Alimak Group AB (publ)

STO:ALIG

Earnings Call Analysis

Company Maintains Steady Path into 2024

The company portrays a stable outlook for 2024, mirroring its path in 2023 without anticipating fundamental market changes. With robust order intake and confidence in no major risks on the horizon, all segments are expected to perform well. Wind operations, though unlikely to replicate the significant positive impact of the previous year, exhibit potential for sustained robust performance. The HSPS segment continues to be resilient after reaching an all-time high. Construction highlights include adapting to market conditions and aiming to match or outperform 2023. Facade Access experienced lumpiness but anticipates growth and diversification into new market areas. M&A activities, primarily focused on bolt-on acquisitions, are in progress, with potential for slightly larger deals. Challenges such as project delays and negotiations in Facade Access are being managed with a clear path to resolution by 2025.

Strategic Improvements and Cost Savings

The company has embarked on a mission to align project management and improve organization structure, currently well underway in North America with efforts to streamline also in Europe and Asia. The benefits of these strategic changes are expected to manifest, with a forecasted SEK 60 million annual savings starting from 2025. Moreover, the company anticipates lifting margins beginning in 2024 with even more significant improvements by 2025.

Current Financial Performance

In a testament to the business's resilience, the construction segment's quarterly order intake fell by 35% to SEK 319 million, attributed to quarter-over-quarter volatility rather than underlying market changes. Revenues increased by 14% to SEK 440 million with mixed effects due to more deliveries from the company's China factory, which produces machines at somewhat lower margins.

Year-End Strength despite Challenges

Year-end figures for construction show solid performance amid a tough market, with a 4% increase in order intake to SEK 1.753 billion and an 8% rise in revenue to SEK 1.748 billion. Notably, the North American market and rental activities drove strong revenue, resulting in a 12% jump in EBITA to SEK 315 million.

Commitment to Safety and Digitalization

The company has shown commitment to safety further accentuated by their response to a tragic accident involving one of their standard products, Scando 650. Despite the sale occurring in 2017, the company is engaged in the ongoing investigations to prevent future incidents. They're also investing in digital transformation with tools like 'AliCalc', enhancing their value proposition.

Height Safety and Productivity Achievements

The Height Safety & Productivity Solutions segment experienced robust demand, notably in Europe for elevator rental and installation segments. Full-year results show an order intake up 9% at SEK 1.407 billion and an 11% revenue increase to SEK 1.410 billion, with a slight margin decline from 20% to 19.1%, caused by internal cost allocation changes rather than performance issues.

Impressive Industrial Segment Results

The industrial segment fared exceptionally well with a 24% quarterly and a 12% yearly increase in order intake, with significant contributions from Northern Europe and marine offshore sectors. Revenue soared by 22%, pushing EBITA up by 49% to SEK 322 million. The success of the industrial segment is marked by strong results in aftermarket services and new orders for projects, such as ship-to-shore cranes and services agreements in the North Sea.

Earnings Call Transcript 2023-Q4

[Operator]

Welcome to the conference call. [Operator Instructions]

Now I will hand the conference over to the speakers. Please go ahead.

[Ole Jodahl, executive]

Thank you, and welcome to this quarter 4 and full year call for 2023. And I'm Ole Jodahl, and with me, as always, I also have our CFO, Sylvain.

So turning page and a short recap. Yes, Alimak Group, a diverse global industrial company. We are then focusing on providing sustainable vertical access and working at height solutions. The -- we have, of course, some main drivers for our success and fundamentals. We are supported by some global trends like urbanization, the more things happening at height, health and safety aspect, industrialization, more trends moving back into the different regions, et cetera. We do have a leading market position where we are acting in these niches, but that also means we have a pricing position, but we also have nice growth opportunities since we are focused in niches, part of bigger markets.

We do have a global footprint, large footprint, all around the world with installed machines, which also funds the base for a solid aftermarket and service business, which is a significant piece and a very important part of the group. And that all together leads to our well managed group, strong balance sheet and also a good cash conversion. And especially, it has been very good this year.

If we turn page, we set out in 2020 on a strategy we call New Heights, and this was done basically into 3 phases: first, establishing the base; securing margin improvements; and then in the profitable growth phase, which is where we are now in this 2022 to '25 time frame.

Turning page, we see our financial targets and dividend policy. We updated this, this summer, and we then should deliver a revenue overall total growth of 6% to 10%. We should reach an EBITA margin beyond 18% within 2 to 3 years. We said now last summer, which would have a leverage ratio below 2.5x and a dividend payout ratio of between 40% to 60% then.

