Welcome to the H+H International A/S interim financial report for Q1 through Q3 2022. For the first part of this call, all participants will be in listen-only mode, so there's no need to mute your own individual lines. Afterwards, there'll be a question and answer session. I'll now hand the floor to our speakers. Please begin your meeting.
Good morning, welcome to H+H conference call for the third quarter and the first nine months of 2022. My name is Niclas Bo Kristensen, Head of Investor Relations and Treasury at H+H. Joining me on this morning's call is our CEO, Jörg Brinkmann, and our CFO, Peter Klovgaard-Jørgensen. This morning, the interim financial report, including the presentation for this call, was published and uploaded to our investor relations website. During today's call, management will present the interim financial report. Afterwards, there will be a Q&A session. Please note that this conference call is being recorded and will be made available on our investor relations website after the call. Before handing over the call to Jörg and Peter, I would like to direct your attention to the disclaimer on page two.
During this call, management may make certain forward-looking statements regarding various matters related to our business and company that are not historical facts. Such statements are based upon different expectations and assumptions and are therefore subject to certain risks and uncertainties. Many factors could cause actual results to differ materially. For further information about the risk factors, please see the annual report for 2021. With that, I will now turn the call over to Jörg.
Thank you, Niclas, and good morning to everyone participating in this call. Today, I'll briefly provide an introduction of myself as I'm new to this team since first of November. Peter will then take you through the third quarter, including an update on our key markets and the financial performance for the quarter and the nine-month period, as well as our financial expectations for the full year 2022. In the end, I will summarize. Before we begin, I would like to take the opportunity to introduce myself as the new CEO of H+H. Please turn to page three. My experience within the building sector started in Xella's AAC and CSU business, working with marketing and sales and business development from 2005 to 2011.
In 2011, I moved to Fermacell and became CEO in 2014. This is where I built my experience with operational management in manufacturing and also M&A. The last four years, I was a member of the executive leadership team at James Hardie Industries, the publicly listed company in the U.S. I joined H+H in October, and after only five weeks in my new position. A couple of observations I'd like to share. The first thing is that I was very pleased to see that safety is a true part of our culture. It is way more than just a legal obligation, but I can feel it throughout the whole organization that we really believe that every accident is preventable, which gives me a really good feeling.
Number two, I'm really impressed by the strong financial profile, meaning cash generation and also our debt ratio, which allows us to operate the company. Number three, I'm pleased to see the proven track record in M&A, which means the company has certainly built capabilities to buy and even more important, to integrate companies into our network. Another observation is certainly our ESG work, which is quite outstanding for our industry, and we are one of the few players in the European building materials industry who embarked on that journey and works with a target-oriented framework. Finally, it's all about the people. I'm really, really impressed by the skills and very committed leadership teams in Copenhagen, but also in our region. With that, I will hand over to Peter, who will take us through the financials.
Thank you, Jörg, and welcome to this morning's call from me as well. I will start with the highlights for this quarter. Please turn to page four. In an uncertain market with little visibility, we had a continued focus on the implementation of sales price increases. Our markets remain characterized by the growing inflationary pressure, and we continue our efforts to defend earnings margins through sales price increases. In addition, the planned factory upgrade in Northern Germany and the softening of the Polish market have had a negative impact on sales volumes. In combination, these effects led to a 7% growth in Q3 2022. The gross margin for the quarter was 28%, demonstrating a continued margin defense through price increases, but negatively impacted by the German upgrade and softening volumes in the Polish market.
Our EBIT margin was 12% in the quarter as a result of the gross margin effects. Return on invested capital remained high at 24% compared to 21% last year. Free cash flow generation of DKK 36 million compared to DKK 5 million in the prior year is mainly driven by the acquisition of Greisel in Germany in September 2021 and a negative impact from working capital. Finally, financial gearing was 0.5 times net debt to EBITDA at the end of the period, compared to 0.3 for the same period last year, and 0.5 at the end of the second quarter. Next, I will go over our core markets, starting with the Central Western Europe region on page five. Germany faces growing inflation rates, in large part due to the rising natural gas prices driven by uncertainties around future supply.
