Green Landscaping Group AB (publ)

STO:GREEN

Earnings Call Transcript 2023-Q1

[Johan Nordstrom, executive]

Good morning to you all, and a warm welcome to this conference where we will present the Q1 numbers. And later on, we will open up for questions. So hopefully, we can have a good discussion Presenting today, as mentioned, and as always, it's myself, Johan Nordstrom; and our CFO, Carl-Fredrik Meijer.

[Carl-Fredrik Meijer, executive]

Good morning.

[Johan Nordstrom, executive]

So let's begin here. So moving into the presentation. This is just to give you a brief overview of the Green Landscaping Group. And I assume that most of you are familiar with the business. I won't go into too much details here. But as known, we are a leading company in the landscaping service industry, and we emphasize the service part of the business because that's a long contract, no cyclicality and [so far].

We are also the leading consolidator in Europe. There are a few companies out there who are consolidating the market. And we have grown into becoming, I would say, the leading consolidator as we are having the highest pace of acquisitions among the factors in the industry. The following 2 points is actually about the decentralization and it's a crucial part of our strategy and that goes back to being a home for entrepreneurs. We have found out and we see that being local, close to the customers, having the loyalty of their employees, having a long customer relationship.

And that is really about having a focus on the local presence. That results in above-industry profitability and also you can grow the companies on the local level and still maintaining the profit. So it's a big market out there. And if you want to grow, you can lower the prices, but then the profit margin suffers. Our strategy enables us to have above industry average profit margins. And at the same time, we are growing organically at a healthy pace. In terms of numbers for the last 12 months, we have a revenue of SEK 5.2 billion.

And we do that with an EBITA margin of 8.3%, which is kind of a good growth rate and a very healthy profit margin given our industry. That's short of the company. So next slide, please, please, please. Moving into the Q1 of 2023. And to begin with, I'm very happy with the performance. It's a very stable and successful quarter to us. So I'm happy to report the numbers that we have a high -- continued high growth, where sales increased by 43%, and we met SEK 1.2 billion in revenue, of which we had an organic growth of 12%.

It's a fairly high growth. It comes from new customers or new contracts, I should say, but also the indexation and the inflation. So there is a proportion of growth, but it's also a proportion of adjusting for inflation in that number. And then, of course, the remaining part comes from new companies who are coming into the group that amounted to 33% of the growth. EBITA increased by 41%, and there is also quite a sharp increase in profitability here, and that amounted to SEK 86 million compared to SEK 61 million previous the quarter a year ago.

And we also achieved an EBITA margin of 6.9%. And we should keep in mind that the Q1, that's seasonally the weakest quarter in this company. It's a winter season, and that means that most of the landscaping and some of the service companies actually have less to do than during the high season when it's actually growing and we can build stuff. We did have some negative mix effect from acquired companies. That's in particular from Norway. I will come back to that one later on when we go into that slide. And we also see that we had a very good contribution from existing businesses.

And I would like to emphasize the weaker units we have, in particular, in Sweden, which are continuously improving their profit margins and had a very strong first quarter. Given the historical performance of the first quarter, I think that's a tremendous achievement of those companies. The strong cash flow is actually SEK 221 million, and it's really impressive to see that when the profit margins are coming up, the amount of cash that we are generating from the business. So having an 8% to 9% EBITA, which we are right now, that really gives us a very strong cash flow given the service industry and the low need for capital in the business.

Also in the period, we have secured an additional financing. I believe Carl-Fredrik going to come back to that one. And then we have a slight change in the segment reporting structure where we have consolidated the Sweden regions into one region. So we are reporting now out of Norway, Sweden, and then we have it those are the 3 segments we're reporting at this point in time. Next slide, please. Looking upon the revenue here. And as we saw, we are growing by, I would say, quite hefty pace of 43%, whereof the organic proportion was 12%. And as mentioned, that's part inflation, part new contracts.

And we are, as you can see from the profitability perspective, adjusting the prices according to the inflation so we can keep the profit margins we have. For the last 12 months, that's on the right-hand side there, we can see that we are growing by 53% for the last 12 months, and that's, again, a fairly high growth rate and a slightly lower organic with 11%, that still it's a quite heavy growth rate that we have in the company. Next slide, please. Now the order backlog being in the service industry and having a high percentage, I say, very high percentage or proportion of our business into the public sectors and long-term contracts means that we have a very good visibility what will happen into the future.

