Ladies and gentlemen, welcome to the Momentum Group AB Q3 report 2018 to 2019 call. Today, I'm pleased to present CEO Ulf Lilius and CFO Niklas Enmark. For the first part of this call, all participants will be in a listen-only mode, and afterwards, there will be a question and answer session. I'll now hand over to the speakers. Please begin.
First, I would like to say welcome to our web meeting, presenting our report for the first nine months. If we look at the highlights on the whole, the industrial market in Sweden, Norway, and Finland continued to display stable performance during the third quarter of the financial year. Although the timing of the Christmas holidays resulted in fewer trading days and generally lower rates of activity in late December than the preceding year. We had a favorable growth in Norway, enhanced by the upturn in the oil and gas sector and in Momentum Industrial. And as you can see, our actions taking in Momentum Group have had a positive impact on the result and the cash flow.
In total, for the quarter, we could see a slower pace at sales in December, as I mentioned, compared to last year, but in the total, the sales volume rose by 4% and the adjusted profit by 12%. Please go to slide five. The earnings growth and our improved operating margin are based on the efficiency work we have carried out in several of the group companies in conjunction with increased sales, foremost to the industrial sector. I'm pleased to see the positive trend in TOOLS Norway, created by efficiency improvements due to the new ERP system, as well as the increased demand in the oil and gas sector. The integration of Brammer's Swedish MRO business has helped Momentum Industrial to increase their sales as well as their earnings in the quarter.
In addition, the acquisition we have carried out in the workwear have contributed as expected. The group's new e-commerce initiative, brider.se, was also launched in December. brider.se will sell tools and consumables to customer groups that the group does not cultivate through the existing market channels today. After the end of the quarter, we also acquired TOOLS Løvold in Norway. The acquisition will strengthen TOOLS' position as a leading supplier to Norwegian industry further. In total, our adjusted operating margin increased to 5.5%, and the adjusted profit increased by 12%. Please move to slide six.
For the business area, Tools and Consumables, the organic sales decreased by 1% during the quarter, mainly due to slow sales in December and due somewhat to the timing of the Christmas holidays that resulted in, as I said before, the few trading days. We also saw a generally lower rate of activity in late December than in the preceding year. The sales in TOOLS Sweden decreased due to the restructuring work we have carried out in the company, winding down of 15 unprofitable stores, and also the takeaway of less profitable assortment. In Finland, the sales were quite the same, and in TOOLS Norway, we increased our sales during the quarter with the favorable trends in the oil and gas sector.
We will continue to focus on improved efficiency, and we have started to move two of the 19 sales units local warehouses into the regional logistic hub in Oslo. The first aim is that the hub will serve 50% of our sales units in Norway in order to optimize logistic and assortment. The improvement activities initiated in the operations to increase profitability are continuing, combined with sound cost control, and that resulted in a slight better earnings performance for the operation during the quarter compared to last year. Though, all in all, in the reporting period, we increased the operating profit by 19% and the turnover by 5% in this business segment. Please, slide seven. Sales Components & Services business area increased by 14% during the third quarter of the financial year.
The largest unit, Momentum Industrial, noted favorable revenue growth with a high activity level among many existing customers, and that was, of course, then added by the acquisition of Brammer sales units. As I mentioned before, Gigant was the company, former B&B Tools, which was most affected by the split of the company, and we have gradually changed its focus, and we are now changing the way of doing business internally with TOOLS chain. This in order to gain a higher profitability next fiscal year, both for TOOLS and Gigant. We will, by this action, get clearer sales channels to the market, as well as decrease the internal cost to serve. The adjusted operating profit in the quarter increased by 25%, and for the reporting period, it grows by 16% of the Components & Services. if we go to slide eight.
The aim for us within Momentum Group is to create increased shareholder value over time by giving each businesses better opportunities to develop based on its own conditions. As before, the period has been eventful and our development has been positive. Since the spin-off, we have continued to take important steps in the improvement journey for long-term sustainable profitability, and the earnings performance has been positive every quarter. For Momentum Group as a whole, the adjusted operating profit has increased by 17% to date in the financial year, and the operating margin was 5%. At the same time, we have improved our operating cash flow through the activities we have implemented to optimize the group's funds tied up in working capital. Of course, we have more to prove in the future, and that is what we will continue to work for...
We go to slide nine, I will hand over to my Executive Vice President, Niklas.
Okay. Thank you, Ulf. My name is Niklas Enmark, CFO at Momentum Group. If you look at slide nine, I would like to comment some aspects of our cash flow that was strong for the period. As part of the continuous effort to work more efficiently with the processes around procurement and order to cash, we see that this has an increasingly positive effect on the cash flow, where we see our cash conversion increasing this last 18 months. This was in the last quarter, helped by the fact that it is normally a strong quarter in terms of cash flow due to the high sales levels, activity during October, November time. The cash flow from operations increased to SEK 162 million for the reporting period, compared to SEK 100 million for the corresponding period last year.