Turning page and also to the sustainability targets. This is, of course, a very important piece of the group. We are focusing on health and safety and sustainable solutions. So we have a significant CO2 reduction targets '25 over '19. And we are now also now moving to science-based targets. It's taken a little bit of time, but we -- with the acquisition of Tractel, we needed to have a full year history before we can move forward with this.

We have scores to ensure we treat our employees well. We have safety targets, of course, health and safety targets for our people, and we also follow up with the assessments of our suppliers.

Turning page and coming into the quarter. We had an overall solid quarter and with exceptional cash flow, I would say, where we continue to do well in most parts: Industrial; Height Safety & Productivity Solutions, and Wind performs very well in the quarter. I would also say we have a solid quarter from Construction, even though, as you have noted, the order intake was somewhat lower in the quarter, but it was equally similar strong in quarter 3.

So this also underlines, as I've also been saying many times, the volatility quarter -- between quarters. And also maybe that this is a little bit stronger now also in a challenging market, but we don't see any fundamental change. And you need to look at the full year base, and we believe that we will continue like this also going forward.

Facade Access margins are not where we want them to be. And of course, not overall happy with that. What we see there in the quarter, dragging down the group, but still it's the same thing, and we are executing on our transformation program. We are 100% sure that this is the right thing that we are doing, and that we will fundamentally change this business going forward. Very strong cash flow in the quarter, which also meant that we are further deleveraging and now down to 2.26, well in line with our financial targets.

Moving forward, next page to full year. So overall, a very successful year for the group. We have made a significant integration during the year of Tractel, but also Tall Crane. In addition, we have also now shown that we have fixed some of the old acquisitions. Avanti, the Wind division, really performed at a new level this year. We have started, and we know we have the right medicine and activities in place to now fix Facade Access, and we will do that.

We have continued our customer-focused drive, investing into sales and marketing, products and solutions and driving operational efficiency, which has also led to that we are improving overall results, not only driven by acquisitions. We met the financial targets that we set 2020, late 2020, in 2020 -- or yes, 2021, and we met them now this last summer, which was a level the group has never done before. And now we have, as you know, new targets for the next years to come.

We raised revenue from SEK 4.5 billion up to SEK 7.1 million, an increase of 57%. We have an adjusted EBITDA of SEK 1.150 billion, an increase of 87% year-over-year. And aggregated, if you look as if Tractel would have been fully part of the full year, our adjusted EBITDA increased 12%. So really taking the group to new heights.

Strong cash flow financial position, which also puts us now in a position where we can start to further invest and drive acquisitions again. And then the Board of Directors then proposed a dividend of SEK 2.5, up from SEK 1.82, which is an increase of 37% year-over-year.

Turning page and a little bit more details of the quarter for the group. Order intake was SEK 1.696 billion, up 22%, 22% from acquisitions, and we report here a minus 2% organically. Solid growth in Industrial Facade Access, HSPS and Wind. Revenue was at SEK 1.838 billion, up 31%, where then 25% comes from acquisitions, and we delivered a 4% organic growth and then strong developments from Industrial, HSPS and Wind.

EBITA adjusted increased to SEK 288 million, up from SEK 217 million, giving us a margin of 15.7% versus 15.5% last year. And aggregated EBITDA increased by 4% in the quarter.

Turning page and going into divisions. We look at Facade Access first, and then order intake was very strong, I would say, in the quarter, SEK 512 million, up 41%, 24% coming from acquisitions, but also 18% organically. So this is an all-time high for this division.

And we see good growth, both in equipment side and also on the service side. And of course, as you understand, all new orders now are in line with our stricter tendering process and pricing philosophy and terms and conditions. So these will meet up with the future targets we have for margins.

Revenue was SEK 505 million, up 14%, where then 25% comes from acquisitions and a negative 12% organically in the quarter. And we continue to see some project delays then due to the interest rate, macro environment. And especially, we see this in North America.

EBITA was SEK 30 million, down from SEK 34 million and giving a margin of 5.9%, which is down on the 7.6% from last year. This is, of course, disappointing but, at the same time, it's also this process that we are working through. We have these old projects and the costs related to these, and the quality of the terms and conditions is not what we are putting as a frame now. And we are continuing then to execute on this transformation program.

Turning page and looking at the full year. Order intake was then SEK 1.815 billion, a negative of 16%, mainly affected by some market effects, but also our stricter tendering process and margin requirements, which has led to, as I've said before, that we have stepped away from some contracts if they don't meet up to what we have as a requirement now.

