Welcome to our earnings call for Q3. I'm hosting the call together with our CFO, Timo Krutoff, who will present our financials in detail in a few minutes. To start the call, let me give you an update on our TAKKT forward strategy and key topics from the last quarter. We are progressing with our focus on the largest and most profitable division, I&P. In line with our strategic priority on I&P, I've taken over the role of Division President in September. I'm very much looking forward to now directly lead and manage our core business in Europe, together with the divisional leadership team. Carsten Rumpf, my predecessor as Division President, stepped down from his role due to personal reasons. We are very grateful for Carsten's contributions over the past year and wish him the very best in his future endeavors.
In addition, we have simplified our organizational structure in recent months and moved TAKKT and I&P functions closer together and closer to the customer. To give you an example, responsibility for operations, our warehouses, and logistics activities now lies on divisional level. It is thus better aligned with our divisional commercial activities while providing more flexibility and ensuring faster decision-making in a very volatile environment. On growth, we're targeting large group customers with more complex procurement requirements. Part of this is, for example, an intensified marketing push for a select group of high-potential customers here in Germany. This includes customers from a wide range of industries, including automotive. Despite the overall weak market, we were able to achieve positive growth with this group in Q3 by delivering an improved customer experience as well as a more specified product and service offering.
Our actions included more personalized approaches, higher number and quality of site visits, as well as tailored sales and marketing activities. This proves our strong position in the market and the excellent value proposition we can bring to our customers. We will continue to put customers first and increase our sales activities going forward. The second example here is D2G, where we have a strong and committed team that's doing an outstanding job in a challenging market. We're consistently improving our customer engagement, increasing second purchase rates, and are growing our marketplace business. We achieved a return to positive growth in Q3. We see this continuing in October and want to build on this success in the coming months. On performance, we've diligently progressed the execution of our measures to improve cost structures and cash generation.
On costs, we have made good progress with our new I&P operating model that we presented to you in July. We're building up capabilities in our TAKKT competence center in Hungary, and we've reached an agreement with the Works Council that includes the reduction or relocation of more than 100 FTEs in Europe, resulting in substantial cost savings in the coming years. On cash, we've delivered on what we promised in July and returned to positive cash flow in Q3, driven by the release of networking capital. We will continue with these measures in the coming months and expect another good cash quarter in Q4. Let's continue with a high-level view on our current priorities. We're operating in a challenging environment, but we are also seeing green shoots out of the commercial initiatives we have implemented.
In I&P, our focus on serving large group customers with complex procurement requirements is paying off. We have secured several major project orders in recent months. One example is a customer for whom we supplied an individualized shelving system that came in at more than half a million euros. We won or extended a number of preferred supplier agreements with several customers, including well-known players from the defense and technology sector, making us an integral part of and partner in their procurement process for the coming years. At NBF, we're elevating our omnichannel approach using a broader and better aligned range of marketing channels. This includes, for example, a rejuvenation of established print media. Here, we saw a strong performance of our newly designed summer catalog, helping us to achieve continued stabilization with this business in Q3. We mailed close to 200,000 catalogs.
For the customers who received the catalog, we achieved almost 180% uplift in transactions compared to the holdout group that we used for comparison purposes. We continue our path of strengthening and better positioning our great and well-known brands. After reintroducing Raschform in Europe, we're now bringing back Frontal and Vink Lisse. In the U.S., we performed a successful brand refresh of our Hubert and our Central brands, playing to the unique and very complementary strength of each brand. Hubert as the food service brand with personalized high-touch solutions, as well as Central as the trusted partner for restaurant operators who need fast and seamless access to food service equipment. The feedback we receive and the early results we see confirm that we're on the right path with our brand strategy. Consequently, we will continue to strengthen and develop our brand portfolio in Europe and the U.S.
