Lagercrantz Group AB

STO:LAGR B

Earnings Call Analysis

Strong Performance with Strategic Acquisitions

The company ended the fiscal year with solid growth, despite a slight slowdown in Q4. Net revenues increased by 6%, and EBITA grew by 14% with a record-high margin of 18.1%. Full-year results were strong, with a 12% increase in net revenues, an EBITA rise of 19%, and a 15% boost in profit after financial items. The company completed 9 acquisitions, adding SEK 1.2 billion in annual net sales. They aim to increase proprietary products to 85% and maintain a high profitability target with a return on equity of at least 25%. The board proposes a dividend of SEK 1.90 per share.

Strong Financial Results with Record EBITA Margin

The company reported a robust financial performance, achieving a record EBITA margin of 18.1%, an increase from the previous year's 16.8%. Net revenues grew by 12% year-over-year, largely driven by acquisitions, which accounted for 11% of this growth. Although organic growth was slightly negative at 1%, the positive cash flow from operations surged by 24%, reaching SEK 1,327 million, demonstrating effective management of resources.

Diverse Division Performance

Financial outcomes varied across the company's five divisions. The Niche Products division excelled, boasting a remarkable EBITA margin of 22.5%, indicating strong demand across various markets. The Control division showed stable growth with a 3% EBITA increase, while the Electrify and TecSec divisions experienced challenges, reflecting lower margins and a slowdown in the construction-related sector.

Acquisition Strategy and Future Prospects

The company completed nine acquisitions throughout the fiscal year, adding approximately SEK 1.2 billion in annual net sales. This is in line with the company’s aggressive acquisition strategy, aiming for 8 to 12 acquisitions per year, identifying opportunities primarily within its core sectors. The management is optimistic about growth in the Niche Products and International divisions and expects that the pending acquisitions will bolster overall performance.

Guidance and Growth Expectations

Management has set a target to grow earnings before tax by 15% annually, maintaining a return on equity of at least 25%. This aligns with the company’s broader strategy to improve its proprietary products' share to 85% from the current 76%, which is expected to enhance both growth and profitability.

Market Conditions and Future Outlook

The management anticipates stabilization in market conditions, with the possibility of organic growth returning in the latter half of 2024. The easing of interest and inflation rates is expected to stimulate investment and demand once projects are finalized, potentially improving order intake. However, management remains cautious about timelines, acknowledging a mix of uncertainties within different business segments.

Dividend Increase Reflecting Confidence

Reflecting strong financial health and growth, the company proposed an increased dividend of SEK 1.90 per share, an approximately 19% increase compared to the previous year, which corresponds to a 45% payout ratio. This proposal demonstrates management's confidence in sustaining strong cash flows and rewarding shareholders.

Earnings Call Transcript 2024-Q4

[Operator]

Welcome to Lagercrantz's Group Year-End Report 2023/2024. [Operator Instructions]Now I will hand the conference over to CEO, Jorgen Wigh; and CFO, Peter Thysell. Please go ahead.

[Jörgen Wigh, executive]

