Welcome to the Storskogen Q4 presentation. During the questions and answers session, participants are able to ask questions by dialing pound key five on their telephone keypad. Now I will hand the conference over to the CEO Daniel Kaplan and CFO Lena Glader. Please begin your meeting.
Hi and welcome everybody, to Storskogen's presentation of the fourth quarter in 2023. My name is Daniel Kaplan, I'm the CEO, and together with me I have our CFO Lena Glader. So let's jump straight into it, the highlights, starting with the quarter: SEK 9 billion in sales, SEK 706 million in EBITDA, and an EBITDA margin of 7.8%. Reasonably happy with sales. The decline is mostly attributable to divestments. The EBITDA margin, however, particularly happy with, facing some margin contraction in Trade with weak Christmas sales, and weak consumer end consumer demand. And in Services we also saw both some cold weather, which makes it cumbersome for our Infrastructure companies to deliver, but also a weak sentiment in the new construction-related segments. So not super happy with the fourth quarter in that respect.
What we are happy with is of course the cash flow in the quarter. Super strong, almost SEK 1.5 billion. Quite extraordinary. We're very happy with that. And we currently have an LTM adjusted cash conversion now far beyond our target of 70%, so we're reaching 104% now for the last 12 months. Looking at the full year, we have SEK 36 billion sales, a 5% increase, an EBITDA of SEK 3.2 billion, which is a 3% increase, and a margin of 9.0%. I think given the complex environment, especially on macro, weak consumer confidence, high interest rates, etc., I think we're reasonably happy with this. We, I think, we've done a lot of work to protect our margins and our market shares, keeping sales up and margin decent, at least.
Once again, what we're really happy with was, of course, our key strategic priority, the cash flow, generating about SEK 3.36 billion in the year. So very happy with that. And of course we use that money to our second strategic priority, which is to reduce debt, with more than SEK 800 million in the quarter and SEK 2.8 billion in the year. So I think that's been very important for us, of course, at this point. Organically we have been struggling this year, sales -3%, EBITDA -13%. Margin contraction, weak consumer confidence once again, and also a softer construction-related segments. We have basically done no material M&A activity in quarter. The board proposed a dividend of SEK 9 per share, a slight increase. So going forward, looking more in depth on net sales and EBITDA margin, here you can see our seasonality effect.
Basically sales, it's basically on par with the comparable quarters, but as we mentioned before, a margin contraction. So looking at 2022, which is a better proxy for our normal seasonality, and also what we're actually—this is very early in the year and, of course, with the caveat that we don't know—this is the seasonality that we're expecting. Basically, a weak first quarter, also the third quarter is usually somewhat weaker, and stronger second and fourth quarter. This is what we are expecting if everything turns out as normal. 'Cause of course this year that we had, we had quite an extraordinary Q1 and a weak Q4, as you can see here. And looking also at the divested companies, sales of SEK 559 in the comparable quarter, like we said. All right.
Moving forward, so how have we delivered on the strategic priorities that we set out in the Capital Markets Day a little bit more than a year ago in September 2022? What I think the most important was, of course, to improve cash flow. We had lots of newly acquired companies in the portfolio and it was quite evident that most of them had never, ever worked with cash flow. So we'll get into how we managed to do this, but I think this is an area where we're very proud of our performance. If we're looking at the operating cash flow adjusted as defined as the Adjusted EBITDA minus the change in net working capital minus CapEx, we actually achieved SEK 4.5 billion in 2023, which is, of course, very strong. When it comes to protecting profitability, we have done a number of activities.
The bottom line there, we have reduced negative EBITDA effect from group operations. We did cost cuts already in 2022. We actually did a second round of cost cuts in our central group operations here, during autumn. So when we were geared for a faster growth, our peak, you know, cost to sales, central cost to sales was actually 1.2% with almost 117 people. We're currently down to approximately just about 80 full-time employees and a 0.7% of sales. I think this is a level where we're quite happy. I think we can support our companies with active ownership. We can help them in all kinds of ways and also support our geographies, in a proper way, but still not geared for the rapid acquisition pace that we had previously and that we don't foresee going forward.
