Storskogen Group AB (publ) (STORB) Earnings Call Transcript & Summary

Hi, and welcome to Storskogen and our presentation of the fourth quarter. So my name is Daniel Kaplan. I'm the CEO and one of the co-founders of Storskogen. And together with me today, I have Lena Glader, CFO. So let's get going. First, Storskogen in brief. We are an international group of businesses. We have annual sales -- net sales of SEK 37.4 billion for the rolling 12 months and an EBITDA of SEK 3.5 billion. We have 3 business areas: Services, Trade and Industry, and 14 verticals below that. So looking at Services, making up of 32% of our turnover, 62 business units and 7 verticals and 5,000 employees. We have Trade headed up by Christer Hansson, 35 business units, a little bit more than 2,000 employees and 4 verticals. And finally, Industry headed up by Fredrik Bergegard, making up 39% of our turnover with 3 verticals and more than 5,000 employees. All in all, almost 13,000 employees, in fact. And our reason for our existence, our mission is to empower our businesses to help them fulfill their full potential. So getting into the fourth quarter, it was, in fact, a strong quarter. We had good sales. We had strong cash flow despite a challenging environment. Net sales, SEK 9.8 billion, a 63% increase compared to last year, and an organic net sales growth for the full year of 12%. And our adjusted EBITA, SEK 927 million. Our organic EBITA growth, minus 6%. And finally, our EBITA margin was 9.4%, in fact, the highest margin we've had in the fourth quarter since our start a decade ago. All in all, it was a good finish to a challenging year. I think we all remember all the challenges of last year. With the changing environment, our strategic focus remains on our operational excellence, cash flow, strengthening the balance sheet. And our work, working with the cash flow and working capital really resulted in the fourth quarter. We saw a strong operational cash flow of SEK 1.3 billion. Among other things, this resulted in a lower net debt to EBITDA to 2.6. We did 5 acquisitions with a combined net sales of SEK 446 million. And since then, we have done 3 more acquisitions and the Board has proposed a dividend as well for SEK 0.08 per share. So going a little bit more into depth on net sales and EBITA margin. We can see that we had a good demand actually most of last year, and also an increase in profitability. As we know, it's been a challenging inflation environment and we have successfully managed to push on price increases towards our customers. And you can see that, especially during autumn, for example, for services. Nevertheless, we have currency headwinds. The dollar is really strong, affecting primarily the Trade business area. But in conclusion, the margins were protected by our price adjustments. We had productivity measures and cost cuts in some of our business units. And of course, we had a solid demand helping us in the quarter. The market development in general. Well, the macro, we can see a strong demand in the industry still both in the fourth quarter, but also going into 2023. We have good order books, historically high. And also Services keeping up quite decently. And we've had successful prices increases across the board. In addition to that, we can also see that as inflation is stabilizing and supply chain disruptions are easing, we see also that our margins start to go up. That said, the weak Swedish currency is really hampering us, especially our Trade segment, but also demand is going down in consumer-facing industries and we see companies early in the construction cycle experience also lower demand. The forward outlook. Well, we always have a seasonality pattern with a weak first and third quarter and a stronger second and fourth quarter. And as far as we know, nothing changes that view. But in general, we are cautious about giving a macro outlook for 2023. It's uncertain times for sure. If you're looking at the transaction market and M&A, it's a general slowdown in the market. We have decreasing multiples, relatively speaking, in a few verticals at least, even though volatility and prices in this type of asset is low. And we have somewhat longer deal processes. For us, we still actually have very strong deal flow since we are active in many different verticals and also different geographies. But we have a reduced M&A pace until we have our leverage in order, which means that we can be very selective. We're always selective, but even more so in this business cycle. Looking at our financial targets and how we're achieving those. These are medium-term targets, assuming a decent business cycle -- it's basically over a business cycle and also access to capital. Well, the organic EBITA growth, real GDP growth plus 1 to 2 percentage points. Our delivery here this year was minus 6%. Of course, not satisfactory. But one should say that in 2021 we had a 36% organic EBITA growth. So given the many different macro shocks, we are relatively satisfied nevertheless with a 6% decrease