Thank you, and very welcome, everyone, to our year-end report presentation. We released our numbers, and as you all know, we have a year ending end of March. So we are releasing our full year numbers this morning. And it's me, Jorgen Wigh speaking, and together with me, I have Peter Thysell, our CFO, who will go over the numbers with us.We have -- a presentation is on here, right, but it's also available online on our website, so you can watch it there and take note if you'd like. But otherwise, we'll just go over the different slides here.So very welcome. We -- I think we summarized in our report here a very strong end to the year and a very strong year really. We feel very confident and very sort of confident around our -- the business idea and how we run things. And we have been doing this for many years now, building on our strategy and working through our -- with our decentralized model and making acquisitions along the way. And we posted another good year with earnings per share then at a new all-time high for the 14th consecutive year, which I think I feel very proud around. And we've really been doing something strong here and have been doing that for many years, and we'll continue to do so going forward.We normally start these presentations with a little introduction to the group. And then we will go right on to the numbers. The introduction is for those of you that are new to the group. So we will look at the overview here on -- I mean Lagercrantz is one of those serial acquirers without an exit horizon. And we view ourselves as a tech group, and we are really strongly believing in building with proprietary product-type companies, building, leading and having leading positions in expansive niches.So we have a group with all types of dependencies when it comes to products, customers and geographies. We organize all these companies into the 5 divisions that we have. All are doing B2B tech, so it's B2B industrials and tech companies that we have within our group. And that is sort of the boundaries that we put on ourselves. But we have organized them into these 5 divisions: the Electrify, Control, TecSec, Niche Products and International divisions. And you can see the number of companies and the number of profit units that we have in each of the divisions. They are of similar size, Control being a little bit smaller than the others, but building as well. The other ones are of fairly the same size.So -- and all in all, in the group, we have a revenue of some SEK 8.1 billion, and we have some 2,800 employees working in all of these companies that work under their own name, under their own label, addressing their customers, their markets with their products in each market, and we can be a good -- hopefully, a very good owner of these companies. Usually, they have been owned by entrepreneurs or owned by smaller-type companies that we've been able to acquire over the years. We are currently some 70 or even 75 profit centers within the group and organized into these 5 divisions.M&A is very -- a central part of our DNA and our business model, and we are making some 8 to 12 acquisitions per year. We have been on the stock exchange in one form or the other since 1976 and under our own names in 2001. We were previously part of the Bergman & Beving Group that was -- have made some spin-offs over the years and are currently on our own since 2001.You can also see that we have our -- where we are operating and is mostly in the Nordics and in Northern Europe, but we also have some footholds in other parts of the world as we are doing quite a lot of exports in our companies. So we are addressing the U.S., for instance, with a number of our companies. We are also addressing China and India and other parts of the world. So you can see all the way over to the right here where we have our footholds in different parts of the world.So that's a small introduction to the group.We -- as said, we think we posted another strong quarter and a very strong year. You can see our trajectory here when it comes to revenues and profits and as you also can notice is that we have the scales here on this axis is proportional, now meaning that we can also see how margins are developing along the way here. And you can see that the margins have picked up from being very low, we think, back in 2005. And since then, we've gradually grown profits and also growing margins along the way. And we said a couple of years back, we set the target of going from SEK 500 million in terms of profits to the SEK 1 billion, and we surpassed that here during this last fiscal year going by the SEK 1 billion and have, during the full year, communicated that we are now moving towards the SEK 2 billion, as you can see here. And we have come some way already on that here in our first half year or so, building on that new goal setting.That also comes with some activities. We are broadening the scope of where we are operating. We are also addressing a couple of new markets and things like that as we go towards the SEK 2 billion, also building some capabilities on a divisional level, meaning that we can also make more acquisitions along the way. We feel that we need to acquire some 10% of [ ourselves ] every year.Coming back to the Q4 then on the next slide. I mean, in Q4, we have -- as most companies have seen, we have seen a slowdown in the market during the year. We see that especially within the construction, within the infrastructure and those type of markets. While we see in other -- many other markets where we're addressing, within the niche products, within our safety products, within a number of others that we see things holding up very well and growing in some instances as well. So we think all in all, that we -- from a group perspective, we think that the market situation remains stable during the year.As you all know, we've seen interest rates coming down, and we see that inflation rates are coming down or expected to come down, and we see that the opportunities for investments among our customers are, to some extent, picking up. We see some more requests than previously. But we also see customers holding back, not really making the decisions to go forward just yet. So it probably will maybe take a couple of more quarters or so before we see that the market might be coming back in a more -- more broadly. And that's what we see.We also saw here in the quarter that we had some really tough comparables to work with last year. And we also had an Easter effect where we -- as you know, we're doing March through April -- sorry, April to March every year, that means that we actually had 2 Easters in our fiscal year last year. So that was in March this year as opposed to April last year, which is affecting the end of the quarter here to some extent, which we have also communicated here.We saw that demand, generally speaking, was stable, a little bit less. We had an organic growth of 6% reported, but due to the calendar effect, we have calculated that it's roughly 3% underlying negative organic growth. But we are compensating that with strong cash flows and also some more M&A activities in those periods. And that we've seen also with some 2 good acquisitions during the quarter here with -- which I'll come back to in a short while.We saw demand holding up very well in some parts of the businesses, which was especially within the Niche Products division. And also -- but it was slightly weaker in the TecSec where we have some construction-related-type companies and also in the Electrify division, where we both have some infrastructure and construction-related-type businesses, but also some project-based sales that happened last year, but that was not repeated this year, has also affected the numbers of the Electrify division.You can see down here to the right that we are gradually becoming more and more international as well. We see that we are picking up, especially when it comes to sales in the U.K. We probably will report that separately going forward. But we -- you can see how Europe is growing there, and that is the acquisitions and what we're doing in the U.K. where we see things happening along the way. We also see -- so, we're gradually becoming more and more international as we are building with more proprietary products. We also see that those proprietary products are usually viable for also some export sales. So our export share of sales will probably gradually increase as we move forward as well.We also see, down to the left, that we are also building with the proprietary products, and we are currently at the 76%. We are gradually seeing that improving or picking up even further. We are strong believers that, that will add to our margins, to our profitability, and also to our opportunities for organic growth as we move along. And therefore, we set a clear target that we would like the proprietary products to grow. We had previously the goal of 75%, but we also -- in connection with the SEK 2 billion program, we have raised the bar there to 85%. So that we hope we will see happening as we make more acquisitions going forward.Looking a little bit at the Q4 numbers, I will hand over to Peter, and you can go over some numbers here.

