Network of outlets throughout Denmark. The EA assortment has been fully integrated in AO central warehouse for almost a year, and as of today, it has been introduced in 4 AO outlets. Additional 2 will follow before the end of this year. During third quarter, the EA assortment sold from ao.dk and the 4 AO outlets amounts to 20% of the total sales of the EA assortment. We will continue the journey in making EA nationwide, with more AO outlets adding the EA assortment during the year. AO saw a strong cash flow in Q3. Cash flow from operations amounted to DKK 209 million, against -DKK 12 million for third quarter last year. Financial leverage went down from 2.0 to 1.7 during third quarter. Inventories have been reduced according to plans.
Compared to the end of first quarter 2023, inventory levels have been reduced by DKK 136 million, which is a main driver for the strong cash flow in Q3. Let us look at the management's observations. End of Q3 2023 showed a sudden reduction in demand. While market activity in July and August was in line with estimates, September brought an unexpected decline. I have been around for some quarters, and I don't recall many incidents of such a sudden and significant change in activity. The tough times with high cost inflation and low activity have also caused a higher-than-expected number of customer bankruptcies. We are now not significantly hit by losses, but it is sad to witness customers with a long and impressive history of business having to give up. We see a strong pressure on margins.
The competition is fierce, and we see tough fight when it comes to pricing the projects. The overcapacity in our business drives fierce competition with lower margins. We monitor the market and stay selective in our bidding, although we will not be immune to lower project margins. Let us look at the market trends as we see them. As previously said, the level of activity took a sharp decline in the beginning of September. Although a moderate decline was included in our estimates, the decline came more sudden and more significant than we had expected. In September, the outcome was an approximate 10% activity drop in heating and sanitary, of which approximately half was due to a decline in heat pump. In the solar market, AO continued to gain market shares, and as you will recall, our ambition is to grow faster than the market year by year.
AO is in a good position, also in volatile market conditions. Our Omni-channel strategy secures both digital efficiency and close customer relations. We offer our customers the convenience from digital ways of doing business and the convenience of popping into a well-assorted outlet close by. The best of two worlds. AO has the broadest coverage towards the professional craftsmen. We serve many lines of business, and one way to recognize the one-stop advantage for customers is the high level of cross-selling across product categories. The high number of outlets, combined with the largest variety of product categories, ensure a good position. EA sales synergies are kicking in. 20% of the EA assortment is now sold through AO outlets, thereby both serving carpenters in AO regions and addressing cross-sales to existing AO customers.
We believe in our culture, where the customer is king, and we are not shy to put forward bold ambitions of outperforming market growth and also reaching a future 10% EBITDA margin. As shown in this slide, we have always been, and will always be, guided by our culture, which includes that our customer is king, and we lend a hand. All professional craftsmen know well that AO is a part of our customer's team. We care not only for the order, but for their business. In three important areas, we lend a hand. AO365 is a good example how we lend a hand by giving them a digital key to all our outlets, securing both convenience and flexibility to the customer. We take pride in our customer relationship, and we have an ambition to remain number one in repair, modernization, and maintenance.
AO has expanded our services and business for the larger construction projects, and our ambition is to continue to do so. We want to be the preferred partner of the large construction customers. The B2C business continue to be a good and strategic business for AO. It gives us the advantage of knowing the consumer's behavior and preferences. It is a knowledge that we use toward our supply to create new campaigns and offerings. We will remain the consumer's preferred digital DIY partner. Investing in IT is highly essential to AO's transformational power, but the most important thing for AO's competitiveness is our employees and their daily passion and effort in lending our customers a hand, securing that the customer is always king in AO. Now, Per, please take us through the financial performance.
Thank you. As Niels said, our Q3 estimate and guidance did indeed include a moderate decline in business activities. However, we saw a higher-than-expected reduction of activity in September, hence the announcement made 12th of October. For the quarter, B2B delivered index 92, and B2C index 95. That was against our expectations of approximately index 96 combined. The gross margin in the quarter reduced from 33.5 to 33. The reduction was indeed expected and was due to the one-off gain from supplier-driven price increases back in the third quarter last year. External cost and salaries were at par with last year. We are satisfied to note that efficiencies and reductions has thus mitigated the cost inflation. EBITDA came in at DKK 95.6 million, against DKK 122.1 million last year, the reduction being a result of the lower gross profit.