Also, on the, if we're looking at the portfolio level, company, which is even more important, we have done some significant cost saving initiatives in some of our low performers, especially in the Trade area. Reasonably happy with 9%. I think we are geared for, when the business cycle turns, I think most of our companies will be lean and mean, so to say, going forward. So, so, but of course, with the negative organic growth, we need to keep tabs on our costs to protect our profitability as well. Reducing leverage, I think the key objectives of reducing leverage is, of course, to reduce interest rate costs and to reduce refinancing costs. And I think we have certainly reduced our debt. We've done the work. We reduced debt in one year in with SEK 2.8 billion in 2023, primarily through cash flows, but also through some divestments.
We're very happy with that and our interest-bearing debt has, of course, had a significant decrease. Also our refinancing risk has been managed through a new bond release, as you might know, earlier in the year. You can see our bond trading at better prices now or tighter. I think we're there, but we're not when it comes to leverage ratio, we're still not there. We still have an ambition to move down towards the lower end of the spectrum, 2-3, where our target is. We're not there yet. Reduced M&A pace. We've been, it says here, 12 acquisitions, but actually it's only been two platform acquisitions. Most of the others have been very small, strategic, add-on acquisitions with basically no material effect.
On the other hand, we have done significant divestments, 11 strategic divestments completed in 2023, contributing with cash, but also gradually improving the profile of our portfolio. So we acquired companies, significantly higher margins and return on capital employed, as compared to the divested companies. So moving ahead, well, cash flow, that's what I mentioned previously, a strong increase in cash flows from SEK 1.6 to SEK 3.36, in the fourth quarter rather in the LTM. So we're very happy about that. And the way we've done this, if we move to the next page, is to, we've been very, very systematic. We started off setting an internal target of reaching a net working capital to sales of 15%. We started off by educating our companies. Why is net working capital something that we want to keep tabs on? Why is it important?
We started to help them interact with each other, share best practices. We introduced various analytical tools. We set targets. We started to follow up. We began to benchmark them against each other. And just a week ago we had a CEO event with 114 CEOs in place here in Stockholm. They told their stories of the year that passed and it was really heartening for us. We've been working hard to see that they're really taking the working capital work to heart. They have changed their behavior and it's also something that they never worked with before. We heard that from even some of our very best CEOs, that this was a new thing and they've really made some great improvements.
And hopefully now not only that we've renegotiated terms and increased billing frequencies and reviewed stock levels, etc., I think this has resulted in a long-term structural change in how our companies behave going forward. So feeling comfortable that we can remain on a decent level with regard to working capital going forward. We're not guiding on results for next year, but we are; we can say that we believe that we will have strong cash flows even in the coming year, even though, of course, in the long term we're guiding towards a 70% cash conversion. So over time it should converge to that. But in the next year we foresee continued strong cash flows. Looking ahead to the next page, gradually now we're doing what we can on cost. We're doing what we can on working capital.
And those are probably our key objectives initially at least. However, we have continuously during these years kept our CapEx at a consistent level, supporting our companies with new investments in machinery and factories, etc., basically to set the stage so that we can take market share and accelerate when the business cycle turns. If you look at the organic sales growth here, it's -4% in the COVID 2020. The bounce back in 2021 with 17% organic sales growth and decent sales growth even in 2022, whereas we've had a negative sales growth now in 2023. But nevertheless we've kept our CapEx levels relatively steady. One example of this is actually one of our first acquisitions. It is IMS Maskinteknik . This is in Enköping, a relatively small company in our world. It's a contract manufacturing company. It's delivering primarily to the aviation industry.
It's prototypes. It's basically heavy metal workshop, a small series. And we noticed that we had basically reached our maximum capacity in 2019. So what we did was we actually rebuilt the factory. We enlarged it quite a lot. We acquired multitasking machinery to better respond to our customers' needs. And this was, of course, given the turnover, as you can see, in 2020, SEK 40 million, we spent quite a lot. It was a heavy investment compared to that turnover. But the results have, first of all, resulted in stronger customer relationships. We also managed to partly diversify our customer base, reducing the risk of a single customer leaving. And as you can see, the results have been quite tremendous here, with almost a 20% margin in 2023 and a good outlook as well.