given the tough comparisons. If we're looking at our EBITA growth including acquisitions, we're guiding what's in line with historical levels. We had 86% in the year, very strong and we're very happy with that. Of course, in the coming year with a slower acquisition pace, this is expected to be lower in this part of the business cycle. Our adjusted EBITA margin over time, 10%, 9.2% this year. We could see that demand was quite good actually in the year, but most of the shocks, the COVID close downs in the first part of the year, the accelerating inflation, the currency headwinds, and now, of course, by the end of the year, weakening consumer demand, has, of course, affected our margins in the year. Looking at our cash conversion, our target is 70%. We're gradually increasing now. We had a weak start to the year. But as we changed focus to cash conversion in the second half of the year, especially now in the fourth quarter, we do see some great tailwind in that one. So we have a gradual improvement now to 59%, which is decent, but still not satisfactory. I think coming into 2023, we have significantly higher ambitions than that. And finally, our leverage. And interest-bearing net debt through adjusted RTM EBITDA, 2x to 3x is the target range. We're currently at 2.6, as you can see, a decrease from last year's fourth quarter of 2.7 -- third quarter, 2.7. So a decrease. And this is, of course, one of our most important ambitions this year, is to decrease this one to the lower end of the spectrum. In a good business cycle with low interest rates to be on the higher end of the range is a good thing. But in uncertain times and with high interest rate costs, being in the lower range is the prudent way to go. So that's our ambition for the year. So looking at our 3 business areas, how are they performing? Well, looking at Services. They had good sales growth in the fourth quarter, 39%, out of which 14% were organic sales growth as counted on those companies that we owned for both comparison periods. The organic EBITA growth was minus 5%. Still lingering effects of the inflationary pressures. That said, we see that we have been successfully pushing onward prices, and you can see that on the sequentially increasing margins over the quarters. So we're actually quite happy with the development in Services. Especially, we could see that logistics, the digital services and infrastructure have performed well and contributed to profitability. If we're looking ahead, we can actually see that -- of course, we're expecting Q1 to be a seasonally weak quarter. It's hard to do construction or infrastructure work when the weather is cold. That said, of course, we're not suffering from the COVID closedowns that we had last year. So outlook for installation is good, and we're still seeing a strong utilization numbers in our companies. Logistics, however -- as the economy cools down, we can see lower volumes in logistics. We did 2 add-on acquisitions in Sweden and Finland and one divestment in installation during the quarter. So looking at Trade, we had a strong sales growth, plus 62%. Even organic sales growth of 10%. But the EBITA growth was minus 14% for the full year. I think Trade is, of course, the business area which is facing the toughest time now, primarily at the moment currency headwinds, but also we see that -- a weakening demand in the consumer-facing industries, especially related to e-commerce. It's in fact, concentrated -- most of the portfolio is actually doing well in Trade. It's 4 to 5 companies where we have more difficulties in that one. The hard work with decreasing inventory levels is paying off, and we can see a release of working capital. But overall, we see a decent demand in our less cyclical verticals, whereas we foresee a continued tough market for consumer durables. We did one add-on acquisition in Norway and one divestment is signed but not yet executed in the DACH region within the niche businesses. Industry. Well, Industry had a tremendous year, 92% growth in the fourth quarter and steady margins. And actually, the full year has been tremendous, especially if you consider the fact that we had such an extremely strong year in 2021. So we are, of course, very happy with that. And we have a strong underlying market, good demand, and, of course, we're going into the year with strong order books, even though we are humbled to the fact that actually out of our 3 business areas, normally Industry is the most volatile in a recession market. But so far so good as far as we can see. Prices increases, improved productivity has compensated for cost inflation. And we are benefiting from the reshoring trend, where companies are moving back production closer to home, demanding automation solutions, and, of course, giving also our industrial technology companies lots of good deals. Challenges. Well, that would be in the consumer-facing product companies within Industry. We did one fantastic acquisition in Singapore. I'll get more into that later. So, Lena?

