Hello, and welcome to the Indutrade audiocast with teleconference Q4 2021. Throughout the call, all participants will be in a listen-only mode, and afterwards, there will be a question and answer session. Today, I'm pleased to present CEO, Bo Annvik and CFO, Patrik Johnson. Please begin your meeting.
Good morning, and welcome on our behalf as well. We are happy to present a new strong quarterly and also full year report from Indutrade. As usual, let's start with some overall highlights for 2021. As I said, another very strong year for us, thanks to great performance of our companies and our people. We saw a positive and broad demand development in general through the year and for all business areas. Order intake grew in total with +20% and net sales with 13%. In numbers, order intake was SEK 23.5 billion, and net sales SEK 21.7 billion. It feels good mentally to be above the SEK 20 billion mark for us. Now we set out for SEK 30 billion.
EBITDA improved to an all-time high level of 14.7%, was 13.6% a year ago. The strong profitability in combination with the improved capital efficiency created a very good cash flow of SEK 2.9 billion. The year was also great in terms of acquisitions. 17 good companies with strong offerings was added to our family, and the annual turnover of around SEK 1.6 billion. Our financial position is continued strong, and the board proposed a dividend of SEK 2.3 per share, which equals 40% of net profit. This is in line with our financial targets to have a dividend in the range of 30%-50% of net profit. If we turn to highlights of the fourth quarter, I would say that the positive market situation continued sequentially.
In the last quarter, we saw also improvement versus last year in most segments and companies. Organic order intake grew with 15% and for net sales with +6%. A really good organic performance. The organic growth and the continued organic improvement of the gross margin in combination with strong performance in newly acquired companies contributed to a record Q4 EBITDA margin of 14.6%. It was 14.2% a year ago. The improved profitability combined with good control of the working capital, despite all the supply chain challenges we have had, gave us a record and a high cash flow in the quarter of SEK 901 million. We also ended the year with a strong acquisition pace. We acquired seven high-quality companies in the quarter.
If we then look at the order intake, as I said earlier, the demand was continued strong in the quarter, and organically, order intake increased with 15%. This was versus Q4 2020, which was also good where we organically grew 7%. It was not based on a recovery situation. We grew from an already strong position in Q4 2020. As I said, it's a broad-based growth. Most companies, like most countries, showed a positive development. If we should mention some segments which have developed particularly good, I would say infrastructure, general engineering, and different types of companies in the process industry. We have for a couple of years now also focused on the MedTech and pharmaceutical segments, and they also performed well.
We had a very strong comp last year from Q4 2020, so the growth was not as good there, but the overall level was very good. Obviously, in Q4 last year, COVID-19 really didn't hit most companies. Demand for power generation in the electric area in Denmark was also good in the quarter and basically in line with Q4 2020. All business areas grew organically during the quarter, and the strongest was in Measurement and Sensor Technology and also Flow Technology. Order intake was 10% higher than in the same quarter and 8% higher for the full year. Now our order backlog is very strong and at an all-time high level obviously.
Total growth in the quarter +23%, where organically +15%, acquisition effects +8%, and currencies and divestments have a very marginal impact this quarter. Net sales also very strong in the quarter +14% overall and organically +6%. Acquisitions added 7% and currencies -1% and no impact from divestments. Again, I want to underline that a +6% should be seen versus the sales growth organically of +3% in Q4 2020. Again, not from a weak position, rather a good ending also of 2020. If we analyze our sales in a geographic perspective, I would say that countries standing out positively would be Switzerland, Sweden, and Finland, but also Germany, the Netherlands, Denmark, Norway saw good developments.
I would say that U.K., there was a small decline and, a bit more volatility. The supply chain issues have continued. Many of our companies are experiencing long lead time from suppliers, and some have component and product shortages. But I would say that, in situations and times like this, Indutrade is at its best versus an integrated large, industrial group. The decentralized structure with, the entrepreneurial spirits is, really creating, positive results, in this way with the flexibility and, also I would say that quite a lot of personal relationships, based on supplier relationships from, long times and privately held companies.
If we should estimate what this is causing in terms of held back invoicing, it's around the same level as we were at the end of Q3, estimating this to be around SEK 100 million-SEK 200 million. Yeah, I think that's enough in terms of that. We have also added a slide where we try to demonstrate our organic sales growth trend for the last five years. 2021 stand out as you see very strongly with a full year organic growth of +8%. As I said already earlier, it was not from a recovery. We had one quarter with a decline in 2020, but the full year was on the same level organically as 2019 pre-pandemic. Again, the growth is also broad-based.