So having a strong order book enables us to basically plan ahead and see what's going on in the market. And right now, we have -- the order book is SEK 8.1 billion, and that one is growing by 41%. So it pretty much grows in line with the growth rate we have. We probably -- we have a question whether or not we have inflation adjusted order book. I think Carl-Fredrik had a question or the answer to that one because what we have discussed whether or not that has taken place. And to the best of our knowledge, that is not the case. So it's basically the old pre inflation numbers that we have in the order book. But as those contracts are being delivered to the customers, then the inflation will take into effect.

That's for the order book. So moving on to next slide, again. As can be seen, we have a steady increase of EBITA in absolute numbers and also from a margin perspective. So EBITA is growing in the quarter by a very high 41%, where the existing business contributed with 11% and the remaining part comes from the acquired businesses. And on the right-hand side, we also, again, can see that there's a steady improvement over time. And as mentioned, we are generating, I would say, a significant amount of cash given that we right now have an EBITA margin of 8.3%. So being able to grow generating the cash is a healthy sign for our business. Moving on to next slide, please.

And here, we have the segment of Sweden, which is the combination of the previous regions we had. And that means that we reached SEK 703 million in revenue, and that's a growth rate of 18%, where of 9% of the growth came from organic growth. And as been noted, we are not growing that aggressively, I would say, in Sweden on the acquisition side. So the contribution is 9% -- and that's the reason why we do not see that high growth, even though a 18% growth rate is still, I would say, quite high growth number. The EBITA there we achieved SEK 57 million, and that's a growth rate of 33%, significantly over passing their growth rate. And that means, as I mentioned, that the companies in Sweden with, I would say, lower margins are steadily increasing the profit margins.

This is something that we have been talking about for quite a number of years, and I'm happy to see that we are capable of achieving an EBITA margin of 8.1% in the weakest quarter of the year because the Q1 is a seasonal weak quarter for us. So that's a real tremendous achievement of those people who are in charge of those companies. Moving on to the next slide. Then we have Norway. And as can be seen, they achieved the we achieved a revenue of SEK 500 million, and that equates to growth rates, which is very high of 85%. We are still growing quite significantly in Norway. They also had a very high organic growth rate with 20%. Of course, there is an inflation going on there where they are adjusting the prices, but it's also a very high proportion of organic growth in that region.

And then we had some negative effects on the exchange rate. But overall, high organic growth and a very high acquired growth that leads to an 85% growth in the total of that market. Looking upon the EBITA margin, they achieved a 7.4% EBITA margin, and that is down from, I would say, a very high 13.5%. And the reasons why this fund is going down is basically a mix effect, and that means that we have acquired companies with profit margins in line with the goal we're having, that is 8% to 9% profit margins on acquired companies. And if you acquire quite a number of those companies and you mix them up with higher-margin companies, then the overall margin will come down.

The second reason is really about what type of companies we have acquired and what type of companies we had previously in Norway. And I won't say the mainstay, but several of the companies in Norway previously, they had the high season during the fourth and the first quarter. That means they were road and with service companies. So they made the absolute mainstay of their money during the winter season. The companies that were added to the group in Norway during last year were landscaping businesses. And that means that they have their high season starting in the second quarter through, I would say, half the fourth quarter, and they have a low season in Q1. So those are the 2 mix effects.

So there's no underlying difficulties or problem in the Norwegian market. It's just a mix effect of adding, I would say, very successful and very great and profitable companies to the mix we already have. And the mix effect means that the profit margins in Norway come down in the Q1, but it's not due to any other reason at this point of time. So it's still, to say, a very healthy market in Norway. We are growing at a very high pace, and I am pleased to see the performance of the companies we have in Norway, even though it might be served, it looks like we are coming down.

That's not really the case. We as growing, and we have a mix effect to handle. Next slide, please. Moving on to Finland and Baltics. Again, there, we're growing of 354%. So that means we are coming from -- we started, I believe, it was 2 years ago in Finland. So this one is really still in a growth phase. So we're growing quite quickly in the market. We have been adding new companies to the group in Finland. And we also can see that the organic -- there they grew by 10%. They are adjusting the prices for the inflation basically. And then we're adding new companies to the group. -- From an EBITA, again, it's a Q1 season. And the absolute majority of the companies in Finland are landscaping companies and that means they have a low season in the first quarter and then the business will pick up in the second quarter.

