Welcome to the conference call. For the first part of the conference call, the participants will be in listen-only mode. During the questions and answers session, participants are able to ask questions by dialing pound key five on their telephone keypad. Now, I will hand the conference over to the-
Hi, my name is Gustaf Öhrn, CEO of BHG. I'm here together with Jesper Flemme, CFO, to present our Q3 report. We will also be available after the presentation to do our best to answer your questions. Slide two, please. The financial highlights of the report. Another challenging quarter from a market perspective, and sales were down approximately 10% organic compared to the same quarter last year. Still in a contracting market, but a step in the right direction with a sales improvement compared to the first half of the year. Earnings came in with a profit of SEK 52 million in the quarter, a significant improvement of SEK 40 million versus the same quarter last year. As mentioned, top line improving, but still a challenge, and the improvement in earnings came from margin improvements, as well as improved direct selling costs and savings on SG&A.
We can, for the fourth consecutive quarter, happily summarize that our work is paying off, and we have achieved our set target of improving our result in a challenging market. A positive cash flow in the quarter of SEK 103 million, and a cash conversion of 65%. A strong cash flow and cash conversion, and a cash flow pattern that deviates somewhat from the normal seasonal pattern of BHG, where historically, cash flow has been negative in the third quarter. This being the result of that we, for this year, have applied a certain degree of caution in the buildup of inventory for the Black Friday period now in November. When comparing with last year's cash flow, please be mindful that we last year had the massive inventory reductions also in the third quarter. We, unchanged, continue to prioritize profit over cash flow. Slide three, please.
A few words about the market. The market remains challenging, but the key macro indicators continue to improve. Disposable income, which we regard as the most important driver of demand at large, still unchanged versus the same period last year, while several of the key macro indicators have continued to improve during the quarter. Inflation is down, interest rate levels are coming down in some of our main markets, including our biggest market, Sweden. Housing transactions continue to increase versus last year, and the intention to renovate is improving from last year's low levels. These macro indicators are driving a positive co-development in confidence, and we now, for the first time, also see this having a positive effect on demand in our categories. But as mentioned in the second quarter, it will take time before it fully filters down to the consumer.
But we already now see indications of early-stage signals of a market recovery, with indications such as improvements in capital-intensive product categories with long lead times as windows, doors, and floors. Categories that has been severely subdued in the last few years that we now see starting to improve from low levels. Increased traffic in our physical retail stores, historically, an indication of coming, improving sales levels. We should be mindful that we see differences in the initial stages of recovery between different markets, where Sweden seems to be further ahead in recovery versus markets as Finland and Norway. On a general level, we, unchanged, believe that the market in 2024 will remain challenging, with a recovery in the first half of 2025 . Slide four, please.
Our main focus is unchanged to secure profitable growth, and as set out in our financial targets, our first ambition is to take us back to the profitability of pre-pandemic levels of 5%, and then with further market normalization, to the 7% we have in our financial targets. The main focus areas for profitability improvements are, one, growth initiatives. As you all know, growth being the main driver of profitability, and we have several growth initiatives in the pipeline, including internationalization and continued category expansion. Two, consolidation. As you know, we are on a structural consolidation journey. This has been a major focus for us in the last 18 months.
The ambition to simplify our structure and realize synergies, and going into this quarter, we had already reduced the number of entities in the group from 25 to approximately 12, primarily through consolidations, and with a high pace, we are moving towards the goal of consolidating the group into some approximately seven platforms. We have done a lot, but we still have a number of initiatives to be finalized in all three business units and to realize the synergy effects of the structural changes that we have done. And three, efficiency. Super crucial in the challenging market and remains a focus for us with initiatives in automation, using AI as a tool to drive efficiency in areas as content generation, customer service, and marketing, and group-wide agreements, leveraging our size to get better terms for all companies in the group.
Breaking these initiatives down in the main components by business unit, starting with Home Improvement. The main focus for Home Improvement in the period includes growth initiatives through continued product range expansion, primarily within our drop ship-based businesses as Bygghemma, and increased focus on geographical expansion within the platforms of Hemmy and Hafa. The main consolidation initiative in Home Improvement is the creation of the Nordic do-it-yourself powerhouse, consolidating several entities in different geographies into one platform that enables localized offerings, but with a consolidated support functions. A journey that is expected to take another approximately 15 months to finalize. On efficiency, we have, during the quarter, launched the IT platform for Bygghemma Nordics, enabling the above-mentioned consolidation, as well as efficiency improvements and improvements in customer satisfaction.