All business areas and most companies show a positive development. Looking ahead, we have an all-time high backlog when we move into 2022, and order intake was 8% higher than invoicing during the full year. We turn to our results perspective and start with EBITDA here, which increased with 17% versus last year. The EBITDA margin increased on all-time high for quarter four, 14.6% versus 14.2 last year. Organically, EBITDA increased with +8%, which is a bit better than the organic increase of net sales, which was +6%. We have a positive leverage, which we always aim for. The organic margin improvement was driven predominantly by strong sales development, but also an improved gross margins.
The upward pressure on prices for raw material and components continued in the quarter, but positive customer pricing effects together with some product mix changes and also improved production efficiency managed to more than offset these increases. Great job from our companies in that perspective. The newly acquired companies also developed very well and contributed to the improved margin. We have bought and acquired quality companies, and they have had a really good start in their first year with Indutrade. In the result, there are some one-offs included with a total effect of -SEK 22 million, and this is relating to some smaller restructuring measures we have made. If we exclude that, the EBITDA margin was 15% versus 14.2% last year.
If we then turn to a business area perspective, it's positive to see that seven out of eight business areas grew sales organically in the quarter, and most companies developed positively. In our overall KPI charts of all the companies we own, it is a lot of green. We saw the strongest growth in business area DACH and Fluids & Mechanical Solutions and also Finland. It is, as I said already earlier, in the segments of engineering, infrastructure, and process industry. Measurement & Sensor Technology also had a good development, but the overall sales level was held back slightly by the longer supply lead times and shortages. That's the business area with, I would say, most electronic components in their product range. Naturally so they probably have the biggest issues regarding supply chain.
The slightly lower growth in business area Benelux was related to our large valves company in the power gen sector. They had good and stable sales, but declined a bit versus a very strong Q4 2020. I would say that the majority of the companies in business area U.K. Also developed positively. The U.K. Market, however, still shows some variation and volatility, which dampens the overall growth somewhat. We see signs of improvements, but I think they will still be slightly sort of behind average Central European rates shortly or in the short term perspective here. Business area Industrial Components and Flow Technology also showed good sales levels, but they had very tough references from Q4 2020, primarily related to MedTech, pharma, and also some process industry customer segments.
To take Industrial Components more specifically, you might remember that they had a very large ventilator deliveries in Q4 2020. That was more of a one-off impact which made the reference difficult. The EBITDA margin overall, as I said, came in at 14.6%, a record for Q4. The main reason is continued improved gross margin, continued sales development, which has been strong. The gross margin is despite the price increases from many of our suppliers, which we have tackled and handled in a very good way. As I said, also good performance from our newly acquired companies. The margin improvement is in general broad-based, and most companies in the group improve their margins.
We saw the largest aggregated margin increases in business area DACH and Fluids & Mechanical Solutions, mainly driven by good organic growth and gross margin improvements. Industrial Components show a continued high margin, but slightly lower than last year due to this strong Q4 2020 with the ventilator deliveries. If we adjust from some of these, call it one-offs, they were at a similar level as last year in their EBITDA margin. Business area U.K. is still affected by some of the weaker market or the variations or volatility in the market. They also had some one-off impact in Q4, partly related to acquisitions. If we exclude for that, they were also on par with the EBITDA margin a year ago.
If we then look at the acquisitions for 2021, as I said, it's been a very strong year. In total, we completed 17 acquisitions, and seven of them were in Q4. I would say that all companies have some positions in their respective niches and good growth prospects for the future. All business areas have done acquisitions during the year, and we also have a good spread among the geographic markets. Total annual sales of the acquired companies is around SEK 1.6 billion. We have a good continued pipeline for the coming quarters. I think it's fair to say that despite certain COVID-19 restrictions and so on and so forth, we are keeping good speed in the different projects we are involved in.
This is thanks to, I would say, local resources, which can drive these projects forward in their local markets. We are also adding acquisition resources in order to strengthen our capability going forward. In some of our business areas and also centrally, we are adding capabilities. Our overall ambition is to make two to three acquisitions per business area per year, which equals 16-24 on a group level. By that first part of the presentation, I will hand over to Patrik on the financial.
Thanks, Bo, and hello, everyone. Let's look at some key data. As Bo talked about earlier, total group orders and sales +23% and +14% respectively in the quarter. For the full year, we grew 23% and 13% respectively. Earnings before tax and interest 10% in the quarter and 8% year to date. Order backlog is continuing to increase and at record strong. Gross margin continued to develop very positively despite the supply chain issues and increased supplier freight prices. In a good quarter, we're at 35.9% versus 34.7%, and for the full year, we increased 1% from 44% to 45%. The main driver, I would say, is the strong customer pricing activities from our companies.