[Peter Thysell, executive]

Yes. Thank you, Jorgen.So our last quarter to the fiscal year was quite solid, although we could see a slight slowdown. In terms of net revenues, they increased by some 6%, where 11% growth came from acquisitions, and we had negative organic growth of some 6%, where about half of that or 3 percentage units was due to the Easter. And then last, we had a 1% growth from currency effects. Then we saw that our EBITA increased by 14%, where the EBITA margin was at another record high level of 18.1% compared to 16.8% in the last year. The cash flow continued to be quite strong, a little bit lower than last year's really strong cash flow. And the profit after financial items increased by some 10% in the quarter to SEK 298 million. We completed 2 acquisitions in the quarter, a little bit larger in size. The Prido and then the Nordic Road Safety and I'm sure Jorgen will talk a little bit more about these 2 acquisitions later on in the presentation.If we move to the full fiscal year, we note that the net revenues increased by 12%, where most of it came from acquisitions, 11% growth. The organic growth was marginally negative by 1%, and then we had 2% growth from currency effects. The EBITA increased by a good 19% to SEK 1,431 million and the EBITA margin increased to -- by 1% to 17.6%. The cash flow from operations increased by 24% to SEK 1,327 million, corresponding to a cash conversion of about 78%. And the profit after financial items increased by 15%, which is the group's goal over cycle. So this was right on target. The profit after tax increased by 16%, where the earnings per share increased by 15% to SEK 4.25 per share. And the return on equity was 27%, a little bit over our targeted level of 25% and the equity ratio was 35%. Our internal return measure, profit over working capital, was about the same level as last year, which is a good level at 77%. And for the entire financial year, we completed 9 acquisitions that add about SEK 1.2 billion in annual net sales. And finally, the Board proposes an increased dividend of SEK 1.9 per share, which corresponds to about 45% payout ratio.If we look into the outcomes per division, we can notice that the Electrify division had slightly lower margins this quarter at 14.7% and the Control division ended a strong season where they, for example, have the Radonova, radon measurement season is over, and they concluded at a very good level of 20.2%. The TecSec division also had a little bit lower margin in this quarter, probably attributed to the CW Lundberg business where they had a low season. It was more that this year is more typical, I would say, than last year where CW Lundberg, for example, issued new devices for solar panels that helped them last year. The really strong division in this quarter was the Niche Products that reached a record high level of 22.5%. And last, the International division also continued their very positive development and achieved 17.6% in the quarter.And as already mentioned, the group reached a new all-time high of 18.1% EBITA margin in the quarter.

[Jörgen Wigh, executive]