For Value Home, the main components include growth through increasing the share of entry and low price assortment to increase price, price competitiveness in this price-sensitive segment. A price focus enabled by the significant cost reductions that we have done in the last 24 months, and strengthening the availability on top sellers. This was negatively impacted following the sharp inventory reduction of last year. We have, as communicated in the first half of this year, created a new private label platform that we call Hemfint Group, consolidating our two entities, Arc and Hemfint, and adding the acquisition of Trendrum. We have consolidated these three businesses with similar business models into one entity. All three front ends will remain unchanged, with slightly different customer propositions, but with consolidated and mutual management and support functions to realize synergies. Reduced warehouse space.
Following the massive reduction of inventory in the last two years, from peak inventory in the second quarter of twenty twenty-two of SEK 3 billion, to the current levels of approximately SEK 1.3 billion, this reduction of inventory enabling a reduction of warehouse footprint, this is a vital part of our actions to reduce cost in the Value Home segment. During the quarter, we have managed to reduce the footprint by 23,000 sqm , which is more than we communicated in July, but with an unchanged ambition to reduce warehouse footprint with 38,000 sqm , with yearly cost savings of SEK 38 million. For Premium Living, the main components are continued growth through continued geographical expansion, and we unchanged see the international markets continue to perform better than the Nordic markets. This quarter also including a new shop at Tmall in China.
The integration of KitchenTime and Lightshop is, from a structural and organizational point, to a large degree, finalized in the quarter, but now the main job remains to drive traffic, sales, and efficiency in the newly integrated entities. In the beginning of the fourth quarter, we are finalizing the last phase of the three-year-long automation project in Nordic Nest, securing the efficiency improvements for the important sales period of Black Friday, coming up now in November. Slide five, please. Before turning this back to Jesper, who will go through the numbers more in detail, I would like to emphasize that we are in many ways pleased with what we have achieved.
Meaning that what we have been working so hard on for the last two years, strategically, with a new redefined strategy, as communicated at the Capital Markets Day in May, structurally, with the divestments and consolidations we have done to achieve economies of scale and synergies, operationally, investing in scalable solutions, automation, among many other initiatives, and of course, financially, with the cost reductions, the inventory reductions, and the strengthened balance sheet. We can see the positive effect on margin structure, cost levels, and cash flow, and we are pleased that we, despite a challenging market, have managed to improve our result for the last four consecutive quarters, and improve our adjusted EBIT with SEK 130 million on a rolling 12 months basis. We are pleased, but remain humble, and we are confident that we are now in a strong position to capitalize on these actions when the market improves.
With this, I will happily hand over to you, Jesper.
Thank you, Gustaf, and slide six, please. The net sales trend in the third quarter improved compared with the first half of the year. Net sales decreased 18%, reaching SEK 2.4 billion , and organic growth was - 9.8%. As Gustaf said, during the quarter, we noted a slightly positive trend in previously strained renovation and capital-intensive categories. Our main markets in the Nordics and Germany saw a sequential improvement in the quarter, and Sweden outperformed the other Nordic countries in terms of organic development. Moreover, our international expansion within the Premium Living segment progressed well, with 11% growth outside of the Nordics. Turning now to page seven and profitability. Adjusted EBIT improved year-on-year and amounted to SEK 52.5 million in the third quarter, corresponding to an EBIT margin of 2.2%.
Segment-wise, Value Home stands out in a positive way. Adjusted EBIT improved by 4.3 percentage points and amounted to almost SEK 25 million in the period, corresponding to an EBIT margin of 4.0%. Also, Home Improvement is reporting a solid profitability despite a weak net sales development. Premium Living, again, had negative mix effects, affecting gross margin and thereby profitability in a negative way in the quarter. Moving on to slide eight and the EBIT bridge. The EBIT margin improved by 1.8 percentage points compared to last year. As in the previous quarter, the main drivers being the reduced fixed cost base and efficiency improvements in our last mile operations. The slightly weaker product margin for the quarter, compared to the same period last year, was primarily driven by a mix effect for Premium Living growing faster than the group as a whole.
