Warmly welcome to Orthex interim report for January to September. It's a pleasure to welcome you together with Saara Mäkelä, our CFO, and Hanna Kukkonen, who will facilitate questions. We will go through the third quarter results. First of all, an introduction to Orthex, and then we'll look at January-September in brief. Some sustainability, strategies, financials, and Q&As at the end. Orthex is a leading Nordic producer of everyday household goods. We have sales offices in seven locations. 90% of our products are our own brands, and we have about 300 full-time employees. We operate with three strategic brands: SmartStore, GastroMax, and Orthex. Storage has become one of our key categories at 65% of sales, and kitchen is around 23% of sales.
Storage is the biggest one, the most profitable, and the one growing the fastest. We do long-lasting, high-quality products. We're a forerunner in sustainability, and about 10% of our sales comes from new products. Functionality is key for us. All the products can, at the end of the product lifetime, be recycled. Going into the January-September results, I think given the situation on the market with very high raw material prices, the performance of the company has been strong. In net sales, we were able to grow, especially outside of the Nordics. The growth was at quite high levels, and the storage category performed well.
One of the reasons for that is clearly that outside of the Nordics, storage is one of the door-opening categories. When it comes to corona, one can't be without commenting on corona and COVID pandemic. Of course, the priority has been to keep our personnel healthy and that's the number one thing. What is positive with the situation is that the absence in production has been going down, so we have been very careful in actually let's say send home people when there's even a small risk of contamination. Of course, the risks are getting fewer and fewer, so we have less absence.
Raw material prices that went up and were at very high levels at the beginning of the year are still on the same exceptionally high level. This, of course, is the challenging environment that we have been facing during not only the start of the year, but especially now in Q3. I think what is positive here is that the implementations of price increases that we did in the beginning of the year is now coming through and are starting to be completely visible in the results. Of course, when we did the first price increases, the raw material was at more or less the level we have today, and I think the expectation was that maybe it wouldn't stay for so long at this level.
In fact, we have done a second round of raw material price increases as well that will be visible towards the end or even more at the beginning of next year in 2022. Looking at Q1 to Q3, the net sales growth was 20.9%, and adjusted EBITA was at EUR 9.2 million, so actually year to date in absolute terms, EUR 9.2 million in EBITA is at the same level as last year. Clearly, with the high raw material prices, this means that actually relative profitability has come down to 14.1% if it was 16.9% last year. Regarding leverage, there are no major changes.
We look at cash flow from operating activities. It was at EUR 7.2 million when it was EUR 10.1 million last year. I'll give a short comment on that when we go through the Q3 numbers, why it's down a bit. In terms of net sales Q3, I think 7.7% adjusted 7.7% growth and an adjusted EBITA that decreased to EUR 3.3 million from EUR 4 million is at least for us during these conditions, quite a good result. We have to keep in mind that last year when corona started, there was a situation in Q1 and Q2 where actually shops were closed and shopping was less.
In Q3 last year when after all the world didn't stop, people started buying again. Q3 and Q4 are actually, when you do the comparison, quite a lot tougher. Having said that, we did in this Q3, we did the highest September sales ever and the highest month ever this year. When you look at the EBITA margin, I think in relative terms, at 15.1% during Q3, down from 19.9%, which was a very high level. This is clearly driven by the exceptionally high raw material prices. We are in the lucky situation that we have actually gotten all the raw material that we have needed for production.
In that sense, we have not been forced to keep our machines idle or replan production. I think cash flow, this is an interesting line, and clearly there are two main reasons why the cash flow from operating activities were fairly much down from last year. The main reasons are, the inventory is quite high at the moment, for two reasons. One is the end of the year sales. Usually, between Christmas and New Year's, we have a break in the factory when we do maintenance work. Quite usually, the sales in December and January are at quite high levels.
Let's say, we are prepared for what to come, and we want to serve our customers well. The value of the goods in the inventory is a bit higher due to the higher raw material prices. The other thing is the accounts receivable. We made a record sales in September, which means that accounts receivables are quite much higher than the accounts payable at the moment. It's a phasing thing with accounts receivable and looking forward to having that sales as cash flow quite soon. Looking at how we've been doing per geography, I think in the Nordics year to date, the growth continues at almost 17%.
Especially in Europe, I think there's been a strong development. Strong development in sales. Looking especially at Q3, because that's of course fresh numbers and interesting. I think the growth in Nordic was quite expected. We had a huge Q3 last year. The comparison at 4.6% growth is quite in line actually with the company's expectations. Of course, one thing that we work on is that we perhaps do a bit less campaigns. We push a bit less volume when there's pressure on the prices. We focus on selling products with, let's say, the best possible margins to keep the profitability up.
