Welcome to the NKT webcast covering the Q3 results that was released this morning. My name is Michael Lyng, CEO of NKT Cables and Group Executive Director in NKT Holding. With me today, I have, as usual, Jonas Persson , CEO of Nilfisk, and for the first time also Basil Garabet, CEO of Photonics Group. Together, the three of us will cover the development for the group during Q3, including an updated view on where we expect to end the year 2015. Let's look at the agenda on slide number four. First, I will cover some highlights for Q3, including the financial developments. Then Jonas will take over covering the development in Nilfisk during the quarter. I will then do the same for NKT Cables, and Basil will do it for Photonics Group, before we then go into the expected outlook for 2015, and jointly end with the Q&A session.
On slide number five, you see the highlights for Q3 2015. At group level, our third quarter performance was overall as expected. Despite a negative growth of 4% driven by Cables, we marginally increased the operational EBITDA and the EBITDA margin with 0.2%. As we will see later in the presentation, we also realized very strong free cash flow, so we continue to reduce interest-bearing debt and working capital. In Nilfisk, we saw an okay growth in Europe and APAC, but we also have to say that the EBITDA are below expectations, although the margin in the quarter are 0.3% up from last year. Reason for this relates to continuing rollout of the Accelerate initiatives, and Jonas will come back to that later in the presentation.
In the last quarter, we have seen some supply chain issues in the Nilfisk business, and I am happy now to say that we are now fully on top of that. It is behind us, but we still do see some cost impacting Q3 negatively from this. Jonas will of course also elaborate on this further when he takes over. M&A continues to be a high-focus areas in Nilfisk, and we have also concluded on Hydro Tek during the quarter. In NKT Cables, we, as expected, saw negative growth from the project business. This is fully in line with the visibility we have had for this quarter for some time and was also clearly communicated back in Q2. It also cover for the solid growth that we have seen in the product business of 10%, and I will come back to that later in the presentation.
We continue to see a good progress from the DRIVE program, and we are now close to reaching the full potential. We also continue to see a good and strong activity level in the offshore sector and have been able to secure the Galloper project order with a value of close to DKK 400 million, and that gives very good visibility into 2016, and it perfectly matched the production slots that we have between Race Bank 1 and Race Bank 2. Last but not least, we announced our new strategy plan, EXCELLENCE 2020, during our recent Capital Markets Day that was held late in September. I will of course also come back to this later in the presentation. In Photonics Group, we saw very strong organic growth of 31% in both the imaging and in the sensing segments.
And also we saw very strong EBITDA, although it is smaller numbers in this part of the business, but they realized DKK 14 million in the quarter. Finally, we have been able to divest the fiber processing business, and Basil will touch on all this later in the presentation. Based on all this, we have maintained our guidance for organic growth, but due to the performance in Nilfisk on EBITDA margin level in the quarter and also foreseen for fourth quarter, we have taken down the guidance slightly. I will also come back to this later in the presentation. To summarize, a quarter more or less as expected, albeit slightly lower Nilfisk and with an underlying increase in return on capital employed of 3%. Let us take a look at the financial headlines on the next slide.
Revenue DKK 3.9 billion, so more or less in line with third quarter 2014. If we then drag down to the organic growth, it is -4% for the quarter, year- to- date 2%. It is clear to see here that the impact is coming from the NKT Cables business that I touched on just before. But underlying that is very strong growth in Photonics Group of 31% and also okay growth in Nilfisk at 3% in the quarter. Operational EBITDA DKK 276 million, equaling 8.4%, so slightly up compared to third quarter 2014. Looking at working capital and the cash flow and the free cash flow, we will come back to it later in the presentation. But we see a very positive development, more or less in all the different lines mentioned here in the right side of the slide.
On slide number seven, we look at the trailing last 12 months EBITDA operational curve, and we are more or less flattish looking at where we ended 2015, second quarter, slightly up from 10.2% there to now 10.3%. Looking at the detail, looking into the P&L here on slide eight. Let us look at the composition of the revenue decrease of the DKK 46 million. We are still impacted positively by FX charges, in particular from the strengthening of the U.S. dollar. So that have a positive impact of DKK 92 million. We also have the positive impact from the acquisitions that we have been doing in Nilfisk the last year of DKK 42. Before we are then down to the -134, equaling the -4% growth, with the composition 12% negative cables and then positive Nilfisk and Photonics.
Then I think it is also worth to look at the composition of operational EBITDA, the increase of DKK 6 million. So it is good to see here that the quarter is actually not that bad in Nilfisk. We see a positive impact of DKK 19 million here. We see underlying that, the EBITDA margin increasing from 9% third quarter 2014 to now 9.3%. In NKT Cables, we have a negative impact of DKK 25 million as a result of lower margin in the quarter. That should not be a surprise for anybody, because it is fully in line with our guidance for the second half numbers. But you see a deduction from 8.2% down to 7.4% as a result of the composition of, in particular, the project business, but I will come back to that later in the presentation.