On top of that, we have also some positive product changes and also high volumes in that productivity also in a good way. EBITDA grew 17% in the quarter, and margin improved to 14.6% versus 14.2% last year. Adjusted EBITDA did an increase with 23%, up to 14.7% versus 14.6% last year. As we mentioned, we have some one-offs related to restructuring, some restructuring activities in one of our companies, SEK 4.2 million. If you exclude those from the result, we are up 15%. Going further down the P&L, finance net slightly lower than last year, mainly due to financial and exchange differences, and tax costs are up in the quarter and I think more than 47%.
This relates to the evaluation of the tax liabilities in U.K. due to an upcoming change in corporate income tax rate. If you exclude this one-off revaluation, our tax is basically in line with last year, especially up 60% in the quarter and 25% year to date. Return on capital employed improved to 22% versus 19% last year, driven by, of course, maybe the higher results, but also the improved working capital efficiency that we have. Cash flow continued on a strong level. I mean, it's not that high, first time above SEK 900 million, up 14%. Full year cash flow is also increased 3% versus last year.
All in all, this made our debt ratios at good levels with net debt to EBITDA 1.4 versus 1.5 last year, historically low level, I would say. Moving on, looking at the cash flow, as I said, a record high amount of SEK 901 million. Improvement was mainly related to the higher profitability. If we look at the working capital changes, organic working capital changes, we had a slight seasonal decline in Q4 versus Q3. If you compare to last year, we have increased the working capital levels, and that's mainly due to higher sales to working levels we have in our companies.
In addition to that, some companies have also had to add some buffer stocks to manage the strained supply situation. Despite this, we continue to improve the working capital to sales ratio in the quarters. That's really encouraging. Earnings per share grew. EBITDA development, that's also the favorable development I talked about. The higher debt cost, of course, holding back this increase slightly. If you look at the longer-term development, the five-year averages and annual averages, we are at 16% and 17% respectively as growth rates. Lastly, looking at the debt situation, net debt, the net debt at end of the year is close to SEK 5.5 billion, which is quite higher than last year. I would say that is mainly connected to the higher acquisition pace. The net debt/equity ratio decreased to 53% from 56% last year.
That's also a low level from a historical perspective. During the quarter, we issued a new long-term bond and we did that to actively secure funding to extend the debt maturities that are falling due in the very short term. To summarize, I would say that our financial position remains very strong, low debt ratios and also good headroom between our short-term debt and guaranteed long-term facilities. With that, I hand back over to Bo.
Thank you, Patrik. I'd like to take the opportunity to comment a bit on our business model. Broadly, that is about developing and acquiring small and medium-sized entrepreneurial companies, as you know. This has been our way of generating value in more than 40 years, and it still is. The model is kind of continuously refined. As we become larger and business environment changes, we learn more. We also need to adjust our way of working. On the development side of the slide here, we have done quite a lot in that five years, and we've become more structured without being bureaucratic in any way. We have added activities and process to ensure that we have the right person in the right place and that we develop our people. I would say that that's crucial in a decentralized organization in general and absolutely so for Indutrade.
It's basically all about having the right people at the end of the day. That's highly prioritized. Knowledge sharing has also been very important within Indutrade, but now we have more, I would say, a structured way and updated tools for this. We arrange quite a lot of different conferences, seminars, and also specific one-to-one meetings between companies we feel have learnings to gain from each other. We have the Indutrade Portal filled with information and tools and best practices in different key topics needed for running a successful company in the size and type of business we have. We are obviously also trying to coach, challenge, support our companies to reach their full potential. As a basis for that type of governance, we have developed a portfolio model.
By that, we can, I would say, ensure that the right focus and measures are taken and initiated for each company. Sustainability is also very important for us. Every company is obviously unique and has to define their own opportunities, risks, targets, and activities. We have a common sustainability framework and all our companies has to do a materiality analysis and based on that, define their specific objectives and targets. In addition, they also need to report on a few common group KPIs, which are important for everyone, which could or is, for instance, CO2 emissions, or we have some people related KPIs like safety and injuries and things like that.
I feel that the development side is highly focused and above all right now, we spend time on organic growth and have quite a lot of focus and concepts, models, way of working to step by step improve the organic growth capabilities in our companies. If we then move to the acquisition side of the model, I would say that gradually our business areas have increased their capability to run acquisition processes since some years back already now. We are continuing in that direction. As I said earlier, adding resources and capability in the business areas, which then is close to our companies and in the respective markets where we operate. We have also created more of a scalable organization and structure. Within the business areas, we now have business unit structures where senior and experienced MDs are taking up chairman roles in sister companies.
