My name is Daniel Kaplan. I'm the CEO and one of the cofounders of Storskogen. Together with me today, I have Lena Glader, CFO. 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 EBITA of SEK 3.5 billion. We have three business areas: Services, Trade, and Industry, and 14 verticals below that. Looking at Services, making up of 32% of our turnover, 62 business units in seven 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 four verticals.
Finally, Industry headed up by Fredrik Bergegård, making up 39% of our turnover with three verticals and more than 5,000 employees. All in all, almost 13,000 employees, in fact. Our reason for our existence, our mission is to empower our businesses to help them fulfill their full potential. 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.
Our organic EBITDA growth, -6%, 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. Our working on with the cash flow and working capital really resulted in the fourth quarter. We saw strong operational cash flow, SEK 1.3 billion. Among other things, this resulted in a lowered net debt to EBITDA to 2.6x. We did five acquisitions with a combined net sales of SEK 446 million.
Since then, we have done three more acquisitions, and the board has proposed a dividend as well for SEK 0.08 per share. 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. In conclusion, the margins were protected by our price adjustments. We had productivity measures and cost cuts in some of our business units.
Of course, we had a solid demand, helping us in the quarter. The market development in general, the macro, we can see a strong demand in Industry still, in the fourth quarter, also going into 2023. We have good order books, historically high, also Services keeping up quite decently. We've had successful prices increases across the board. In addition to that, we can also see that as inflation is stabilizing, supply chain disruptions 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, also demand is going down in consumer-facing industries, 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. As far as we know, nothing changes that view. In general, we are cautious about giving a macro outlook for 2023 there. It's uncertain times, for sure. If we look at the transaction market in M&A, it's a general slowdown in the market. We have decreasing multiples, relatively speaking, in a few verticals, at least. Even the volatility in prices in this type of asset is low. We have somewhat longer deal processes. For us, we still actually have very strong deal flow since we're active in many different verticals and also different geographies.
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've achieving those. These are medium-term targets, assuming a decent business cycle is basically over a business cycle, and also access to capital. Well, the organic EBITA growth, real GDP growth +1 -2 percentage points. Our delivery here this year was -6%. Of course, not satisfactory, but one should say that in 2021, we had a 36% organic EBITA growth. 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 towards 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 to be 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 closedowns 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 tailwinds in that one. 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. Finally, our leverage, interest-bearing net debt through adjusted RTM EBITDA, 2x-3x is the target range. We're currently at 2.6x. As you can see, a decrease from last year, last year's fourth quarter of 2.7x. Third quarter, 2.7x. Decrease.
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 and with low interest rates, to be on the higher end of the range is a good thing. In uncertain times and with high interest rate costs, being in the lower range is the prudent way to go. That's our ambition for the year. Looking at our three business areas, how are they performing? 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 own for both the comparison periods. The organic EBITA growth was -5%, still lingering effects of the inflationary pressures.
That said, we see that we've been successful in pushing onward prices, and you can see that on the sequentially increasing margins over the quarters. We're actually quite happy with the development in Services. Especially we can see that logistics, the digital services 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, you know, when the weather is cold. That said, we're of course, we're not suffering from the COVID closedowns that we had last year. 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 two add-on acquisitions in Sweden and Finland and one divestment in installation during the quarter. Looking at Trade, we had a strong sales growth, +62%, even organic sales growth of 10%. The EBITA growth was - 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. 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 four to five companies where we have more difficulties at that one.
The hard work with decreasing inventory levels is paying off, and we can see a release of working capital. Overall, we see a decent demand in our less cyclical verticals, whereas we could 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. Actually, the full year has been tremendous, especially if you consider the fact that we had such an extremely strong year in 2021. We're of course very happy with that.
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 humble to the fact that actually out of our three business areas, normally Industry is the most volatile in a recession market. So far so good, as far as we can see. Prices increases to improve pro-productivity as compensate for cost inflation, and we are benefiting from the reshoring trend where companies are moving back to 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 the Industry. We did one fantastic acquisition in Singapore. I'll get more into that later. Lena?
Well, thank you, Daniel. 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. 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-over-year in the quarter to SEK 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.