Well, thank you, Daniel. So let's have an even closer look at the Q4 numbers here. Again, repeating what Daniel just said, Q4 net sales grew by 63% to SEK 9.8 billion. So close to SEK 10 billion by Q4. And for the full year, sales amounted to SEK 34 billion, up 96%, so almost doubling from 2021. RTM or pro forma sales, as we had owned all our companies, the entire year was SEK 37 billion. EBITA -- or adjusted EBITA grew by 71% year-on-year in the quarter to EUR 927 million, with full year EBITA amounting to SEK 3.1 billion and RTM pro forma EBITA to SEK 3.5 billion, as seen here. And this corresponds to an EBITA margin of 9.4% for the quarter, which is an increase from 9.0% in Q4 last year. And why is this margin then up year-on-year? Well, it is due to a few things. First of all, we had a negative effect from inventory provisions in Q4 last year, and there have been no material such in Q4 this year. And also referring to Daniel's previous comments about positive effects from price adjustments made throughout the year that have gradually improved the underlying margin, and an overall strong performance in Industry and Services in Q4 2022. Not shown on this page, but worth mentioning is that group operations or the HQ headquarters reduced somewhat to minus SEK 74 million in Q4 '22 from SEK 75 million in actually a year ago. And relative to group sales, this is a reduction from 1.2% of sales in Q4 last year to 0.7% in Q4 '22. And we believe that this level is fairly well adopted to our current business plan. EPS grew by 73% to SEK 0.22 per share in the quarter or SEK 0.86 per share for the full year, which is an increase of [ 48.3% ] year-on-year. Return on equity was 9%. The return on capital employed was 10% for the full year. We've actually included a comment here regarding what return on capital employed would be in the underlying businesses. So net of goodwill, it's actually north of 22% for the full year 2022 -- return on capital excluding goodwill that is. And this, of course, illustrates, first of all, that the underlying businesses are in good health, and it also illustrates the quite significant dilutive effect from the fact that many of these units are recently acquired when it comes to goodwill value and have therefore not yet had the time to contribute with multiple years of profit growth. However, goodwill is intact and there have been no impairments with good margins as well. So should we deduct cash from the capital employed, then return on capital employed is 11.5%. We had cash flow from operating activities as stated in the cash flow statement -- now this is actually after tax and interest costs, just bear that in mind -- of SEK 1.3 billion in Q4, an 82% growth year-on-year, with SEK 1.6 billion for the full year period. Cash conversion in the quarter, 109%, which is also an improvement from 98% of the previous year. And I'll come back to both cash conversion and leverage separately in a little while. So organic sales growth in Q4 2022 was 11% and 12% for the full year 2022. And in Q4, the organic sales growth continues to be a mix of price and volume, pricing roughly half of that -- or less -- I'm sorry, less than half of that organic growth, whereas volume was a little bit more than half of the quarter's organic growth. And as you can see from this graph, organic sales growth has been strong in the past years, actually, as I said, driven by both volume and price, which were reflecting the inflationary environment in 2022. In 2021, organic growth was actually 17%, partly a result of the post-pandemic boost from the year 2020. So organic sales growth, as shown here, has been fairly good. However, as you heard from Daniel just before, organic EBITA growth was weaker in 2022 of minus 6%. And I must remind you here that the organic EBITA growth in '21 was exceptionally strong at 36% for the full year of 2021, driven by, again, post-pandemic boost and a very strong market. So when we went into this year, '22, especially Q2 through Q4, we had really tough comparisons in terms of EBITA growth and in addition to the cost inflation and the weak Swedish currency or strong dollar rather. We did, however, see a pickup in Q4 when price adjustments more or less fully kicked in. Let's move over to the next slide. So here on this page, we show operating cash flow defined as EBITDA less change in net working capital less CapEx, and the cash conversion, which is then the operating cash flow over EBITDA. So essentially how much cash is generated out of the operating activities. On this page, we show last LTM, so rolling 12 months. Operating cash flow for the full year was all of SEK 2.4 billion. And as you see here on this graph, this is a record level despite that we have tied up more net working capital especially in the beginning of 2022 than during any normal period. And we briefly talked about that working capital already. It has, of course, been affected by high inventories. And these problems are now diminishing and we worked and continue to work actively to reduce working capital. And Daniel, I think, will come back to this in a little while. We actually freed up more than SEK 300 million during the fourth quarter, which is significant -- with significant positive effects from inventories and receivables in particular. And cash conversion for the full year was 59%. A couple of comments on net debt and leverage as well before I hand back to Daniel. Showing here is interest-bearing net debt and the interest-bearing net debt to EBITDA. Interest-bearing net debt was SEK 12.3 billion at the end of the quarter, a decrease of SEK 410 million despite a handful of small acquisitions made during the quarter. And leverage was also lowered, thanks to the strong organic cash flow, from 2.7 at the end of Q3 to 2.6 at the year-end, with an ambition to reduce it further. The denominators of the RTM or the pro forma EBITDA in Q4 was SEK 4.7 billion, so it was slightly up from SEK 4.6 billion in Q3. And our total available liquidity amounts to SEK 10 billion, whereof SEK 3 billion in cash and SEK 7 billion in unutilized credit facilities. And we have -- a reminder, we have no maturities in 2023, but we are needless to say, of course, already now working towards extending the overall maturity profile of our loans to arrive at a more diversified maturity profile and to reduce the overall absolute debt. And this is particularly relevant with the current interest rate environment.

