parts of the group. So we increase our conversion or cross-selling and that we can gain new customers in segments that we are already strong in and where we have a really relevant offer.And then on that core, expand with new offerings that add further value to the core and where we already have a relationship. And that could be to connect our retail tech solutions to make sure that they can deliver data and become more efficient and reduce costs for our customers, or add services that help our retailers to maybe reduce downtime in stores or improve their efficiency.And then, of course, we want to expand to new markets and new segments. And we see that there's huge opportunity for us in Southwest Europe where we are not so strong and we could clearly become stronger. And also, I would say in Southeast Europe, where we are also not so strong. So that's kind of more traditional type of opportunities that we want to explore. And then we want to explore also more technology companies and service companies when we look into the future and where we'll find our growth.And the trends in the market right now, even though the economy around us is a bit unclear, the offering that we have is truly adding a lot of value. We can also see that that we are being listened to. Our new go-to-market model, focusing on driving value for the retailer, it is relevant and it's really helping us. And we have the solutions to help them reduce their costs, to help them to reduce their usage of energy, but also to help them to increase and stand out with their brands, because that's what it's all about. It's about being relevant for the consumer, and at the same time, do that in a better way than what the retailers used to do.So sorry for my speed talking, but we like to do this and for you to get kind of an understanding of where we're coming from, because it is important to understand our story, what we're doing and what our aim is. And by that, we come into the Q1 report. And I will just start a little bit on the first slide and then hand over to Ulrika.So I just want to highlight that what lies behind our result in Q1 is really, we have communicated through press releases a couple of things that we have gained new deals, sometimes with customers that have not bought these things before. And some of the things we have communicated are with customers that are already buying, but have decided to increase their purchasing with us.So one press release that we went out with in the beginning of the year was about a large global retailer that buys more self-checkouts from us. We already have orders that is way beyond the 7,200 that we communicated. So it has been really good for us.But also, interiors have been part of what we are seeing as growing again after having a difficult year in '23. It is really growing again and delivering profits that is sustainable.And then, of course, our maybe shining star for the moment is entrance and exit gates that are not just gates, but they're also smart, they're connected and they help the retailers to reduce shrinkage and increase safety and also provide a nonintrusive shopping experience.So there's maybe a snippet of what lies behind the sales in Q1. And I would say that most parts of ITAB are contributing in Q1. So all product segments, most of our units out in the ITAB world, and we're really proud of the results.And by that, I hand over to Ulrika.

[Ulrika Skold, executive]

Hello, everybody. Happy to present some more details around our Q1 results. And looking at the full year development for the last 12 months, our EBIT margin increases to 8.4% after the latest quarter. And this is despite the unchanged economic climate. However, the stabilization in demand we noted during the autumn has continued in most of our solution areas and geographic markets.Our strong first quarter improves EBIT over the last 12 months significantly compared to full year 2023, where continued strong profitability, higher capacity utilization in our production and cost saving actions implemented during 2023 are main drivers.Operating cash flow continues to be strong as well as our financial position. Net debt is still very low, however, with a slight increase since year end related to increased capital needs due to sales growth during the beginning of 2024.In the first quarter, we see a growth of 5% where several of ITAB solution areas and most geographic markets reported increased sales. And as I mentioned, we haven't seen major changes from the economic climate during the start of 2024. However, we see signs of increased willingness to invest by our customers with continued focus on loss prevention and store efficiency, but also in more bespoke interior.Increased share of our technical solutions, including smart gates, continue to make a positive contribution both to our sales and margins. We note an increased sales of self-checkouts and other self-service solutions, as well as a recovering demand for customized shop fittings.And we have a more balanced product mix in the first quarter of 2024, where our Grocery segment had a growth of 10% compared to the first quarter last year.Gross margins continue to be very strong, driven by continuously increased share of technical solutions, but also generally increased margins across both portfolio and market geographies. Although we continue to be successful in loss prevention, we can also see margin impact from growth in self-service solutions, as well as higher demands of interior solutions, especially within the Grocery segment.Balance in product mix combined with increased sales across portfolio and geography, higher capacity utilization in our largest factories, and also impact from cost reductions we implemented during 2023 is the foundation of our performance improvements during the start of 2024.EBIT of SEK 161 million in the first quarter is more than SEK 90 million higher than last year and corresponding to an EBIT margin of 10.2%, which is historically ITAB's strongest Q1 result ever.Looking at our cash flow from operating activities, we had a cash flow of SEK 64 million in the first quarter and last 12 months cash flow continues to improve to SEK 882 million due to underlying higher profitability and improved cash flow capital efficiency.During the first quarter, the improvement compared to last year was driven by stronger profitability, but at the same time, our sales growth impacted negatively mainly with higher account receivables.We can see that our inventories continue to be more on a normalized level and this is still one focus area for further improvements across the organization.And by that, I leave to you, Andreas, to conclude and talk about the main takeaways from our Q1. Thank you.