In parallel to continuing with our commercial measures, we're intensifying our performance measures. This will enable us to keep investing in our business and improve profitability mid-term. We're streamlining processes along the value chain and are increasing the use of AI throughout our organization. One example is that we increasingly automate the transfer of unstructured orders from emails into our systems. This helps to not only save costs but also to provide better customer service by fulfilling orders more quickly. Another example is that we now use AI for web and catalog design and creation, as well as for the translation of product descriptions. Another area of focus is procurement. We're taking our procurement organization to the next level with improved capabilities and new leadership. We're simplifying our product range and are bundling purchase volumes with key suppliers globally.
This will allow us to realize notable cost savings in the coming years. These activities make us a leaner, more nimble, and more efficient company while supporting our continued investments into our business. The process and system improvements are well underway, and we expect further acceleration in 2026. I will now continue with a recap of the current market environment. I can keep it short here and will focus on what has changed compared to July. In Europe, GDP growth remains subdued. Especially Germany is lagging behind, with recent estimates expecting Q3 to also show negative growth. PMIs have improved year to date but are still in contraction territory. Businesses remain quite cautious and do not expect growth to accelerate substantially in the coming months. Looking at industries in Europe, automotive, chemicals, and manufacturing remain weak, while defense, infrastructure, and technology sectors are growing. GDP growth in the U.S.
is slightly better than in Europe, with an expected growth just shy of 2% for the current year. However, a good amount of this is driven by the AI boom and investments in data centers. Looking at the underlying economy and our target markets, we see a more challenging picture. In the office furniture market, demand from government customers, but also from adjacent categories like healthcare and education, remains muted. Volatility and uncertainty due to tariffs and the U.S. government shutdown are impacting customers' willingness to invest. In the food service market, we're operating in an environment where restaurants remain hesitant to expand and see lower traffic. The situation for larger players like Sodexo and Aramark is more favorable, which is also reflected in what we're seeing in our order intake.
To summarize, we're operating in an environment where we see more headwinds than tailwinds, and we expect it to remain challenging in the coming months. Before handing over to Timo, let me briefly walk you through our financials in Q3. Overall, performance was in line with expectations. On the top line, our organic growth rate came in at -6.2%, and with that, it remained on a similar level to Q2. Both our I&P business and especially OF&D were able to continue their stabilization and improved their run rate compared to the previous quarter. This is despite the overall market environment both divisions operate in. Food service saw a negative growth after a slight positive growth in Q2. In part, this is due to the higher level of previous year gains in Q3. In addition to the top-line impact, profitability was influenced by a lower gross profit margin.
Here, we continue to see some effects out of freight and tariffs. Adjusted EBITDA margin was 4.3%, improved versus the very weak Q2 but significantly below prior year. I've already talked about our performance measures to improve profitability in the midterm. We saw a better performance on cash generation, where we returned to positive free cash flow of EUR 7.6 million in Q3, supported by continued measures to release networking capital. With that, over to Timo for a more detailed view on our financials.
Thank you, Andreas. As you just said, our Q3 performance was what we expected heading into the quarter in July, given the challenging environment in our markets. At EUR 244.5 million, group sales were 9% below prior year, impacted by the weaker U.S. dollar. Organic growth came in at -6.2%, with continued stabilisation at I&P and a significant run rate improvement at OF&D. Food service was weaker than in Q2, compared to a higher base in Q3 last year. EBITDA margin in Q3 was much better than in Q2. Compared to last year, we were down EUR 10 million. The biggest impact here remains the lower top line. Gross profit margin came in 1.5 percentage points below prior year. Here, we continue to see an impact from freight and, of course, the tariff effects.
On costs, we reduced our marketing expenditure, including personnel costs for sales reps, and we continued our transformation with investments into systems and process improvements, which will help us become more efficient in the future. One-time costs were almost neutral in Q3, compared to EUR 3.6 million last year. Due to the continued top-line decline, Adjusted EBITDA margin was at 4.3% after 9% in Q3 last year. For the year-to-date development, it is very similar to development as in Q3. Sales were at EUR 736 million, down 8% year-on-year. Effects from FX and the MyDisplay sales were a bit more than a percentage point. Adjusted for these effects, organic growth was at -6.5%. Year to date, both I&P and food service showed a mid-single-digit decline, while OF&D is still down double digits. EBITDA was at EUR 27 million after EUR 50 million last year.