Thank you. Yes, we'll look a little bit more on the divisions. I think that those are important to comment on as well. We have some comments here on the coming slides. But I think it's important to highlight that we have a very strong EBITA margin for the full group of 18.1% and a record high and also the Niche Products has done extremely well here during the quarter, while we see some slowdown, especially in the Electrify and TecSec. The TecSec is more construction-related, while Electrify is more due to some projects that we had last year and also a season where we see some differences. They are -- usually have a stronger Q1 here next quarter and also coming further on. We see some also investments that were held back here in the infrastructure-related-type businesses during the quarter, which affected the Electrify division.We have some comments on the coming pages here. So let's look them through quickly. The EBITA fell by 15% in Electrify and that is usually more than we've seen before. But still, we feel very confident that Electrify will pick up further on as we move along. We saw some weaker market conditions and challenges with also some Easter effects and stuff like that affecting the numbers here. But we see some of the key players or some of the key companies within the group -- within the division is still holding up very well. The Elpress is holding up very well, doing it very well on the building networks or contributing to building networks with the components really in their business, both in the Nordics, but also in exports in the U.S. and also picking up somewhat in China where they're also present. We also see the cabling businesses, that they are picking up due to that we see some increased demand from the wind turbine manufacturers along the way. Within the infrastructure, which also saw -- that's where we saw most of the slowdown really. And we also saw some -- without the major project deliveries, which last year was around SEK 20 million. So that is also affecting the Electrify division.During the quarter, Electrify also made the Nordic Road Safety acquisition, and that is coming in, but they also have a weak season during this part of the year. So that -- we are confident that, that will pick up along the year here as we are doing most of the road works in the summertime here in the Nordics and in Sweden.Looking a little bit further on the comments on the Control division. I mean that was a very stable quarter. As you can see from the numbers, EBITA picked up some 3%, where we saw some of the really big companies doing very well for us, continue to do it very well. That was the Radonova, Direktronik, Leteng and also Load Indicator, which has really moved up, doing it much better than before, along the way. And that is good to see, a fairly small company, but still worth noticing, we think. On the other hand, we still see Precimeter which is one of the key players as well, they are impacted still by the European aluminum industry reducing the production, which means that they're reducing their investments, which is Precimeter-type customers due to high energy prices here in Europe, especially. They also have some sales in the U.S., and that's holding up very well. So it's -- Precimeter are doing it very well, but the market is somewhat sour for them along the way.In the TecSec division, we see higher dependency up on the construction-related businesses. We see that within CW Lundberg and R-CON. R-CON is doing it better along the way, but still behind last year still. The CW Lundberg is more -- CW Lundberg is, as Peter already said, is more affected by the general downturn and also in the construction sector. Still, we see some companies doing it really well for us within several businesses. The ISG Nordic did very well. The PcP, our biggest turnover-wise company in Denmark are doing very well. Door and Joinery in the U.K. are doing it very well. ARAS and Idesco reported also very good performances. And the new acquisitions also came in very nicely there.We have a few comments also on the remaining -- the Niche Products that stood out really, they grew revenues by 14% and doing quite a lot of acquisitions during the year, organically down only 1% then during the quarter. And the EBITA then picked up 25% during the quarter and an EBITA margin of a record high at 22.5%, as already pointed out. A very strong Q4 for Niche Products with a positive development in many of the markets they're present in, that is more scattered around. If you'd like to understand that better, you should look at the different companies and see what they're up to and where they are, which they are communicating on their website. But it's scattered around quite a lot within the Niche Products division, but holding that up very well on the broad front, really with the Wapro, Asept, and the brush companies SIB and Sajas are doing it very well and also Thermod and Vendig had a -- posted a good quarter here. Tormek, which is one of the key players and the biggest company within the Niche Products division, also recorded a very good quarter and overall delivered its best annual results to date, becoming the second most important profit unit within the whole group of Lagercrantz.And also some good acquisitions coming in with the MH Modules, but also with Prido has had a really good start within the group and doing it very well for us from the start, which was what we expected, really. It sounds like a -- we believe that that's a very strong company for us going forward.Last but not the least is the International division which also posted a very strong improvement. The revenues grew by 20%, organically it was down 4%, but acquisitions contributed quite well, doing quite a lot of acquisitions in the U.K. and other places and also has posted an EBITA improvement of 43% to SEK 70 million. We see -- looking further back, we could see that the International had structurally lower margins than the other divisions. But I think now they picked up and are proven through their acquisitions that we are structurally on a new level within International. We have the marine sector, which has been really strong for us and a couple of other acquisitions is also contributing quite well. So International, due to that, they're also moving into more proprietary products, are posting better and better results, and most of that, I think, is structural as well. So that I think we could expect going forward as well.We could see that acquisitions came in very nicely, the Glova Rail in Denmark and the Supply Plus and DP Seals in the U.K. contributed very well during the year and also the end of the year as well as the last quarter.A lot of comments there. I hope you caught them all. Let's -- but that's how we work and operate by working with each businesses separately, adding up to some good numbers for the group.A couple of drill downs we would like to present as well. I think we are very happy with the portfolio of companies we have. I think the portfolio has never been as strong as it is currently. And a couple of things to look at is how we see the profit over working capital distributed by division. We release these numbers every year, really. And I don't think that -- we can see some decline here a couple of percentage points, but they're well above the 45%, which is the target. So I think we are continuously doing it very well when it comes to profit over working capital along the way. And we could see that we have a broad portfolio of companies doing it very well. So it's not really related to just 1 division or 1 business, it's very broad-based in our group, which I think is proving some resilience to the business and some really good profitability coming out and providing some good cash flows for us along the way. So those numbers were released this morning as well.The net sales per market segment, well, here is also another drill down, where we see the top line growing from SEK 7.2 billion to SEK 8.1 billion, you could see, but the content of the business is fairly stable along the way. We are dependent upon a lot of sectors and have a very broad-based setup in the group, which is also, I think, proving to the resilience and the stability to the business. So a couple of drill downs there.I think another drill down that many of