Welcome to the Vestum Q4 2023 report presentation. For the first part of the conference call, the participants will be in listen-only mode. During the questions and answer session, participants are able to ask questions by dialing pound five on their telephone keypad. Now, I will hand the conference over to the speakers. CEO Simon Göthberg, CFO Olof Andersson, please go ahead.
Hi, and welcome to our presentation of Vestum's report for the fourth quarter, 2023. My name is Simon Göthberg, and I'm the CEO of the company, and together with me, I also have Olof Andersson, CFO of the company. I'd like to start today's presentation with a summary of the full year 2023. The year has been characterized by streamlining operations through divestitures and being focused on the balance sheet, while simultaneously delivering solid growth and profitability. Vestum has become more specialized, with an improved financial profile and lowered operational risk, and in total, we divested SEK 1.7 billion in sales with a close to 0% margin in 2023. Several important KPIs have been reached, not least leverage of 2.5x EBITDA, which now puts us in a position ready for acquisitions again.
And while capital allocation has been focused on bringing down leverage, we still managed to generate sales growth of 12%, of which 4% organically, and a stable EBITDA margin of 10.8%. Vestum now generates sales of SEK 5.7 billion, with an EBITDA of SEK 623 million. Looking at cash flow, this has been strong in 2023, with an operational cash conversion of 98%, while free cash flow per share grew 70%, that is 70%, in comparison to 2022. This has led to total interest-bearing debt, including earn-outs, to decrease by SEK 1.1 billion in 2023, or 29%. Strategically, Vestum is positioned in the growing infrastructure sector, with highly niche players with leading positions.
Looking at the water segment, we have market leaders providing products focused on moving water from one place to another, and margins here are roughly 20%. In the services segment, we have installation companies focused on energy efficiency measures for mainly property owners, and here we have industry-leading profitability with a margin of some 10%. And in the infrastructure segment, we have local champions that perform certain specialized tasks in our infrastructure. Margin here is ten, sorry, 11%. And looking at the profitability here, we're on a margin expansion journey. We have successfully expanded our LTM EBITDA margin from 6.9% in early 2021 on an LTM basis to 10.8% for the full year 2023.
This has been driven by organic initiatives and portfolio mix that is divesting low-margin businesses and acquiring high-margin businesses. Going forward, we'll be even more so focused on acquiring market-leading niche players with high margins in civic infrastructure. One key driver to our margin expansion has been what you see on this slide here, the growing share of our EBITDA made up by product companies. These companies are very well-positioned in the value chain as price leaders, meaning that margins are high, on average, 17%-18% on an EBITDA level, and they also have nationwide customer networks with the potential to sell their products internationally, which creates great growth opportunities. In 2023, 44% of full-year group EBITDA was made up by product companies, and approximately 60% of this came from the water segment.
Our ambition is to continue to grow this, this share of 44% going forward. Now let's have a look at some highlights from Q4. Sales growth was stable at 3%, which 1% organic growth, reaching SEK 1.6 billion. EBITDA was in line with Q4 2022, and all segments produced double-digit margins. The strong development in the water segment continued and was successfully delivered, increased sales and profits in all quarters in 2023. Cash flow generation was also solid, with operating cash flow amounting to SEK 228 million, with a cash conversion of 105%. Now let's have a look at the segments, and starting with the water segments.
Demand remained strong from previous quarters for essentially all of our products, especially in the U.K., which is our largest market. The quarter generated sales of SEK 180 million, corresponding to organic growth of 14%. EBITDA was SEK 32 million, with a margin of 18%, and we're now expecting continued stable demand and are actively pursuing add-on acquisitions to the segment. Looking at the services segment, here we're exposed to the installation market, mainly in Sweden, which faced a rather tough year in 2023.