But also important to note that we have a very strong market position now with both Tractel offer and the legacy Alimak Group offer, which makes us the clear leader in this industry. And as you see, we had a very strong order intake in the quarter.

Revenue was SEK 1.992 billion, down 4%. Higher interest rate is really what has affected this slightly during the year, which, again, put some projects on hold or delays on projects. EBITA was SEK 125 million, down from the SEK 206 million, a drop of 39% and a margin of 6.3% versus 9.9%. And again, it's the contribution and the clean out that we do from these legacy projects.

Turning page, short business update. We are reinforcing the management team, so we also now have put in place a Vice President for Technology overseeing the full offer portfolio that we have in this business. As you also know, we announced during the quarter a plan to consolidate the Manntech assembly site in Germany into our facility in Spain. So we have ongoing now negotiations with the German works council and a process that, overall, hopefully will be closed by the end of the year, and that should give us a SEK 60 million annual saving impact then from 2025 and onwards.

And then we continue also the implementation of project management. It was basically 3 phases. It's to really get the organization structure in place. That is done. Then it's about pricing and terms and conditions. These are things aren't done. And then it's about really ensuring that we drive project management throughout. And this is very well in place in some parts, especially North America, but it's still some way to go in Europe and Asia to really have that in the same absolute, well-functioning structure, but it's on its way.

Nice project here. It's lane extensions, so a big infrastructure project where we are then providing a wide set of access solutions, complicated, and it's a multimillion dollar projects. So these are also typical projects that we are taking on with this business now.

So -- and we also see here that old -- these old legacy projects will also affect 2024. But by the end of that year, we should have very little moving into '25. So '24 will also be a year where we are working a lot on these things to clean out. But absolutely, I expect that we should start lifting margins in 2024. But the main effect is expected to come then in '25.

Moving into construction, next page. Order intake was SEK 319 million, down 35% in the quarter ,5% up from acquisitions and a negative organic growth of 42%. And this is purely a volatility between quarters after a similar and/or equally strong quarter 3. And we see no change in the market or in the business or anything. So you should not read more out of that and looking at quarter 3 and quarter 4 together.

Revenue was SEK 440 million, up 14%, 6% from acquisitions and 6% up organically. So yes, good year overall, but -- and quarter, but -- and also maybe especially rental activity was good in the quarter. EBITDA, SEK 76 million, up from SEK 73 million, margin of 17.2% versus the 18.8%.

And this is basically a negative mix effect in the quarter since we are delivering more machines from our China factory, And that -- these machines have a somewhat lower margin and affect the mix then in the quarter. But it also says something about we -- I think the resilience in the business that we are working truly globally now and drive the business in all parts of the world.

Turning page, I'm sure you all know, but on December 11, a very tragic accident happened in Stockholm, and my thought are -- sorry, I have maybe turned the page wrongly. Yes, I have. Sorry, it's a full year figure first, so Construction full year aggregated. If you would see that order intake was SEK 1.753 billion, up 4%, where we see a strong development overall, I would say, in a challenging market environment. And this is thanks to our business model and also that we continue to see that we can -- yes, we expect that we can continue on the same trend also in 2024, even though the market is also expected to remain challenging.

Revenue was SEK 1.748 billion, up 8%. High revenue in basically all parts, but especially also North America and strong invoicing for rental activities throughout the year. EBITA delivered SEK 315 million, up from SEK 281 million, a growth of 12%. And the margin 18% versus 17.3%. So you see, overall, aggregated, a very strong year for Construction.

So then I come back to my slide on the tragic accident. And yes, my thoughts are, first and foremost, of course, with those affected and their families. And this then involved one of our products, Scando 650 that we sold in 2017. And this kind of 650, it's one of our most standard products. It's been in the market for 20 years. And you all know, it's -- this technology has been here for a long, long time. And yes, it's one of our most renowned machines.

We were allowed or asked by the police to also attend the site to help them in their investigation on the second day after the accident. And then we clearly observed a major issue, and that will -- 2 of the bolts of the mast sections have not been bolted together. And this is, of course, something that obviously can cause such an accident.

The installation was not carried out by us. But it is, of course, something that we still will now, both from our perspective, but also all relevant parties, we do what we can to understand this, how this can happen and what we can do to prevent something like this happen again. Investigations are, however, still ongoing. And when those reports will come, we don't know. But we are taking part wherever we are asked -- and -- yes, and then we need to wait for those final reports also to come. Very tragic and sad thing.