And then we see a positive number here from the Photonics Group of DKK 12 million. So that is more or less the lines that I will dig into here on the P&L slide. But also again, underlying that CapEx is lower than Q3 2014, working capital significantly lower with DKK 400 million, and also the net interest bearing debt significantly lower. But let us take a deeper look into slide nine, where we look at the working capital improvement that we see. We are down from 18.7% Q3 2014 to now 16.4%. So a significant improvement here in working capital, and it is a decrease of, in Q3, of DKK 147 million.
As you can see here in the blue box on the right side of the slide, a big part of that, or entirely, it can be related to NKT Cables, where we have seen a deduction of DKK 153 million. That means that we continue to see very, very low level of working capital in NKT Cables, now at 13%, down from 14% end of Q2. In Nilfisk, we are more or less flattish with an unchanged level of around 20%. That also gives some relatively good numbers looking at slide number 10, where we have a lot of numbers. Apologize for that. But it is the cash flows, the cash flow figures looking into Q3, but also year to date and last year. But free cash flow illustrated in the first column of DKK 185 million in Q3.
So, a very nice development here, and we can also see the positive impact from the change in working capital of DKK 61 million in Q3. If we then look at the free cash flow that we have been able to generate for the first nine months of 2015, we have DKK 7 million, so that is probably not a lot. It is also down from DKK 195 million in the first nine months of 2014. But here it is important to look at the cash flow from investing activities, what is behind those numbers. Because 2014 was positively impacted by divestment of the Sanders business in Nilfisk, and we do not have that positive impact in 2015.
On top of that, we also have the negative impact from cash flow financing the acquisitions that we have been doing with a negative amount of DKK 130 million in 2015, compared to DKK -22 million in the first nine months of 2014. So if you adjust for these two lines, we actually have a free cash flow in 2015 of DKK 190 million, and thereby it is very much in line with the cash flow that we saw in 2014 that was also at a very high and strong level. We continue to see a solid capital structure, as illustrated on slide 11. We are now below 1x EBITDA, looking at our operational leverage or our financial gearing. That is the first time in many, many years that we are at that level.
It, of course, also have an impact, positive impact on the interest charges that we have on our debt towards the banks. It also underlies our flexibility in fueling significant growth from acquisitions, if we can find some ideal candidates. That is still a topic in Nilfisk, where we continue to focus, but it could also be a topic in the NKT Cables business, but definitely also in the Photonics Group. So it is good to see that we also have the ability to finance this appetite. On slide number 12, just a little bit of housekeeping here. Just a warning to the market that we will change reporting or presentation currency from Danish kroner to euro, starting from the annual Report for 2015 that will come out beginning of 2016.
The reason for this is actually that we do have underlying businesses that on a daily basis are fully operating in euro, and that goes for both Nilfisk and Cable. So all internal reports, et cetera, the way that we manage the business are focusing on euro, and that we would also like to reflect in our external communication. That will make it easier for all of us. With that, I have finalized the highlights for the third quarter. I would like to hand over to Jonas to take a deep dive into the development of Nilfisk.
Thank you very much, Michael. We jump directly to the next page, going into the growth of the month. We ended up with 3% growth, which is slightly lower than expected, but still an okay quarter. An okay quarter of 3%, DKK 1,718 million. If you look into the Americas, then we ended up with - 3%, which is of course not to satisfaction, and that is mainly due to still suffering from national account. We see absolutely a slower activities in the commercial area. Of course also continuously to struggle with the competition in Americas. So Americas is still under observation. EMEA, on the other hand, did very well, 4% growth, and continue to do strong and continue to outgrow competition in EMEA. APAC, 12% growth, which I am quite happy with.
We should know also that there is an underlying big order in China during the quarter that absolutely brings up the result. But we still see some improvements also in the underlying business in APAC in the quarter. Then going in and see how this is affecting the result on the next page. EBITDA margin, as Michael also mentioned before, we are improving absolute number compare with last quarter, 2014, same period. But that we are still suffering, and this is still a little bit disappointing. We are still suffering from a little bit negative product mix, but we also have high distribution costs, even if we have solved the delivery problems that we had in the first half of the year. We are still cruising with a high distribution cost and high inventories in the quarter, and this will most probably also continue into Q4.
