Good morning, and welcome to Komplett Group's quarterly presentation. My name is Vebjørn Torsetnes, and I'm pleased to be here to present the group's third quarter results. Joining me this morning, it's our CFO, Thomas Røkke. Today, we will review the highlights of the past quarter before presenting the group's financial presentation in more detail. Lastly, we will provide a summary of key takeaways and leave you with an outlook for the upcoming period. After the presentation, we will be happy to answer questions from the audience here in Oslo and from you following us online. Our performance in the third quarter was impacted by market-specific headwinds in some of our core categories. These were driven by continued increase in memory prices, which affected demand, product mix, especially in the gaming and components.
In response, we have increased our sales efforts in other categories while maintaining disciplined margin management and cost control, which helped mitigate some of the headwinds. Margin pressure in the components and gaming categories led to a slight decline in gross profit. On the positive side, the margin development outside components and gaming remained relatively stable. Looking at our cost base, cost and restructuring initiatives contributed to a reduction in operating expenses across the group. Improvements was also helped by disciplined cost management and currency effects. Despite cost benefits, the gross profit decline led to a year-over-year reduction in adjusted EBIT of NOK 12 million . We remained a healthy and controlled inventory level, and active stock management contributed to improved net working capital levels. Following reduction net interest-bearing debt, our leverage ratio was 2.4 x at the close of the quarter.
This represent a reduction compared with 3.0 x one year ago. Overall, our financial position remains solid, with strong liquidity and a significant improvement in leverage. Komplett Group has some of the strongest brands in Nordic e-commerce, each with a distinct position and customer proposition. Let's now take a closer look at each of them and starting with the Komplett. This year, we celebrated the 30 years anniversary of komplett.no with campaign and live shopping. As an online pioneer, Komplett introduced e-commerce to the Norwegian market in 1996. Since then, they have shaped the online electronic market as a leading player. We also continue to category rebalancing efforts while maintaining disciplined sales management. This includes expanding our presence outside traditional gaming-related categories and adapting this assortment to reflect customer demand and market developments.
At the same time, we are strengthening our position in our core categories through activities that engage gaming enthusiasts and reinforce the connection with our target audience. A good example is the Red Bull Impostor Arena, which we hosted at the Komplett Gaming hub in Sandefjord this autumn. This event brought together 20 influencers and generated more than 80,000 views. During the quarter, we also introduced the new in-house technology enable us to repair high-value graphics cards more efficiently. This helped us reduce waste and scrapping costs while driving a higher share of refurbished products in our sales mix. That is also important. Let's move to NetOnNet. During the quarter, we moved forward on several initiatives to strengthen NetOnNet's customer proposition and improve operational performance. We continue to roll out upgraded store concepts, and we have done upgrades for domestic appliance departments across all stores.
After the upgrade, we can see a growth in a very important category. We also launched new financing solutions for customers, expanding our service offering and providing customers with greater flexibility. At the same time, we made improvements to the digital customer journey and our omni-channel offering. For example, customers can now sign up for membership digitally in our stores, creating a smoother experience across all channels. In addition, we continue our work on assortment and space optimization while maintaining strict cost control and discipline. Next, let's have a look at Webhallen. In Webhallen, we continue to make progress in online marketing, service offering, and product range. Our online marketing is becoming more efficient and delivers better returns. At the same time, we are adding more services for our customers, both online and in physical stores.
For example, customers can now add five-year warranty directly when they are checking out online. We continue to add more private label products, supporting increased sales while offering our customers a broader selection of products. Growing sales outside our traditional gaming-related categories has helped offset the impact of higher memory components prices. I will now hand over to Thomas, who will guide you through our financial results for the third quarter.
Thank you very much, Vebjørn. Good morning to you all. It's my pleasure to guide you through some of the financial highlights of the quarter. As you can see, it has been a fairly difficult quarter and a challenging quarter. We're calling it navigating in a challenging environment. The memory price impact has been expanding across categories, as we outlined on our previous presentation, and we're now seeing it across all kind of core tech categories including components in gaming computers, and also telephone and mobiles. The impact of this on the various segments, as you will see subsequently, is rather different. The dynamics are different. The performance is strongly related to the exposure to the components and gaming segment.