All right. So touching once again on this slide. We talked about the divestments. And to conclude that part, I think there is more to come there as we review our portfolio. We've looked at acquisitions. We did a few small add-on acquisitions. We did the acquisition of Cutrin in Norway. And we previously talked about the merger of some of our hair care distributors into one new company called ByWe, and Cutrin is an additional acquisition to that, giving us a real strong position in Norway. If we look at the business units, we acquired one, CMTi in Singapore. This is one of the world's leading suppliers of wire harnesses and cable assembly services to medical technology. It's a niche application, but they have strong profitability, strong margins, strong growth. And we acquired them at the right price. So we find it to be a good illustration of the value of having a strong deal flow in different markets and industries. 3 acquisitions completed after Q4, relatively small in size. That said, another, chimney sweeper, a company that is doing very well. And then we did 2 add-on acquisitions to ARAT Group. ARAT is one of our business units focusing on the sawmill industry, providing automation services there. And in this case, we're strengthening their offering with software competence and programming skills related to that production line. So some strong strategic acquisitions. I'll touch upon this very briefly. We are, of course, working with operational efficiency. Lena touched upon more and more efficient group operations. The bulk of the work is done. However, in the business units where we have companies where we know that we are looking at a potential decline in demand in a recession year -- example is Brenderup, for example, who provides boat trailers. So already last summer, we did some cost redundancy programs there. 170 people were made redundant. And this is, of course, something that we'll review across the portfolio if necessary to protect margins and retain profitability. Then of course, we have our low performers, and there we help them and support them with all types of activities to make them profitable once again or even more profitable. And finally, we have contingency planning in all our companies to be ready for whatever comes along. We talked about the KX and our procurement process. We have 12 different initiatives, providing voluntary frame agreements for our subsidiaries. We currently have more than 30 negotiated frame agreements. One illustrative example is energy, where we have a great cooperation in Sweden with Vattenfall providing both ESG-friendly solutions to our companies and reducing costs significantly as well. So that's one very concrete example. In addition to that, we talked about the working capital project. We're extremely systematic. Of course, we have some short-term benefits, but also it's a long-term work, where we educate and support our companies. We follow up, we set targets, we follow up on KPIs. And we also introduce a number of very concrete activities that drives better cash conversion. And this, of course, is a long-term work, but we think -- if you see on the right hand side, you can see the working capital ratio. We actually tied up a significant amount of money in the first 9 months of 2022. Finally, saw some effects of our working capital work in the fourth quarter, like Lena said, releasing SEK 300 million. But our internal target is to move towards 15% as net working capital as a percentage of sales. So even in the short term, we think that there is a significant potential in the coming year, not necessarily quarter-by-quarter, but over the full year, so to say. But long term, I think, there's lots of work here to be done. In conclusion, we're quite happy with the fourth quarter. We think we had a good performance given challenging macro environment and tough comparisons. We have a mixed picture. Industry has still a strong demand. Services is gradually improving, whereas Trade has a mixed bag. But the consumer-facing industries and companies as well -- with particularly the e-commerce related is weaker. Q1, we're expecting that to be seasonally weak. We had a strong cash flow. And also the work to reduce our leverage ratio has begun with a decrease from 2.7 to 2.6. Our focus remains on operational excellence, cash flow and the balance sheet. But of course, we are continuing to do acquisitions. But once our leverage is reduced, we will start to use our free cash flow to a greater extent to fuel M&A driven growth.