On top of that, we do not see absolutely growth everywhere where we want, and we also have done investments in the front end, and that is also why we do take down the full year estimation for the results. Going into next page, the strategy. This is very much continue. We still do investments to take market share. In front end, we do continue to do investment even if we are slowing down investment of front end people, but commercial excellence rollout still continues. Now we have passed all the big countries, and we also continue with small countries when it comes to the delight rollout. Competitive offerings, I will come back a little bit to that, but we have a very strong pipeline here for 2016. When it comes to supply chain, I will also come back.
As I said in previous slide, we are already coming up to a level or actually exceeding a level where we have been before. So one thing is, of course, in this strategy is also to accelerate the pipeline of M&A and push that. By that, I like to go to the next page. The last 12 months, we have been able to do five acquisitions, and this continue. We have still a very strong pipeline, still a very strong focus for us. What we can announce here in this quarter, that is that we have bought a company called Hydro Tek in U.S., in California. Just to get a little bit more details about that, I like to go to page 19. Hydro Tek is actually one very strong company in hot water, high pressure in U.S., and have a strong market share there.
Why this is interesting is that they are doing the petrol high-pressure washers for the professional segment. This is a segment that we do not exist at all in today, the petrol one in U.S., but we do not exist either in the professional part in U.S. So this is a very strong way for us to come in to sell our corded products into U.S., but at the same time also leverage this petrol high pressures into the rest of the world. So this is a very interesting acquisition in my mind, and open up a completely new market. Jumping into next page 20. Just to leverage a little bit on the supply chain and the supply performance. We have now come up to a level, actually high time level, how we are serving our customers. I am very happy to say that.
We also now push this whole global supply chain transformation, which is giving us a possibility to serve our customers overnight or with very short deliveries when it comes to part, and really to boost the service in the world. At the same time, we are also dividing the whole DIY supply, so we have a special DIY part selling into the consumer part and divided into one with the professional side. This is, of course, to further improve our service to the DIY customers where we had the issues here this spring.
Now we are soon coming into Q1 with a new high season, just to be prepared for that, we have done what we need to do in order to really boost up how we service our customers. On the downside is, of course, that we still have distribution cost issues, that's due to that we have to divide up the warehouses, and we're also moving some warehouses here in order to serve the DIY. Therefore, we are cruising still with high distribution costs in Q3, and this will also continue into Q4. Coming back to the very strong offering we have. We have a very strong pipeline for 2016, which is very exciting. I think one of the strongest we have had when we go into a new year. I'm sure that we will see some very good upside from that.
Also coming into one very interesting product, I would like to mention this, SC100, which is actually a product going into a completely new segment. It's a professional scrubber, a small scrubber for typically small shops, cafeterias, and so on. This is giving Nilfisk a chance to come into a segment where we haven't been before. We also showed this product here two weeks ago in a big fair in U.S., and we had a fantastic response from the customers. I think this will be a big seller here going forward. It's very positive to show. Also, just to mention, we once again got an award for a commercial vacuum cleaner, VP600 , in a fair in Berlin and a trade show, that was once again to show that we are on top of continuing to do very nice products into the markets.
Then I like to sum up with the last page 22. Sales growth 3%. It's not fantastic, but I'm still okay and happy with this, especially with EMEA. We have a positive situation in APAC, even if we were helped by one order. Then, of course, U.S. still it's a challenge for us. Gross margin, we have a product mix, and that is, of course, affecting our result. Most important to say is the overhead, and that's why we also do a warning here for the full year when it comes to result. Very much impacted by distribution costs, but also the investment we have done in front end, which not really pay off yet. By that, thank you very much. I'd like to hand over to Michael.
Thank you, Jonas. I will try to make the same kind of deep dive into the cable's performance in third quarter. Let's start with looking at slide 24 just to present my new group management team that I have strengthened the last couple of months with first, a replacement of the CFO. Now, the CFO position is headed by Roland Andersen, who joined the team here just a month back. Then we also have a new lady on board, Lika Thiesen, who is in charge of human resources and communication, and she also joined back in October this year. Both of them are, of course, representing a significant experience that are valuable when we look at the different challenges and different Must-Win Battles that we have, looking into the EXCELLENCE 2020 strategy that we also launched and communicated back at the Capital Markets Day.
Both of them are having many years of experience from A.P. Møller - Mærsk, and also from other large Nordic and global companies. Welcome to both of them. If we turn to slide 25 and look at the overall market development and also our performance in the market. As mentioned on the first slide, we have realized -12% growth, and that should not be a surprise to anybody. After the first six months of 2015, we had growth of 12%, and in August, we guided 5% for the full year. Of course, that means that we should have negative growth in the second half, and that will also be the situation, although smaller numbers in the fourth quarter.