In rest of Europe, I think the number of 27.6% growth is very much in line with expectations and also happy for the fact that we are soon able to actually meet our customers face to face as well, also in Europe. Hopefully, the trend continues positive there. On the rest of the world, the only negative here, the reason is that there were in the comparison period, there had been shops, especially in the U.S., that had been closed during Q2. In Q3 last year, there was a lot of stocking of both stores and warehouses that we have against us when we compare Q3.
The numbers are small, so in that sense, I'm not that worried because the trend, if you look year to date, is stable and the demand for the products are still good. Product categories, storage, the biggest, the fastest-growing, and also for us, the most important at the moment, taking good shares of new sales and also showing the way in growth. When it comes to the kitchen category, especially in Q3, we have a little bit of a straight line there of 5.4, 5.3 in sales. That has to do a bit with availability of traded goods and especially traded goods from the Far East.
We have some products that we need to add to the assortment to be able to offer a full assortment to our partners and those could be traded. We are talking about baking thermometers and things like that, and then products under the brand Kökskungen especially, mainly pots and pans. Otherwise, I think very much in line with the expectations. Home and Garden, a small decline that has been planned. It's streamlining of the portfolio and ensuring that we actually use the capacity we have to produce products that has high growth in international terms. This is a nice picture.
I think smiling faces, Craig and Danny there showing that fairs have started in Europe, and we have been able to actually meet people live. That's a very good thing when you are opening new accounts, when you want to have new customers, to be able to meet in person and actually show our nice high-quality products to the buyers. That's on the positive side. I think another thing to comment on is actually the sick leave levels in our factories are going down, so the precautionary sending home of sick or exposed or sort of risk of sick people has been decreasing. That means for us a bit less overtime and a bit less temporary workforce.
The direction is exactly in the way we wanna go that on corona. I think a positive news here is that Orthex was chosen to be a member of Sitra's list of the most interesting companies from a circular economy point of view in Finland, and this of course we are both happy and honored with, and it is very much a nice thing for us since sustainability is so high on the company's agenda. A few words on strategy. It hasn't changed. We are still looking to become the number one in storage in Europe, and we are still looking to strengthen our position as the leading household company in the Nordics.
The way we are planning to do it has not changed either, so we're actually looking to do it with, I would say, three or four major initiatives. Becoming number one in Europe and leading in the Nordics. The first one is basically solid actions to keep winning in the Nordics, which means launching new interesting products. It means showing the way in sustainability, and it means actually being very careful on how we develop the product portfolio so that we actually sell products that are functional and adds value and keeps us interesting in the eye of the consumer and also the customer. We are looking to accelerate growth in Europe.
I think one of the main things to do is actually to expand the footprint we have with already existing customers. We have quite a lot of the big European customers, but we are still a quite small supplier to them, and I think growing with the big ones and growing with the winning ones in Europe is a good approach. Probably the number two box is the one which will bring most of the growth in the coming few years.
Online, we can't forget that we are focusing very much on developing online sales and not our own web shops, but being sort of the best partner to both omni-channel, so customers that has both stores and web shops and then also of course the Amazons and those who have only web shops. The market consolidation is one of the parts as well that is possible for us and I think the climate is interesting in terms of market consolidation. As soon as we have something more concrete to comment on and when and if it happens, we'll be happy to share that information.
That takes us to the financials and Saara Mäkelä, our CFO, will take you through those.
Thank you, Alexander. Our net sales growth continued also during quarter three. Growth during the reporting period was 7.7%, and it takes us cumulatively to 20.9% sales growth. Growth was fastest in Central Europe, where the stores are now open and customers can visit the stores and consumers can visit the stores and also the storage category was growing the fastest. The impact of the pandemic between quarters this year and last year is visible in the second graph. Usually we don't have much fluctuation between quarters, but due to pandemic, two first quarters of last year, so 2020, were low and many campaigns were postponed and some customers were canceling their orders from the first half of the year.
After summer last year, customers started to order products to their postponed campaigns and second half of the year was very strong. That affected last year quite significantly the quarterly phasing, and this year the phasing is quite stable and quarters are in line with each other. Raw material prices started to peak at the end of quarter one this year, and extremely high prices are affecting our gross margin during the reporting period and due to that our year-to-date gross margin % has decreased from 32.2% to 27.6%. Due to decreased gross margin during quarter two, our adjusted EBITA decreased by EUR 700,000, so from EUR 4 million last year to EUR 3.3 million this year.
Year to date that adjusted EBITA margin percentage decreased from 16.9%-14.1%, but despite declining margin percentage we have been able to keep our adjusted EBITA level in absolute value. That's of course due to the high sales growth on a year-to-date level. Price increases initiated in the beginning of the year start to have effect at the end of quarter three. The effect of actions taken during quarter three, so after summer, will not yet be visible during this year, and those effects we will start to see in the beginning of next year. Familiar graph regarding the raw material prices. They are still on extremely high level and high demand continues.