Thereof, we had a negative EBITA margin of 9.8%, and that is an improvement from the 43% they had the previous year. Worth to mention is the Lithuanian company, and that's the Stebule [UAB] that has been off to a very good start, and they do have an even pattern of revenue and profitability. So they are, I would say, a significant contributor to the improvement of profitability in the first quarter. So they have their revenue and profit much more evenly distributed over the year compared to the other companies we have in Finland.

So we basically see the reverse effect of what we see in Norway when we are adding Stebule UAB to the group. But otherwise, it's kind of a new market for us. We're still growing quite significantly. But the companies per se, are doing good in Finland, and we are looking forward to what they will be able to accomplish during the remainder of the year. Next slide, please. And by that, I believe I hand it over to our CFO, Carl-Fredrik Meijer.

[Carl-Fredrik Meijer, executive]

Thank you, Johan. Going into the financials. So as you can see, we had a very strong development across the line. And from my perspective, I stated the fact or realize that our business model works really well. we had increased revenue of 43%, and that flows through all down to earnings per share. The EBITA increased by 41%, record strong cash flow, as Johan mentioned, we had an increased return on equity up to 18% from 16% at year-end. We have a solid order backlog, which is also growing in line with revenue of about 40%. Earnings per share increased significantly this quarter, more than doubled. And here is worth to mention that we had a positive impact from foreign exchange changes during this quarter.

And that had a sort of strong impact on the earnings per share, and that was because of the Norwegian crown decrease versus the Swedish crown. And our financial leverage is in line with targets. We have a target of being below the 2.5. Given the stability and the loan contracts and the strong cash flow generation, we think that between 2 and 3 is quite healthy. As you know, we talked about have talked about. Moving on. Talking about the cash flow of SEK 221 million. I'm going into a bridge of that to describe that in detail soon. But the 2 main positive things were the higher EBITA, of course, but also that we reduced working capital, which is expected during Q1.

And the cash amounted to SEK 581 million at year-end. So the cash flow bridge. We see that we had SEK 175 million change -- positive change in net working capital during the quarter. And this is a seasonal pattern where we have very high activity in Q4, and we closed many projects at year-end, and we build the customer. So we have high accounts receivables during year-end, which then gets paid during Q1. And then we naturally build up the working capital again during Q2 and it goes almost all the way to year-end when it comes down again. And I think it's worth to mention there that historically, and we have had 0 to nearly 0 defaults on invoices.

So when we send an invoice, it gets paid. And that still holds true. It's something we monitor very closely, and we are cautious about our customers being sort of financially healthy. But yes, that's a good thing about being in this business. Then we spent SEK 37 million on CapEx and other investing activities. We took up new loans of SEK 14 million. We repaid debt of SEK 73 million, which ends with the net cash flow for the period of SEK 124 million.

Financial leverage. So you see we've come down to -- we deleveraged to 2.2x EBITDA rolling [12 pro forma]. And this is due to 2 reasons. One is the strong cash flow and it's the decline in working capital, but it's also the fact that we have not made any acquisitions during Q1. So we were quite -- we had quite a number of acquisitions in Q3 and Q4 and 0 in Q1. And I'm very happy to see the rate that the leverage is declining at from record -- when we were high 2.7 during end of September. Now we are on 2.2, loan maturity profile. We have signed an amendment and restatement agreement [for] our existing facility, which means that we bring in a third party sent export credit together with DNB and SEB. And we've added the room with SEK 500 million with a possible accordion to that, to expand it further.

And we now have total maturities of SEK 1.8 billion, which matures end of late 2025, and there's one year extension in the contract. So that's very good. We have a lot of room to continue our acquisition journey. Financial targets. So we have a growth target of growing 10% per year. We are at a rate of 43% now. We have a target of reaching an EBITA margin of 8%. And in the quarter, we were at 6.9%. However, LTM number is 8.3%. So we're still in line or actually above the target. We have a leverage of 2.2 versus not being higher than 2.5, and we have not made any dividend. We have reinvested all the money into growth. Thank you, and over to you Johan.