you would like to see, yes, as we move forward here. Let's -- yes, so what we will do along the way is that we will continue to build the group. We feel that we feel really confident in how the group is set up and how we are working with our vision and financial goals. This is unchanged, and we will -- have now put up the bar for ourselves at the SEK 2 billion, which is our next sort of level to reach. And we will do that by growing earnings before tax by 15% per year and having a high profitability in terms of return on equity of at least 25%, which is corresponding to at least 45% or above when it comes to the profit over working capital along the way.We will, in this program, continue building the 5 divisions. And we have intentionally changed up some -- changed those sort of scopes and where we are looking for coming, our hunting grounds, as we call them internally, when it comes to where we would like to be with our separate divisions. We would like to be in sectors where we see sustainable structural growth with sustainability connected to it. And that I think we have within our 5 divisions now, where we are growing along the way.Yes. I was referring to this slide previously. So coming back to the portfolio of companies we have, we try to illustrate that also where we have our companies when it comes to where we see the profitability. As you know, we're doing quite a lot of benchmarking, measuring, comparing and challenging our different companies to perform even better. And it's good to see that we see some good performance and see that is also very broad-based. So here, we internally have the rank from the best to the worst in terms of return on sales or net margin, EBT margin, which is, as you can see, how the different units are distributed here over to the right. And you can see about 20% in terms of return on sales. We have some 24 units as opposed to 19 last year. We can see between 15 to 28. Some of them moved up to about 20%. And we also have an increase in the ones about 10%. So if you add those up, it's 55 companies that we have above 10% as opposed to, I think, it's [ 47 ], right, that this adds up to last year. So it's gradually -- I think we have a very strong portfolio.We also have some companies in the end, of course, that we are working with. It's good to see that there are only 4. There were 4 last year as well, but we had a couple that left that field, but a couple of others that were into that field. So that's this constant struggle we're working with within the group to really fix the ones that are not performing. So the 4 units are the same amount, but there are other units or at least in 2 cases, there are other units this year as opposed to last year.A couple of other -- a couple of final drill downs is also then the aim for 85% proprietary products. We are currently here at the end of the year at 76%. We see that all the acquisitions are coming in along the way. So we basically have -- if we adjust it for what we already acquired, I think it will pick up a couple of percentage points or so, but we are aiming here in the next 3 to 5 years to get to the 85%, which we feel that the companies having proprietary products are usually have higher margins, have better cash flows and better opportunities for growth. And we can also sell the products all over the world, which means that there are better opportunities for exports when it comes to those companies. And therefore, we are very keen on trying to drive this even further as we go forward.And with the corresponding number then is the continued focus on value add. You can see how that's evolved over time. And you can see that we reached a new record high year for last year with 39.3%. And this is, of course, very, very important when it comes to us being profitable and generating the cash we need in order to acquire more businesses. So this is of huge importance to us, and we would like to see how that's evolving over time. And it's good to see the pickup here in the last year as well because it's quite good here in the last year, which is adding to the future.Last but not least, I'd like to talk a little bit about the acquisitions. Along the way, we are acquiring and actively acquiring some leading B2B tech companies in expansive niches. And in connection with the SEK 2 billion program, we raised the bar for ourselves. It used to be 6 to 10 companies. Now we raised the bar to 8 to 12 companies per year. Our ambition is to acquire some 10% of ourselves every year and that we have been doing for a couple of years now, and we intend to do so going forward as well. And that means that as we are growing ourselves, that means that we need to increase both the number of acquisitions, but also sometimes slightly the size of acquisitions. We will still stay at a -- stay with sort of our price tags and that type of thing, we will stay very disciplined doing this but along the way, we will look at some bigger acquisitions as well. We will also go gradually outside the Nordics and do more things out in Northern Europe, especially, and we feel very confident in the U.K. where we have put feet on the ground here in the last couple of years, and it's working very well for us with more opportunities to look at and also of better quality.So during the year here, we posted some 9 acquisitions, and it's then SEK 1.2 billion, which corresponds to roughly 16% of last year's sales. So this is well above the 10% I talked about. So it's -- we've had a good year in terms of acquisitions. You can see how they're listed down to the right there, and we have been talking about them in different settings and in our quarterly meetings, but I'd like to present the 2 newcomers, which is the Prido and the Nordic Road Safety, coming up here now then.The Prido, we feel very happy about that we brought them to the group, a very well-run company in the West Coast of Sweden or on the West side of Sweden in Travad, it's in Vastergotland, is the location. It's not off the West Coast, but it's on the West side. And they have about 1/3 of the market in Sweden when it comes to the folding doors and some 5% to 10% in Norway. So good growth opportunities in nearby markets. You can see down to the right, we usually make these type of fact sheets when we communicate around our new acquisitions. And you can see it's a very well-run company with some really good numbers down to the right there, which will add to the Niche Products performance going forward, a very good company that is now part of the Niche Products division as of March 2024. So they've been with us only 1 month.The Nordic Road Safety is the next one I'd like to present this morning, and that is the -- is a leading supplier of permanent road safety and noise barrier systems. All these products are -- need to be certified. So it's a barrier to entry for others that haven't certified their products, which means that this company is really big in their market. So expected revenues of SEK 350 million and a good EBITA level of SEK 50 million as well and a good profit over working capital in 2023, we have communicated that. So an EV/EBITA of 6.5x is what we acquired that at. Yes, and we are acquiring some 85% of that company. This will be part of the Electrify going forward, and that started here from March.Yes. Right. Okay. Good. We will round off before we [ let in ] for questions. To just sum up the year, the financial overview here is the -- where we could see how we developed over many years now. You can see how the net sales are growing year-by-year. The EBITA is growing. The EBITA percentage is growing. So we are very happy with where we are. And we can see the EBT growth as well. It should be 15% per year, right? You can see how that's developed year-by-year and another 15% from last year then. The return on equity then was at 27%. And you can see the target there is the 25%. So that's also been on a very good level. And the earnings per share growth and is at 15% from last year, but we're also then proposing a dividend per share of SEK 1.90, which is a 19% growth here corresponding to last year -- versus last year. So a good performance over many years, and we are confident about the future as well.I think that was all for us this morning, but we will have some Q&A coming as the next thing here then.