Turning page, moving into Construction -- sorry, that I had already done. Now it's a business update. The infrastructure project in Sydney, so this is also a nice example that we are taking projects in the Construction business for infrastructure, and that's an important part and something we also work very structurally, of course.

And then we are also making another step on the digitalization journey that we do have in the group, and we have developed this AliCalc, which is an online calculation tool where then those that install the machines can go online and get this calculation for how to install it, what to do with tie-ins, et cetera. So something that previously was done on paper, but now this is fully digitalized, very nice tool.

Turning page and moving into Height Safety & Productivity Solutions. Order intake was SEK 357 million, good demand in Europe, especially then on the elevator rental and installation segments. We also continue to see good, strong demand. The revenue was SEK 349 million in the quarter. And EBITDA, SEK 64 million with a margin of 18.3%.

Turning page, looking at the full year, aggregated. Order intake was SEK 1.407 billion, up 9%. And all parts developing very well, especially the elevator business, so a stable, solid full year for this business, actually all-time high. And that's also what we also see on revenue, which was then SEK 1.410 billion, up 11% and an all-time high year.

EBITA, SEK 269 million, up 6% with a margin of 19.1%, down from the 20%, so -- and this is fundamentally for the business, an all-time high result, but the margin is slightly down. But this is driven by changed allocation keys of central costs, and they -- that they are getting from the group. So yes, it's an internal allocation thing. If you look at results, you would -- you should look at full year results. Those are something -- the level that we expect for this business going forward.

Turning page and a short business update in the quarter. We finalized and we inaugurated the new building in Saint-Hilaire. It was a fire where one of the buildings was burnt down in 2021. And now we are having a very nice, new modern facility for inventory management.

We also have launched some new products in the quarter. This is, of course, a very important piece of that business and something we put a lot of efforts in and accelerate. We want to do even more. We have a new version of this Blocfor, which is a safety device for -- that you are connected to when you work at Height. And also the Tralift, which is a chain hoist to use in corrosive environments.

So we will continue in this business to invest in sales and marketing, product development, service development to assure that we can drive long-term profitable growth here.

Turning page, Industrial. Order intake was SEK 384 million, up 24%, 25% organic. Another great quarter, significant increase in new equipment orders in multiple segments and regions. Also very solid on the aftermarket side. Revenue was SEK 404 million, up 21%. Also same organic EBITA increased to SEK 95 million versus the SEK 69 million last year and a margin of 23.4% versus the 20.6%. So again, consequence of the good year that we have ongoing in that division.

Looking full year. Order intake was SEK 1.457 billion, up 12%. And again, we have had a good order intake basically across the board, maybe especially in the Northern Europe. Marine, offshore has been very good for us. And this is a solution we have done for offshore supply, boat servicing wind turbines.

Yes, ship to shore cranes has been an important -- and it's an important segment for us, and of course, also the aftermarket. Revenue, SEK 1.386 billion, up 22% in the year. EBITA at SEK 322 million, up to -- from the SEK 217 million, 49% increase. Margin of 23.2%, up from the 19%. So very, very, very strong result for this business.

Industrial, next page, some examples. Yes, we have amongst in U.S., bridges, new permanent installed lifts for some bridges that are being modernized. We are selling multiple lifts brownfield projects, the potash plant in Jordan. We work and have had several nice orders for ship-to-shore cranes and also a nice service agreement out in the North Sea. So very diverse, and we work across the board, good business and lots of opportunities going forward.

Wind order intake was SEK 141 million, up 20%, 17% organic. Most markets developed well in the quarter, but maybe especially China and Denmark and also positive impact from new product releases. Revenue was SEK 166 million, up 29% and 26% organic. EBITA was then SEK 25 million, up from the SEK 12 million and a margin of 14.9% versus 9.4%. So again, a very strong good quarter for Wind.

Looking full year, next page. Order intake was SEK 689 million, up 34%, 26% organic. And yes, it's the effect from this -- really, the turnaround we did with this business, really customer focused, product development, taking out cost, operational efficiency, et cetera, being appreciated and getting increased market share with our key customers.

Revenue was SEK 674 million, up 24%, 17% organic and, again, basically, it's the same thing. EBITA, SEK 120 million, up from SEK 69 million, a margin of 17.9%, great margin, up from the 12.8%. So an effect from all the things that we do and also a nice drop-through when we get volume here.

Turning page to a short business update. The -- in Europe, it's been signed with this by the European Commission, the Wind Power Action Plan. And this, we expect, of course, to give us an increased growth in the Wind industry. We don't expect a lot to happen in '24. But from '25 and onwards, we should start to see more growth coming in from the market.