This has caused consumers to reevaluate investment decisions based on the relatively higher cost of living and general economic uncertainties. The number of building permits issued has declined by 11% in August year-over-year, and there seems to be an increasing trend of postponements in construction starts. In Q3, the Wittenborn factory was shut down for the upgrade and is currently in ramp-up. The upgrade of the Wittenborn factory gives strength to H+H's Aircrete factory network, which will help drive market share across Germany and into adjacent markets. Moving to the Nordics, the latest economic analysis points to a relatively more negative outlook for the construction industry due to high inflation and a shortage of labor and materials. However, demand for our products remains stable, and we expect this trend to continue for the remainder of the year.
In Switzerland and the Benelux countries, uncertainties from current geopolitical events continue to weigh on the expected economic growth and building activities. Turning now to the U.K. market on page six. In the private housing segment, demand remains relatively resilient, but in combination with the growing inflation, rising interest rates have led to decreases in expected starts. While activity levels for the remainder of 2022 remain stable, the increased levels of uncertainty fuel the anticipation of more difficult conditions in the medium term. As H+H recently have undersupplied compared to customer demand, we view favorably at our position to serve the U.K. market. As we remain positive on the long-term fundamentals, we continue to seek opportunities to further increasing our U.K. capacity, starting with capacity increase in our existing plants. Finally, turning to the Polish market on page seven.
The number of building permits issued over the period remains at a reasonable high level, driven by changes in legislation. However, due to growing inflation and rising interest rates, Polish purchasing power is now significantly lower, which will likely influence investment decisions in the country. Construction starts have already decreased by approximately 17% compared to the corresponding period in 2021. It remains unclear to which extent the great number of refugees from Ukraine will impact the Polish housing markets, but the situation will likely drive further construction activity due to the already significant shortage of housing space in the country. The expansion of the Aircrete factory in Reda with an additional CSU production line was completed in Q3 and is now supplying the Polish Tri-City area.
In summary, during the third quarter, H+H has experienced changes in market conditions across our footprint, resulting in declining market demand in Poland and Germany. H+H expects a continued declining trend in market demand as inflation and interest rates continue to drive uncertainty and low consumer confidence. Despite this, H+H remains committed to defend its margins by continued implementation of sales price increases to counter the high inflationary pressure. Our diversified geographical footprint and strong factory networks provide a resilient market position. In addition, H+H has initiated specific resilience actions to mitigate impacts from a potential continued declining market demand. These measures include adjusting production capacity where needed and utilizing governmental support programs where available. Also, actions have been taken to reduce and manage the operating cost base where relevant.
These expectations are based on the assumptions of continued availability of relevant energy sources and raw materials, and neither escalations of the war in Ukraine nor further recessionary developments in any of our current markets. Please allow me to take you through the financials for the third quarter and the nine-month period, starting with a detailed look at the revenue in the quarter on page eight. Total revenue for Q3 2022 increased by 13% to DKK 920 million, compared to DKK 811 million in Q3 last year, driven by the two acquisitions in Germany last year and organic growth. Organic growth for the quarter was 7%, mainly driven by the continued implementation of significant sales price increases, but partly offset by lower volumes.
Revenue in Central Western Europe increased by 14% to DKK 406 million, compared to DKK 355 million in Q3 last year. Organic growth for the region was -2% for the quarter as a result of lower sales volumes for Aircrete and to a lesser extent for CSU, partly offset by higher sales prices for both product categories. The lower sales volumes in the Aircrete segment was partly driven by the upgrade of Wittenborn factory, which has been ongoing for the full quarter and is now in ramp-up to normalized output. Like in last quarter, it is a special situation that acquired factories support existing businesses. The negative 2% organic growth represents the growth from our existing factories and does not include the acquired production capacity.
In the U.K., revenue increased by 20% to DKK 296 million, compared to DKK 247 million in Q3 last year. Organic growth in the U.K. was 20%, driven by higher sales prices and partly offset by lower sales volumes and low stock. Revenue in Poland increased by 4% to DKK 218 million, compared to DKK 209 million in Q3 last year. Organic growth was 9% for the quarter, driven by higher sales prices, partly offset by lower sales volumes in both product segments. Moving now to page nine for a review of our quarterly earnings. As mentioned, H+H faces an increase in inflationary pressure and softening market demands, which is adversely impacting earnings margins. Moreover, as I previously mentioned, H+H has during the third quarter made an upgrade of the German factory in Wittenborn.