[Andreas Elgaard, executive]

Yes, so thanks, Ulrika. I mean, we're super proud of the Q1. We are happy that it's not a single part or a single segment. It's really all parts of ITAB that is a hard effort behind this result, which is good. So we're standing firmly on both feet, I would say.And I like to stress this, that this is despite the tough economic climates, because it is still difficult to get investments from retailers because they are -- the capital costs have increased in ways for them that is tricky, especially in Grocery segment that is most important for us. So given those circumstances, we're extra proud over being able to communicate such a strong first quarter.We can see that there is a continued interest in some of our technology solutions, but we also see that more and more interest in discussing more holistic solutions going forward. And we believe that [ that ] is part of the things we need to develop even more and to become stronger in services there as well.Somebody asked me in the Board the other day, so you always talk about the product mix and the customer mix, and I asked when they're going to stop doing that, and it was a bit of a joke, because it is a good topic to talk about. We have a good product mix and a good customer mix in the quarter, and that is important. And it doesn't mean that we have good customers and bad customers. It's just that the mix is balanced, and it helps us to deliver a good result.Yes. So I think that -- I think this is maybe I should stop there. And then just remind everybody that we are maybe -- we're more than halfway through our transformation, but there's still more efficiency to take out of ITAB. And what we have most appetite for is, of course, to grow again. We have growth in this quarter, which is great organically and we want to continue to grow organically, but we also want to grow through acquisitions and use our strong financial position to get back to being the consolidator of our industry.So by that we say thank you, and we open the floor for Q&A.

[Operator]

[Operator Instructions] The next question comes from Karl-Johan Bonnevier from DNB Markets.

[Karl-Johan Bonnevier, analyst]

First of all, congratulations to an amazing start to 2024, so all hats off for you. And just going to starting off with where you ended up, basically talking about maybe retailers becoming slightly more, say, driven again and then coming back to be doing more investments, looking to a lot of your key customers and their last quarterly discussions and so on, it seems like they are indicating an increasing investment willingness for 2024. When do you think that can really start to then come through in your numbers if you haven't -- as you haven't been driven by that yet?

[Andreas Elgaard, executive]

I would say that. I mean, I think that -- I mean, the interest rates are still high, but everybody expects them to come down. But I also think that -- so that's part of why they have more appetite. The other part is that maybe they're a little bit over the shock that -- and maybe they realize that the interest rates might not come back to the very low levels that they used to be. And in order to improve their business, they have to keep on investing. Otherwise, they risk ending up in a defensive position. Instead of kind of leading, they might become more defensive. So that's what we see. And we believe that we are underutilized. So if we see growth coming in, we believe it will transform into profitability. And we are more scalable now than what we used to be. So we have good hopes that increased investments will be visible on top line and on bottom line.And we've -- you know, Karl-Johan, that we don't like to give forecasts because we are really a project-driven business. Each -- the majority of all sales we have needs to be won and taken, and there could be deviations from 1 quarter to the other. So we don't like to give forecasts, but we see signs that hesitations about interest rates is not the same as it was 1 year ago. There is an understanding that the retailers have to invest and they are doing that, but they are really sharp on their payback expectations. They really need to see clear payback on each case. And in many retailers, they've changed the chain of command. So it's not so easy. You need to pass through more stakeholders than previously, and it takes a longer time. But once they have decided, they usually want it to happen yesterday. So it just puts a lot of pressure on us to build relationships on more levels with the retailer and then be ready to act on the opportunity once we win the orders.

[Karl-Johan Bonnevier, analyst]

And I also get the feeling that during this difficult period that the whole industry has been through, even if you have had, say, volume problems as well, it feels like you have really gained market share during this period. Is that a feeling you get as well, that you are sitting at an even better place at the negotiation table with the big clients at this stage?