[Johan Nordstrom, executive]

Yes. And that is just to sum it up then that we are quite happy with the performance in the first quarter, and we are off to a very good start, where sales is increasing by plus 40% -- we see that the EBITA and the profitability goes with the growth rate here. And even though it's a seasonally weak quarter, it was a very strong performance. Then looking at what will happen during the year of 2023, there are some uncertainties when we talk to the business leaders in our organization, we see that for the first, second and third quarter of this year, the order books and the activities seems to be quite high.

And right now, we are keeping an eye on what would happen in the fourth quarter, in particular, as we talk about the housing and new construction. Our exposure into that area is limited but we have to keep a close eye on what was going on. So as we are filling up our production capacity, right now, we are -- well, typically, we are at like a 6 month ahead when we sign contracts. And that means that we are right now filling up the capacity for the fourth quarter.

And there, we can see that there are somewhat weak market. That is kind of normal. It has been going on for, I would say, the last 6 months, we have had this trend that we know what we're going to do for the coming 3 to 6 months, but the period above and beyond the 6 months, there are some uncertainties regarding what will happen in the market place. So we will just keep on monitoring. And if we have to make some adjustments or actions that we will do so. But at this point of time, we are kind of just monitoring and see what's going on there.

So given the start we have had of the year, I'm quite happy with the performance of the company, and I'm really looking forward to the coming quarters of the year of 2023. So we're off to a good start, and it seems like we're going to have a very good year. I think that's about it. And then we open up for questions.

[Operator]

[Operator Instructions] the next question comes from Karl Bokvist from ABG Sundal Collier. Please go ahead.

[Karl Bokvist, analyst]

My first question is just on the latter comments you made there towards the [end on ]about some uncertainty into Q4. Is there any particular customer group here, and that's where you see a slight weakness considering the kind of stability in public spending that you referenced historically?

[Johan Nordstrom, executive]

Our exposure to new construction on the average for the housing per se is limited. So they are only -- if you look upon the mainstay of our business, road and winter services and the green side of the business, there, we hardly see any effect. We see some of the buyers are talking about that they have funding or they have to save money and so forth. But these are long-term agreements. And from that perspective, we don't see any major risk or that the business should shrink in any way. On the landscaping side, we see the effect that some of the companies that were previously in the housing construction market that they have moved into and that is kind of natural that they migrate into the work we are doing in order to secure work as they have less work.

So the competition have to some degree increase in that segment. But again, you have to have the competence. You have to have the people. You have to have the equipment in order to be able to compete successfully in that market. But that's what we have seen so far is really that the competition have increased to a certain extent. But otherwise, I don't see any major implications or impact on our business from -- if we're talking about the recession, yes, we just keep watching and see what's going on here, and we'll adjust accordingly, but we haven't seen any major negative impact on our business to this date.

[Carl-Fredrik Meijer, executive]

What we have seen for the last year or so is that the customers are planning not so far ahead as they did -- so they wait much closer to project start because of the steep -- yes, the inflation.

[Johan Nordstrom, executive]

Yes, that is more the cost side of it, but the inflation have driven the cost up.

[Carl-Fredrik Meijer, executive]

Yes. So you can't quote it too far ahead before the project starts. So that's a trend. And that's probably why we see the visibility forward is not as long as it was before.

[Karl Bokvist, analyst]

Understood. And on that topic, when it comes to inflation based on what you hear and what you see and the kind of indexation nature of your contracts? Do you see that the input side is starting to stabilize somewhat? And also perhaps if I could add a bit to it the seasonality in the business, which is, I mean, fully natural, but are there measures you can take within your group companies to kind of stabilize performance to any extent?

[Johan Nordstrom, executive]

Yes. For the first -- I didn't really understand the second part of the question. But for the first part, if we are talking about prices leveling out. Yes, we do see it because we had a situation where prices were really steep in terms of increasing. And also, we have -- on top of it, we had a logistic situation that actually made the prices go up even higher because you couldn't even get the parts you need. We, for instance, are buying stones in some cases from China and you have the logistics with freights going up 2%, 3%, 400%, and stone is a kind of cheap commodity so they wouldn't even ship the stones.