Also the high raw material prices are affecting our inventory level as prices are so high and we've been increasing the inventory levels for finished goods and the prices are higher. That is affecting also the figures on the balance sheet. The logistics costs globally are still on high level, so import from outside EU is not happening yet unfortunately. The unpredictability continues regarding the raw material prices and so it's very hard to estimate how the margins will look as raw material prices might decrease or might stay on a very high level. We are of course taking actions to mitigate the effect and we are following closely the price development and we are prepared to do more measures if needed.
Investments during January-September, we've been investing EUR 3.7 million, which is EUR 2.1 million more than last year during first three quarters. That effect is seen also in our cash flow of course, and biggest change compared to last is the additional big machine we decided to invest in Tingsryd, and then the investment phasing is totally different compared to last year. At the beginning of the pandemic, we started to secure the cash flows and we started to postpone investment as the situation was quite uncertain and we didn't know how the sales would be affected. Due to that, investments last year were mainly done during the quarter four.
This year we have started the investments in the beginning of the year, and we have tried to invest as fast as possible. Currently there are no changes to communicated investment plan and capacity levels has increased according to our current plan. There is actually one more machine which is still coming at the end of the year, and will be fully in use by the beginning of next year. There was no significant change to our net debt level or leverage compared to previous quarter. At the end of reporting period, our net debt was EUR 24.6 million and leverage was 1.6x. Pension liabilities and lease liabilities are included in our net debt calculation. Our long-term financial targets, they are same as before.
We are targeting long-term more than 5% growth on a yearly basis on total level and outside Nordics, more than 10% growth. Latest reported figures are on total level 20.9% and outside Nordics 34.2%. Still the long-term target is going to be kept on the same level. As mentioned already before, the quarterly phasing last year was quite specific and quarter four 2020 was very strong. Profitability target 18% adjusted EBITA margin. Latest reported is quite much affected by high raw material prices, and it's 14.1%. Leverage is targeted to be below 2.5x, and current latest reported is 1.6x. The payout ratio is more than 50%, dividend to shareholders on yearly basis.
Sorry, I have some challenges to get slide moving.
We'll get this one.
Financial releases, we have just published our dates for financial releases for next year. Dates are basically in line with this year's dates, so no significant changes to our reporting timetable. I'll let Alexander to summarize our Q3 package.
Okay. Before letting you ask through the chat, all the questions you might have to this presentation or otherwise, just summarizing the Q3 and year to date, I think strong sales continues. Of course Q3 comparison was a bit tougher, but still well on track to deliver on the strategy. We see continued high raw material prices at the moment, and we are taking action to mitigate that one. The last action has been a new round of price increases that will be visible towards the beginning of next year. That's actually adapting to the high cost levels and uncertainties. Maybe commenting on the cost levels as well. As you know, energy cost is also going up.
That, however, is quite the small part of the total cost for us. That will not have, at least at this levels, a major impact on profitability the same way as the raw material prices have. I would also like to take this opportunity of course to thank a great team at Orthex for pushing through this quarter under quite tough conditions and delivering the result and the growth in sales. I think we can move to questions and answers.
Yes.
Hanna, if you would like to help.
Yes. Thank you. There's quite a lot of questions this time, and let's start with the export sales, which seems to be quite interesting. Which other European countries are based at the moment? Are there plans to focus on the current ones or to open up new countries? Maybe continuing on that, how new customer ramp-up in Europe has continued?
Well, I could comment on that one. I think there are many interesting customers throughout Europe. We have concentrated our own organizations to be based in France, U.K., and Germany. Out of these countries we can also handle neighboring countries. Many of the customers who have their head offices in one of these quite often have stores in other European countries. Just to mention a few, I think Switzerland for us is a growing important country, and there are many others as well.
The groupings could be very nicely done with, for example, the DACH region or then if you look at U.K., Ireland together, or you look at France and Belgium and the Netherlands, Luxembourg, not to forget. I think all of Europe is interesting, but we have decided to put our own feet in the three biggest markets.
Thank you. Regarding the other parts of the world, has there been any developments in other parts of the world such as the U.S.A. and elsewhere, or how important do you think this is or whether the main focus is within Europe's borders?
Yeah, it's a good question. That's a good question. Of course the market which we operate in is huge in Europe, and we have a quite small market share in Europe still. I think there's a lot to be done close to where we are or closer to where we are and a lot of development potential. Having said that, of course if there's an interesting customer outside of Europe that we can efficiently serve and somebody who appreciates the Nordic quality and functionality we have to offer, then they are interesting. The main focus today is to become the number one brand in storage in Europe. We have good partners outside as well.
Thank you. Going on to investments, has this year's machinery and mold investments already been all done and in place, or is there still work to be done on this?