It's Carl here from Nordea. A couple of questions from my side. Firstly, I'm a bit curious to know if you could shed some light on sort of the working capital release, where it stems from by segment? I mean, as you said, you've done quite a lot of work in Trade, for instance. Is it that segment that is primarily yielding results? Or is it too early to sort of be [ seen ] in Trade? Or...

First of all, we would like to really apologize. We were not through with our presentation. There's been a technical issue. Obviously, we heard from the operator side. So we have not finished the presentation. And however, you can, of course, click through the slides that are shown on the homepage. And I think that we will take the questions now. Yes. Okay. So sorry about that, Carl. Going back to...

No problem.

Yes, going back to your question regarding the working capital release. I think we believe we say in the report as well the main contribution has been from reduced inventories and receivables in the quarter, whereas payables also reduced due to lower procurement, which had then an offsetting or a slightly negative effect on cash flow. It is -- we've had significant improvements in Services when it comes to accounts receivable. And we've had inventory reductions in both Industry and Trade also with solid improvements overall throughout -- more or less all verticals. So this has been a really good job made by the business areas.

Okay. Very good. And also -- I mean, during Q3, you had some negative -- or quite a lot of negative FX impact on EBITA on Trade. If I interpreted it correctly, it's less in Q4 than Q3. But is it still possible to quantify the FX headwinds in Trade?

No, we haven't quantified those effects in Trade. We're talking about currency exposure, of course, especially to the dollar that was strengthened -- or rather the Swedish krona has weakened significantly in Q3. And this has a spillover effect also in the fourth quarter. We had in -- actually, on Page 16 in the quarterly report, you can see the more detailed split between the regions of sales in the business areas. And it's pretty clear that the business area Trade has a 55% exposure to -- or sales in Sweden. And most of their goods are actually imported in foreign currency. So this is a natural effect, of course. We cannot quantify any further than that.

Okay. Very good. And on Slide 14 here in the presentation on completed transactions, I mean we can see at least -- or seemingly 2 divestments there. Is it possible to sort of quantify the sales and also a bit were they loss-making? And why you took the decision to divest the companies? And the obvious follow-up question is, of course, also if it's more to come or you feel fairly satisfied with the sort of group of subsidiaries you have currently?

A good question, Carl. Actually, flip the page -- I'm not sure if you can see them still -- to Page 19. You can see we had 2 divestments. One is Thermo-Fasad. It's actually a subsidiary to a company called -- to a business unit called Dextry Group, previously, Mala i Sverige. So the reason why we sold Thermo-Fasad is basically that the Dextry Group is a group of painters, whereas Thermo-Fasad does other types of work. So...

I'm not sure if I lost you, Daniel. [Technical Difficulty]

All right. So can you hear me, Carl and the others?

I can hear you for sure.

Okay. So we make a new try. It's so interesting when you're passing the 50s the technology seems to not be working for you, rather against you. But let's get to it. Divestments. So we did the Thermo-Fasad. Thermo-Fasad was a subsidiary to Dextry Group. Dextry is a group of painters and Thermo-Fasad actually does other types of work. So they have no natural synergies with the rest of the Dextry Group. They also had a contribution of minus SEK 5 million in EBITA in 2022. So it was no strategic benefits and a negative -- and a loss-making company, where we found it hard to turn it around. So it was a natural decision. If you take our second subsidiary, it's also a subsidiary to a business unit in the niche businesses in the DACH region. In this case, once again, a negligible profitability, no natural synergies with the rest of the group. So to your question -- your second question, are we satisfied with this? Well, I think we will continue to do divestments of companies that either are low performers or not aligned with our strategic agenda when it comes to profitability, growth or our ESG agenda. So this is a work that we'll continuously -- we will continuously review our portfolio and do some divestitures. I think that's for sure.

And the final one from my side is, in Industry, you mentioned that -- or in the press release that order intake decreased somewhat during the quarter. So I wonder if you could shed some light on the magnitude of the drop and if you have seen an accelerated drop now entering Q1 as well? And also, if you could remind us a bit on how big your backlog is in Industry, i.e., when will the decrease in orders be visible in sales?

I mean, I should say that the absolute numbers of the order books are historically very strong. They're very larger order books. In any given year I think we would have been very happy with that. I think when it comes to the slightly weakening order intake, it's on the margin. So it's not particularly -- it's not enough almost to call it a trend. It's more a fluctuation short term. So it's hard to say actually when we -- then, of course, the further on we go into the year, the less visibility we have. So apart from that, it's hard to give any guidance, except that we are surprised by the strong order books and order intake in the fourth quarter.

Sorry. Can you hear me now?

Yes, we can hear you. Good morning, Erik.

Okay. Perfect. You may have actually answered some of my questions in the meantime. But could you -- you mentioned the multiples in the space where you do acquisitions. Can you maybe give us a little bit more flavor to where multiples are trending and why processes may take longer, if I recall you said?