This is testament to the work that we have been, we are doing in a lot of our companies, that will hopefully enhance growth going forward. So looking at the next page. So how did we perform in the quarters? A brief comment on all three business areas. Services was actually a disappointment in the quarter. We saw that some of our segments, this is Engineering Service s and Infrastructure. Engineering Services primarily due to the weak construction business cycle. Infrastructure also had a weak development partly because of the cold weather actually making it difficult to dig when you have tjäle in Swedish, frozen ground basically. HR segment. Some of our companies in that vertical have the Swedish Employment Agency as their main customer. And that is a complex environment to navigate.
So, so these three, Engineering Services , Infrastructure, and HR and Competence were the disappointments of the quarter. Whereas, Digital Services and Logistics continued to with solid performances. Sales, almost SEK 3 billion, in the fourth quarter, but still a negative sales development. The, Adjusted EBITDA, SEK 257 million. And this was, of course, a -30%, compared to, the previous quarter. I should say here that we have divested companies in the, services arena. Sales of SEK 377 million in the comparable quarter. So that, of course, really, contributes to the decline. But, nevertheless, not a satisfactory fourth quarter for, services. Looking at our next business area of Trade, well, this was more expected. We had margin pressure, very strong working capital release, very positive. Sales of SEK 2.5 billion, a total of SEK 10 billion in the year with a significant, decline in Adjusted EBITDA in the fourth quarter. Weak, Christmas sales.
I think the entire year has been characterized by destocking in the value chain, including with our companies, of course. So the weak consumer confidence and demand together with that, the double whammy, you might say, with most players, our customers basically, destocking has been a significant impact. Looking forward, we're not giving guidance to the coming year, but we can see with the exception of Q1, which we expect to be seasonally weak, we do see actually somewhat stronger order books for those companies that have order books, going forward. And also when we ask our own companies about their stocking situation, they're quite happy. They think they are on a decent level. And as a proxy for the market as a whole, we do believe that the value chain basically has stabilized, which will make things easier in the coming year.
The strong cash flow, very good at decreasing inventory levels, I think a great exception, I should say not all companies here are struggling. Looking at the vertical Health and Beauty, for example, they are truly, delivering on the Lipstick Index , so to say, being very resilient in this, in this market and delivering strong results. Yes. Going forward to Industry. Industry had a fantastic 2022, continued with a strong 2023, I should say. Net sales have increased to SEK 14.6-14.7 billion in the year and, and SEK 3.55 billion in the fourth quarter. It was nevertheless on margin, a somewhat weaker quarter, and we saw some decline in, in, the order books for some of our big companies. However, looking a little bit more forward looking, I think we can see that those order books have stabilized.
In fact, these last weeks we've actually received a number of very big orders. So, a more stable outlook for Industry. And they also don't really have the same seasonality as Trade and Services when it comes to the quarter. So, a decent performance from Industry, both historically and going forward hopefully. Yes. I should say strong verticals here in the quarter, Automation and Industrial Technology still being supported by the reshoring trend, green transition, and also strong demand for Automation solutions. Yes. So we're moving forward. Lena.
Thank you, Daniel. So let's have a closer look at the Q4 financials here on this page. Net sales growth, as Daniel said before, was -9% to SEK 9 billion, impacted by organic growth, M&A and currency, and I'll come back to that in more detail in just a few minutes.
Gross margin in the quarter improved by one percentage point from 19.7% to 20.6%. Gross margin increased by four percentage points in Industry, was around flat in Trade, and decreased by approximately three percentage points in Services, meaning that we were able on a group level to meet higher cost of goods sold inflation with higher prices. But however, softer demand, particularly in consumer segments and new construction segments, as you mentioned, Daniel, coupled with somewhat higher SG&A expenses, again, a result of inflation, and lower other operating income meant that we saw an EBIT decline of 34% to SEK 520 million in the quarter. Items affecting comparability were lower, SEK 29 million in the quarter compared to SEK 87 million a year ago, and this, of course, affects the reported EBIT growth slightly negatively. What we show here, obviously, is non-adjusted numbers, bear in mind.