We have increased market share basically everywhere. But also in China, they are appreciating us, and we are developing new solutions. So yes, again, maybe, don't expect the same type of growth in '24 as '23 more stabilized, but a solid year. And then stronger growth, again, we expect from the market in '25 and onwards.

And that takes us to the financial summary and Sylvain.

[Sylvain Grange, executive]

Thank you, Ole, and good morning.

So moving to financial summary. Order intake and revenue grew strongly in the quarter, and most of the growth is inorganic. It is interesting to note that both order intake and revenue show growth organic rates in Q4, slightly improved versus what we saw in Q3.

Book-to-bill ratio is down in the quarter, but has been close to 100% on a year-to-date basis. So we start 2024 with a high backlog level, and that is giving comfort for the revenue of the coming quarters.

Quarterly adjusted EBITDA reached 15.7%, as already mentioned by Ole, slightly above reported Q4 2022 and in line with aggregated performance of the same quarter.

Looking at the year, we have an EBITA margin of 16.2% versus 13.6% reported in 2022 and 15.7% on an aggregated basis. So as we have already said, we have increased adjusted EBITA in absolute value and as a percentage of revenue in 2023 in relatively adverse macroeconomic conditions, and I will come back to operating cash flow later.

Next, please, moving to the earnings summary. Items affecting comparability in the quarter mainly includes the impact of the planned restructuring in Facade Access, partially compensated by the insurance payment we got in relation to the main site of HSPS.

Finance net is mostly made of interest. The quarterly interest charge results from the higher interest rates, partially compensated by the reduced revolving credit facility drawing.

Tax rate is temporarily low in the quarter, and we trust the annual tax rate close to 25% is a better reflection of what can be expected in the group moving forward.

Now coming to the result for the period. That was in the quarter SEK 121 million versus SEK 130 million in Q4 2022. Excluding items affecting comparability, result for the period was SEK 151 million, and that represent an increase of 36%.

EPS was SEK 1.13 versus SEK 1.81 million. And adjusted for items affecting comparability and acquisition-related amortization, adjusted EPS was SEK 1.72 versus SEK 1.87 in Q4 2022. And obviously, EPS and adjusted EPS were affected by the higher number of shares, which results from the rights issue, which was conducted in the first semester of 2023.

I am very pleased again with the quarterly cash flow generation. And in particular, we managed to reduce working capital by SEK 278 million. Consistent management focus and efforts have led to a successful quarter and a successful year from a cash point of view. Those levels of cash flow from operations are unprecedented in Alimak history, but they do reflect as well the element of working capital reversal from 2022. So we cannot expect this high level every quarter in the future, but we can expect indeed the focus and the active and proactive working capital and CapEx control to continue.

The high cash flows from operations imply another significant quarterly reduction in net debt, down now to SEK 3.1 billion. And combined with the growing EBITDA, this has led to a strong deleveraging. We are not at a leverage of -- we are now at a leverage of 2.26 versus our financial target of being below 2.5.

So as I said -- as we said earlier, we will continue to pay special attention to the operating cash flows in the future in order to fund our capital allocation priorities, so obviously, the dividend according to our policy; the investments we want to carry on making to fund the organic profitable growth and the acquisitions. And then M&A is definitely on our list for 2024. We'll be looking at acquisition opportunities this year.

Now moving to the balance sheet. This balance sheet has been significantly strengthened in the course of 2023 and partially via the successful SEK 2.5 billion rights issue and, of course, again, the high cash flows from operations. The rights issue allowed the repayment of the SEK 2.1 billion bridge loan, which, as you can see on the right-hand side, was classified in other current liabilities end of 2022.

And maybe one word on our financing structure. By the end of December, the long-term borrowing consist of the EUR 300 million term loan, which matures in 2026 with a 1-year extension option. And the SEK 2 billion revolving credit facility has been recently and successfully renewed for a 5-year tenor with 2 1-year extension options.

And I'm passing the baton again to Ole.

[Ole Jodahl, executive]

Thank you, Sylvain.

So coming to the end here, summary. Solid end to a great year. And yes, I would say it's been an important year. It's been successful and also truly transformational. And you see we have lifted turnover significantly. We have lifted the margins and results significantly, both through acquisitions.

And also I think that's a good point. We have proven that was a question before because we had 2 acquisitions that were not performing well. So now we are proving that we can manage acquisitions in a good way. And that I'm -- yes, that we have done very well this year. We have also been able to fix Wind, which was one of the previous acquisitions. And we are on our way to fix Facade Access.