That said, I think it's fair to say that we've done a good job in defending our margins as we managed to generate 11.6% EBITDA margin in Q4, which is in line with the same period last year, as you can see here in the graph. For the full year 2023, we delivered growth of 1% and an EBITDA margin of 10%, which is industry leading. Although we remain humble about the outlook for the market in the short term, we're not pleased with a 10% margin in the mid to long term. Focus going forward is on profitability and continuing to gain market share. Lastly, let's have a look at the infrastructure segment.
We experienced continued solid demand with sales of SEK 886 million, corresponding to growth of 10% and EBITDA increased from SEK 88 million to SEK 91 million. On an LTM basis, the segment generates sales of SEK 3.1 billion and an EBITDA of SEK 349 million, corresponding to a margin of 11%. As with the services segment, we remain humble about the short-term development as we're facing an uncertain market, but we think that we are well-positioned with high-quality players in growing niches of our infrastructure.
So let's look at our net sales and EBITDA development over the past couple of quarters. And we begin with the chart on the left, which shows net sales, where it's worth noting that net sales grew sequentially, i.e., from Q3, as well as compared to last year, and also on a yearly basis. If we move on to the chart in the middle, you'll see that EBITDA was slightly weaker than the sales development. EBITDA for the quarter was lower than last year, but it's worth noting that when looking at adjusted EBIT, EBITDA, Q4 was only SEK 1 million lower than last year. And the pattern is quite similar when looking at EBITDA margin in the chart to the right, where Q4 was lower than last year.
And here it's worth mentioning that for the remaining business, the margin was 10% or above in all quarters for the year. That was not the case before we made the divestments that Simon mentioned. So if we move on to net sales growth, Q4 grew by 3% compared to last year, driven primarily by acquired sales, but organic growth also contributed. It was SEK 11 million, corresponding to a 1% organic growth rate. Moving on to operating cash flow during the last 12 months, we continue to see strong operating cash flows and cash conversion, and we've now been around a conversion of 100% for two quarters in a row.
We are, of course, putting a lot of emphasis on optimizing working capital, and it's nice to see that we've achieved that we have achieved these levels. So that was operating cash flow. Now, let's look at free cash flow. And we define free cash flow as cash flow from operating activities, so that is including interest and taxes paid and change in net working capital. And then we subtract CapEx spending, i.e., investments in fixed assets, and we also subtract leasing amortization. So basically, free cash flow is cash that can be used for dividends, acquisitions, or repayment of debt. So for 2023, the free cash flow amounted to SEK 420 million. And how did that compare to last year? Well, let's move on to the next page.
So beginning from the bar on the left, in 2022, we produced a free cash flow of SEK 241 million, and in 2023, we've generated higher cash flow of SEK 133 million from operating activities, and that is in spite of the headwinds in interest rates. And we've freed up net working capital of SEK 104 million. And all in all, we've increased free cash flow by 75% from SEK 241 million in 2022 to again, SEK 421 million in 2023. And let's look at how we have allocated our cash and cash flows during the year. So we entered the year with a cash balance of SEK 608 million, shown in the bar to the left.
As we have just seen, we have generated a free cash flow, again, including paid taxes and paid interest, CapEx, and leasing amortization of SEK 421 million. Now, if we look at the net effect of acquisitions and divestments during the year, the net cash flow effect is actually quite small. So one way of looking at this, if you zoom out, is that we've shifted capital from some parts of the portfolio and allocated it to others. So the main capital allocation focus for the year has been debt repayment. In this chart, we clearly see the cash flow effect from debt repayment. Since we've actually repaid more debt than we've generated free cash flow, it means that our ending cash balance is lower than it was at the beginning of the year.
Which is good, of course, because that means we're more cash efficient than we were last year. As illustrated by the bar furthest to the right, we have a revolving credit facility of SEK 700 million, which was unused at the end of the year, so our total available liquidity was above SEK 1 billion . Let's look at net debt and leverage development. As I just mentioned, repayment of debt has been a main focus this year. In this chart, you can clearly see how we have lowered net debt from SEK 2.8 billion when entering the year, to SEK 2.1 billion at the end of this year, and that is a decrease of 24%. In Q4 alone, we decreased the net debt by SEK 328 million.