Financial costs were higher due to the vast increase of interest rates, the higher interest bank debt, and a hit from foreign exchange in Sweden and Norway exchange rates. Finally, EBT ended at DKK 72.1 million, against DKK 93.9 million last year. Let's turn to the margin development, comparing Q3 2023 to Q3 last year. The quarter saw a margin slip from 23.5% to 23%, and as you can see from the chart, the primary reason being last year's one-off price gains from supplier-driven price increases. From a distribution point of view, margin took a 0.3 percentage point hit due to the higher number of drops related to a lower basket size.
We saw a mixed impact of +0.8 percentage point, which is mainly due to reduced sales of lower-margin heat pumps, but also due to a higher maintenance share and relatively lower project share. Let's leave the margins and turn to the segment info. The B2B segment accounted for 89% of revenues, and the B2C segment accounted for 11% of revenue. The segment split was 89/11 in Q3 2022 as well. B2B sales gained market share, but in a more sour market than expected. The B2C sales index is in line with web sales development within house improvements. Given the market development, we are satisfied with the margins and the profitability changes in the segment. Indirect non-allocated cost was 10% lower than last year. Let's turn to the investments. Please be aware that the chart does not include M&A investments.
The green band shows the normal level of maintenance investments in AO. As you know, AO has invested heavily in expanding warehouses in Albertslund and Horsens during the past two years in order to prepare for the future. Q3 investments amounted to DKK 24.2 million. Approximately one third relates to expanding relevant AO shops to include EA assortment in order to make EA nationwide. The outlets throughout the country is a cornerstone in AO's business model. This is where we meet thousands of customers each day. Let's turn to cash flow and net interest-bearing debt. AO had a strong cash flow in Q3. As planned, net interest-bearing debt decreased during the quarter, gearing reduced to 1.7x EBITDA, compared to 2.0x EBITDA end of Q2. Gearing Q3 last year was 1.6x EBITDA.
As Niels mentioned, we have continued to reduce the stocking levels as supply chain uncertainty has reduced. Inventories have reduced DKK 63 million in Q3, on top of the DKK 73 million reduction achieved in Q2, adding up to DKK 136 million in total. As previously said, AO will always choose to have a buffer stock if the alternative is to disappoint customers. Payables is DKK 100 million lower than last year due to the lower procurement related to the inventory reduction and the lower activity. Net interest-bearing debt is expected to reduce further in Q4. Now, let's leave the financials and turn to the outlook 2023. Due to the lower-than-expected market activity in September, AO announced a reduced guidance the 12th of October. Sales guidance is reduced to DKK 5.15 billion-DKK 5.3 billion.
That's DKK 200 million down, and reflecting a Q4 activity level as we saw in September. We expect EBITDA to be DKK 400 million-DKK 430 million, which is down from DKK 435 million-DKK 465 million, and we expect an EBT to be DKK 260 million-DKK 290 million, down from DKK 300 million-DKK 330 million. The updated full year guidance is based on the current momentum and reflecting a Q4 activity level, as we saw in September. We stress the fact that market, that market activity is more volatile than normally, and that this puts an additional uncertainty to estimates these days. This concludes the presentation, and we are ready to take your questions.
We will now start the question and answer session in the call. If you do wish to ask a question, please press five star on your telephone keypad. To withdraw your question, you may do so by pressing five star again. There will be a brief pause while questions are being registered. The first question will be from the line of Christian Johansen from, please go ahead. Your line now be unmuted.
Yes, thank you. I have a couple of questions here, so I will do them one by one. So first of all, this market slowdown you speak to in September, I'm just curious what your analysis of this is. So why do you think the slowdown hits? And also you highlight heat pumps and sanitary. So heat pumps, I understand, but why do you think sanitary is harder hit than other sections?
I will think and try and answer your question there. As you know, I've been around for quite some time, and it's a few times I have seen such a quick change in the market. We don't have any real explanation apart from the pumps, the heat pumps, but we also believe that the installers has finished many of their modernization jobs. So what has been left back now is more repair and maintenance, and these jobs carries fewer materials, but more wages. We also see it in the basket size from our customers. They have dropped quite a bit, although we have the same number of visits into our shops. So our belief is, that is, that less modernization in that type of the repair business and more repair and maintenance.
Okay, that makes sense. Then maybe just a follow-up, so being a large part through October as well, have you seen this slowdown continue into October?
Yes, sir. We have seen that from the now 18 working day has begun, and we have the same index in our turnover.