Well, it's a good question. I mean, in general, the general reflection is that actually multiples in our -- with our types of assets do not fluctuate that much. They are decreasing in some verticals, even though I wouldn't say that it's across the board. But certainly, competition is tougher and -- no, it's less tough. There are a fewer acquirers out there. If you look at the -- so a slight decrease in multiples, I would say. So looking at why it's longer processes. It's mainly because since earnings generation is more uncertain in uncertain times. And I think last year was also a year when a lot of companies experienced strong demand, but subnormal margins. So there is more of a discussion of what's the long-term earnings capacity of each and every company and the future cash flows. And those uncertainties drive us towards more -- we have more earn-outs and other types of models when we acquire companies. So it's simply a longer negotiation. It's also longer for us to become comfortable with their earnings forecast as well. So it's a little bit sign of the times as we have uncertain times.

Yes. Okay. And then maybe if I can ask on your Slide 6, where you list the targets. Some of them I appreciate are longer term, too. But when you think about 2023 and you think about potential for the organic EBITA growth, the margins, the cash conversion and sort of bringing leverage to the lower end of the 2x to 3x range, do you think towards the end of the year you will sort of be closer to where you want to be with these financial targets?

I think we don't want to give guidance on our organic EBITA growth, where thinking to include acquisitions are -- uncertain times ahead with low visibility, especially for the second half of the year. What we can say, being a little bit more bullish about, is I think we feel confident that our cash conversion will be strong in the year. It's something that is to a greater extent within our power to effect. And as such, we also have a diversified and quite resilient portfolio. So I think we will generate a significant amount of cash, and therefore, reducing our leverage. I think that's the 2 targets where I can be more explicit, so to say. Not overpromising on the other targets. And I should say, of course, our EBITA including acquisitions, since we'll be doing less acquisitions, that will obviously be lower in the short term.

Yes, yes. Understood. And I think somewhere there was a mentioning of extension of debt maturities. What is -- what are you working on there? Like initially, what's the main sort of focus in terms of the debt facilities that you have and which you want -- which you're looking to extend?

Erik, this is Lena. Of course, we're not going to go into detail regarding exactly what should be extended where. But I mean, it's pretty obvious that this is important to us, and there are a number of different alternatives in how to reach over time in the long term a much more diversified maturity profile with the maturities extending longer out in the period. This is exactly according to our financial policy as well to do that now. So this is an ongoing work, and we're not going to comment any more on that until we have something to comment on, so to say. However, what I can just remind the market of is that -- I mean, the reason why the maturities now -- assuming no extensions, of course, but we have always assumed extensions can be made, of course. Then the reason why the maturity profile is fairly short -- there's nothing maturing in 2023 again -- is the fact that the capital markets -- rather the debt capital markets were more or less shut down, especially for new issuers at the broader markets in last year. And so Storskogen had plans, and I believe we also explicitly communicated such plans in the beginning of the year to issue, for instance, Euro bonds with a much longer maturity, of course. And these were put on hold due to the market environment and inflationary environment and interest rate worries last year. So that's basically the reason and the -- yes, so we're working towards, of course, changing that picture.

The next question is from Johan Dahl of Danske Bank.

Just 2 quick questions. Firstly, on the balance sheet. I noticed that you took down the EBITDA RTM slightly in Q3. It seems to have been stable in Q4. But the combination of that together with higher interest rates, to what extent did that to trigger sort of a discussion on goodwill values in your balance sheet? And to what extent is that an issue when talking covenants and the prolongation of the duration of the debt?

The goodwill values booked in the balance sheet have been -- we've done impairment tests, of course, as you would in the end of the year. We monitor this, of course, more frequently than that. But we did proper impairment tests that have been reviewed as well, et cetera. No impairment need has been detected in any of the 14 verticals we have, with a significant or substantial headroom, margin between the book value and the assumed valuation. Which is, again, also when we do the internal valuations, we do take into account the higher interest rate and higher discount rate and also being a bit more cautious on the short-term outlook as well, because we do see uncertainties. So yes, a fairly prudent assumptions and no goodwill impairment. I believe that's all we can say at the moment, so.

Yes. No, I appreciate that. It was obviously noncash, but I'm just interested whether it's a part of covenants, any part...

It's not a-- no, it's not really. No. No worries. It's not at all.

And then, Lena, can you just -- on keeping this cash balance of SEK 3 billion approximately, the logic behind that, please?