[Andreas Elgaard, executive]

We feel that we are stronger now, not just financially, but also in front of the customers than what we were a couple of years ago. So that is correct. And also, I think that we bring a different perspective now than what we did a couple of years ago. And we maybe ask more open questions now than what we did a couple of years ago. So the type of dialogue is changing. And then also in terms of market share, it is tricky because it's such a fragmented industry, but we know that some of the -- there is a number of smaller competitors that have not been able to make it. And we also know that there is some movement within the industry for further consolidation. And I believe that consolidation is essential because there will be more technology. There will be more services. There will be more alliances or partnerships. And in order to be attractive in that type of world, you need to have size and scale. If you don't have that, you are not so attractive as a partner, not just for the retailer, but also for maybe a consortium of suppliers that need to solve retailers' dilemmas.

[Karl-Johan Bonnevier, analyst]

One thing I noticed when I went through the details of your annual report was that your largest client during 2023 only represented 6% compared to, yes, more than 10% 1 or 2 years earlier, basically indicating that even the largest clients have cut their investments by maybe 50% during this kind of short period. Is that the biggest opportunity, the big guys coming back? Or do you see that the broadening of your portfolio is really what's going to be the big payback when the market recovers?

[Andreas Elgaard, executive]

I mean, we love our large customers and we're happy if they buy more. But I think it is important to have as many legs as possible to stand on because you become more stable then. And I think that that's -- so I don't know if that answers. I mean, we're happy for all the orders we get, but we prefer to have a more distributed customer base than to have a couple of few really big ones, because it becomes uneven in terms of order intake, in terms of predictability, and also it becomes uneven in terms of relationship. When you are stronger and have more opportunities as a supplier, then you also become stronger in front of the bigger customers because you're not as dependent and that change the dynamics. That is also good for the large customers because they understand that they also need to be attractive in order to have you as a supplier. So I would say that the market dynamic the last couple of years have been -- even if it's tough and you have to fight for everything, it has been good because our industry is maturing and also some of the largest accounts are seeing that their strategy of being purely transactional or purely price oriented, they have sometimes difficulties then to either keep their suppliers alive or to find suppliers to replace the ones that maybe had to stop supplying. So, yes, I would say that the whole industry is maturing and that is required for the industry. Otherwise, it will be very difficult in the future to live up to all the expectations of technology and services, data management and whatnot.

[Karl-Johan Bonnevier, analyst]

And yes, it's very hard to find any weak spots in this report, obviously, looking at the execution in Q1, but Ulrika maybe 1 or 2 words of what's happened in the financial net. I understand it must be related to Argentina, but it looks a little worse than I would have expected so.

[Ulrika Skold, executive]

Yes, to some extent it's, of course, Argentina and yes, maybe I can come back to that. I don't have all the details there at this moment.

[Karl-Johan Bonnevier, analyst]

No problem. I also noticed, Andreas, in the annual report that you speeded up the ERP project and took a lot of capitalization of that. When do you see that coming into, say, proper work? Because I guess that's a part of the 2 to 3 year plan of getting the final parts of that One ITAB structure in place?

[Andreas Elgaard, executive]

Yes, it will provide us with transparency, simplicity, and I would say also the agility that we need. Our plan right now, I mean, you guys know this, that these are difficult things, especially for -- maybe for us, but our plan is to have the first major rollout in the beginning of next year. So there's a lot of preparations going on, a lot of detailed work happening, and we are in good shape to have a successful launch in the beginning of next year. And then that will continue to roll out across ITAB.

[Karl-Johan Bonnevier, analyst]

So it is a project for '25 and into '26, maybe, or how should we see it?

[Andreas Elgaard, executive]

Yes, I would say that it's a project for '25 and '26 and potentially '27 as well. You have to remember that we have -- I think we have around 41 different operational companies and we have 40 different ERPs. Some of them are maybe the same ERP, but it has a provider, but the installation and the configuration has been different. So that was, I would say a result of the previous strategy of letting all acquired companies do their own thing. But that has also led to us not being really scalable. So you can see it's a difficult task, but we have good progress and the rewards are really good because it will help us to become even more efficient and capable to be relevant on the market and be able to deliver higher profits for our shareholders.

[Karl-Johan Bonnevier, analyst]

Yes, it sounds like it would be a huge opportunity for the cost efficiency. Have you -- any idea about - have you given any ballpark number what it could represent?Sorry, I'm not sure if I was cut off there or something like that.If you look at that ERP project, do you -- have you given any indication what kind of potential cost saving you could see, given, say, it sounds like you have quite a costly structure out there for the moment?