This also explains the differences in performance, whereas the B2C segment has been declining, also driven strongly by FX effects, which kind of masks some of the underlying developments, is obviously the segment being more strongly exposed to these components and gaming impact. The dynamics in the other segments, like mobile and phones, is a bit different, and we'll come back to that. That has also enabled the B2B and also the distribution segment to remain positively in growth or also stable. The margin pressure from the components and gaming segment is also impacting the overall margin levels. You will also see in the subsequent pages that the impact on our change in margin is basically proportional to the exposure to the gaming segment.
Nevertheless, that has decreased the gross profit 9% in nominal terms and 5% in real terms, which could not entirely be captured and mitigated by a still improved OpEx base. There we see we have been able to mitigate both the cost inflation and also growth investments, and still continue to have a declining cost base, which did and still contribute to mitigating this shortfall. Net result of this on an overall level is obviously a shortfall versus last year. Although it must also be said that we are kind of giving back a little bit of the advantage we got from Q2. As you know, the seasonal product season there was exceptionally strong and also contributed to lifting the result for that quarter. It is also giving back some of the substantial gain that has been made during the preceding four quarters, if not the preceding 18 months.
Nevertheless, it is a result we are not entirely satisfied with. The key reason for that, as we outlined, is predominantly the B2C segment. Let us take a look at that. In the B2C segment, we are seeing a very strong impact from the components and gaming segment. As we outlined in the previous presentation, there is kind of a threefold impact from this. First and foremost, it is on the components and gaming side, where memory prices directly impact through cross-elasticity or kind of cross-selling other categories. So you see memory prices going up, but that drops the volume of related PC components like motherboards, CPUs, and others, and drag them down in significant volumes, which cannot be compensated by price on those items. There is also the impact from PCs and mobiles, where we have seen price rises.
You have seen it in the market that, for instance, Apple has been raising prices. This is also taking place from other suppliers. While there are still a fairly balanced impact on revenues from those, they do play out differently in the various segments. So based on the component weakness but also on the seasonality because this is obviously the segment where seasonal sales is very important in the Q2 and Q3 figures, the sales decline was pronounced. That was also the effect on the margin side. While we saw also on the margin but on the sales stable to positive development on the other categories. It is very hard to mitigate all the weakness from substantial volume drops in these categories.
At the same time, as we are very early in the process, we do see different players in the market sitting on different inventory positions and having different pricing strategies, which kind of also confuses the picture and makes it difficult to compensate volume drops entirely through price increases. The result is obviously a decline in the margin, which despite substantial cost reductions in this segment, and we continue to focus on that, and we are also seeing positive results from that in some of the underlying businesses. It was not sufficient then to capture the entire impact. As you can see, we went from a modest plus last year to a modest minus this year. The B2B segment, on the other hand, was seeing positive growth and positive growth from various sources.
First and foremost, the price elasticity in this segment turned out to be slightly less pronounced than in the B2C segment when it comes to computer products, the underlying demand was also kind of keeping up in this, and also driven by quite a lot of online sales, which it's the smaller customer segment. On top of that, there was a good season for PCs for students, combined with price increases, which drove quite a lot of the growth here. Last but not least, we also see some growth from service contracts that also contributing to lifting the revenue in the quarter. That obviously also contributes to a better margin. That said, Q3 is a, for the B2B business, due to the high degree of student PCs, a margin weak quarter.
But if you look at the quarter year-on-year, we could see a solid improvement in the margin driven both by good commercial management, but also by the mix effects. However, the additional service contracts do require actually an upgrade of some of the infrastructure, and that added to the cost base in the quarter. The advantage of increased growth and better margins could not entirely be taken up and carried on, but a large proportion. Despite the market challenges out there, the B2B segment managed to improve its results year-on-year. The distribution business, equally stable with revenues remaining fairly stable year-on-year with a solid growth in Sweden, although from a very low base.