Well, the logic behind it is that we are -- well, SEK 3 billion is quite a lot of cash to keep at the balance sheet, of course, at the moment. So this is something that we will continuously during this year calibrate working with efficient cash management and cash pooling, et cetera, to reduce the absolute debt. We did reduce the debt in Q4 by SEK 600 million -- or more than SEK 600 million actually. But the cash flow was so strong, so the cash -- the position didn't reduce as much.

Okay. Just a question on Industry as well. I just noticed that it was -- I think you reported 11% organic EBITA growth in the first 9 months and flattish for the full year. It just implies some material deterioration in your sort of organic earnings growth there. Could you add some color to that where it happened and why was that?

I think it's actually a little bit more related to comparisons in the fourth quarter in 2021, where I think we had 55% organic EBITA growth. So in fact, industry was very strong in the fourth quarter, even this year. It was just that the comparisons were -- it was a relatively extremely strong Q4 in 2021. So apart from that, we are actually very happy with the Industry performance in the fourth quarter. All right. More questions.

The next question is from Rickard Hellman of Nordea.

I only have one question related to your liquidity position. With your SEK 7 billion in available credit facilities, are you allowed to use them to repay market-related [indiscernible] bonds?

A quick answer to that. We're not commenting on specific terms in the bank loans, obviously. So I can't comment on that.

The next question is from Andreas Koski of PNB Paribas.

A couple of questions for me. First, on the weakness that you saw in Industry's order intake, was the book-to-bill well below 1 in this quarter? And could you give an indication of how long your backlog is in terms of months of sales?

We can't really give you an indication of that. But I should say that it shouldn't be over -- I mean, over interpreted. We do feel actually that the order books are quite strong and that order intake still remains strong actually into the first quarter, even though we had record high order intake in the fourth quarter. So that's in relation to that. But we can't really comment on how many months of sales. And I think it's also very different for very different types of companies. Some of them don't have order books at all, even the industrial companies, whereas others have very long order books. Just inherent in the different natures of their industries.

Just a quick comment on that question just to be clear. I know that -- I believe that you know this, but for the listeners. The order book and order intake is something that we do not -- that is not included in the financial report, and it is also a KPI which is relevant to the business area Industry. Now that's today, of course, the largest business area. But just to be clear on the fact that it is isolated any comments on that to business area Industry.

And then on the organic growth of 11% in the quarter, is it fair to assume that FX had a positive impact of around 5 percentage points? So call it the underlying organic growth, price and volume is closer to mid-single-digit levels? Or did you have a smaller FX impact in the quarter?

We don't comment on the FX impact. It's smaller than what you imply here. Again, I would ask you to -- I would refer you to Page 16 in the quarterly report where we are quite explicit about in which countries we have sales. So perhaps that will help you.

Yes. And based on my model, I come to a mid-single-digit level in terms of the FX support. That's why I asked when I do the weighted average by region, basically. But okay, it was smaller than that. On EBITDA, you are mentioning in the report that you had a considerable headwind. I understand that you don't want to quantify it. But was that -- was any of that explained by hedges or inventory revaluation that will not be repeated in the coming quarters? Or was all of it related to translation and transaction, and we will continue to see the same kind of impact also going forward?

If we're talking about the negative EBITDA organic growth...

No. Yes, of course, it is part of the organic growth, the FX impact.

I mean I think if we look at the full year, we had all kinds of shocks in macro shocks, the COVID closedowns, in the first quarter, the accelerating inflation, the currency headwinds and the somewhat weakening demand in consumer-facing. So all of those. I would say part -- that's basically what impacted that one. Otherwise, I don't really get your question.

Sorry, I was thinking explicitly about the FX headwind that you had in this quarter on adjusted EBITDA.

Right. You were also asking about inventory provisions. And I mean, there were no material inventory provisions. Of course, most companies do smaller inventory provisions like quarterly or monthly even but nothing that would impact the margin in a material way in Q4. Regarding currency, no, we're not giving any specific number on how much that affected margins. Of course, this is again related to business area trade mostly. And they have hedged some of their purchases as well. And we haven't commented really on how much is hedged, but there is some kind of cushions there. But no specific comment on that.

I mean looking ahead, most important for us is to have a stable relative currency so that we can set the right prices towards our customers. I think that's the big fluctuations is more costly to us with regards to margin over time. And of course, hopefully, that has stabilized and that the krona will not weaken further. I think that's the hope. But of course, no guarantees.