It entirely relates into the offshore market, where we last year, in the same quarters, finalized some orders, and we have not had that order mix in Q3 this year. A big part of the finalization of orders that we have been doing this year have been in the first half, where we also have seen significant growth in the offshore and onshore markets. That's the reason. It does not concern me at all. As mentioned also in the beginning, we have secured the Galloper order, and that just underlines the positive view we have on the offshore sector, where we continue to see a lot of very interesting orders. We now have full visibility for 2016 when it comes to offshore, and we also have pretty good visibility when it comes to traditional onshore markets.
Bear in mind that you will see these kind of swings from quarter- to- quarter in this business. It is more important when you look at growth in projects to look at the year-over-year comparison year- to- date. It's very positive that we see a strong growth in the product business. We have realized 10% growth, and in particular, that growth is coming from the Central European market and from the Specialists. Whereas the market we see in the Nordic segment are more or less flattish. Year-to-date, we are at 4% because we didn't see a lot of growth in the first half. It is a kind of a new trend that we start to see in the Central European markets that we really are able to fuel growth. It is coming both from prices and volumes. We are satisfied with that.
When it comes to APAC, we continue to see negative growth, and that is the picture that we'll continue to see probably also for fourth quarter. As I also mentioned last time, it does not reflect necessarily the underlying business development or market development, but it more reflects our appetite for orders in APAC that have been reduced significantly over the last quarters because we don't want to take orders where we do not have any kind of profitability or where we need to tie up a lot of working capital for a number of years. That's why we are much more selective when it comes to what kind of orders we take on in APAC.
When it comes to the profitability on slide 26, we looking at last 12 months trading curve, we are more or less flattish when it comes to the 10.2 realized versus 10.3 end of second quarter. We will see a negative trend into fourth quarter on this line because we are, as you know, or have probably have seen, we are guiding 9% EBITDA margin for the year, which is, by the way, unchanged compared to what we guided back in August in this business. That is fully related to the composition and the order mix related to the project business that I mentioned before.
We have started up production of Race Bank, and that is, as always, with lower profit generation in the beginning of the production process. On top of that, it is also pricing-wise at a significantly lower level than the pricing mix or the pricing we had on the Gemini project that we executed in the beginning of this year and end of last year. That is the reason for that. If we then go into DRIVE, we continue to see a positive impact from DRIVE realized DKK 111 million in third quarter. So year-to-date, we are just above DKK 300 million, and project to date, we are at a run rate of DKK 425 million. So we are moving closer and closer to a full project potential of DKK 450 million.
That is also why we will only continue to show this picture one more quarter when we look at it for the full year of 2015. Then we will stop, and we will focus more on reporting performance related to our EXCELLENCE 2020 strategy. But let's take a look at that strategy. We announced it back at the Capital Markets Day in September. So there are not any kind of new slides here. It is more a repetition of key themes that we are working on in the EXCELLENCE 2020 strategy, and it will cover the next two phases of what we started up as being the DRIVE program. The Get fit phase was very much linked to the slide I just showed you before with all the numbers and the cost reduction programs that are now finally executed.
Now we start to focus much more on the phase two, the EXCELLENCE phase, looking into different elements of excellence, and I will come back to that on the next slide. Before we really then start to look into how to Accelerate the growth. But it's also important to look at what kind of strategic targets that we have set up for ourself. We want to deliver a Return on Capital Employed of above 15%, and that actually means being one of the best companies in the cable industry. We are now at 7%, 8%, so there is a way to go in order to reach that, but we feel confident that we can do it. Secondly, we want to be the customer's preferred choice in the eyes of our customers.
That is also illustrating that we are moving away from having a very internal focus in the business to also focus much more on the customers and also on the customer's needs. Last, but definitely not least, we need to get our people with us on this journey. We also want to have the employee trust index, which is just one way to measure employee engagement, to reach a target of or a level of above 80%. The EXCELLENCE 2020 strategy works with four group-wide Must-Win Battles, and they are mentioned here on or illustrated here on slide 30. One Must-Win Battle relates to safety, people, and organization. The way that we manage the business, the way we do leadership in the business.
We touch on this on the Capital Markets Day, and it's clear that we have a gap to close when it comes to various measurements within this umbrella, and that is, of course, also directly linked into the fact that I employed a CHRO, Lika Thiesen, that will take full ownership of this Must-Win Battle. Also have the full group responsibility for this at group level.
The second Must-Win Battle is tying into operational and commercial excellence, and that is also fully reflected in the name of the strategy plan, that we want to drive EXCELLENCE in whatever we do, no matter whether we are talking about the front end of the business, where we are focusing a lot on driving commercial excellence, but also when it comes to the back end, the way that we produce our products, and all the different kind of supporting functions that we have in between. We strongly believe that we can drive much more EXCELLENCE, and that there will also be a high payoff from driving such kind of EXCELLENCE. Third Must-Win Battle is around material and product development. We have a gap to close to existing and customer needs, but also to future customer needs.