In addition, we have also operationally improved the group and lifting margins, 12%, if you look aggregated. And we are continuing to invest in sales and marketing, in product development services, et cetera, to ensure that we will feed growth going forward.

And also, as Sylvain was saying, we now bring also back acquisitions onto the table. And this is coming from a very strong cash flow and deleveraging that we have achieved, which opens up opportunities again for us.

And I think also, altogether, we have seen it's a very challenging market out there. But as group, we have managed also that very well. We are well diversified now in all aspects, which means that the group is performing very well in a challenging market. And I also hope that we are not referred to so much more as a big [Foreign Language].

We will continue to execute on the New Heights program also going forward. We have the same strategy, so we will continue to work on the same things and deliver on financial and sustainability targets that we have for the group.

So with that, I would like to say thank you to all the employees that have done a great job this year. Solid quarter, great year, but also to our stakeholders. So thank you, and we move to Q&A then.

[Operator]

[Operator Instructions] The next question comes from Hanna Lindbo from DNB Markets.

[Hanna Lindbo, analyst]

My first question is on Construction. And so I know that the order intake can be volatile between quarters, but do you sense that the market has become weaker compared to the last quarter?

[Ole Jodahl, executive]

Clear answer is no. We don't sense anything of that. It's the lumpiness. And as I was also saying, I think maybe the lumpiness is stronger when you have also this even challenging market. But no, we see no change from before. And I think you should look at absolutely the full year, and this is also what we expect that we will continue basically on the same path now in 2024.

[Hanna Lindbo, analyst]

And Facade Access, because you had a really strong order intake there, do you see some sort of volatility in that one? Or how does that differ from Construction?

[Ole Jodahl, executive]

Yes. But they are exposed to a lot of the same markets, Facade Access and Construction. So that's still a challenging market. So lumpiness, absolutely also in that business. So you can't read everything out of 1 month or 1 quarter. You need to see over time and the trend. Still, it's nothing one-off, big exceptional in the quarter, which really turns around Facade Access.

So it is that we see that the market is still absolutely there. And we have a strong offer, we work very well, and we are taking orders. So yes, and that we expect also, of course, going forward. And now, as I said also, we get orders with the right terms and conditions and the price level.

[Hanna Lindbo, analyst]

Yes. That's great. And then I think you mentioned a negative mix effect in the Construction unit. Do you expect this to continue in Q1 or maybe throughout...

[Ole Jodahl, executive]

It's a little bit hard to say, but there is some lower profitability on our -- we have a factory in China, which is producing also then machines for Industrial and Construction. And this is then for Construction -- sales for this Construction sales. It's hardly anything in China, but it's neighboring market, Asia, Middle East, et cetera, where these machines go out.

And I think it's a proof that now a tough market, but still, we are generating sales and opportunities everywhere. So that's good for us. But these machines have a slightly lower margin. So that's the thing. And exactly how the mix will look forward, I can't say. But yes, it's in this vicinity that you should expect from us going forward.

[Hanna Lindbo, analyst]

Yes. All right. And then this -- you talked about some costs related to old projects in Facade Access. Which type of cost is this? And how is your visibility on this going forward?

[Ole Jodahl, executive]

Now these are projects that are taken with too low price and with not the right terms and conditions. For example, we have examples where we have taken some contracts where the machine is installed sometime -- not all the way in the end of the building, but it's installed a little bit before the facade and everything is ready. So then it's used during the construction phase for facade finishing.

And then that's not really what this machine is intended for. This is intended for facade maintenance and the window cleaning after the building is ready. So -- and then we see in contract terms, we -- it's -- and then we see with some extra cost related to things like this as one example. So there are -- these old projects that were not taken with the right terms and conditions and with the right pricing that still we work through.

And most of that will be through by the end of 2024. But it will remain, as we see it now, a small piece going into '25, but that should not be significant. So from a margin expectation, I would expect to start to see that we are improving this now in '24, but the bigger effect should come '25.

[Hanna Lindbo, analyst]

And just the last question. You talked about project delays in Facade Access. Has this gotten worse since the last quarter? And sort of when do you expect this to turn?

[Ole Jodahl, executive]

No. It hasn't become worse the way we get reports, but we still continue to see it, and this is basically projects that are supposed to be delivered. But then since it's more uncertainty about cost overall for the landlord or the construction companies, they tend to want to delay things. So that's basically what we are seeing. So then it takes more time until we can invoice or finalize.