[Operator]

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

[Zino Engdalen Ricciuti, analyst]

I'd like to start off on the margin side, which, of course, were very impressive. Could you elaborate some more on it and how -- if you see it as a sustainable level going forward? Of course, there's a lot of variations between the segments here.

[Jörgen Wigh, executive]

Yes. I think that we've had a -- and do have a very strong portfolio of companies. And as you saw from one of the slides, right, the number of companies are above the 20% or so. Of course, we need to increase that share along the way in order to drive margins even further. I've been a bit reluctant to promise that we will stay at the 18% or 17% going forward. And I probably should be a bit careful around that. But it's -- as we're moving forward, we see quarter-by-quarter that it's holding up very well. And so we're getting there. And then we also drive the margins in the companies that we have. So I'm sort of -- I feel that this is where -- a level we should be able to deliver, not in all times and every quarter, but along the way, we should be at a level well above the 15%.

[Zino Engdalen Ricciuti, analyst]

Very good. And in the Electrify segment, of course, you mentioned the large deliveries there that you had last year, but not in this quarter, do you see it as unique to this quarter or that it's a push effect, that they are pushed to the next or that we will see them a bit less until the interest rates decline?

[Jörgen Wigh, executive]

Well, it will be -- we have some -- a couple of companies that are a bit lumpy within the Electrify. We've had the [ QD ] business as those of you that know that, that is, they had some orders, some deliveries, also in last year's Q1. So that will probably be something to reach this coming quarter as well. But on the other hand, this quarter, it was -- the comment we're making here was not really related to QD. It was related more to Elkapsling, which is another company that had a huge order delivery last year to the U.K. and that wasn't repeated this year. So that was another reason really. But -- so we have a couple of lumpy businesses, which will bring the numbers a little bit up and down. But we also see some good projects or projects being ahead of us. So we will see also quarters where we see some lumpiness coming back or positive effects of the lumpiness.

[Zino Engdalen Ricciuti, analyst]

Okay. And just to be clear on the Easter effect, you particularly mentioned in the report Electrify and TecSec. Were those the segments that stood out the most when it came to the Easter effect?

[Jörgen Wigh, executive]

Yes, I think it's more general than that really. I think the comments were made there, but it's -- I think it's more general to the whole business. We have some businesses that have more of a day-to-day sales while others have other types of businesses where the Easter effect or the calendar effect are less, but some companies have more of a day-to-day sales and then a 3, 4 days extra sort of Easter effect will have an effect on those companies in that specific number.

[Zino Engdalen Ricciuti, analyst]

Very good. And lastly for me, you're closing or closed this quarter with the 2 large -- relatively large acquisition of [ NRS ] and Prido. Do you anticipate that this will have an effect on the M&A pace that you want to wait for some cash flows in the near term? Or how do you think about that?

[Jörgen Wigh, executive]

No. I think that we still have a very strong balance sheet, and we are able to do more acquisitions, and we're looking at a few already that we feel are -- we might not do the really big ones, but I think that we will have a flow of acquisitions going forward as well. Our net debt to EBITDA is currently at some 1.4 or so. And that, I think, leaves plenty of room for more acquisitions.

[Operator]

The next question comes from Gustav Berneblad from Nordea.

[Gustav Berneblad, analyst]

Gustav here from Nordea. Just to start off here. I mean, if we look at the P&L, I mean, in terms of other operating income, there looks to be a positive effect of SEK 28 million. What is the main driver behind this? Or what do these primarily relate to?

[Peter Thysell, executive]

Is that referring to the quarter or the full year?

[Gustav Berneblad, analyst]

Yes, this specific quarter, because it sticks out on the positive there. So I was just wondering what this relates to.

[Peter Thysell, executive]

Well, part of it, it's [indiscernible], as you can see, is related to revaluation of the earnouts. And the remaining, of course, towards the end of the quarter, we generally review and make the assessment on all sorts of things. And so it's a lot of assessments like that. But I would probably have to come back with a more detailed description.