Again, we see the biggest impact coming from lower sales, with an additional effect coming from the lower gross profit margin. Looking at costs, this is very similar to Q3, with savings in marketing and personnel, while we continue to invest in our transformation. Development of one-time costs was favorable this year in the first nine months. This will reverse in Q4, where we expect one-time costs of around EUR 10 million for structural improvements. Adjusted EBITDA margin was at 4.3% after 7.7% last year. Let's now have a more detailed look at our divisions, starting with the largest and most profitable business, I&P. Here, we see a continuation of the top-line stabilisation in Q3. This is despite the fact that the environment remains challenging for many of our customers. This is especially true for Germany and its automotive sector.
At the same time, we are seeing better order intake development in other regions. Especially the UK and the Nordics are performing well year to date. Gross profit margin development in Q3 remained similar to the first half of the year, with a decline of around 1 percentage point. Adjusted for one-time effects, costs were similar to prior year at I&P. We executed on cost measures while continuing with our transformation push, leading to a higher tax spend, for example. One-time costs were lower this year by around EUR 4 million in the first nine months. This will, as I mentioned, change, however, with the implementation of the new operating model in I&P, resulting in substantial one-time expenses in Q4. Adjusted EBITDA margin was 8.4% after 12.2% last year due to the lower top line and the gross profit margin impact. Continuing with our performance in the U.S.
At OF&D, Andreas already mentioned the stronger quarter-on-quarter improvement on the top line. This is driven by both businesses, with NBF developing more stable in Q3 and D2G achieving positive organic sales growth for the quarter. With NBF, we continue to operate in an environment that is marked by uncertainty and restrictive ordering from government, education, and healthcare customers. We saw order intake in September hold up relatively well. Some of this might have been forward buying due to the expectation of a U.S. shutdown. We will have to see how this develops in the coming weeks. Margin and cost management worked well at OF&D in Q3, with a gross profit margin on prior year level and visible reduction in relevant cost positions. This helped to compensate part of the top-line impact on the Adjusted EBITDA margin. At food service, we see organic growth of -5.5% year to date.
After positive growth in Q2, the run rate was negative in Q3 against a much higher base and in line with expectations. Year to date, our gross profit margin is down around 1 percentage point and impacted by, again, freight and tariff effects. In addition, we also see an impact from lower vendor rebates due to lower purchase volumes this year. We managed down costs, but not enough to compensate for the lower top line. Adjusted EBITDA margin was slightly positive in Q3 and pretty much neutral year to date. Let's now continue with the cash generation of the group. Cash flow before change in net working capital followed EBITDA development in the first nine months and in Q3. On net working capital, we released net working capital in Q3 after the build-up in the first six months. Contributions here came out of inventories and trade payables mostly.
Operational CapEx was lower this year, and we had a cash in of a bit less than EUR 2 million out of the sale of real estate that we will no longer use in the Nordics. With a positive free cash flow we generated in Q3, we mostly compensated the cash out of the first six months. We will continue with our cash performance measures and significantly release inventories and trade receivables in Q4. In July, we announced that we would also look at additional cost cash contribution opportunities. We have evaluated measures, especially a potential larger sale and lease-back transaction. In the end, we decided against it. It didn't make sense economically. Looking at our balance sheet, it's pretty much unchanged compared to end of June. Net financial liabilities are at EUR 154 million, slightly higher than last year end of September.
Equity ratio is at 54%, and with that, towards the upper end of our target range of 30% - 60%. Let me conclude my comments with my personal view on our financial performance in Q3. We are operating in a difficult environment and see continued top-line pressure that's impacting our profitability. We are working on structural improvements that enable us to keep investing in the business and successfully transform the business by improving processes and systems. This is not a sprint but an endurance effort. This is a turnaround we are working on, yet we remain a robust business and generate positive free cash flow. We have a strong foundation in our customer base and a high degree of loyalty. Therefore, I'm very much looking forward to realising our potential in the coming months and years. Thank you, and back to you, Andreas.