The upgrade of the factory impacted productivity output throughout the period, but is now in ramp-up. However, higher sales price and our ability to manage the input cost pressure positively impacted gross profit for the period, which grew 2% compared to Q3 last year. Our gross margin decreased by three percentage points to 28% compared to 31% in Q3 last year, driven by the impact from Germany and the market softening in Poland. EBITDA before special items decreased by 10% to DKK 151 million, compared to DKK 167 million in Q3 last year. This corresponded to an EBITDA margin of 17% compared to 21% last year.
Finally, EBIT before special items decreased by 17% to DKK 101 million compared to DKK 121 million last year, corresponding to an EBIT margin of 12% compared to 15% last year. It remains our ambition to defend earnings margins, and we continuously analyze the situation and act accordingly to do so for the remainder of the year. On page 10, you will see our revenue for the first nine months of the year. Total revenue for the first nine months of 2022 increased by 22% to approximately DKK 2.8 billion compared to DKK 2.3 billion in the comparative period of 2021. Organic growth for the period was 16%, mainly as a result of higher sales prices.
Revenue in Central Western Europe increased by 18% to DKK 1.2 billion, driven by acquisitions and an organic growth of 4%. In the U.K., revenue increased by 18% to DKK 816 million, with organic growth of 16%, mainly driven by price increases. Finally, revenue in Poland increased by 34% to DKK 736 million, with organic growth of 38% also driven mainly by price. Next, please turn to page 11 for a review of our earnings in the first nine months. Gross profit increased by 19% to DKK 818 million, corresponding to a gross margin of 29%, which is one percentage point lower than last year. EBITDA before special items increased by 31% to DKK 591 million, corresponding to an EBITDA margin of 20%, which is unchanged from last year.
Finally, EBIT before special items increased by 19% to DKK 369 million compared to 310 in 2021, corresponding to an EBIT margin before special items of 14%, which is also unchanged from last year. Next, please turn to page 12 for a review of our net debt in the third quarter. At the end of the quarter, net interest-bearing debt, including leases, totaled DKK 368 million, corresponding to an increase of DKK 18 million since the end of 2021. This was primarily driven by the purchase of treasury shares in connection with the ongoing share buyback program, mainly offset by strong cash flow from operations. Financial gearing remained low and stood at 0.5 times net interest-bearing debt to EBITDA before special items at the end of the quarter.
This level remains below our long-term financial target of 1-2x EBITDA before special items. Please turn to page 13 for a brief update on the ongoing share buyback program announced earlier this year. As of September 30, a total of 770,000 shares corresponding to approximately 4.4% of the current share capital have been bought back under the program for a total purchase price of DKK 113 million. As a reminder, the total value of the share buyback program is up to DKK 150 million, and it is expected that the program will be carried out over a 12-month period. Before handing the call back to Jörg for closing remarks, please turn to page 14 for an update on our full year financial expectations.
Based on our performance for the first nine months and our expectations to general market developments for the remainder of the year, we narrow our full year financial expectations. Organic growth is expected to be around 15%. EBIT before special items is expected to be in the range of DKK 440 million-DKK 470 million. The financial expectations are based on the assumption that foreign exchange rates, primarily the euro, the British pound and the Polish zloty remain at current 2022 levels. Further, we assume that the cost of energy and raw materials are to remain at current levels. This concludes my prepared remarks, and I will now turn the call back to Jörg for closing statements.
Thank you Peter. Please turn to page 15. In summary, during the third quarter, H+H has experienced market decline across our footprint. The macroeconomic landscape causes future uncertainties and is expected to weigh on future construction activity in all markets we operate. H+H has initiated specific resilience actions to mitigate impacts from potential continued declining market demand. These measures including adjusting production capacity where needed. Also, actions have been taken to reduce and manage the operating cost base where relevant. At the same time, we continue to pass on cost inflation to our customers. Our focus will remain to deliver according to our long-term commitments. Recent upgrades to the factory network, including the upgrade in Germany and the new CSU plant in Reda, illustrates our ambition to seek growth opportunities where relevant.