[Gustav Berneblad, analyst]

Yes, that will be great, just to sort of get more clarity into what the driver is and what we should extrapolate and so forth. Then sort of my next question. I mean, you have driven sort of very strong margin journey partly through margin accretive acquisition and so forth. But what is your interpretation more longer term? Are you still seeing a lot of opportunities in sort of finding attractive companies with attractive margins sort of at group level or above group level, still sort of trading at 4x to 7x EBITA? Or are you seeing sort of a risk in the model where acquisitions are likely to be maybe more dilutive going forward? Or you have to pay a higher multiple for it or if you can sort of expand a little bit about this?

[Jörgen Wigh, executive]

Yes, it's -- I mean, as we are getting a better and better EBITA margin in the group, of course, the scope or the space of finding more margin accretive, more businesses to acquire, of course, that is becoming a limitation along the way. I think we are confident that we are going to be buying very well-run companies, at, say, EBITA above 15%, but doing a profit over working capital, meaning that the -- an investment is really a good thing for us. So we will continue to build along the way. But I also feel that there are a number of companies, we are looking at companies that have well above 20% or above in terms of margins. And we also have, I think, the benchmarking and how we work with a company is also sort of driving the margin improvements once we have acquired the companies. We have seen that in a couple of the U.K. companies that we've acquired lately that we see good margin improvements after we acquired the companies.So margin will always be a key driver for us. It's been a key thing for us all over the year -- all throughout the years that the margins are driving the cash flows, and therefore, we are very keen on driving the margins. But we are even more keen on driving earnings per share, right? We need to also -- so I mean, there is -- somewhere, there is, of course, a limit on how much you can drive the margins and still grow. But, I think that we see companies in our near space here that are at the 20% or even a little bit above. So I think we are -- we have done a tremendous journey coming from where we were, but we still have some good opportunities to drive that even further. Well, it won't be at the pace maybe, we have been driving it 1 percentage point per year or so looking in the rear window. But I don't think that will be possible for a long period of time. But along the way, I think we'll keep or try to drive the margins going forward as well. A bit of elaboration, I don't know whether it adds something, but...

[Operator]

The next question comes from Niklas Savas from Red Eye.

[Niklas Sävås, analyst]

I want to start with a question on Electrify and I wonder if you could give some more color on the seasonality there? And how is [Audio Gap]

[Jörgen Wigh, executive]

[Audio Gap] division really. That has always had a seasonality effect, so that we also see -- we see some pickup during the summer and the sort of the summer period or at least Q1 -- or Q1 and Q2, right? And that we see within Elpress, that we see within Elkapsling, that we will see in QD as well, we see some of that. So it has always been a seasonality effect to some extent, but maybe less than you might think, but it's still something there. Then when we're coming to NRS, that is also building then safety barriers for roads, right? And the road construction work is also done mostly in December. So they have run big projects, and they will probably have a buildup of project-related-type businesses during the spring, and then will deliver most of it during the fall. So that will probably add to the numbers and especially the cash flows will probably be a bit late in the season or coming in October, November in that company. So that will add to the seasonality. You're correct there.

[Niklas Sävås, analyst]

Okay. And also, I want to follow up on the question from the previous analyst on continuing to do -- I mean, continuing on the acquisition pace you have had. I mean, financially, you look in great shape to continue to acquire companies. I just wonder, organizationally, I mean, if you have any barriers in terms of like educating the new businesses on your operating model and so on, if you have any limitations in the near term, driven by that.

[Jörgen Wigh, executive]

I think it's definitely something we work with. And it's not a challenge, but it's a work that we think is important to do to drive also the culture work on how we do things. That I think is where we stand out and are maybe a bit different from many others, and we have really driven the culture work when it comes to also what we're looking for, how we run businesses, how we do and drive M&A. So we are running trainings and things like that. We have a MD conference coming up, and this will be a key thing in that MD conference with all the MDs. We are also then looking quite a lot on building M&A capabilities to a larger extent on the divisional level. And that we've been doing for some years now. You really see the fruits of that when we see that we are posting more acquisitions and having a better quality in acquisitions we're looking at, doing it more broadly within the group, getting more people involved in the subsidiaries and on a divisional level.

[Niklas Sävås, analyst]

And my last question is on the business area size and how you think about -- I mean, Niche Products has performed really, really strongly and you added the acquisition of Prido there, latest. I mean do you -- what kind of size per business area do you think is like an okay level? And where -- I mean, at what size would you think about maybe splitting 1 business area into 2?