For the last quarter, we reported a cash flow from operations of SEK 154 million. Looking at the changes for the reporting period, some comments can be made. Inventory increased by some SEK 28 million in the reporting period, but not, but, at a much lower, slower pace in the last quarter of Q3. This is done in line with the comments that we made in conjunction with the last quarter, where we normally have a build-up of inventory before the October-November period. Operating receivables decreased for reporting period by SEK 26 million, despite the higher level of net sales, which is done in line with our efforts to reduce days of sales outstanding.
Also, in the quarter, we increased our operating liabilities after the relatively large decrease in the previous quarter that was related to customary changes in liabilities for holiday pay during the summer period. This is done in line with our efforts, also done to increase the days of payables outstanding. Taking together, the working capital changes contributed with some SEK 80 million to the cash flow in Q3. We also continue to invest in digitization, such as product information management systems, e-commerce, ERP, et cetera, which is then the major part of the investment in non-current assets. Although, we see that the level of investments has come down as we finish the implementation of the new ERP system in Norway about a year. A rolling 12 months, our total level of investments, including immaterial and material investments, and is at SEK 29 million .
If we turn to slide 10, you see some selected key ratios. Just to comment on a few of these. Our return on adjusted capital employed stood at 19% for the last 12 months. Return on equity increased to 18%, which can be then compared to our external financial objective of 20%. Our internal key ratio, return on working capital, was stable at 24%. We see that we have a strong financial position with an equity to asset ratio of 45%, and an operational net loan liability that decreased during the quarter to SEK 297 million. We also see that we have ample room to make further acquisitions with available liquidity of more than SEK 500 million. If we turn to page, slide 11, we can look at the rolling 12-month numbers.
We are glad to see a continued positive trend, both in terms of revenue, but foremost on, in our profit and profit margin levels. Rolling 12 months, the adjusted operating profits amounted to SEK 284 million, which was up from SEK 239 million, the corresponding period of last year, and this represents then an increase of 19%. It's also up from the level that we had for the last financial year, which was then SEK 252 million. For business area, we see that the rolling 12-month adjusted operating profit increased in both business areas, both thanks to organic growth as well as positive contributions from acquisitions made.
In terms of revenue, we are now at the level of SEK 5.9 billion, which is an up from SEK 5.6 billion a year ago, and this is a result of both organic and acquisitive initiatives. Also here, we see an increase in both business areas.
Thank you, Niklas. If we turn to slide 13, our focus. Well, as market conditions vary, we have to adapt and adjust our operations accordingly, which is facilitated by close cooperation with our customers. The digitalization of all parts of the group's daily operations continue, of which our new e-commerce initiative, brider.se, is a good example. With Brider, we're aiming to reach the customer groups that we do not cultivate through our existing market channels. These customers do not require the values we create through local presence and competence, for example, smaller businesses and do it yourself, and we try to do service them as cost effectively as possible. But our overriding focus is still concentrated on three main areas. The first one is change and improving initiatives in TOOLS business. The second is focus, continued development of establishment of niche offerings in current operations.
As the third, acquisition-driven growth strategy, which focus on niche acquisitions. We turn to slide 14. In TOOLS, we're focusing on changing by streamlining the sales, by focus on occupational health and safety products and services, as well as increase the number of customer visits. In offering, we're moving against the core assortment, as well as purchase direct from producers. Internally with Gigant, we're now changing the way of doing business with the TOOLS chain [audio distortion] but these actions get clearer sales channels to the market, as well as decreased internal cost to serve. In logistic, we have established a center warehouse to Sweden, we have one in Finland, and we are now in the start of the project like implementing the regional hub in Oslo that please serve 50% of the sales units.
The fourth initiative is continue to adapt our local presence, and we will continue to optimize our local presence for TOOLS in order to change and streamline several local sales outlets, focusing on the industrial customers. So our customer focus is primarily against industry, civil engineering, and construction, and the public sector. This means that we adapt the assortment for these customer segments and our logistics setup. This will enable us to get a clearer, cost-effective logistic offering and purchase, as well as sales effectiveness. If we turn to slide 15, our second focus is continued development and establishment of niche offerings in current operations regarding our concept within occupational health and safety in TOOLS, and increased operational safety for industrial customers in Momentum Industrial, as well as Workwear and Product Media and Mercus, specifically can live on for some.
As I said, we also continue to invest in digital solution for target customers, and our web store in Sweden is today our largest sales unit, with a turnover above SEK 80 million per year. Our total e-commerce in the group represents around 25% of the total transactions. So if we turn to slide 16, Niklas will run through the acquisition.
Right, the third focus then is to continue with our activities within M&A. As we have mentioned before, we look for profitable companies with a strong, local market position that can be further developed. We target companies that have a clear end customer focus. This last 12-month period, we have acquired five businesses, with some SEK 300 million in annual turnover at the time of acquisition. As Ulf mentioned, the latest acquisition that we made was that of TOOLS Løvold in Norway, with annual sales of approximately SEK 100 million and with 28 employees, that will be consolidated as from January 2019. TOOLS Løvold was the previous partner to TOOLS in Norway, and through the acquisition, that business will now further benefit from the investments that we made in logistics, systems, and assortment.