One effect of this is that we have created career development opportunities. Also we are freeing up time for business area management to work more with business development and acquisition activities. There are still many companies to acquire in our sort of historical core home markets. We are also step by step adding new interesting geographies. Since some time now, we have had strategic focus on Germany. Even more sort of shortly, we have had or initiated focus on the northern part of Italy, where there are a lot of family-owned companies, high-quality companies in the size range we are looking for. I think both these geographies will add value acquisition-wise going forward.
A bit more specifically on sustainability, we have, I would say, an ambitious strategy and ambitious targets, and we launched these almost a year and a half ago now. Our targets are in line with the Paris Agreement, and it's the groups and also our company's shared commitment to continuously improve in a sustainable and responsible way. We define the targets in three broad areas. One is more people and people related, one is environmentally related, and one is what we call profitable growth. That might sound a bit odd, but that's very much around coaching our companies, challenging our companies to really have and improve in terms of sustainable product offerings and long-term customer satisfaction, customer relationships.
We will soon obviously publish our annual report and the sustainability section will be, you know, taking more important space there and you will be able to read more about our progress towards our targets in that report. By that, we are basically through the presentation. A brief summary. 2021 was another successful year with great financial performance from our companies. We are basically having green lights in all the financial KPIs. Demand continued to be strong in Q4 with improvements in most companies broad-based. The EBITDA margin reached a record level for a Q4. Also, cash flow was at an all-time high, and our financial position remains very strong.
We completed seven acquisitions in Q4 and 17 during the whole year, a high pace, and we also have a good pipeline adding resources and look positively on acquisitions going forward. Many companies continue to face supply challenges, but they do a really great job, and on an aggregated level, this had only limited impact, and we believe it also will be manageable going forward. Our order backlog is record high when we move into 2022 now. It will take some time before lead times have normalized, but this of course constitutes a good condition for a new successful year. There is no indication that the business climate will change short-term, so our estimate is that the demand the coming quarter will remain on the same good level as the last quarters. An optimistic and positive outlook.
With that, we say thank you, and we open up for the Q&A session.
Thank you. If you wish to ask a question, please press zero one on your telephone keypad. If you would like to withdraw your question, you may do so by pressing zero and two to cancel. There will be a brief pause while question's being recorded. We have a first question. It's from Carl Ragnerstam, Nordea. The line is now open for you.
Hi, it's Carl here from Nordea. A couple of questions. Firstly, you mentioned that supply chain issues will remain entering 2022. Would you say that it's same sequentially, i.e., the SEK 100 million-SEK 200 million on a quarterly basis so far in Q1? Or, yeah, how should we see it entering H1 or Q1?
I think that's a reasonable perspective and best judgment right now.
Perfect. Thank you. Also, you mentioned that you did some restructuring measures, which was the SEK 21 million in non-recurring items. Could you give some flavor on what you've done?
Yeah. It's a specific company which hasn't developed in line with expectation. We have divested a part of that and then transformed it to integrate other parts with other companies in the group.
Perfect. What division is it within?
It was within Measurement & Sensor Technology.
If I add there, Carl, we took the cost for this centrally, so it didn't impact the-
I saw that, yeah. Perfect. On the 6% organic growth, is it possible to split out how much is related to pricing and how much is underlying volumes?
Yeah. That's a great question, and we would have liked to do that. But with the structure we have, we can't really do that, unfortunately. I can't give you a specific answer on that.
Okay. It's not 50-50, or is it? On a high level, is it possible to give any indications at least?
I refrain from guiding regarding that.
Yeah. No problem. You said that you are aiming for the target or you set the target to reach SEK 30 billion in sales. What time frame do you have for that?
Now, we would like to double the size of the group in a five to eight-year perspective. That depends obviously on what type of business cycle we operate in and so on. That's the type of time frame we work towards.
The SEK 30 billion you mentioned will be reached then by 2025 according to your financial targets. That's a fair assumption then, or assumption then?
Absolutely.
Yeah. Perfect. The final one from my side is a bit on the gross margin. You mentioned a couple of things behind the quite big uplift year-over-year. Could you help us sort of give more specifics on what was the mix effect, the M&A pricing, et cetera, or to sort of quantify it?
I can iterate a little bit. I'm not sure if it's more specific, but I think the main improvement that you see is organic. I think that's important to state initially. Mainly it's organic. That's more of a sort of a subjective judgment, listening and looking at our companies that the main portion is from pricing, the pricing dimension, I would say. Then there are, say that half of it, if I'm judging or estimating it, half of the increase is pricing and mix as the rest.