Okay, very clear. Then my next question is about the four AO stores which sell the EA products. So I'm just curious if you can comment a bit on the sale of the EA products in these four AO stores in Q3 versus Q2 or more? I mean, are you seeing a growth here, or have you reached the stage where that just follows the market?
No, we do see a growth there, and we see a growth, you know, also to the carpenter, but also naturally to our installer groups, being electrical installer, entrepreneur, or P, plumbing, heating, sanitary installers. So, it is a growth, so the proportion of the sale is growing month by month.
Okay, good to hear. My next question is on the B2C business. So, the gross margin in B2C in Q3 is sort of notably lower than what you had in Q1 and Q2. Can you explain this gross margin decline in the B2C business?
Yeah, perhaps I can take that one, Christian. What you normally see in times where economy is slowing down, you would see a larger part of the traffic going on low-cost websites, and that was also the case during Q3 and Q2, also Q2 in our B2C businesses.
So, just in the sense of people are buying products with lower gross margin?
Yeah. Yeah, yeah, and they're buying from websites with a lower price points. You know, we have LavprisVVS and BilligVVS with a slightly different price profile.
Sure. Okay, that makes sense. Great. And then just my last question: so, your business in Sweden, you highlight the growth potential, but can you just share how that performed in Q3 as well? So did you see the same market slowdown in Sweden as you have seen in Denmark?
In Sweden, you know, we are only in VA, you know, sewage and water supply. So actually we don't have the plumbing, heating, sanitary, and tools business as we have in Denmark. And we are doing well in the Swedish market. It's very much a project market, but there are good projects with fierce competition, naturally. But we are satisfied with the development in the third quarter, if that was your question.
It was. So it sounds like revenue is actually growing in Sweden in Q3. Is that correctly interpreted?
I kind of. Sorry.
It's a project-driven business in Sweden, and it's quite volatile, Christian, but it came in accordance to our expectations in Sweden.
Fair enough. I understand. Great, that was all my questions, so thank you so much for providing answers.
Thank you, Christian.
Thank you.
Thank you, Christian. That seemed to be all for the call. I will therefore hand it over to the speakers for any written questions online.
Okay. We also got a couple of written questions. I think we have a couple of questions relating to a share buyback. How is that linked, or how is that a part of our capital allocation policy, and is it a tool that we should expect AO to use? I think we have had these questions a number of times, and I understand the question and the reason for asking. It is definitely a tool that we are aware of, and it has also previously been used back in time in AO. I think our skepticism around this tool will be the lower liquidity that we may see going on in our trade in our shares and stocks.
So I don't, I'm not prepared to give you a solid answer. It is being discussed, but we also have some skepticism regarding this tool. Then we have a question regarding our M&As. Back in Q1 2023, we were discussing potentials, potential acquisitions during 2024. Is that still the case? Question mark. Well, we are looking, and we are interested in following the market. I think what I was saying back in Q1 was probably that we see that the annual report 2023 will probably be the moment of truth for many companies.
When one analyzes the annual reports for the fiscal year 2023, that may lead into more normal multiples than what we saw during the Corona. I think we will watch closely and if we see something that fits our business and what we expect is creating value for our shareholders, then we will be interested. Then we have a question if we could tell more about a new deal with the Danish farmers, and that's right, that we have a new deal reaching out also to Danish farmers, which are using quite a bit of tooling in their business. It's ongoing.
It's not notable in the numbers. So it's not big numbers for now, but it is an important segment for us, and we want to do our best to serve them in the future. We also have in the same question, if we are interested to serve the industry segment and the Danish army. I think we have spoken about the industry segment earlier. It is an attractive and an interesting area.
We only have a small presence for now in AO, and I think I will make a reference to our M&A talk in the previous question, and we are interested in looking around. Then we have a question, the credit policy towards our customers, and the credit we have from our suppliers, and if there are going to be a change in this. Well, basically, I don't think that our payment terms differs from other businesses in our line of business, perhaps neither towards the customers or towards the suppliers. We don't see a big change in that area going forward.
Then we have a question, a rest of year question. If the profit estimated in Q4 being the difference between Q1 to Q3 and our guidance, if that is in the level of what we reached in September. And you're right that the guidance is based on current trading. And as Niels said, the trading for October follows the trading that we saw in September, and so do the guidance. And that's it with the questions. We didn't receive more questions. We want to thank you for participating, and we are looking forward to discuss Q4 and full year with you in February 2024. Thanks for now.