This corresponds to an EBITA margin of 9.4% for the quarter, which is an increase from 9.0% in Q4 last year. 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. 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 2022, from SEK 75 million actually a year ago. Relative to group sales, this is a reduction from 1.2% of sales in Q4 last year to 0.7% in Q4 2022. 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 43% year-on-year. Return on Equity was 9%, and 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. This is, of course, illustrates, first of all, that the underlying businesses are in good health, and it also illustrates the quite significant dilutive effects 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. 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% the previous year. I'll come back to both cash conversion and leverage separately in a little while. Having a closer look at organic growth here. Now, this is organic sales growth shown on this page over since the beginning of 2021 until inventories, and these problems are now diminishing, we've worked and continue to work actively to reduce working capital.
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 positive effects from inventories and receivables, if in particular. 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 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.
Leverage was also lowered thanks to the strong organic cash flow from 2.7x at the end of Q3 to 2.6x at the year-end, with an ambition to reduce it further. The denominator, so the RTM or the pro forma EBITDA in Q4 was 4.7, so it was slightly up from SEK 4.6 billion it was in Q3. Our total available liquidity amounts to SEK 10 billion , whereof SEK 3 billion in cash and SEK 7 billion in unutilized credit facilities. 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. This is particularly relevant with the current interest rate environment.
All right. Touching once again on this slide, we talked about the divestments. To conclude that part, I think there is more to come there as we review our portfolio. If we look at acquisitions, we did a few small add-on acquisitions. We did the acquisition of Cutrin in Norway. 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. Acquisitions completed after Q4, relatively small in size. That said, another chimney sweeper, a company that is doing very well. We did two add-on acquisitions to ARAT Group. ARAT is one of our business units focusing on the sawmill industry, providing automation services there. In this case, we're strengthening their offers, offering with software competence and programming skills related to that production line. 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. Already last summer, we did some cost redundancy programs there. 170 people were made redundant. This is, of course, something that we review across the portfolio, if necessary, to protect margins and retain profitability. 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.
Finally, we have a 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. 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, we also introduce a number of very concrete activities that drives better cash conversion. This of course is a long-term work, but we think if you see on the right-time side, you can see the working capital ratio. We actually tied up a significant amount of money in the first nine months of 2022. Finally saw some effects of our working capital work in the fourth quarter, like Lena said, releasing SEK 300 million. Our internal target is to move towards 15% as net working capital in, as a percentage of sales.
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. 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 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 this decrease from 2.7x - 2.6x.
Our focus remains operational excellence, cash flow and the balance sheet. Of course, we are continuing to do acquisitions, once our leverage is reduced, we will start to use our free cash flow to a greater extent to fuel M&A driven growth. Once again, back to questions. We apologize for the technical difficulties, operator, let's have some more questions.
Thank you, sir. Ladies and gentlemen, just another reminder, if you would like to ask a question, you're welcome to press star and then one. The next question is from Erik Salz of JP Morgan. Please go ahead.
Hi, Erik.
Erik, your line is live. Please go ahead with your question. Erik, please make sure that you are not muted.
Sorry. Can you hear me now?
Yes, we can hear you. Good morning, Erik.
Okay, perfect. Sure. Good morning, good morning. You may have actually answered some of my questions in the meantime, but could you mentioned the multiples in the space where you do acquisitions. Can you maybe give us a little bit more flavor on to where, you know, multiples are trending and why, you know, 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 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. Certainly competition is tougher. And I don't know, it's less tough with fewer acquirers out there. A slight decrease in multiples, I would say. Looking at the why it's longer processes, it's mainly because since earnings generation is more uncertain in uncertain times. I think last year was also a year when a lot of companies experienced strong demand but subnormal margins.
There is a more of a discussion, 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. It's simply a longer negotiation. It's also longer for us to become comfortable with their earnings forecast as well. It's a little bit, sign of the times as we have uncertain times.
Yeah. Okay.
Yeah.
Maybe if I can ask on your slide six, where you, where you list the, the targets, some of, some of them I appreciate are longer term too, but, when you think about 2023, and you think about, you know, potential for the organic EBITA growth, the, the margins, the cash conversion and sort of bringing leverage to the lower end of the 2x-3x range, do you think towards the end of the year, and you will sort of be closer to, to where you want to be with these, with these financial targets?