M&A, is that an important factor? Because it looks like at least on an EBITDA level, you've done quite margin-enhancing acquisitions.
Yeah. It's of course supporting the margin, I would say. It's not the main driver of the gross margin increase. I mean, if you look at the EBITDA margin, it is supporting the overall. It's margin accretive. I would say that we are also margin accretive with good leverage on the organic side. It's not either or, it's both.
Okay. Perfect. Thank you.
The next question is by Johan Dahl, Danske Bank. The line is now also open for you.
Yes. Thank you. Good morning, everyone. Just on your I presume you're in a sort of a process where you may update financial targets as we go through 2022. I'm just struggling a bit to understand your relatively sort of cautious view on the long-term margin potential in this business. Listening to you guys, how you're describing the business today, and also you know, considering the margin in the companies that you have acquired last year. I'm just trying to understand what is it exactly you think will happen as we go forward. Do you think these price hikes to roll back going forward? Or what are you actually seeing out there? Is it a reduction of this you know productivity improvements that you've done in the last two years, et cetera?
Well, good question. To put this in some sort of perspective, short term in terms of margin, EBITDA margin, we are perhaps a little bit defensive in the sense that we have basically taken the company from a 12% level to now 13%, 14%, 15% certain quarters. I think we might need some time to consolidate now on this level to try to defend these levels, but at the same time continue to grow with a minimum 10%. What the dynamics behind this and what will happen now post-pandemic is quite complex, I think, to forecast.
There are certain materials predominant, I would say, which have had extreme price increases during the pandemic. I think they will go down, but maybe more material price reductions than component and product price reductions. We will probably step by step see our costs increase if in a more normalized world where we will see more physical activity again, even if we will try to reap continued benefits of digitalization obviously. We have taken good steps also in digitalization, but we are not fully where we want to be. We won't sort of stop to invest in digitalization either. That will also be a bit of a cost for that going forward.
I'm not sure if I answered your question, Johan, but short term, we want to defend the margin levels we have, but still continue to grow aggressively, both organically and acquisition-wise. In a perhaps more of a five-year perspective, we want to come back to this situation where we try to improve margin with small steps again.
All right. On the order book, I think last time we talked to you described the order book as in a good quality. How would you say the order book quality is today?
Yeah. We review that very frequently, and I would say it still remains in good quality.
Yeah. Is that with regards to profitability or just is that with regards to-
I was more potential cancellations or that all of a sudden the order book will disappear if I say so, which happens in certain industries.
Finally, on the efforts to accelerate organic growth, would you argue that the outcome in orders here in 2021 is, you know, that we're basically already seeing, you know, the main results of those initiatives? Or is this something that you started quite recently, and you're sort of anticipating to see more results from it?
More the latter. We have started this and we will hopefully see more benefit from this going forward. What we have seen now is more based on old capabilities, qualities, mindsets and perhaps not fully linked to what we started a year ago or so.
Okay, thanks.
Thanks.
The next question is by Robert Redin Carnegie. The line is now open for you.
Yeah, hi. Two questions, please. On the strong order intake, 50% organic growth order intake in Q4, is that still sort of longer lead time orders? I mean, orders were especially strong now in Q4, but they've been above sales all year. Yeah, you mentioned that the order book is strong, but is it just a longer order book? Or could we see organic sales growth accelerating now into Q1, Q2 on that strong order intake that you have?
Also, good relevant question. I think Q1 will not be a catch-up effect, I don't think. Maybe the later part of Q2 and onwards, hopefully, will be better effect from the order book, I think.
Okay. Right. You have visibility then for part of this well into 2022.
Yeah. Obviously some visibility, and some estimation assumption.
All right. Cool. The other question I had was on acquisitions. If you look at that table you have showing the effects of acquisitions during the year on, for example, EBITDA, those acquisitions have had margins of about 20%. That's a bit above group margins. Is this a sort of temporary thing? Or would you expect acquisitions to be more like this going forward?
When we acquire a company, we are predominantly looking for companies which are minimum at the levels where we are on average as a group. Now we have been successful for some time to find companies which are a step above that. What will happen in the next year, two years? Hopefully somewhat above the average level. Since we have increased our level also now with maybe not delta-wise the same step as we have seen this year.
All right. Understood. Thanks.
Thanks.
As a reminder, if you want to ask a question, please press zero and one on your telephone to enter the queue. There are no further questions, and so I hand back to you.
Thank you. We say thank you for today, and we keep in touch going forward. Bye-bye.