I can take this question. As I commented already, there's still one machine coming during this year, and we are also investing in new molds. We're not ready, and we are continuing according to the plan. The biggest investments for this year are done and machines are running, and we can say that capacity is up quite nicely and we are prepared for the growth.
Yes. Thank you, Saara. Kitchen category was experiencing some issues with availability. Have you been able to sort out this?
To comment on that one, yes, we are doing our best, but still the traded goods, especially, under the brand Kökskungen is showing availability problems. It's a small part of our business, but it's. If you then take only the kitchen category, then it becomes a little bit bigger part of that category. The main reason there is actually long lead times and hard to get products. However, in the core products or categories in kitchen, we are, I think we are quite well equipped with goods.
Thank you. Yes. Going to price increases, how much of the price increases have been implemented into customer prices or shelf prices, and have more price increases been made during the rest of the year?
Maybe I could take this one as well. The price increases which are visible in the shelf prices right now, they've been communicated to our customers in the beginning of this year. When the raw materials started to peak, we did some measures and those actions are now visible in consumer prices. The actions we have taken after noticing that the prices are not going down will be visible in the beginning of next year. I mean, full effect is not visible, not during quarter three and not even during this year because there's always a some lead time before we can see the actual effect after communicating, negotiating with our customers.
Yes. Thank you. Moving on to the campaigns. Has there been any breaks on campaigns during Q3 this year, or have campaigns been done without change as usual, and how has this affected Q3 sales?
Good question. I think we have been a bit careful there on the campaigning. Especially sort of driving volume at low prices has not been on the agenda. Maybe Saara, you would like to comment a bit.
Yeah. We haven't been aggressive in the campaigning, and that can be also seen in our operating expenses. I mean, they are on last year's level as we haven't been doing that much actions in marketing and sales this year.
Yes. That was also one of the questions about the operating costs, so thank you for answering already that, Saara. Moving on to the M&A situation. What's the current situation in the M&A market in Europe? Can you say anything about that, Alexander?
Let's say that's a tough one because I can't say much before there's something to report. We still believe that there's good opportunities to do M&As, and the market would benefit from consolidation, and clearly at the right prices with the right strategy, we want to be part of that. When that comes along, we will then report how we're doing.
Thanks. There's a question about our results. The top line revenue and sales was a bit disappointing after strong first half of the year. Is Orthex happy with this level at the current market situation? What is limiting the sales? Is it bottlenecks in production, lack of customer demand or maybe some other problems?
Well, that's a leading question to say the least. I think the organization has done a very good job in balancing profitable normal sales with campaign sales and not pushing volumes too hard. In that sense, I think given the whole picture, combining the profitability and the sales growth top line, I think we could be given the circumstances quite satisfied with the situation. Of course, you can always do better. There's no question about it. But yeah. That would be the answer.
Thank you. Going to seasonality. In your report, you mentioned that there is typically not significant seasonality in your demand. Could you please give us a bit more insight into the seasonal variation of demand by product group?
Maybe Hanna can take this one.
By product group, it's also quite stable and not very significant variations between seasons. There's normally between different categories a little bit seasons like of course in the summer times with the berries and freezing boxes and storing and you buying lunch boxes. Normally in the beginning of the year and after summer, people tend to buy a little bit more of storage product when they start organizing their homes. Not any significant seasonal variations.
Yeah, maybe one addition, as we don't anymore have the snow though, so that is also out from the seasonality in the future.
Exactly. About the raw material prices. Can you comment how you have proceeded with raw material price negotiations given extraordinary high plastic prices?
That's a good question as well. I think first of all, we do yearly contracts with suppliers, and we try to be actually partners and work closely because for us, the main thing is to ensure that we get raw material, and I think there we have succeeded very well over time. Clearly now when the raw material levels are high, we of course try to get back whatever is possible. However, what we do is we usually link the raw material price to a spot price that we then get the certain discount on when we have a yearly contract. That margin that the supplier gets is something that we negotiate every year actually.
There is a good sort of way of seeing who of the raw material suppliers are really interested in supplying us in the coming 12 months. Usually we try to do fair and tough negotiations to have the best possible margins.
Thank you, Alexander. One more question about the seasonality actually. Can you comment on seasonality going into Q4? Should we expect stronger demand in Q4 in comparison to Q3, and how the market demand has developed after Q3?
Saara, do you wanna take that one?
Yeah. The market demand, I mean, seems to be still on a higher level, but I mean, as long as the raw material prices are on high level, we won't be pushing aggressively campaigns, so that we know already. Last year quarter four was already very high, on high level, but expectation is to continue the growth still.
Yes. Thank you, Saara. I'm checking if there are any new questions here. No, I think we have now answered to all of the questions, at least, in my opinion. There were a few questions that were exactly the same, but I think. I hope we have answered all of you now.
Okay. At this point, thank you very much for listening and wish you all a very nice autumn and soon Christmas holidays as well when that time comes.