So we have to get other sources. So that situation we had to deal with -- and that's -- to some extent, we have compensated. And then we have for the fixed contracts. We talked about a timing effect. That means that our contracts are indexated or adjusted on an annual base. And the date where you adjust that -- those prices are from the effectivity date of the contract, and that is spread out during the course of the year.

So that actually meant that as inflation began early on a year ago, then we had to carry the burden for the increased cost in those contracts. And you saw that we had somewhat weaker margins, I believe, in the third quarter. second and third quarter because there, we haven't had time to index all the contracts. And now we've almost gone a full cycle by the end of Q1, I would say, or half of Q2. Then most of the contracts have been indexated according to the criteria of the contracts.

The landscaping business there, you're quoting business and that's a project business. So that means that when you have to deliver the project and our projects are typically, they don't -- they have a short lifespan. So we execute the projects within 3 to 6 months from the time we have been awarded -- we have been awarded the contract. So we kind of naturally increase the prices given the prices of commodities and input values.

[Carl-Fredrik Meijer, executive]

But yes, we see that the inflation is -- Prices have leveled out.

[Johan Nordstrom, executive]

Prices have leveled out. We don't see the sharp increases in prices anymore, and we don't see the same -- even though there are still logistical challenges, they are not nearly as bad as they were a year ago. So it's easier to control or foresee what's going to happen when we quote the business today than 12 months ago.

[Karl Bokvist, analyst]

Understood. And my final question is just on the organic earnings, which are growing steadily and are now more or less in line with the organic sales development. I guess given what you comment on one part being perhaps well-performing units who continue to perform well, but also what you highlight there with historically, say, the challenges in certain units that they are also improving consistently. So my question is really also with the cost inflation aspect to it as well. Could we see a potential now in the coming quarters already where your underlying earnings could exceed the organic top line, given what you are doing within the business?

[Johan Nordstrom, executive]

I wish that were the case, but without -- I'm sorry to say, but we don't give that type of forecast. But in terms of the improvement, we are referring to the low, I would say the companies that are making less money [lumpy]. That's the case. And we do have the red team or the lean team, as we call them. So we do have in-house resources. That's a team of 6, 7 persons, bearheaded by Pierre Kubalski, who is actually working with the companies in order to make them better professionalize them and we learn from each other.

So there's a lot of knowledge sharing going on best practices going on. And it's a long-term work. We basically never stop. So just keep on improving what you are doing, and that's the mentality they have. So do we believe that there are still room for improvement in those companies? The answer is a firm, yes. There is still a lot of work that can be done. You are never perfect. You just have to keep on going. That's the nature of doing business that you are improving constantly. And we are quite happy to see that we are finally able to see such a good performance. There has been discussions about Stockholm, those who have been with us for 3, 4 years, now that we have left on proper contracts.

We have closed down entities. There are a lot of work that we have been doing in particular in the Stockholm region. And now those companies are showing very good growth rates. They are showing very good profitability, and they are also able to be more offensive given that they are delivering a higher quality with a higher margin. That means they can actually finally start to gain market share as well because that's not on the top of your agenda when you're not making the profitability numbers, then you're kind of focusing internally.

Now they are, so to say, being able to look outside the company and grow. So I would expect that we should see a continued improvement in profitability in those companies. But I am also expecting that we should see continued growth in those companies as well, which we haven't seen historically. So I think that would be the new or the new, so to say, is that organic growth rates will come up in those entities.

[Operator]

The next question comes from Henrik Jernbeck from SEB.

[Henrik Jernbeck, analyst]

So my first question, I want to elaborate a bit on the last call is questions about the uncertainties on the later half of the year. Is this something that you see in terms of this a problem related to Sweden and Norway or Finland or can we say -- is it pretty much the same throughout all different geographies?

[Johan Nordstrom, executive]

Good morning, Henrik. That's a good question.

[Carl-Fredrik Meijer, executive]

I think it's a general view. It's a little bit more pessimistic in Finland, maybe they were concerned, but I think that's the nature of the business there.

[Johan Nordstrom, executive]

I kind of concern as we have -- we have 50 subsidiaries. And when we are in constant, we talk with them every second week, and we're having our regions. And that's where we talk to the individual MDs for their business and their outlook. And I would say that, as I did mentioned previously that for the last 6 to 9 months. The MDs have kind of been uncertain. What will happen beyond the 6-month time frame because we have the order books.