In addition to this, we also reiterate our desire to explore growth opportunities in U.K. through capacity expansion. We will continue to deliver strong financial results throughout the cycle and use the market downturn to invest for future growth organically and also through M&A. With that, we are now ready to take your questions. Please go ahead.
Thank you. If you wish to ask a question, please dial zero one on your telephone keypad now to enter the queue. Once your name has been announced, you can ask your question. If you find it's answered before it's your turn to speak, you can dial zero two to cancel. Once again, that's zero one to ask a question or zero two if you need to cancel. Currently, we have one question lined up. That's from the line of Sebastian Grave of Nordea. Please go ahead. Your line is open.
Good morning, and thank you guys for taking my question. First of all, a warm welcome to you, Jörg. It's gonna be nice to meet you. My first question is to you, actually. I know you only have had a few weeks in this seat, but obviously you have quite a few years of industry experience. Maybe interesting to hear your sort of assessment of the current market situation and also maybe some thoughts on the prospect of pursuing growth in these markets versus protecting the cash flow. Thank you.
Yeah. Thanks, Sebastian, and thanks for the nice welcome. Actually it's five weeks in, so you're right, they're very early views. I mean, what is clear is when you study current market data, and all figures we are seeing suggesting a market decline, right? I think visibility is super low, so that it makes it hard actually to really predict where the markets are going. What we are doing is, and I was commenting on this, we are working with resilient plans and making sure we're staying agile, really adjusting capacity to where the markets are going. That's one aspect, actually, I think from the way we manufacture our blocks actually, is that it allows us to really adjust capacity according to demand.
That is what we are driving. That's why we are really focusing on. At the same time, seeking growth opportunities from under supplying the markets in the past. That is really how this ties together. It's really the market decline, yes. That will come, we stay agile, but then it's the under supply that we also gonna utilize.
Okay. Thank you. Very helpful. Then my second and last question is, I don't know if it's more towards you, Peter, but you're seeing deepening slowdown across key markets and I mean, margin pressure ahead, at least that was like implicitly suggested by the guidance for Q4. Maybe some more thoughts around your ability to protect margins going forward. Specifically if you could share some thoughts around the flexibility of your cost base, both the COGS and the SG&A. Anything, also any specific examples would be very helpful. Thank you.
Yeah. Overall, you are right that we are in a very special situation where there's still an inflationary pressure and at the same time, slowing markets in particular in Poland and Germany. Obviously that does put pressure on our margins. Our core aim continues to be to defend our margins, which also means that we will pass on inflationary pressure to customers, and that is our first ambition. Secondly, as Jörg mentioned before, it is also then to adjust our production capacity in accordance with that. In general, we have previously shown that we are able of doing that. It's not a untypical exercise for us to do.
We know also a market like Poland is a classical boom and bust market, and it also means that when it goes good, it's really going good, and when it's going downwards, then it's also going fast downwards. Therefore, we are also used to making these capacity adjustments. Typically, when we operate our factories, we run them on several shifts. In the peak periods, we have also been working overtime. The classical first steps is really to reduce overtime, reduce temporary workers, get it down to a normalized level, and thereafter, the second step, we start taking shifts over.
In general, when you look at our cost base, in our cost of goods sold, we have roughly around 70%-80% variable costs as the majority of our cost base is really raw materials, and energy related to that. Secondly, we do have salaries and, but as mentioned, these can be adjusted to the effect of overtime and temporary workers, et cetera. Overall, our cost is actually fairly adjustable. In terms of SG&A, we are currently at around 10% of revenue in SG&A costs. If you go back to 2020, during COVID, we did initiate resilience programs to cut costs and did that quite effectively.
That is, of course, something that we are also ready to do, but we are also very much aware of being ready to also sell into a market as demand comes back. We will be quite selective in our SG&A adjustments as we want to secure that we can also go back or vastly respond in a comeback of the markets. Of course, all something to be evaluated, but the plans are ready, and we have them in the front of mind from last COVID crisis.
That's great to hear. Thank you. Very helpful.
Thank you. Once again, if there are any further questions, please dial zero one on your telephone keypads now. Okay, there seem to be no further questions from the phones at this time, so I'll hand the floor back to our speakers for the closing comments.
Yeah, thank you for listening in, and thanks for your question, Sebastian. We are looking forward to meeting some of you on the road over the next weeks. With that, have a nice day. Thank you.