[Hanna Lindbo, analyst]

But there's no cancellation or your -- no cancellations. Are you afraid of that, no?

[Ole Jodahl, executive]

No. We have not seen cancellations. That, we have not seen, something affecting us there. So the order book remains absolutely. So it's more delays, and that's what we expect also to remain until the interest rate starts to ease off and gives more confidence that, I think, the financing and there is one belief that now we have reached the top, which could maybe not be true for our way. That's actually there, but we will see. And then we would expect that this starts to improve again.

[Operator]

The next question comes from Andreas Koski from BNP Paribas.

[Andreas Koski, analyst]

A few questions from me as well. So firstly, a follow-up on Construction because you talk about looking at Q3 and Q4 as sort of an average for what we should expect in 2024. So I get to an average order number of around SEK 400 million, which on an annualized basis is SEK 1.6 billion. Is that sort of what you expect in 2024? How should we read your comments around this?

[Ole Jodahl, executive]

Yes. You have calculated very specifically there, Andreas. But I say more, you should look at quarter 3 when you look at quarter 4, so you get an understanding. The -- if you look full year, this business has held up quite well. And I think that's also what we expect in 2024. It's not a year where we expect a lot of growth. But for Construction, with this challenging market conditions, but -- yes, but to be more in line with maybe what we have seen in '23.

[Andreas Koski, analyst]

Okay. Understood. And for the group, do you think the order book that you see is going to give support for you to reach SEK 7 billion or more in sales also in 2024?

[Ole Jodahl, executive]

I think the order book is solid as we see it now. We don't see any risk or anything on there. Still, I expect that the organization will continue to work in all aspects, and that we also will take a lot of orders in '24. So I don't expect that '24 should be very fundamentally different than '23 from a market condition perspective.

And then we have had something, which has been very beneficial to -- we have seen very strong effects on Wind this year. I don't expect the same type of positive effect next year or this year, but I expect the Wind to hold up very well. I expect the industry to continue to develop very well.

HSPS has had their all-time high this year. You can't expect maybe that they will have similar next year, but that -- it's no reason why this should not continue to do well for us. It's a resilient good business.

Construction, we have talked about. I also expect that with our model, et cetera, that when we have done what we have done in '23 that we should be able to do the same thing in '24 or we are even better in '24 with everything.

And Facade Access, it's lumpy, but you see quarter 4 now that even though in a challenging market, we take a lot of opportunities and orders. We also continue to work in new areas, open new doors we haven't been before. So if some are a little bit more difficult, maybe others in other places, we open new doors. So I expect the group to develop in '24.

[Andreas Koski, analyst]

Understood. And the balance sheet is now in a better shape again after your strong cash flow generation. And you are now looking for new M&A opportunities. Can we even expect larger deals if you are able to find any in 2024? Or is it more about bolt-ons that you're looking at?

[Ole Jodahl, executive]

I don't think that we should -- not larger deals in the sense of Tractel and so forth, we do not have on the agenda. But absolutely, M&A is on the agenda. And we now have 2 persons working full time on this going forward. So I see this as an important part of the strategy.

It's, first and foremost, nice bolt-ons on the product side, on service side, on technology, et cetera. But of course, some of these are also a little bit bigger. You have all types of sizes. So -- and then it's more a question of what will come to the end with, I think, in this sense. So....

[Andreas Koski, analyst]

And then lastly, why have you stopped providing EBITA bridges for the different businesses? I mean, it's been helpful for us in the past to be able to follow the underlying development of the different businesses.

[Ole Jodahl, executive]

I don't -- I'm not sure we have taken something out that, yes, where or -- I mean, maybe you can address that to Sylvain because that's -- it's not the intention to reduce anything. So maybe take that with Sylvain, yes. And then we will look into if there is something we have missed there. But shouldn't be something we want to -- we're actually working on the opposite, what can we improve and how more visibility can we start to provide in the report also from '24 and onwards.

[Operator]

[Operator Instructions]

[Ole Jodahl, executive]

Yes. I think -- so if I don't hear any more questions, I should may go from the one that I have online here, so I start off with some of those. And so the first question, can you expand on what segments were main drivers behind the strong industrial order intake in Q4?

Basically, it's coming a little bit from everywhere, but we remain to have strong order intake in oil and gas and marine. We have ship-to-shore cranes. And yes -- and you saw some of the examples actually that I have here. So we pick up orders everywhere, both in industries and geographies. So it's a little bit also hard to really pinpoint, which will give -- I think it's more to talk about that we are better everywhere.