Increase in net financial items is obviously a result of the higher base rates compared to a year ago since our interest bearing debt in absolute terms was 18% lower than a year ago. But interest expenses did nevertheless decrease quarter-on-quarter, compared to the third quarter, amounting to SEK 225 million now in Q4 from SEK 257 million in Q3. And then finally, earnings per share, SEK 0.06. Now let's have a quick look at the full year financials on the following page here. Full year net sales growth was +5% to SEK 36 billion. And again, I'll come back to a more detailed drill down of the effects from M&A and organic growth and currency, on a separate page in just a little while.
Gross profit for the full year increased by 8%, so more than sales growth, again showing that we were able on a group level to compensate inflation in cost of goods sold with higher prices. For the full year, however, SG&A expenses increased in line with gross profit by approximately 8% as well, but lower other operating income and expenses explained by items affecting comparability and currency, all explained in our financial report, led to a decline in EBIT of 6% for the full year. Net financial items increased sharply due to higher base rates in the full year, obviously, despite substantially lower debt, leading to a 37% decrease in profit before tax to SEK 1.3 billion. Earnings per share for the full year was SEK 0.47 before and SEK 0.46 after dilution. The dividend, as you mentioned before, Daniel, proposed by the board is SEK 0.09 per share.
Return on equity was 4.6% for the full year, obviously explained by higher financial costs, and return on capital employed was 7.7%. Return on capital employed excluding goodwill was 17.4%. On the next page, we show a full year bridge of sales and EBITDA, and starting with the sales bridge to the left. You see here that Services had a more or less flat sales growth. Trade had a slight positive growth, but the largest contribution came from Industry with SEK 1.4 billion higher sales compared to 2022. The corresponding EBITDA bridge to the right there shows that, Services and Trade decreased somewhat in EBITDA, whereas Industry contributed positively again and also group operations due to lower costs at headquarters.
And on the next page, we're looking more closely at sales developments, slicing it in another way here, first starting with the contributors for the fourth quarter, where you see that organic sales growth in the quarter was -5%. We had slight positive contribution from currency and acquisition of 2% in total, and -6% is a contribution from divestments. And a similar bridge for the full year shows that organic sales growth was -3%, currency +2%. Acquisitions contributed with 10% growth, whereof only 1% however relates to acquisitions made in 2023, and the rest relates to acquisitions made in the previous year. Divestments contributed by -4% in the full year. And then over to cash flow statements for the fourth quarter. Our focus on cash flow is obviously yielding significant results, as shown here. Change in net working capital contributed +SEK 692 million.
This is, thanks to significantly reduced inventories and receivables, somewhat offset by lower accounts payable. Cash flow from operating activities after interest and tax was closer to SEK 1.5 billion in the fourth quarter and closer to SEK 3.4 billion for the full year. Then cash effect from M&A, including earnouts and minority payments, was -60% in Q4 and just short of SEK 400 million for the full year. And this is a net of acquisitions, divestments, paid earnouts, and acquired minority shares in subsidiaries. And I'll come back to cash conversion and change in debt shortly. So on the next page, we have cash conversion, which is obviously one of our financial KPIs with a group target of at least 70%, which is the dotted line here.
The rolling 12-month cash conversion has, as you see here, improved every quarter from Q2 last year, thanks to great work by our subsidiaries, as Daniel explained, in reducing inventories and receivables. We reached 104% cash conversion for the full year, 154% for the isolated fourth quarter. We reached a net working capital to sales target of 15% by the end of Q4, which was an internal target for the year. As Daniel explained, we believe this is a sustainable level, but there's still a lot of ongoing long and short projects to maintain working capital efficiency. Working capital is obviously one of the large contributors to the strong cash flow. On the next page, we show a cash flow bridge for the full year. The previous page related to Q4 only.