Thank you, Timo. Looking at the remainder of the year, volatility remains high. In this environment, we've narrowed our guidance today with an expected organic growth rate between -8% and -4%. This means that we expect Q4 to come in on a similar run rate to Q3. Our Adjusted EBITDA margin will likely come in towards the lower range of the 4% - 6% margin corridor. We do expect profitability in Q4 to remain at the level we saw year to date, which was 4.3%. Given the current macro risk resulting from ongoing trade disputes and the U.S. government shutdown, we cannot fully rule out a profitability of just below 4% for the full year. I've talked about our performance measures to structurally improve our cost base at the beginning of the call. We do expect notable one-time costs of around EUR 10 million out of these measures in Q4.
This will likely result in a full-year effect similar to that of the prior year of EUR 17 million. For cash flow, Timo already mentioned that we evaluated options for additional cash flow contributions and prioritized mid-term profitability over short-term cash generation. For the full year, we expect free cash flow to come in between EUR 10 million and EUR 20 million. Given the lower sales and earnings development, there is an increased risk for impairments towards year-end. We will finalize our multi-year plan in the coming weeks and then see where we stand. Before we come to the Q&A, let me briefly summarize key points from today's earnings and my view on TAKKT. We're making progress with the execution of our TAKKT forward strategy. Due to a difficult environment and internal challenges, positive impacts of our measures take longer to materialize than we expected at the beginning of the year.
Our performance measures will allow us to elevate performance and increase investments into the business. We have a clear path going forward, and I remain confident that we will unlock substantial value for shareholders in the coming years. We have a clear portfolio focus addressing attractive markets with high margin potential. We operate in a market-leading position with repeat and long-lasting customer relationships, offering opportunities to grow with our customers and beyond. We're working on performance measures for EBITDA and cash improvements and will return to improved and more resilient earnings in the coming years. We follow a clear strategy and roadmap underpinned by targeted investments in our capabilities and a clear execution focus. Our extensive and continuously growing sustainability offering is providing further growth opportunities. We remain committed to a shareholder-oriented capital allocation, including dividends.
As mentioned in July, we will decide on dividend payment for 2025, taking into account cash generation this year, expected cash flow for 2026, and CapEx requirements to further strengthen our processes and systems. With that, we're happy to take your questions. Over to the operator for the Q&A.
Yes, thank you very much, Andreas and Timo, for your presentation and the dive into your numbers. Ladies and gentlemen, we are now open for your questions. To keep this conversation engaging, we kindly ask you to ask questions in person via audio line. To do so, please click on the Raise Your Hand button. If you are joining by phone, please use the key combination star nine followed by star six. If you do not have the possibility to speak freely today, you can also place your questions in our chat box. In the meantime, we have one hand up from Christian Bruns. You should be able to speak now.
Yes, hello, and thank you for the presentation of Q3 figures. Welcome, Timo, to the mentoring team. My questions are, could you give us an update on also your divestment candidate? I think I haven't heard, I've wondered that D2G did a good operational development or at least okay operational development. What's going on there? What are the options and plans for this business? You talked about the impairment risk. I think that's mainly on the food service, but maybe also on D2G division. I think in food service, there's still a lot of goodwill in the balance sheet. Could you give us an idea how much impairment could be? That's my first two questions.
Great. Thank you very much, Christian, for the two questions. I'll comment on D2G and then hand over as far as impairments are concerned to Timo. As far as the D2G review is concerned, we're making progress. At the same time, we recognize that the market environment in the U.S. continues to be very volatile, which is also something we're considering as part of our strategic review. We have, as mentioned, a strong and committed team at D2G, and their performance has notably improved these past months. We think there's a good opportunity to position ourselves as a one-stop shop offering a wider range of high-quality, customizable display solutions. Frankly, we're not under any pressure to commit to a decision prematurely. We will continue to work through this and keep you posted. You want to comment?