We see that we have business for the coming 2 quarters, and that's the nature of the business, and I'm referring to the landscaping business, we are not referring to the service or to the winter and road companies. It's only that proportion of the business that the landscape and work, where they need to fill up the order book in this way. And for the last, I would say, 6 to 9 months, they have been uncertain about what will happen beyond the 6 months time frame. And as each quarter have passed through, they have kind of prolonged.

They have been able to fill up the coming quarter and then there are uncertainties for the next quarter and then go to another quarter and they kind of fill up the coming 3-month period. And so they are rolling the uncertainty what will happen in the month 6 to 9, and they have been doing that for close to a year now. I think that's the current situation. And I would say that the region where we don't hear this much is perhaps Norway -- but otherwise, with Finland, for sure, they are voicing some concerns, what's going to happen, but they have been doing so for more than [indiscernible] .

[Henrik Jernbeck, analyst]

Okay. And my second question is you mentioned in the report that you've seen perhaps a bit less competition in the M&A market. Is there anything else seeing you are seeing in M&A market, perhaps that the price expectations are coming down as well?

[Johan Nordstrom, executive]

In some cases, yes, we could believe so. But again, when we are typically in contract or in discussions with companies who are not officially for sale. It's we who actively approach the company and then we initiate a discussion with them. The majority of the acquisitions we do are not structured processes. We are the old buyer. And they were, I would say, that the entrepreneurs who are joining forces with Green, they have an expectation of the value the value of the company. So given the competition, if there's less or competition that really doesn't have that big impact on their expectations of the value of their business.

So we cannot meet the expectations. It's kind of a no deal. That means they have too high expectation on the value of the companies or if it's reasonable, then we can make it is. For the proportion where you are in a structured process, there perhaps you can see that the potentially could be somewhat lower competition but there are still competition out there in the market. So from that perspective, even though there are companies out there who has to address it historically and are now not active in the market. There are still companies out there who are active in the acquisition market, meaning we still have competition. But I don't see any major changes in the competitive landscape in terms of acquiring companies.

[Operator]

The next question comes from Alexander Siljestrom from Pareto.

[Alexander Siljeström, analyst]

Most of my questions has been answered. But I was just thinking about the organic growth, if you could give the split between sort of new business won and price increases? Is that around 50-50? Or is it a fill towards price increases.

[Johan Nordstrom, executive]

That's a corporate question.

[Carl-Fredrik Meijer, executive]

No, really, we can't. That's somewhere sort of I'd say the inflation part is 5% plus. And the other part is winning new business and gaining market share, et cetera. Q1 is also a bit dependent, of course, on the winter activities and stuff like that.

[Johan Nordstrom, executive]

Yes. There are activities going under the surface, so to say, you have companies who are performing very well. You have some companies who are not that performance. So you have companies who had a bad Q1 previous year and all of a sudden, they are coming back and they are looking good on the paper. But it's complex to split between the inflation.

But the inflation is, I would say, my estimate, take it for what it is, is that the inflation or the adjustment of inflation is a fairly significant part of the organic growth rate in the business. At this point. We have a few companies who have been doing very well in gaining new businesses and the mainstay of the business is inflation with a minor influx of new business.

[Carl-Fredrik Meijer, executive]

I mean we know that the market has grown by 4% to 6% per year. That's a long-term trend -- and I think that's still -- and then you add the inflation on that.

[Johan Nordstrom, executive]

Yes. I will go with that number as well that we are growing in line with market and then the rest is inflation or indexation, if you like.

[Alexander Siljeström, analyst]

Yes. Okay. That's very clear. And then the price adjustments that, I guess, will sort of sequentially start to taper off here in Q3, maybe is that the sense that you have as well?

[Carl-Fredrik Meijer, executive]

It's difficult to speculate in. But yes, if the cost doesn't -- or sort of slows down as we have seen now, the sort of the inflation part and the indexation will also do that, of course.

[Alexander Siljeström, analyst]

Yes. And then the next question is just a bit around the M&A pipeline and what you currently see and whether M&A activity now will be tilted towards the second half of the year? And if you're still aiming towards missing the targets around acquiring [ 10 ] companies per year.