In addition, TOOLS are now represented with four more own branches in the Norwegian market.
Thank you, Niklas. I'll give you some final words, maybe before we open up to questions. So finally, Momentum Group's operating margin has improved significantly in recent years, and the group's cash flow and financial position are stronger than they have been for a long time. We thus have a solid foundation to carry out further corporate acquisition, as Niklas talked about, and boost the profitability of both our operating segments through the improvement efforts we're implementing within the Momentum Group. Therefore, we will continue to take actions in each company based on their unique situation and opportunities, and our aim for the end of the financial year is for all operations to continue improving their profitability, and therefore decentralized responsibility and customer proximity and remain a high priority in our daily work. So if we please move to slide 17 and open up for questions.
Ladies and gentlemen, if you do wish to ask a question, please press zero one on your telephone keypad. There will be a brief pause while your questions are being registered. The first question comes from the line of Karl -Johan Bonnevier from DNB Markets. Please go ahead.
Good morning. A couple of them from me, please. Just looking at now, standing here at the start of 2019, obviously, we're—I understand we're hearing a lot from different sources about, say, maybe that the demand side—the demand in the general market is slowing down slightly, or at least leveling off. What have you seen yourself in this respect? Because I understand you're talking more of a stable kind of environment, looking at your perception of what's going on.
We follow closely. We do a rolling 12, charts and two year back, and we can say, see, the same as you're saying. It's not dropping, but it's leveling off from a high level, in Finland and Sweden. But in Norway, we see, still a stable upturn. But as I mentioned before, our market share is around 10%-15% in total, so we have to take market shares as well in a slight sideways business climate.
Looking at the Brammer acquisition, it seems to have gone very well, and the integration seems to have been worked very well, looking at the margin progression you already see in that unit.
Yeah, Momentum Industrial had done a great job implementing it and taking care of the business, and also scaling off the products and the assortment that we didn't want to sell. So they have done a good job, and of course, we also added some competence of good new employees in specific, very good competence in power transmission. And I can see in the figures that Gävle, which had a good Brammer unit, we are boosting sales and profitability in that local sales unit. So it has been good and vital for Momentum Industrial.
... I remember you mentioned at the start of that acquisition that you saw a slight risk, maybe that clients that had used both of you might have concerns over putting all the volumes into one source, so to say. Have you worked through that in a good way?
Yes, we have. We have, and we had good conversations with customers, but some customers like to have two suppliers, and we respect that, and that's nothing that is unusual, but we haven't lost any major vital business within the integration.
Excellent. And looking at the volume that you didn't want to take away, I remember you mentioned that you had some traded goods in it. So how much of the SEK 140 million operation that you say on paper acquired, have you really, say, integrated?
I would say around SEK 100+ million , minus something.
Excellent. And then looking at the acquisition you now did up in Norway, the TOOLS operation, what kind of mix synergies can you get out of those kind of, say, insourcing of already, to some extent, I guess, existing volumes within your franchise?
Of course, now when we have a common ERP system and we're fixing the logistics in the short term, we can get some margin improvement in purchasing. And in the midterm, we will, of course, integrate them into our ERP system, and then we can get some other effectiveness of logistics and, of course, every-
When you look at it, can you take out, say, 4% or 5% of cost in those kind of situations, or what should Momentum—what are you aiming for?
We haven't really put that down. We try to do every acquisition on what this looks. And of course, then we looking into to get. We don't need to have, of course, economy into, we can move that, so a couple of percentage in costs, definitely.
Excellent. And then just a small, some small numbers. What was the restructuring reserve at the end of the quarter, and did you use, utilize anything of it during Q3?
We did kind of mix up here. During the quarter, we used SEK 3 million of the restructuring reserve accumulated during the year was SEK 10 million. So the remainder at the end of the period is SEK 28 million.
Excellent. And, just to continue on those kind of accounting things, have you done any preliminary calculation on how you were going to implement IFRS 16?
Yes, we have. We are conducting that right now. So, we have, as you probably guess, we have a number of contracts, especially around the cars and also our premises, so we're doing that right now. We will have some kind of clarification in our Q4 report about the financial effects, and then we'll start with sort of the exact effect as from first of April or next accounting year. But we have some additional information in this Q4 report.
Your best guess at this stage is, is it about SEK 1 billion that's supposed to end up on the balance sheet, or?
We're not making a guess. I would like to refer to the next report in order to give you a more detailed answer.
No problem. I'll wait that. Thank you.
Great. Thank you.
Just as a reminder, if you do wish to ask a question, press zero one on your telephone keypad now. As there are no further questions, I'll hand back to the speaker.
Okay. Thank you very much for taking time to listen to us, and please do not hesitate to call if you need some more information. Thank you, and have a nice weekend to all of you.
This now concludes our conference call. Thank you all for attending. You may now disconnect your lines.