Sure. How do the impairments? Yes, Christian, thanks for the welcome and for the questions. Yes, the impairment topic is a little difficult topic right now because we are in the middle of our budget planning and multi-year planning process, which we typically then present to the Supervisory Board at the beginning of December. Therefore, none of the numbers we're looking at right now are, I would say, well enough calculated to actually come up with a real number. Of course, since we've done the SendBird impairment test last year, and we did have to do the impairment, there is no headroom left. Otherwise, that would have been different. In general, as you can see on the numbers, we are in a difficult environment with all our U.S. businesses from the market perspective.
I can't talk about real numbers yet because they're just not done yet, but we are going to talk about a significantly high multi-million euro number on the impairment risk side. As soon as we know enough or are fixed with that, we'll probably come back on that.
Okay. It will be below, it will not be a three-digit number, or is it too early to say this?
It is too early to say that.
Okay.
I can't rule it out. I can't confirm. We'll see. You know how a budgeting process works, right? It's a couple of months of detailed calculations, and we're not done.
Okay, thank you.
Thank you, Christian, for your questions. I will move on to Tilo Klaibarwa . You should be able to speak now.
Yes, hopefully you can hear me now?
Yes.
Perfect. Thank you. I have two questions. The first is on the gross margin. The gross margin further deteriorated in Q3, and you expect for the full year also a gross margin below 39%. What is the reason behind this? Is the gross margin present across all regions and business segments, or is there a particular reason why the gross margin is down? My second question is regarding the plans for a larger sale and lease-back transaction. You said that these plans are stopped now. Maybe you can give us the background and what was the rationale to consider this and also to not fix it. Thank you.
I'll hand over to Timo to address both in further detail, right? As we mentioned in our prepared remarks, we're very focused on turning this business around, moving towards a solid performance in the outer years, which means we are really optimising not for the short, but really for the mid and long term. This has been the backdrop for our decision on the sale and lease-back that Timo, maybe you want to comment on a little bit in further detail, right?
Sure. Let me start with the gross margin. In general, yes, you're correct, of course. The gross margin went down. The biggest effect on that is really the negative impact from the tariffs and the freight, especially the tariffs. Even just mathematically, even if we pass through 100% of the tariff increase, the margin, just from a mathematical point of view, changes and is reduced. That's the one part. Besides that, there's a short-term and a long-term answer. On the long-term effect, we do see a lot of stabilization now in the margin and also some improvement chances. I think on the pricing side of the last years, inflation was a topic. Price increases, including tariffs, were quite significant, but we also need to take care that we don't price ourselves out of the market.
What we're doing right now is focusing more on the cost of goods sold there, especially the efficient procurement is our biggest lever we're working on so that the cost savings on that side, hopefully, we're pretty confident actually on that one, have a positive effect on the gross margin. Therefore, we do think that in the future, we'll remain somewhere between 39% and 40% from the margin perspective. On the sale and lease-back, if you've done or looked at things like that, for us, we, of course, looked at different opportunities. If we would need to raise money, there's always the potential of getting money from the banks through regular debt or a sale and lease-back. The terms of all the sale and lease-back options we saw were just not favorable. It was, to be frank, just too expensive.
At the same time, if you look at our balance sheet and our debt ratio, we're very well financed. There was really no current need for any additional financing, and therefore, a very unfavorable rate of leasing it back just wasn't a good thing. It would have helped short-term with the cash position, of course, but long-term, we would have to pay a too high amount each month, which we decided against.
Okay, thank you. Do you expect, you mentioned also a real estate disposal in the Nordics, do you expect in the course of the restructuring now further facilities, which might be up for sale?
I think just to be clear, the EUR 2 million that came out of the sale in the Nordics, that's already in the numbers. We did that. In the short term, there are no bigger effects to be expected. In the midterm, I think we'll need to see how we structure the business and what bigger restructuring effects are going to come. We're probably going to talk about that next year.
Okay, thank you.
Thank you, Timo, for your questions. Ladies and gentlemen, if you have any questions left, this is your room to place them. We have one more question in our chat box. Given the current earnings and free cash flow trends, could you please provide an update on your dividend policy? In light of the comments just made on dividends, is the previously announced minimum dividend of EUR 0.60 per share no longer valid? Can you at least confirm that a dividend will also be paid in 2025, regardless of the amount?