If we look at the total gross financial debt, that is including earn-outs, we have managed to reduce debt by SEK 1.1 billion, almost 30% during the year. So as a consequence of this, we have now reached our leverage target of 2.5. And we're working with addressing our upcoming maturities in the autumn of 2024, and our aim is to have closed this activity by the end of this quarter, the first quarter of 2024. And by that, I hand it back to you, Simon.
Okay. In summary, we have leading positions in growing niches of civic infrastructure across Northern Europe. We generated solid sales growth in 2023 of 12%, of which organic growth of 4%, and with an expanding EBITDA margin in comparison to reported figures in 2022. Product companies now produce almost half of group EBITDA, and we expect the share to increase over time. And in a year with focus on strengthening the balance sheet and improving cash flow, I think it's fair to say that we have successfully improved cash flow generation, and it's great that we're now within our financial leverage targets. The strategic review, which was announced in August 2023, is coming to an end, and we expect this to occur by the end of Q1 2024.
When concluding this, we will address the refinancing of the bond of SEK 900 million, with maturity in October 2024. We expect and feel confident that the refinancing would lead to a more efficient capital structure, with improved free cash flow as a consequence. Similar to early this year, market uncertainty remains high in the short term, but long term, we are very well positioned to generate profitable growth. Lastly, we are now more actively pursuing acquisition opportunities again, mainly in the water segment, but we'll, of course, ensure reasonable leverage while doing so, and focus is always on efficient capital allocation. With that, we open up for 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. There are no phone questions at this time, so I hand the conference back to the speakers for any written questions and closing comments.
Hi, yes, this is Simon again. We have received a written question from Johan at Carnegie. Thanks for that, Johan. Why were margins down year-on-year in the water segment in Q4? I would say that this is mainly driven by our operations in Denmark, which is focused on irrigation systems. The market in Denmark was quite strong in the second quarter of 2023 due to the drought that was going on in April and May, but then the second half was a little bit weaker with more rainfall.
And I would say the clients were sort of stocking up in April and May for the summer, and then when summer came along, there was a lot more rain than expected. So for Q3 and Q4, clients were sort of already stocked up. And now going into 2024, it seems like most customers are sort of reminded of what happened in April and May last year. So now the Danish operation is doing quite well, and things are looking good, I would say. And overall, the water segment was having a strong year and a strong fourth quarter, with sales growth of 14%, as mentioned. So thanks for that.
Another written question here from SEB: Are you willing to exceed the 2.5x leverage target in conjunction with acquisition with the acquisitions? And I would say, you know, as I said in the final comments here, when it comes to acquisitions, I mean, we are looking at potential add-ons, especially in the water segment and other sort of growth markets. And, you know, we spent the last 12 to 18 months or so on deleveraging, and I think we quite successfully brought down leverage from 2.8x per Q3 to 2.5x now per Q4.
And we don't really have any interest in bringing that back up to where we came from. So when it comes to acquisitions, we will have two things in mind. Number one, leverage, of course, right? We want to remain at reasonable levels. And number two, cost of capital. And looking at the refinancing situation, I mean, that is our number one priority, to ensure that we can refinance the SEK 900 million bond in the most efficient way possible.
And we are quite confident that we can do that, which means that the capital structure will be more efficient and free cash flow will be improved as a consequence. Once that is done and we feel that we're comfortable with the cost of capital, we will have a look at acquisitions. And I think if you put all that information in a cocktail, you know, what you get is essentially us feeling confident that we can make some sort of acquisition in the first half of 2024, and mainly add-on acquisitions to some of our growing sectors. We'll wait another 30 seconds or so for any additional written questions. Okay, I think that's about it. Thanks, everyone, for taking the time and listening. Have a nice day.
Cheers. Bye-bye.
Thank you. Bye.