Here, there also a good underlying development from a less price-sensitive segment, very much of this growth comes from larger customers, which have shown a tendency of being less elastic to price increases. Despite of this growth coming from the large customers with accompanying margin pressure, the commercial team has managed to both increase the margins or keep the margins stable, but with a more adverse mix and also reducing costs, enabling to keep the result stable with an uptick of 2 million. Looking at the cash flow. You can see from the cash flow from operations, it's slightly down year-on-year, but that basically reflects a different starting position from Q2. Q2 last year was higher on inventories and other elements, which means that it just reflects a more flat and more controlled development this year when it comes to inventory and payables.
The net cash for investments, again, is mainly used for IT and IT equipment, also reflecting some of the measures that Vebjørn was alluding to, both improving our customer offering but also obviously preparing us for AI and agentic e-commerce. The net financials on cash flow is as previous periods, driven mainly by interest repayment of leases and also a repayment of the Swedish tax position in Sweden, where we still have SEK 140 million outstanding, and it also now will be paid down for the coming year. The difference year-on-year is partly relating to lower charges on the interest side, also due to a better working capital development during the quarter, but also some effects also in these numbers, given that we pay the Swedish tax in Swedish krona.
The inventory has been relatively stable and well-controlled, and that has also enabled us to reduce the net working capital year-on-year. Overall, we think we have still, and we have all the time to maintain the controlled financial position. We have a continued liquidity of more than NOK 1 billion, and that gives us a solid operational basis. We have a relatively stable net debt over the years. Slightly down, but relatively stable. We have a leverage ratio which has gone down significantly versus last year, mainly driven by the uplift in the underlying performance, as you can see from the net debt that is relatively stable. We are giving back a little bit of that now in this quarter, but we still are on relatively solid grounds.
Together with our banking partners, which we appreciate very much, we have also extended the existing facilities by another two years with an additional option, which gives us visibility through 2030 when it comes to the financing side. In that process, we have also for, and I stress purely precautionary reasons, increased the leverage headroom in the first part of next year. As I say, only for precautionary reasons, not anticipatory. On that note, we are well prepared then for the coming quarter. On that note, I leave the word back to you, Vebjørn.
Thank you, Thomas. Before opening for questions, I want to go briefly to the presentation today and leave you with an outlook for the upcoming period. To sum up, Q3 performance was impacted by lower volumes and pressure on margins, mainly in categories related to components and gaming. These effects, combining with the negative phasing of sales, more than offset the positive developments we saw in other parts of the business. As a result, earnings were lower than last year. Looking at the market, the Nordic consumer environment remains generally supportive. However, high memory prices continue to create uncertainty, and we are keeping a close eye on how the effects demand and customer buying patterns are changing. Our first priority now is deliver a strong peak season. We have prepared well with campaigns, active management of our product categories, and further shaping improvement and offering to customers.
At the same time, we are taking action to manage market headwinds. We strengthen our offer across both our core categories and areas where we see room for growth. This includes adding more private label products and building sales outside our traditional gaming related categories. As we pursue the opportunities, we remain disciplined on pricing, margin, and costs protect profitability. As you heard from Thomas, we have also renewed our revolving credit facilities towards 2030. Looking into 2027 and beyond, we will reinforce and accelerate our effort to strengthen both our market position and our financial performance. I firmly believe that Komplett Group is one of the most exciting companies in Scandinavia today. We have strong brands, and we have loyal customers, and we have built a more competitive cost base, and the organization is working towards a clear set of priorities.
There is still much to do, but we are making progress. I am confident that the actions we are taking today will put us into a stronger position and support higher earnings over time. Thank you for spending time with us this morning. We will now open for questions.
Thank you. Let us first see if there are any questions from the room and also, yeah.
Brage, Nordea. Just a quick question. If this margin headwinds from the memory crisis were to persist, could you give some more color on what cost levers that are available in addition to the ongoing programs, where can we expect some room for acceleration?
I think it is a bit too early to start discussing specifically where that would actually be relevant. As you know, we have good cost control, and we also have a good view on how to manage our cost base in adverse environments. But I think our focus right now is delivering a good peak and making sure that we actually can secure a good third, fourth quarter.