We are step changing our activities within material and product development, and that will also be reflected in the way that we organize it. That will be a key theme also ahead of us. Also potentially looking into different kind of other technologies, other cable products that we do not necessarily have today, for example, DC cables. Last but not least, we want to digitize the way that we work, not only internally, but also the way that we work with our customers. Those are the four Must-Win Battles for the group. When we then look into the different segments that we have, the different businesses, because operating this cable business is actually operating a lot of smaller businesses that are each serving different kind of market segments. We have clustered them into three segments.
One segment is the develop and grow segments, where we have positioned the high voltage offshore business and the railway business, global railway business. These are markets and areas where we strongly believe that there is a very positive outlook ahead of us, and we want to take our fair share of that market. Develop and grow, that means, for example, in the high voltage offshore, that we will speed up our investments in the DC technology. Also in railway, we are working with new kind of products, a new way of producing our products that we also will implement and present to the market. Then we have in the middle here a segment where we want to focus on profitability. It is actually businesses where we have seen a step change in the profitability level as a result of DRIVE.
The focus also means that we want to maintain that but also improve it. In that segment, we have positioned the building wire and low voltage segment business, but also the medium voltage and automotive business. These businesses are defined as being kind of commoditized with high focus on prices and also quite a lot of number of competitors around the market that we serve. It is, of course, important that we continue to focus on cost coming from, for example, operational excellence, but also that we improve the way that we service our customers in these segments. Then last but definitely not least, we also have some businesses that we have clustered as being turnaround focus areas.
The most important one out of the three mentioned here is the high voltage onshore business that are extremely competitive in the market that we are serving today, and we need to find our way around that. We think we have a lot of internal improvements to do, tying into the EXCELLENCE that I mentioned before, that can definitely step change our profitability level in this business. We also need to change our position in the market, linking into the product development, material development Must-Win Battle that I just mentioned. We also have, of course, the business in APAC, that you also are aware of, that we have tried to structural change our position in APAC. Unfortunately, that has not yet been possible. Now we very much focus on internally turnaround activities.
We have two production sites in China today, and we are closely looking into how to position that and position those factories in China in the future. Then last but not least, also the accessory business. Part of the accessory business is doing fine, but we also have part that we definitely need to restructure, and there are some segments that we want to close down and exit. To summarize Q3. Q3, very much in line with the expectations for full year. Supporting the full year target of organic growth of 5% in this business and also supporting the target of achieving 9% operational EBITDA margin in this business in 2015. It is just confirming that. DRIVE will continue to support it. We have good visibility in the project business.
And last but not least, we have seen a step change in the return on capital employed, in this business up to now 9% from 2.8% in Q3 2014. With that, I think we should move on to the Photonics Group. Please, Basil, take it from here.
Thank you, Michael, and good morning. I am Basil Garabet, the CEO of Photonics Group. I joined NKT on July 1st, and I am based here in Denmark. I have a background of over 30 years in the photonics industry, where I have worked in functions from R&D to sales and marketing to executive management. My career has spanned large multinational conglomerates, to tech startups, to starting my own company. With that, I want to move now to the quarter. We are on page 34. We had a very good third quarter. Both imaging and the sensing business experienced significant growth. On the imaging side, our revenue was on target, slightly above target. Our large OEMs, which are key for our future growth, are all on schedule and on target. That is a very good achievement that we continue pushing for.
On the sensing side, we had significant and very good order intake despite the oil and gas market setback that we have. That is very good to see as well. The pipeline security market performance has been well above our expectations. Again, a significant point in our planning for our future. Going to the next page 35. The highlights are that we experienced a 31% organic growth year-on-year. That is a significant achievement, which has increased our EBITDA to DKK 14 million. Also in the quarter, we divested the fiber processing operations, as mentioned by Michael, and that was completed in the quarter. With regards to our order intake, it has been high for all groups, and we are building a very healthy backlog. The business is looking healthy going forward. That concludes the Photonics Group portion. Thank you.
Thank you, Basil. With that, we have finalized the review of the business units. Let us now move to slide number 37 to look at the updated forecast for 2015. Here illustrated with the wording in the blue box and the more detailed explained in the planning assumptions that we have in the different businesses. Basically, we are maintaining our organic growth of around 3%, so that is unchanged compared to what we have said before and are also updated in Q2, and that is illustrated in the box as well. Then on EBITDA, we are taking it slightly down. We now report an operational EBITDA of around DKK 1.3 billion.