Cash flow from operating activities after significant positive contribution from change in working capital was SEK 3.36 billion. CapEx was SEK 610 million, 1.7% of full year sales. IFRS leasing, which is obviously not defined as operating according to IFRS, but, in reality, in reality, it is operational, as the larger part, approximately 80% of this is rental costs, was SEK 563 million or 1.6% of sales. Free cash flow after leasing, calculated this way, was SEK 2.22 billion for the year, which is a year-on-year improvement of SEK 1.7 billion. M&A activities amounted to a total of 200+, a positive SEK 245 million Swedish krona. And then earnout payments related to previous year's acquisitions were SEK 636 million in the year, but will be significantly lower going forward.
We will, however, have some minority shares that we will buy back likely during this year, but bear in mind, acquiring minority shares also improves, obviously, EPS. This means that cash flow before dividend and change in loans amounted to SEK 1.83 billion. And then how have we used this money? Well, on the next page, we have a closer look at the debt and leverage development. Here on this page, we show the development of our debt and cash balances quarter by quarter. And the dotted line there is the 12-month pro forma EBITDA, which is used in our leverage definition. To summarize here, total debt was reduced by SEK 3.5 billion during the year. Interest rates have gone up in parallel to our debt reduction, but as of Q4, we're starting to see lower interest costs, as I just previously said.
Our interest bearing debt, consisting of the blue bar, which is interest bearing, well, which is in other words, bank loans and bonds, plus the light brown bar, which is leasing and pension provisions, was reduced by SEK 2.8 billion during the year. Non-interest bearing debt, earnouts and minorities, was reduced by SEK 731 million in the year. But in the fourth quarter alone, interest bearing debt was reduced by SEK 814 million and, or liabilities for earnouts and minority options by SEK 91 million. And obviously, we've used our strong cash flows, which was, as shown on the previous page, SEK 1.8 billion, as well as cash at bank to do this. And when it comes to liquidity, cash and cash equivalents at the end of the year, the yellow bar south of zero here on this chart, totaled SEK 1.6 billion plus unutilized credit facilities of in total SEK 6.6 billion.
Finally, on the next page, we have the Storskogen Group's condensed balance sheet per the end of December. Total balance sheet is 7% lighter than a year ago. This is largely explained by divestments as well as lower working capital, which has enabled us to reduce our debt. Equity, on the other hand, has increased by 4%, and the equity ratio hence increased to 46%. Interest bearing leverage was reduced to 2.5 times during the quarter. Our ambition remains to bring leverage to the lower end of the 2-3 times range. But as seen here and on the previous page, Adjusted LTM EBITDA came down year-over-year to SEK 4.3 billion because of divestments, but also negative organic profit growth. This meant that our goal was not reached during the quarter despite the significant debt reductions.
Looking ahead, existing cash and expected solid cash flows also in 2024 means that we can continue to further reduce debt in absolute terms, not least in order to further lower our interest expenses. However, in terms of the leverage ratio, bear in mind that we will be rolling out a fairly strong Q1 last year, as Daniel showed on the previous page, and expect to be rolling in Q1 with more typical seasonality. So to summarize, I guess it was a busy and fruitful year in regard to improving cash flow and reducing debt. But that said, we're not yet at the level where we want to be, but we're a little bit closer, aren't we? So over to you, Daniel, for concluding remarks.
Thank you, Lena. So in conclusion, we're not happy with the margin in the fourth quarter. Looking on the full year, we are quite happy with the cash flow and our hard work there. They've treated, you know, yielded strong results, both this year, the previous year, but also going forward. I think we've set the scene for strong cash flows going forward. I think we've significantly reduced debt and made some headway on that. Looking forward on our priorities going forward, the continued focus on cost control in our companies, and also HQ. I think we want to reduce debt. We want to reduce refinancing risk as well, even though that has been managed quite well so far. We're also gradually looking ahead, and I think we're doing more and more shifting towards initiatives driving organic growth. So I think that will probably come forward as the key priority later in the year. So thank you very much so far, l et's get on with some questions.
If you wish to ask a question, please dial pound key five on your telephone keypad to enter the queue. If you wish to withdraw your question, please dial pound key six on your telephone keypad. The next question comes from Johan Dahl from Danske Bank. Please go ahead.
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There are no more questions at this time, so I hand the conference back to the speakers for any closing comments. So, thank you very much for listening in. If you have any questions to us, don't hesitate to call. I would be happy to answer . And have a wonderful day, I think.