[Johan Nordstrom, executive]

Yes. This might be quite of a long answer here, but moving back again into the second and third quarter of last year. When we saw the inflation being quite high, and we were a bit scared of what will happen with our profit margins as we were absorbing the higher cost and what was our ability to push the cost increases over to the customer side. And we saw somewhat weaker margins. I believe it was 1% to 2% in the third quarter and in the second quarter.

So we saw that the steady increase we have had in improving the profit margins that tapered off for about 2 quarters. So it was a bit of uncertainty. We saw the interest rate was going up and becoming very high. We also saw that we might be going into a recession and we had the previously the logistical issues. So we have -- at that point of time, in that environment, -- when we talked about acquisitions, how should we pursue the agenda we had, we basically made the decision that, okay, let's continue with the companies we have in the pipeline that are ready to be closed. And we were quite active in 2022, where I believe we made 11 acquisitions, 4 of them we made in the last quarter.

So we continued with the strategy even though we were monitoring the market quite closely. What was going on with the inflation, it was a great uncertainty. And then we made the decision that not to break, but basically ease off on the accelerator for the first quarter of this year and consolidate our results, and that's pretty much what we have done. And that's the reason why we have not made any acquisitions in the first quarter of 2023. That does not mean that we are stopping or that we have changed the plan. It's just that we consolidated our position, and we would like -- we wanted to see what will happen in the market, what will happen with the profit margins and all that type of thing.

And also, as Carl-Fredrik mentioned, we have been in negotiations with the bank and increased the facilities. So we do have dry powder. We are in discussions with companies, and I do expect us to continue the pace on acquiring businesses for the remainder of the year. And of course, we are looking into the markets where we are, that is Sweden, Norway, Finland and the Baltics. And we are also active, as we have mentioned previously, in Germany to perhaps make a market entry in that market as well. So from that perspective, it's looking good, even though we -- as I say, that we have been consolidated our position in the first quarter, I do expect us to pick up pace as we are moving towards the summer.

[Alexander Siljeström, analyst]

Perfect. That's very helpful. And then just last question, be technically, but just what drove the financial income hearing in Q1?

[Carl-Fredrik Meijer, executive]

Yes. That was the revaluation of the loans we have in Norwegian, Norwegian crown, denoted in Norwegian crown -- so the [SEK] improves, of course, the Norwegian loans becomes a lower value, and that has a positive impact on the net financials. That was the main order.

[Operator]

The next question comes from Karl Bokvist from ABG Sundal Collier.

[Karl Bokvist, analyst]

Yes. I just had one follow-up, and it was now with the strong cash flow and the working capital levels coming down. I understand it might differ a bit depending on what kind of businesses you acquire. But do you have any view on the kind of longer-term working capital level that you feel the group should be around in terms of sales, perhaps?

[Carl-Fredrik Meijer, executive]

No, we don't have a number. But I think the historic numbers in relation to revenue is what I would be expecting going forward as well. We [indiscernible] improving the working capital. I mean there are things to do definitely to highlight this for new companies coming in. Some of them are really good at this and some have not paid too much attention to this area. So -- but again, I think the levels we see is representative for the vet as well.

[Karl Bokvist, analyst]

And you're now entering the calendar Q2, which historically is perhaps a quarter where working capital is a negative item. But do you feel that you could still perhaps have a bit of, let's say, support from the internal improvements that you are making?

[Carl-Fredrik Meijer, executive]

Yes, I don't have a view on that. We'll see.

[Johan Nordstrom, executive]

But it's correct that we have a seasonality in terms of the pattern, and that is really that now when we are moving into the high season in particular, the landscaping companies are starting the projects and that ties up more capital and then as they execute the projects and our ABC bill all invoice the customers, then the money comes back. So that's a pattern that we have over the season. And that we believe is going to happen in this year as well. But the capital increase the capital need or the working capital need will increase in the second quarter or you have another peak in the third quarter.

[Carl-Fredrik Meijer, executive]

And then to some extent, actually, it's good with the high working capital because then I know we have a lot of business going on.

[Operator]

There are no more questions at this time. So I hand the conference back to the speakers for any closing comments.

[Johan Nordstrom, executive]

Okay. As there are no further questions, I think that concludes the Q1 report for the year of 2023. So thank you very much for listening in, and thank you for all the questions, and have a good day, everybody.

[Carl-Fredrik Meijer, executive]

Thank you.