We ended the first nine months of exactly DKK 1 billion, so it is DKK 300 million more to go in fourth quarter, and that is actually slightly up compared to the nominal EBITDA, operational EBITDA, that we did in 2014. But looking at the margin, it is lower. We now expect it to be around 9.2% at standard metal prices. If we look in the table or in the illustration here on the right side of the slide, it is an unchanged picture in NKT Cables. It is unchanged in NKT Photonics. So the reduction of operational EBITDA is entirely related to Nilfisk, where we are taking down the target to be now around 10%. It is fairly reflecting the fact that we are continuing to investing in the business.
I think it is very important to underline that we have appetite to invest in the brands, in the Nilfisk brand, in the business that we serve, and we will continue to do that because we firmly believe it is right. Then we need, on the other hand, to be patient to see the performance kick in, starting with organic growth, but of course, also falling down to the margins. We expect that to be the case in 2016, and we look forward to guide more precise in 2016 when we come back to 2016 guidance in the annual account for our report for 2015 in February next year. With that, I think we can end the presentation and move into the Q&A session. Operator, anyone with a question, please?
Thank you. Ladies and gentlemen, if you have a question for the speakers, please press zero one on your telephone keypad. We have our first question come from Kristian Johansen from Danske Bank. Please go ahead. Your line is now open.
Thank you. If we start with NKT Cables and the projects division, is it correctly understood that the Gemini project was fully completed in the third quarter, meaning that the customer ran the final test of the cables? If so, what earnings impact did you see from this?
No, that is not correctly understood. The Gemini project is not finalized yet, so the final test has not been carried out yet. That is not under our responsibility. Seen from our production part of this project, we are 100% done. But we are still awaiting the final test, which is not in our control because it depends on many other parts of the entire supply chain. But the knowledge, the visibility we have today is that it will be carried out in fourth quarter this year.
Looking at your guidance, you do not include any effects from reversal of provisions when the Gemini project is completed. Is that correctly understood?
I cannot comment on a specific provision line for a specific project. We guide as we guide, and then we take it from there.
But theoretically, there is a scenario where you could reverse provisions when the Gemini project is finally completed.
We guide based on reality and not theory.
Fair enough. Looking at the products division, is earnings up for that year-over-year?
Yes, earnings is up year-over-year in that business.
Okay. Jumping to Nilfisk. Can you quantify the impact of these additional distribution costs you will have in 2015?
Yes, we can quote. That is why we come down with this number we have for the full year as well. That is direct result of that.
As I read it, there is both an effect from distribution cost and the commercial excellence program, or is it mainly the distribution cost that causes you to lower the margin?
There are two reasons, as I said. It is the distribution cost that is running higher for the full year and also continue to do here in quarter 3 and also will continue to do in quarter 4. Then on top of that, of course, with the investments we have done in the front end, with hiring more sales peoples and so on, if we do not really see the growth, which we have not done as much as we want, then of course, that is also directly affecting results. That is the two parts. I would say they are equally impact on the results for the full year.
I think if I can just add, I think when we look at the higher distribution cost that we have had during the year in order to improve the delivery time towards the customers, we have fixed the issue with the customers. So we are serving the customers as expected and probably also better than in the past. But we still need to work to now bring down the extra cost that we have added in order to fix the issue that we saw in first half. So there is still an impact from that in third quarter and partly also going into fourth quarter.
Do you intend that, when you enter 2016, your distribution costs should be at a normalized level?
They will be slightly higher next year compared with what we have seen 2014. The main reason for that is that we are serving a total different segment in a much bigger scale than we have done before, and that is the DIY. What we also mentioned in the presentation, we have to split those because that is a total different customer segment, and that is why also we need to serve them in a different way. So there are higher costs than 2014, but we already now, quarter 3, see a decrease compared what we have seen quarter 1 and quarter 2. So we are improving, but the cruising level 2016 will be slightly higher than it was 2014. Yes. That is also planned due to different customer segment that we need to serve.
It will be lower compared to 2015.
It will be lower compared to 2015, yes.
Good. Then lastly, can you give an update on the staff turnover of sales people in Q3 and also the level of rehiring of sales people?
I think when we look into, in the big countries, we have stabilized now the sales staff in that sense. We also mentioned in the presentations before that we have lost significant number of direct sales people here when we roll out commercial excellence. But I would say end of August, we have stabilized it. Now we have in what we need to have in with the sales people, and we do not lose more than normal now, sales people. Of course, there is always people who resign. But that is coming down to a level where we are more normal. But of course, we still have a sales force that, especially in some countries, are fairly new. As we discussed also in previous presentation, it takes up to close to a year until they are in full performance, so to speak.
Okay, clear. That was all for me. Thank you.
Thank you. Our next question comes from Claus Almer from Carnegie. Please go ahead. Your line is now open.
Thank you. I have three questions. The first is to the cable business, Michael. Majority of the DRIVE program will be behind us by end of 2015, but there will probably be a run rate full year effect going into 2016. Can you quantify that? That will be the first one.