Having said that, the effect on business area trade is fairly significant as we have said. But some of it is -- the procurement is hedged. So it's not a [ pro effect ].

And maybe a short-term related question as you have made so many acquisitions in the past, make it making it difficult to actually see what the seasonality is between Q4 and Q1. Could you give some indication what the normal seasonal decline in Q1 is versus Q4 in terms of sales? Should we expect sales to be down by 5% to 10% based on the normal seasonality in Q1? Or what is the normal seasonal effect?

I can't really give you an exact guidance as to that. But that said, I think last year, the normal weak Q1 was exacerbated a little bit by the COVID closedowns where basically people are home sick. But apart from that, I think last year's relative seasonality between the quarters was relatively representative, I think, even for the future. I think that's a general comment.

I believe we've -- okay. We've done our 60 minutes already. But if there is another question, I believe we have time for that.

And we have one more question from Karl-Johan Bonnevier of DNB Markets.

Good to be bit to sneak in here at the end. First of all, congratulations to see that the cash flow is in much better order now going out of Q4. And on that, Lena, is there a lot of more working capital release you see coming in in the first half of next year?

Good question. Of course, this is something that we are like working with actively, as I am sure you've understood by now. On one of Daniel's slides there, you could see a graph of quarter-by-quarter change in net working capital to sales. Now this is net working capital to pro forma sales, of course. And you could see that we came from a level of just north of 15% in Q1 last year, which was already, I think, above kind of well above a pre-pandemic level. And then it increased further in Q2 and further in Q3 and then it came down quite substantially in Q4, which is as planned and also due to many of the activities that we've made. Of course, our ambition is to continue to bring this down. I mean just getting it down to a normal level is quite feasible. We believe getting it down to pre-pandemic level will take more time and more effort and it will be a work that is basically nonstop that we will continue doing not only this year but also going forward. But the first goal is to get it back to the level where it was basically a year or 1.5 year ago.

But you would see that that's as a continuous process during 2023 rather than something that might be geared towards first half.

A continuous process. A continuous process for sure. So this has to do with agreements with suppliers, agreements with customers and a lot of negotiations that we will -- that are not -- all of them is not doable in a very short period of time.

And actually if you look at the long-term, potential is actually even more significant, but that requires -- it could be a redesign of products, analysis of inventory an ABC analysis, selling off slow movers, et cetera, and changing the offering towards the customer. So that's a long-term process. I think over the next years. So a continuous process forever, I guess, to improve.

Yes. And I guess that should be slightly easier for you if you put it like that given that you haven't brought in so many new companies of late. Then just to come to your key takeaways, the last one also talking about continued deleveraging and before you do start to deploy the free cash flow towards M&A again. Is it to get down to around 2x before you see that coming -- being the relevant, say the modus operandi change?

I can't comment on the specific level. I think we're calibrating that a little bit towards the uncertainties in the business cycle around us and geopolitical risks. The more uncertain in the world, the lower the leverage ratio. If we, on the other hand, feel more comfortable with our performance and the world around us, we would probably accept a somewhat higher leverage ratio. So I think that will be continuously calibrated. But at the moment, with the current -- as things stands at the moment, we would see at the lower end without being more explicit on that.

In your view, looking at 2023, we should expect basically a minor bolt-ons being the thing that could happen during this year?

I think primarily, I think, minor bolt-ons and the few select platform acquisitions. That's the expectation.

And if that is the expectation, do you feel that you are able to keep your organization intact? Because I guess the organization was geared towards a completely different tempo if you go back 12 months in time.

I think we have done some significant organizational changes. I think we have, apart from some redundancies, we've also changed what people are working with. Actually, a number of our employees from HQ are now actually operational CEOs, CFOs, business development persons in the actual business units. So we have kind of shifted our gear a little bit. And I think we have a comfortable [ 11 ] organizational wise. And also we are investing in our organization, likely. And I said our productivity basically, we have the same costs now as we had net costs as we had the fourth quarter in 2021 despite being twice as big. So we have lots of work to do. And I think being a little bit longer than the next quarters, I think we are actually quite well staffed for the challenges ahead. Even though we will, of course, calibrate that towards -- whatever happens in the world around us, I should say. But that's our current view.

Thank you very much for the extra color and all the best out there.

All right. I think we have to conclude. All in all, thank you for listening in. Happy for your participation and enjoy a wonderful day. All right. Thank you very much. Bye.