Any other questions from the audience here? We can move on to the questions from our online audience. First questions are from Ole Martin Westgaard at DNB. He has four questions, so I will read them one by one. First, regarding revenue. B2C Norway was down 8.8% in local currency in Q3. How much would attribute to phasing effects, and how did NetOnNet perform relative to Komplett?
I assume Ole Martin is speaking about the Norwegian market. Two parts of that. The seasonal effect in Norway was less pronounced than in Sweden. I think it is very hard to give an exact figure of how much was actually seasonal shift. What we did see was in some of the important summer categories, a fall of up to 60%-70% during July, which kind of indicates the magnitude on that. Obviously, the weakness in Norway is primarily driven by the weakness in gaming and components, where the volume is driving down the average revenue levels. On top of that, in Norway, there is also a decline in the NetOnNet business, more directed towards the turnaround process that is going on there, where unprofitable revenue has been taken out and has been showing effect with the operations on NetOnNet in Norway improving.
But obviously, the seasonality effect was stronger in Sweden than it was in Norway.
Yes. On that note, in Sweden, how is the performance between Webhallen and NetOnNet?
We actually do not comment specifically on that, but we can say that parts of the Swedish business is developing very positively and also is handling the adverse market environment relatively well. But obviously, the Swedish market was more stable in real terms, as you can see from the figures.
Thank you. Moving on to gross margin. The group gross margin fell by 60 basis points year-over-year, mainly on components and gaming, but with mix effects also contributing. Can you quantify how much of the decline was memory driven margin pressure versus mix?
I don't think we would share that information even if we had it. No, but I think it's important here to remember that mix effect is also inside categories, which means that some of the impact from the increased memory prices is also shift from low-end models, which often actually have higher margins, to high-end models with lower margins. So I think very much of this is driven by the memory impact, but also, as I said, by the early phase of this evolution. We are now very early in this process, which has two elements to it. The consumers are not used to it. And if this sustains for 2027 and 2028, they likely will have to, as the IT equipment actually goes out of a reasonable performance period. But also, we have the inventory issue, with different players having different inventory positions and different pricing policies.
We do not expect this turbulence necessarily to continue going forward. But right now it's relatively intense, and it's relatively intense, particularly in those categories where you have cross-elasticities, i.e., motherboards where the price is not increasing very much, but where the volume basically drops.
Thank you. I think you have partly touched upon this already, but looking into the peak season, how much of the higher memory cost is now passed through to end customer prices? Should we expect a similar year-over-year decline in Q4 or more given the broadening into computing and telecom?
To the first question, we think there is still upside in the prices. There have been, in cross-important categories already on double digit, but still an upside for that. When it comes to guiding for Q4, I think we have a policy of not providing that, so I would kindly ask to not have to answer that.
Thank you. How should we think about your share of revenues exposed to categories facing memory-driven margin pressure in Q4 relative to Q3?
It is relatively similar. As you know, we have a higher proportion than most of the industry. I think if you take the purely exposed areas, we would be in north of 2/3 in terms of categories when it comes to memory-exposed products. But as I said, the impact of that is very different across segments and very different across customer categories. So I think I would be careful to kind of extrapolate from Q3.
Moving on to the cost side. Adjusted OpEx fell by NOK 36 million year-over-year in Q3, roughly half structural per earlier comments. What is the right quarterly OpEx base to model for Q4 and into 2027? Are the cost programs now fully in the run rate, or are there further reductions to come, and any new one-offs expected?
I think we have most of the effects in the run rate. As Vebjørn was alluding to, we are considering additional ones, and I think I would refrain from commenting on the one-offs.
Thank you. Moving on to Håkon Fuglu. Are Q3 improvements in B2B driven by sales pulled forward, or do you see that there is a replacement cycle emerging?
I think there is a replacement cycle emerging, and I think we have been debating that for some time. The problem with the replacement cycle is that it is extendable. What we are seeing is that it is easier for consumers to extend that than for businesses. I think if we look at all the players in the SME segment, we also see a similar performance that, i.e., the business customers are still buying, even at higher prices.
Thank you very much. There are no further questions, so that concludes today's Q and A session. Thank you all for attending.
Thank you.