Looking at the way we report DRIVE, it gets more and more difficult somehow to be very firm on the numbers because the cold and hot water are starting to mix up, right? The way we originally wanted to guide on DRIVE was what would be the result if it took one day to implement. Then, of course, you have a lot of different other pluses and minuses, in particular, for example, inflation, that are, of course, impacting these numbers, and you also work with your sales prices, et cetera. So it is difficult to compare it back to what was the situation back in 2014 when we first time communicated around this. But the run rate is the 450 that are the full potential, more or less, 400 or 450, going into 2016. But then you also have some other plus and minuses.
But could we say that it may be everything equal, that there will be a DKK 50 million profit impact from DRIVE in 2016 over 2015, or?
Sorry, can you repeat that, Claus? I could not hear you.
It's more like, if you're going to put one number to this DRIVE effect, everything equal, could we then say, let's say DKK 50 million profit improvement in 2016 compared to 2015 due to the DRIVE program? Will that be a fair assumption?
Yeah, that would be somehow a fair assumption.
Okay. Then second question to the Cable business. The strong performance in the product division, are you starting to see a positive pricing impact too, or it's just a volume gain?
As I mentioned, during the presentation, it's a mix. We both see it coming from volume, but also from pricing. You probably recall that we also have had a pricing study or pricing work, operating the last nine months or 10 months since beginning of the year, where we also focusing on how we are pricing our things, being better in pricing management in the market. Partly a little bit tying into what they work on in Nilfisk on the commercial side, but more focusing on pricing. We also see a positive impact from that, supporting the 10% growth, in Q3 in the product segments.
Sure. Can you then quantify the 10%? What is volume? What is pricing?
That is always difficult, because it is always with a sense of judgment here, but it is probably 60/40. 60 volume, 40 price or something like that.
Okay, thanks. My final question, which goes to Nilfisk. Jonas, did I hear right that you are slowing down the investments in the front end? If that is correct, is that what has been in the plan all along or is that a new part of the strategy?
I don't think I mentioned in this presentation that I am slowing down. What we do now, we have invested quite a lot in the front end, and we are absolutely not taking away the investments we have done. What we do, of course, is to make sure in specific countries where we haven't seen the growth yet, that we do make sure that we get the efficiency out of the salespeople that we have already hired before we continue to hire new people. So I cannot say that overall, that we do that. But of course, in certain countries where we haven't seen the efficiency coming up, then of course we put a hold to continue to hire people. In other countries where we see that we have good efficiency out of the salespeople, of course, we continue to do investments.
Will you keep adding salespeople in 2016 net? Is that how it should be?
If we don't get the growth, of course, we will absolutely not do that. It's a mix of things here. In some countries, we already see effects, and there we will continue to invest, but in other countries, we will of course, put a pause to it until we see the efficiency coming out, Claus. We are not running full speed into the wall.
Okay. Then just my final question. The - 3% in the Americas, I mean, that's a totally different picture than painted by Tennant. Can you put a little more flavor to the difference in performance between you and Tennant?
I mean, first, of course, I have to say, it's tough for me to say, but of course, they are outperforming us, no doubt. Having said that, we also very much operating in different. We are very strong in the commercial field when they are very strong in industrial field. We have also mentioned that before, Claus. In the commercial, what we have seen very clearly in a big product, it is slowing down for school, hospitals, investments and so on. That we see. Having said that, of course, we are not happy with this - 3%. I also think we are losing market share in U.S. over the quarter.
Okay. Thank you.
Thank you. Our next question comes from Patrik Setterberg from Nordea. Please go ahead. Your line is now open.
Yes, good morning. Patrik Setterberg from Nordea. I have a couple of questions to your profitability guidance, for the Nilfisk business. I just wanted to understand it. Regarding your SG&A costs, they usually tend to be at a similar level in Q4 as Q3 or slightly smaller. How do you see that your SG&A costs will develop in Q4 compared to Q3?
Well, I see that as a fairly flat, slightly down, but fairly flat, I would say, compared with Q3.
Okay. If that is going to be the case, you must implicitly guide for a sharp headwind on the gross margin.
Yes, we are seeing a gross profit because of the mix. We see a mix difference here also. Already start to see a little bit here in Q3, and we believe that it will continue into Q4 as well.
Is it correctly, if I do the math a little bit here, is it correctly that the gross margin in fourth quarter for Nilfisk should go as low as 38, 39 percentage point?
No, that is not correct.
No, we do not guide fourth quarter numbers on P&L line by line, Patrik.
No, but given that your SG&A cost is going to be flat, as you say, I just have difficulties to see how you are going to end around 10% if we are not going to see a major hit on the gross profit line.