[Ulrika Skold, executive]

Yes, I don't know Andreas if you dropped the connection or but of course, we are quite early in the stage of -- in the state in this project, so we think that we have the potential to reduce in some areas, mainly the more transactional parts, and also to have a bigger transparency over the group. And as we said, we are implementing the pilot here probably during the beginning of next year and then we will make a more fact-based assessment on that I would say.

[Operator]

The next question comes from Erik Sandstedt from Kepler Cheuvreux.

[Erik Sandstedt, analyst]

I'm just wondering about the gross margin. It's obviously very strong in the quarter. You're slightly above 30% in Q1 now. And I think looking back in 2023, the margin was 28%, and back in 2022, it was 23%. So I'm a bit curious just how much upside potential is there left on the gross margin, given the positive mix effects that you are experiencing currently?

[Ulrika Skold, executive]

Well, I don't know if we lost Andreas. And it's actually, we work in a project-based business, and so it's a little bit hard to answer exactly on the potential. And of course, one thing is that when we increase our sales, we will have a better contribution to our fixed cost. But I don't want to give any number away on the potential on the gross margin side. It's so dependent on -- depending on what kind of projects we sell and how the products and customer mix looks like.

[Erik Sandstedt, analyst]

Could you say anything then about capacity utilization in your production facilities? Where are you now? And if you ramp up sales from here, do you have enough capacity or how should we think about that?

[Ulrika Skold, executive]

Yes, during the autumn we could see that we increased our capacity utilization towards the end of the year and that continued in the first quarter. But we still see that we have the capacity and we also have a big network of suppliers so we don't see any room for the capacity limiting our sales growth at this moment.

[Erik Sandstedt, analyst]

And also relating to this as well, but generally, in terms of cost efficiencies, this has obviously supported margins lately. How much is left to do there? I know you touched upon it in the earlier question, but also perhaps breaking it out a bit between COGS and OpEx. Just how to think about that over the coming years.

[Ulrika Skold, executive]

I would say that we continuously work on improving our ways of working. We also continue to focus on common ways of working, so that means that we sometimes do things very good in [ pockets ] in our organization, but we still have improvement areas looking at the best practice within our own organization. And that we will continue to work with. And that relates both to the COGS and how we utilize our production facilities, but also related to the OpEx, I would say. I can't -- I don't want to go into and take you through...

[Andreas Elgaard, executive]

Maybe to add on also in how we go to market in our sales, I would say is...

[Ulrika Skold, executive]

Yes.

[Andreas Elgaard, executive]

Yes. And sorry, guys, I was thrown out of the conference and had to restart my computer, but I'm back again. So I hope I didn't miss anything...

[Ulrika Skold, executive]

I tried to be a goalkeeper here. I hope I covered most of the things here around the [ year-over-over so ].

[Erik Sandstedt, analyst]

I just have a couple of more specific sort of financial questions relating to the quarter. The line operating -- other operating income and expenses was positive in the quarter. That has been quite volatile over the last few years. What's actually included in that line? Is that currencies or?

[Ulrika Skold, executive]

Yes, among others, it's currency. And it was minus SEK 4 million last year and now plus SEK 4 million. So it's quite small movements and you can see also in the rolling 12 trend that we have had lower other operating cost and income. And it's a bucket of different things I would say and it has no significant impact. It varies over time.

[Erik Sandstedt, analyst]

And finally, from me just in terms of tax rates, you are now at, I think 27% here in Q1, which is lower than the, sort of, 30% that you have been in [ that ] historically. How should we think about tax rates for this year? Is Q1 a good proxy for the rest of the year, or?

[Ulrika Skold, executive]

Yes, I would say that it depends also on how we can optimize within the group. And here we have -- yes, it also varies over time, so I don't have any specific projection on that one for 2024.

[Andreas Elgaard, executive]

No, we try to avoid doing any sorts of projections. But I think...

[Ulrika Skold, executive]

Yes.

[Andreas Elgaard, executive]

If it varies, it can be dependent on the country of origin for our sales. And it also varies based on if we've had some historic losses in that country or not.

[Ulrika Skold, executive]

Yes.

[Andreas Elgaard, executive]

And that have been behind. But I think we explained a little bit on this topic, I think 1 or 2 quarters ago. I think, we did that in writing if I'm not misinformed, but we can look if you want more details, we can -- what it consists of you can maybe answer that, but we don't like to give forecasts and especially on tax, so.