I think we don't want to give guidance on our organic EBITA growth, or the EBITA growth including acquisitions. There 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.
Mm-hmm.
To a greater extent within our power to affect. As such, we also have a diversified and quite resilient portfolio. I think we will generate a significant amount of cash and therefore reducing our leverage. I think that's the two targets where I can be more explicit, so to say. Not over-promising...
Okay.
On the other targets. I should say, of course-
Understood.
Our EBITA, including acquisitions, since we'll be doing less acquisitions, that will obviously be lower in the short term.
Yeah. Yeah. Understood. I think somewhere there was a mentioning of extension of debt maturities. What is, you know, 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're looking to extend?
Yes. Hi, Erik, this is Lena. Of course, we're not gonna go into detail regarding exactly what should be extended where. 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. This is an ongoing work and we're not gonna comment any more on that until we have something to comment on, so to say.
What I can just remind the market of is that, I mean, the reason why the maturity is now assuming no extensions, of course, but we have always assumed extensions can be made, of course. 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, the broader markets in last year. If we're gonna have plans, and I believe we also explicitly communicated such plans in the beginning of the year, to issue, for instance, Eurobonds, with a much longer maturity, of course.
These were put on hold due to the market environment and inflationary environment and interest rate worries last year. That's basically the reason. Yeah, we're working towards, of course, changing that picture.
Okay, thanks very much. That's all from me. Thanks a lot.
Thanks.
Thank you. The next question is from Johan Dahl of Danske Bank. Please go ahead.
Yes, yes. Good morning. Just two quick questions. First, on the balance sheet, you know, I noticed that you took down the EBITDA RTM slightly. Q3 seems to have been stable in Q4, but the combination of that together with higher interest rate, to what extent did that trigger sort of a discussion on goodwill values in your balance sheet? To what extent is that, you know, an issue when talking covenants and the prolongation of the duration of the debt?
Hi, hi, Johan. The goodwill values booked in the balance sheet. 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. We did proper impairment tests that were have been reviewed as well, et cetera. No impairment need has been detected in any of the 14 verticals we have with 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 rates and higher discount rate and also being a bit more cautious on the short-term outlook as well, because we do see uncertainties. Yeah.
It's fairly prudent assumptions and no, as it will, impairment added. I believe that's all we can say at the moment, so.
Yeah. No, I appreciate that. It is obviously non-cash, but I'm just, you know, interested whether it's a part of covenants in any part.
It's not really. No. No worries. It's not at all.
Yeah.
So.
Lena, can you just on the keeping this cash balance of SEK 3 billion approximately, the logic behind that, please?
Well, the logic behind it is that we are. Well, it SEK 3 billion is quite a lot of cash to keep at the balance sheet, of course, at the moment. 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. The cash flow was so strong, so the cash position didn't reduce as much.
Okay. Just a question on Industry as well. You know, I just noticed that there was, I think a reported 11% organic EBITA growth in the first nine 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, I think we had 55% organic EBITA growth. 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. Apart from that, we are actually very happy with the Industry performance in the fourth quarter.
All right. Thanks.
Yep.
All right. More questions.
Thank you. The next question is from Rickard Hellman of Nordea. Please go ahead.
Yeah, good morning. 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 debt, i.e., the bonds? Thank you.
Hi, thank you for the question. Quick answer to that, we're not commenting on specific terms in the bank loans, obviously. Can't comment on that.
Okay.
The next question is from Andreas Koski of BNP Paribas Exane. Please go ahead.
Thank you. Good morning, Daniel and Lena. A couple of questions from me. First on, the weakness that you saw in Industries order intake. Was the book-to-bill well below one in this quarter? Could you give an indication of how long your backlog is in terms of months of sales? Thank you.
We can't really give you an indication of that. I should say that it shouldn't be overinterpreted. 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. We can't really comment on how many months of sales. 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 all the listeners, the order book and order intake is something that we do not that is not included in the financial reports, and it is also a KPI which is relevant to the Business Area Industry. Now, that's today, of course, the largest business area. Just to be clear on the fact that it is isolated, any comments on that to Business Area Industry.
Yeah. Yeah. 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? The, the, you 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, we don't comment on the FX impact. It's smaller than what you imply here. Again, I would refer you to page 16 in the quarterly report, where we are quite explicit about which, where the, in which countries we have sales. Perhaps that will help you.