But you know, in the end, whether it is 10 or 10.2 or whatever, we start to talk small numbers that can be difficult to find back in your Excel sheet. That is just how it is.
Okay. These extra distribution costs, are they all hitting the SG&A cost or is some of it hitting cost of goods sold?
It is mainly hitting, I would say, 90% hitting the SG&A cost. The SG&A cost, we are very much under control. It is the front-end investment and it is the SG&A cost that is driving up the total cost for overhead.
Okay, thank you. My next question is regarding the working capital movements. You tend to have a seasonality where you see a lower level of working capital during the end of the year. Given what you can see you are going to do in the Cables business, will we see the same seasonality in the working capital as we have seen previous years?
We definitely expect to see a positive impact in fourth quarter as we normally see, but you also need to adjust for the fact that the last couple of years have been extremely strong when it has come to project execution, the timing of project execution, where that was more in the first half this year. You should not count in the same kind of improvement that you have seen the last couple of years, fourth quarter, but more see it as a trend curve development where we already have improved and have not increased as much as we normally would do in the first six, nine months of the year. Yes, we do see improvement in fourth quarter, both in Nilfisk, but also in particular in Cables.
Okay. Sorry for jumping back to the Nilfisk business again. I am just wondering the profitability of this acquisition you are making in the U.S. What kind of profitability margins are we looking at?
We are talking about very much a similar level as we do in the rest of Nilfisk.
Okay. A final question to Basil. You obviously have a strong third quarter. Were you successful securing any specific contract in the quarter, or is it a runway we could expect a little bit more going forward?
There was no significant signing in the quarter. It was just a general improvement in all our businesses, in all the product lines.
Okay, very clear. Thank you.
Thank you. Just as a reminder, if you have any questions, please press zero one on your telephone keypad. Our next question comes from Jacob Pedersen from Sydbank . Please go ahead. Your line is now open.
Yeah. Hi, guys. I have a couple of questions. First of all, there are still some press reports in Danish press around the Anholt offshore cable incident. Could you just update us on whether you have made any other assumptions as to what this might cost you in the future?
No, I think it is very clearly described on slide 13 in the Q3 report, and that is a copy-paste of the wording that we used in Q1 and Q2. So we do not have further update to do on that. We have taken the cost that we assume relevant for this already back in Q1.
Okay. Next question regarding Nilfisk. If you look back two years, in 2013, you had a profitability and EBIT margin of around 8.6%, I think, in this business. We are now approaching, I think, 6.6% or so if we look at the EBIT margin in 2015 on a revenue base that is around 10% higher. What would it take for you to get your profitability back to that very fine level of 2013? Yeah.
We are in a business that is extremely related to the growth, I have to say, or to the volume. Of course, we see a total different volume today, but we also have done investment as we also have described. Of course, if we start to see the growth, we immediately see also a big improvement when it comes to EBIT.
Okay.
You also should bear in mind when you do that kind of number, playing with the numbers, that you are right that top line is significantly up, but it is very much coming from currency, very much from U.S. dollar. That is also having some kind of a negative impact looking at the margins that we have for the totality of the Nilfisk business. Because margins, EBITDA margins or EBIT margins in the business in U.S. is slightly lower than it is in Europe. Thereby, it has had a positive impact on top line because of strengthening of dollar, but it actually have some kind of a diluting impact on EBIT level.
Okay. I am aware of that. Okay. Coming back to the Cable business. You imply that margins on the Race Bank project will be quite a lot lower than on the Gemini project. What should we think of, we are looking at margins into 2016 in this business. Will the DRIVE program be able to compensate for lower profitability in the projects business, or do you even expect lower profitability in the projects business in 2016 compared to 2015?
That is a good question. But I cannot answer it right now because I would like to wait with that until we come with guidance for 2016, and be more firm there. But you are very right that, or correct that we have a significant negative impact from the decision that we took some years back, where we wanted to have more visibility in our order backlog at a time where there was not a lot of activity in the offshore wind. That is why we were slightly more aggressive on prices, and that will have a negative impact. Then it will be offset to some degree of better performance from DRIVE, and hopefully also markets in the product segments.
The final outcome of that, I would like to wait with explaining more about before we come to the annual report for 2015, where we guide more specifically of 2016. Of course, so far now we can just be happy about the margin increase that we have seen, also supporting the fact that we can actually improve the business long term.
Okay, great. Thanks a lot.
Thank you. That was our last question. So I'm handing back to you and our speakers for your closing remarks.
Thank you for that. I don't have much more to add other than looking at slide 39 where we have the financial calendar for 2016 and also going into 2017. So it's including new dates for reporting in 2016. Thereby we can all see that we'll come back on February 26th reporting the result of the annual report 2015, including the guidance for 2016. So thank you all for listening and asking good questions.