[Operator]

[Operator Instructions] There are no more questions on the phone at this time, so I hand the conference back to the speakers for any written questions or closing comments.

[Mats Karlqvist, executive]

Yes, we have received--

[Operator]

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

[Karl-Johan Bonnevier, analyst]

Just to follow-up here as well, and when you talk about a 2 to 3 year perspective and again becoming a consolidator of the market, if you really want to establish a, say, a fortress of an operation in Europe, what kind of market cap -- what kind of, sorry, size would you like to have this -- your company have, say, in 3 to 5 years to really be the go-to kind of service operator and solutions provider? Is it double the size of the current operation to really have that kind of position or where do you see yourself?

[Andreas Elgaard, executive]

I would say that already today we are a leader in the industry. So we are 1 of the 3 largest companies. And I believe it is important to remain the leader. And if I -- if you give a forecast of how big we should be, that can create the wrong expectations. We'd like to avoid answering that, but we have a clear and outspoken ambition that we've been talking about now for some time that we want to be the consolidator. And we believe that it's important with size for the reasons I mentioned before, in order to be a capable partner when it comes to connected products, data management, and also more sophisticated services, you need scale in order to both develop it and deploy it. And there, I think it will be I know in Sweden we say [ vattendela ], but it will be a kind of a breaking point for many of the smaller companies. It will be hard for them to stay on. So I think there will be -- and to compete when this becomes more and more important. So I think that we will see a natural development that the bigger needs to become bigger in order to stay relevant. And the smaller ones are going to have a more and more difficult time to keep up. And then the ones that have niche capabilities, they will always be attractive and relevant. And they could also then fuel the bigger ones with new competence and new capability. So if I'm [ indiscernible ]

[Operator]

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

[Mats Karlqvist, executive]

Yes, we have received a couple of questions in writing. The first one, I think it's for you, Ulrika. Can you break out the SEK 80 million of net interest tax and other adjustments in the cash flow statement?

[Ulrika Skold, executive]

Yes, it's mainly -- I would say mainly depreciation. We have almost SEK 70 million in depreciation here. The other parts are combined of tax interest and other cash flow, noncash flow items. I can also comment that last year we had minus SEK 10 million here instead of plus SEK 8 million. And the big difference compared to last year is that we had lots of bigger tax payments we did during the first quarter last year. So mainly depreciation in the SEK 80 million.

[Mats Karlqvist, executive]

Okay, thank you. And the second question I have, I think here is you touched on a potential margin impact due to a different product mix going forward. How big is this impact?

[Ulrika Skold, executive]

I think I touched a little bit on that previously when I said that we are such a project-oriented business and it's really hard to give any projections at all on impact. Maybe Andreas you want to evolve on that a little bit as well.

[Andreas Elgaard, executive]

No, I think that's correct. And I mean, right now, I would say we don't have a -- it's not a super favorable product mix that is behind this result or a super favorable customer mix. I would say that this is a result of all parts of ITAB are contributing and it's evenly distributed, both the effort and the delivery of results. Of course, there's a couple of parts within ITAB that is having a really strong performance and some that are struggling a little bit, but it's more even than ever. I can see that on the current mix, there is -- could be an upside, there could also be a downside, but I think the best answer is to look at the last couple of quarters and don't look at individual quarters, more look at what is the average. And I would say that is what you should be able to expect from us if nothing else happens that is dramatic, like we have seen in the last few years. But I think, many things that before came as surprises with racing steel prices or shortages of electronics that led to very high price or very high transport prices. Right now, there are no such things that disturb and then you can work more long-term and be more predictable. So we'll continue to talk about customer mix and product mix also in the coming quarterly comments.

[Mats Karlqvist, executive]

Okay, thank you very much. Then we don't have any more questions from the audience and in the webcast. So I hand it over to you Andreas, if you want to give some final remarks

[Andreas Elgaard, executive]

Yes, thank you, Mats. I just want to say thank you for listening. I want to apologize for me dropping out for a couple of minutes if that caused any awkward silence or unclarity. It's my -- I had to restart the computer. Sometimes that happens. I hope you could understand. So by that, I just want to say thank you to all of you for listening and those of you that listen in on the recording as well. So big thanks. Bye-bye.

[Ulrika Skold, executive]

Thank you. Bye-bye.