Yeah. Yeah, based on my model, I come to a mid-single digit level in terms of the FX support. That's why I ask when I do the weighted average by region, basically. Okay, it was smaller than that. On EBITA, you are mentioning in the report that you had a considerable headwind. I understand that you don't want to quantify it, but was any of that explained by hedges or inventory revaluation that will not be repeated in the coming quarters? 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 EBITA, organic growth.
No. Yeah, the, yeah. Yeah. Of course, it is part of the organic growth, the FX impact. Yeah, sorry.
I mean, I think if we look at the full year, we had all kinds of shocks, macro shocks, the COVID closedowns in the first quarter, the accelerating inflation, the currency headwinds, and the somewhat weakening demand in consumer-facing. All of those have I would say a part. That's basically what impacted that one. you know, otherwise, I don't really get your question full on.
The-
I, I was-
You don't have.
Sorry, I was thinking explicitly about the FX headwind that you're having this quarter on Adjusted EBITA.
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, now 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. We haven't commented really on how much is hedged, but there is some kind of cushions there. 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. Of course, hopefully that has stabilized and that the krona will not weaken further.
Yeah.
That's the hope, but of course, no guarantees.
Having said that, the effect on Business Area Trade is fairly significant, as we've said. But some of it is hedged, so it's not a full effect.
Yeah. Maybe a short-term related question, as you have made so many acquisitions in the past, making it difficult to actually see what the seasonality is between Q4 and Q1. Could you give some indication of what a normal seasonal decline in Q1 is versus Q4 in terms of sales? Should we expect sales to be down by 5%, 5%-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. That said, I think last year, the normal weak Q1 was exacerbated a little bit by the COVID closedowns. People are home sick. 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. Yeah.
Okay. Thank you very much.
Thank you very much.
I believe we've.
Next que-
Okay. We've done our 60 minutes already. If there is another question, I believe we have time for that.
Yes.
Thank you, ma'am. We have one more question from Karl-Johan Bonnevier of DNB Markets. Please go ahead.
Yes, good morning, Daniel and Lena. Good to be able 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. On that, Lena, is there a lot of more working capital release you see coming in the first half of next year?
Hi, good morning. Good question. Of course, this is something that we are 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 working capital to sales. Now, this is net working capital to pro forma sales, of course. You could see that we came from a level of just north of 15% in Q1 last year, which was already, I think, above, well above a pre-pandemic level. 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. The first goal is to get it back to the level where it was, basically a year or a year and a half ago.
You would see that as a continuous process in during 2023 rather than something that might be geared towards first half.
A continuous process for sure.
Absolutely.
This has to do with, you know, agreements with suppliers, agreements with customers, and a lot of negotiations, that are not, all of them is not doable in a very short period of time.
Actually, if you look at the, the long-term potential is actually even more significant. That requires could be redesign of products, analysis of inventory, you know, an ABC analysis, selling off slow movers, et cetera, and changing the offerings towards the customer. That's, that's a long-term process, I think, over the next years. A continuous process forever, I guess, to improve.
Yeah, 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. So.
Well, to some extent.
On, yeah, just come to your key takeaways, the last one also talking about continued deleveraging and then, before you do start to deploy as free cash flow towards M&A again. Is it to get down to around two times before you see that coming and 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 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. I think that will be continuously calibrated. At the moment, as things stands at the moment, we would see at the lower end without being more explicit than that.
In your view, looking at 2023, we should expect basically minor bolt-ons being the thing that could happen during this year?
I think primarily, I think minor bolt-ons and a few select platform acquisitions. That's the expectation.
If that is the expectation, do you feel that you're able to keep your organization intact? Because I guess the organization was geared towards a completely different template, 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. I think we have a comfortable level organizational- wise. Also we are investing in our organization. Like Lena 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.
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 the whatever happens in the world around us, I should say. That's our current view.
Thank you very much for the extra color, and all the best out there.
All right.
Thank you.
Thank you very much. I think we have to conclude. All in all, thank you for listening in. Happy for your participation and enjoy a wonderful day. Right. Thank you very much. Bye.
The conference call has now concluded.