Thank you for the question. As I mentioned, we will discuss and decide on a dividend proposal when we have visibility on the cash generation in 2025, as well as our plans for 2026, including what our internal CapEx demands are for the coming year. As I mentioned earlier, shareholder return remains a high priority for us, while we will also make sure to continue paying out dividends responsibly and sustainably.
Thank you for the question. We have one more hand up. Christian again. This date is yours.
Yes, hello. If there are no other questions, I take the opportunity. Could you give us an update on the tariff situation and your pricing? Are you done with your pricing adjustments?
Thank you, Christian, for the question. As you know, we've got two factors that really come to play here. First, it's the direct impact from tariffs that translates into higher freight costs, which we did see to some extent also impacting, as Timo mentioned, our gross profit margin. We were able to compensate that mostly through price increases, which we have done early in the process, and where we also now see competition following the path of passing on the price increases in the U.S. There is obviously also the second indirect impact that we're seeing on the overall demand that is also driving an overall higher degree of uncertainty. Yes, we have passed on and will continue to pass on any price increases that we see or any tariff increases.
Okay. Maybe I would like to have a follow-up because also, as I saw the questions on the dividend, I think you mentioned that you will look at this topic by looking at the free cash flow generation 2025, which you have already given a guidance of EUR 10 million-EUR 20 million, and also the free cash flow projection for 2026. I would assume you would not choose a dividend which is above your projected free cash flow 2026, at least.
As an ongoing assumption, I think that's spot on.
Yeah, okay, because it should be sustainably.
Exactly. That's what we mentioned, right?
Yes, yes, exactly. Yeah.
Right? That's what we're very focused on. We recognize the importance of the dividends. Having said that, we want to ensure we pay out sustainably and responsibly.
Yes, of course. If in the years to come, or maybe the short term or midterm, there will be a divestment of one of your subsidiaries which are non-core now, would you then consider prioritizing acquisitions, or would you also think about a special dividend? You can release funds from the business by.
Our focus is on developing our divisions by improving these and then subsequently developing these over the coming years, right? We believe that there is a buy-and-build opportunity in the future.
Industrial & Packaging, yeah.
Primarily for, given if you look at the market structure, indeed primarily within Europe, that we will then have to see and weigh against alternative cash and resource actions.
Thank you. Also, congratulations to your new job.
Thank you.
More operational job. Yeah, even more operational.
Thank you very much, Christian.
Thank you, Christian. We have one more question in our chat box. Personnel cost was EUR 44.8 million for the quarter. Is this a sustainable level, or was there any one-off effect?
We didn't have any real one-offs, just tiny, right? We're talking about below EUR 1 million in Q3. In general, we can say sustainable on the personnel cost side is a little difficult to answer because, of course, there are a couple of changes. On the positive side, I think for the future, there's still some of the structural things we've mentioned before, outsourcing some of what we're doing and also moving some of the things we do to best-cost countries, which in our case would be in Hungary. At the same time, we're setting up, and this is what I mentioned earlier, we're in the process of now developing the budget plan for next year and the multi-year plan. Of course, we need to set up our organization ideally for the future. Therefore, is it sustainable?
I think we'll need to look into different areas where we might invest some in the next years. At the same time, use AI and different things we've implemented to reduce. Ballpark numbers, I would say it's an okay-ish assumption. Might be some changes, but not huge amounts.
Thank you for the question. In the meantime, we have received no further questions. That means we come to the end of today's earnings call. Should further questions arise at a later time, please contact investor relations. Thank you for joining, ladies and gentlemen. A big thank you also to you, Andreas and Timo, for your presentation and the time you took to answer the questions. Have a lovely remaining week, successful business. With this, I hand back to Andreas for some final remarks.
Thank you, everyone, for your participation today. We will keep you updated, and we're looking forward to continuing our conversation when meeting you on the road or at conferences in the coming weeks. Our Q4 earnings call will be on February 24, 2023. Have a great day.