And another question in Industrial, large growth orders for your equipment and in new areas. Yes. No, okay. So this is the same question, which I already answered.

Then next, strong balance sheet and slowdown in the economy. Is there more opportunities for acquisitions out there now at attractive prices? Yes. So as I said, this acquisition will be an important part. I think this market improves again, overall, that I don't see an issue to find targets. And we work from our end. And also, they come to us. And we will not acquire if they are not that meaningful margins. But I don't think -- foresee now that, that's a big issue as I see it today when we are working on this.

Then what gross margin do you think you need to generate? 18% EBITA margin. So yes, gross margin is one of maybe -- or the most important parameter, I think, on driving Industrial business or maybe any type of business. So of course, that's a very important part for us. So we do expect gross margin to improve going forward, but it's also about SG&A. But I don't -- I can't give you an exact figure. We will not provide that.

But yes, I don't know, Sylvain, if you want to...

[Sylvain Grange, executive]

No. I think it's -- I just wanted to add one comment, which relates as well to the previous questions, which you didn't answer, Ole. We work on our SG&A. We work on the gross margin. So we have projects on both fronts, and that is very important.

And some of those projects are related to the Tractel integration. You may remember, we announced some cost synergies between Tractel and Alimak, and we still stand behind the numbers we announced a bit more than 1 year ago. So it's not going to be one major factor, but it's an addition of projects. And of course, as reminded by one of the person who asked a question, the improvement in Facade Access margin will contribute to it as well.

[Ole Jodahl, executive]

Yes. Maybe also take the next question about other operating expenses that were...

[Sylvain Grange, executive]

Yes, I think -- I mean, if you take -- I mean, SG&A for the group, and we look more as an -- on an aggregated basis because, as you may remember, Tractel was acquired in November 2022. So if you look at the aggregated performance of Alimak plus Tractel in the quarter versus Q4 2022, SG&A as a percentage of revenue came down. So we don't think there is any -- I mean, SG&A is not drifting. We are working on this. It has actually come down on a regulated basis.

[Ole Jodahl, executive]

Then we have a question, what is the key drivers to make your service offering even better?

And it's multiple things. Like always, we work on our solutions. So basically, our offering, what type of services do we offer, we work on the digitalization piece, which is a very important part of increasing our service presence and giving both service to our customers, but also for us to generate opportunities.

The health and safety aspect is, of course, an important part. In some countries, there is requirements that installers need to be certified and trained by us. In many markets, it's not. So that's an element that we are pushing and working with stakeholders to ensure that these type of procedures are there because it's a very important part in how you operate and run these machines. And it's also about getting more people on board, expand on our footprint for our services.

So it's multiple things that we are working on, and this is being worked on in each division themselves. They understand the market they operate in the best and develop these things as best for each division.

Next, do you see even more potential to improve working capital in 2024? And do you believe you can operate Alimak with a negative working capital in the future? Maybe...

[Sylvain Grange, executive]

To answer the second question, I think it's unrealistic to foresee a negative working capital in the future for Alimak given the nature of our operations. We can have a slim working capital in Facade Access because it's a project business. But in other Industrial businesses, that is not realistic to expect that.

And we improved further, yes, we are working on it. As I said, 2023 was a bit exceptional, in particular, because we had some reversal from 2022. But we will see some potential, and we'll be working on that this year for sure.

[Ole Jodahl, executive]

And if we can achieve it, we will achieve it. But because we would, of course, do what we can to reduce this every day, but it's not realistic to believe it's negative in foreseeable future.

And then next question, what key qualitative measures do management team look at to determine if -- I can't read now -- yes, if our company is on the right path?

Yes, of course, we do everything. It's all these key metrics. We have an extensive follow-up of each division on a monthly basis where we look at the full set of KPIs, product development, service, geographies, yes. So it's a long list of measures. And then it's, of course, also the monthly follow-up of activities and strategies and everything happening there.

It's a lot of focus on the culture and on people to ensure that we have a setup, which is supporting the organizational structure that we are having, a decentralized organization where people are expected to take accountability and responsibility and drive things forward for them, for what they are responsible for.

So we work on all these aspects all the time. And I think, clearly, this is why we have listed the group. That's why since we announced this New Heights strategy, we have delivered. And we are moving the group forward every day and every year. So absolutely important.

Then I think that was it, yes. That was the questions I have here. So with that, I would like to thank you for good questions and for attending. And again, I thank the Alimak team for delivering a solid quarter and a great year. So thank you. Until next time.