[Jörgen Wigh, executive]

I think we are, to some extent, doing that already. We are building some capabilities on a divisional level. And then we have some clusters or putting things together that have some synergies or -- not really synergies, but they can work together and have benefits from that, and we call it clusters. And that is already happening within the group. That will eventually maybe result in an aggregated P&L on that level. But I'm not sure that you as externals will see that. That is something we will work with internally. We are very keen on measuring and driving things in a decentralized way and measuring things and having people feel responsible for the P&L that it comes from our profit unit or profit center organization. And that will continue as we grow on more levels.

[Operator]

The next question comes from Max Bacco from SEB.

[Max Bacco, analyst]

I missed the first part of the presentation. So you might have talked about this, but anyways, and I think the first question is touching a bit upon a previous question here with operating income and expenses that was unusually positive in the quarter. And at the same time, the central costs of minus SEK 5 million here in the quarter was unusually low. Do you have any more insights to why the central costs were so low in the quarter, perhaps the same explanations to why the operating income was so positive?

[Jörgen Wigh, executive]

You have something to add there, Peter? Or should we look into it?

[Peter Thysell, executive]

We should look into it. As I said earlier, we're making assessment towards the end of the financial year and it's probably related to this, but I'd rather look into it in more detail.

[Max Bacco, analyst]

Yes, understood. Yes. Yes. And the second one, I noted that you, Jorgen, managed to take the time to do an interview here during the morning with the local press, where you elaborated a bit on the comments in the report where you said that positive trends with interest rates and inflation coming down could lead to the market recovering, but it could take a couple of quarters before that trend results in more orders. And I believe you said that because you then got the question to specify when that is, and you said Q3 and Q4 2024, '25 for you. I mean, I know that you don't want to give any guidance, and you also said in the interview that it's too far ahead to say anything of certain. But as you see it right now, is that when you expect to return to organic growth basically?

[Jörgen Wigh, executive]

It's really hard to tell. I mean all our companies are struggling and working at the best they can in order to drive their businesses and grow their businesses. And whether that will happen in our Q2 or Q3 or Q1, it's really hard to tell. It depends on how fast the market will pick up. My comment was more of a general sort of kind in the sense that I feel that now interest rates are coming back. People are feeling more confident and starting to look into new projects, new sort of construction projects, new infrastructure projects, other types of things that will result in investments going forward. But before that ends up in our order books, then it's a lot of approval processes and project work that needs to be done before it ends up in our order books. And we are, to some extent, late cyclical.And therefore, I think it will take some time before it starts picking up for us again, so whether that is now or somewhat later. But I think what we will do during the way -- along the way is that we will look at the companies. We will -- we have a lot of companies that are more in a better part of the market and see growth. And we also see that we are compensating some of the slower growth with more acquisitions. So I'm confident that we are entering better times along the way here.

[Max Bacco, analyst]

Understood. And last very brief question also quite similar to a previous one. But here in the quarter isolated, very nice margin improvement, which seems to be driven by the gross margin. Would you say that, that is on an organic basis? Or is it that acquisitions included here in the quarter has been margin supportive, perhaps a bit difficult to quantify?

[Jörgen Wigh, executive]

Yes, it is a bit difficult to quantify. But it's not like it's very driven by the new acquisitions, the last ones. Those are more of an average level of the group. So that is not driving the total. I think it's more of good work being done in many of the other business units. So it's more organic.

[Operator]

The next question comes from Karl Bokvist from ABG Sundal Collier.

[Karl Bokvist, analyst]

Most of my questions have been answered. So I just have 1, really, and it ties to the topic we discussed recently. And just when you look at the order books now, how would you assess the visibility into the second half? And the follow-up would be, you usually do provide a bit of flavor at least on order intake. And what can you say about that in this quarter?

[Jörgen Wigh, executive]

I think what we said earlier on is that we've seen a slowdown in the market. We -- but we also see that it's marginal. We are talking about the 1, 2, 3 percentage points that we've been discussing all along here. It's -- but it is stable there on a group level, but it varies between the different businesses. and especially the ones related to the construction sector. So we see some weaknesses there, while others in Niche Products division, where we have a lot of dependencies and more also international business, that we see is holding up and building quite nicely. So it's really a very mixed picture.Generally speaking, we have an order book which is 3 to 4 months long, on average, but it varies quite a lot between the companies. Some are more hand to mouth, while others have long projects that have delivery times of 9 to 12 months. So it varies quite a lot. I think it is very hard to tell for anyone really what's going to happen during the fall. But as we see interest rates coming down, inflation rates coming down, I think that the willingness to invest will come back. And we also see that from requests from our customers, we see the level of requests are more, yes, picking up and also some more qualitative than before. And that is why I'm giving the comments like I am. Good. I think there were no written questions. So I think I'll thank everyone for taking the time. And Peter and I are always available if you have additional questions individually. We will look at those. But we'll keep in touch, and thank you for listening in, and have a good day.