Last mile costs have continued to improve, primarily through efficiencies and better group-wide agreements. Organizational costs and D&A are positive drivers in the quarter. Organizational costs have decreased SEK 110 million compared to Q3 2023, corresponding to a 20% decrease, half of which relates to divestments. All in all, our EBIT margin amounted to 2.2% in the quarter. Slide nine and cash flow, please. Cash flow from operating activities amounts to SEK 103 million , driven by EBITDA and a minor positive working capital development.
The right-hand graph, showing the development in liquidity, walks us through the starting period position of SEK 370 million , adding the cash flow from operations and the impact of investing activities, and finally, deducting the financing activities, which are primarily related to utilization of our revolving credit facility and amortization of both term loan and leasing liabilities, but also include interest payments, bringing us to the period end, SEK 267 million of liquidity at hand. Slide 10, please. The group's net debt amounted to SEK 1.2 billion at the end of the quarter, and net debt in relation to LTM Adjusted EBITDA ended at 4.6x . On top of our liquidity at hand, we had unutilized credit facilities at the end of the quarter of SEK 800 million.
Acquisition-related liabilities amounted to SEK 506 million at the end of the quarter. Cash flow-wise, we assessed no further payments in 2024 and another SEK 270 million in 2025. With that, I will hand it back over to you, Gustaf, to summarize.
Thanks, Jesper. Then I will try to summarize this. Macro outlook has improved in many of our markets during the quarter, and we see the first tangible signs of this also having an effect on demand in our categories. Our focus on profitability remains unchanged, and we drive this through our main initiatives in growth, where we continue to drive growth through a number of initiatives in all three business units, from range expansion and geographical expansion to increased price competitiveness. Consolidations, with the consolidation journey to simplify our business and realize synergies, continues in all three business units. Efficiency, which remains in the forefront of our priorities, including, among many other initiatives, investments in automation, AI in a multitude of ways with big potential in customer service, and warehouse-based reductions following the inventory buildup.
The market remains challenging, but we, in this quarter, take a step in the right direction with a sales improvement compared to the first half of the year. We are happy to conclude that we also, for the third quarter, managed to significantly improve our profit levels despite the challenging market. We have finalized a lot of the work we set out to do, and we are now well-positioned and ready to capitalize on the market rebound. Thank you very much for listening. We will now do our very best to answer your questions. Thank you.
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All right, we have a few written questions. First of all-
There are no more questions at this time, so I hand the conference back to the speakers for any written questions.
Thank you. A few written questions. First of all, what is your view on the profitability impact on the Nordic Nest warehouse automation initiative?
Thank you. We're currently in the process of doing the last step in a three-year automation investment of fulfillment in Nordic Nest. This will have a positive effect on gross margin through sort of lower handling costs and, of course, sort of an increased costs on D&A as a result from the investment. In general, this investment is done for two things: one, to sort of handle continued growth, and two, to improve the efficiency. We will see the biggest effects on efficiency in the sort of largest volume months, where we see the biggest efficiency gains. These efficiency gains will increase over time, also with increased volume. I think that is the best answer I can give you. Thank you.
Thank you. Second question: are there any more warehouse closures coming up rest of the year?
No, no further consolidation in 2024, but we will have an effect on D&A in the fourth quarter from actions taken in Q3, and that effect is roughly SEK 5 million.
Thank you. Last question. You report SEK 38.6 million in interest costs, excluding leasing, and SEK 4.5 million in IFRS 16 interest, but the total is SEK 55 million. What is the difference, and what is a reasonable run rate going forward?
Starting with the difference, the difference comes from interest income, but also quite a big negative currency effect in the period, so that's the bridge. Run rate, with current interest rates, it's roughly SEK 150 million on a full-year basis.
Thank you. That was all.
Thank you.
Thank you. Any further questions? Then, thank you very much for listening. Thank you, and goodbye.
There are no more questions at this time, so I hand the conference back to the speakers for closing remarks.