Welcome to BHG Q3 Report 2025. For the first part of the c onference 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 CEO Gustaf Öhrn and CFO Jesper Flemme. Please go ahead.
Hi and welcome. 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. I'm happy to present another strong quarter for BHG, double-digit growth for the first time in a long time, and a step up in profitability improvement. Really pleased to summarize that we have delivered on what we set out to do. We have taken market share in a strengthening market, maintained our cost levels, and managed to leverage our fixed cost into profitability improvement, and continued to improve customer satisfaction. Slide three, please. For the fourth consecutive quarter, we continue to show organic growth, this quarter with a significant step up in growth levels, delivering a 13% organic growth and a double-digit growth in all three business units.
We are confident that we with this have taken market share during the quarter. We also report significantly improved profitability in the quarter, this quarter reporting SEK 92 million in earnings, which corresponds to a 76% improvement versus the previous year. The improvement in earnings comes primarily from top-line growth in combination with direct selling costs and SG&A well in control, creating leverage from top-line and improving profitability and demonstrating the scalability of our model. We report a strong positive cash flow of SEK 52 million following the normal seasonal pattern. Slide four, please. A few words about the market development and our forward-looking outlook.
This slide is from the Central Bank of Sweden and illustrating Sweden, our largest market and the market we unchanged see leading the way in market recovery and also serving as an example of the development we expect to see in most other markets with some time lag. Disposable income has improved during the first three quarters of this year, driven primarily by interest levels coming down in combination with tax subsidies such as the increased route of draw. Also, the development in the number of housing transactions has developed positively. The disposable income and housing transactions are two of the strongest drivers of demand in our categories, and our assessment is that demand has continued to improve compared to last year and that the market continued to strengthen also in the third quarter. Our forward-looking outlook remains unchanged.
We foresee continued strengthening market driven primarily by disposable income improvements, as seen here on the graph. In addition to positive total market development, we assess that the long-term trend of migration from the physical channel to the digital channel continues for a foreseeable future in our categories. Slide five, please. Looking back, we all remember the crazy pandemic growth and then the challenging times following the pandemic and the consumer downturn. However, if we focus on the last two years, we have seen profit improvement for eight consecutive quarters and growth in the last four quarters, this quarter with a significant increase in both growth rate and profitability. We have left what we call the restructuring phase and now execute our strategy with full focus on the profitable growth phase. Slide six, please. Strong growth in the third quarter.
Let me try to further clarify where this growth comes from. From a geo-perspective, the main growth comes from Sweden, being our largest market and continues to lead the way in market recovery, with disposable income on the rise and showing solid growth. We also see an unchanged strong sales development in the important markets of Norway and Germany, driven by successful geographic expansion in many of our entities. The most challenging of our key markets is still Finland, which trails out our other main markets in recovery. Considering this, we are proud to report a 7% organic growth in Finland for the quarter. From a category perspective, the main growth comes from strong sales development in the bathroom category. Most likely, the tax subsidy in the Swedish market of the increased route of draw has an unquantified positive effect.
With that said, we also see an even higher growth rate in the Norwegian market in the bathroom category, indicating that there are also other positive contributing factors. We also see a strong positive sales momentum in categories as indoor furniture, driven partly by the revamped entry-level assortment in HFM and also in categories as home decoration and garden. Slide seven, please. In an effort to clarify our forward-looking growth strategy, we have defined five layers of growth. First, two external factors: the total market is back to growth after a long period of negative development, driven as mentioned by disposable income, housing transactions, etc. Two, online penetration remains low in our categories. The online market has grown faster than the physical retail market, and we assess that it will continue to do so for a foreseeable future.
On top of the external market- driven factors, we have three layers of international growth factors in our strategy. The first and most important layer is what we call operational excellence: the continuous work our platforms are doing every day with their operational focus, the relentless and constant work of being a retailer, working assortment and product, pricing, customer acquisition, and securing customer retention through customer focus, etc. In this, we also include the operational growth drivers of category, geography, and customer segment expansion. The second layer, which we call strategic initiatives, where we from the group is very active, driving initiatives that we see as key to secure competitive advantage for our businesses. These areas include areas such as unique assortment, additional revenue streams, securing competitive cost structure, and data and AI initiatives. I will come back to this in a minute. The last layer of growth is M&A.
This has been pretty much on hold the last few years, even if we did two small acquisitions last year. We are a company partly built from M&A, and it is unchanged an important growth to ol for us. The keywords of our current M&A strategy are: bolt-on acquisitions to support growth in our platforms, this rather than platform acquisitions, and a disciplined, proactive approach, having a clear view of what we are looking to acquire, filling the white spots that we have identified, and staying financially as well as strategically and structurally disciplined to our defined strategy. Before I hand it over to Jesper, let me spend one minute doubling down on the second layer of strategic initiatives. This is a key part of our strategy and where we put a lot of our current focus. Let's start with our main view of the competitive landscape.
We believe that price transparency will continue to drive price and gross margin pressure. As a consequence, much of our strategic and tactical focus revolves around this and how to best address it. One, unique assortment, historically labeled private label, but comes in many shapes and forms, with a key advantage that we wish to secure is avoiding only competing on price from selling the exact same product as other vendors. Unique assortment often also having the advantage of taking out the middleman and thereby securing a higher gross margin. Two, additional revenue streams. There are several potential additional revenue streams to explore, but our current main focus is within what is often referred to as retail media. In short, securing media revenues on the traffic we have to our sites, this being a key enabler to a strong customer offer and thereby a growth driver.
Three, cost structure as a strategic advantage. If you, as we do, believe price competition is a key factor, then having a superior cost structure is what enables the best offer to the consumer and will long-term be the strongest competitive advantage you can have. We drive this with a focus on automation, efficiency, and cost governance. Finally, what we call data and tech. We are a tech-driven business, and there are so many ways to use AI in our business. We have a number of initiatives already implemented or in the process of being implemented in all three business units, driving both growth, efficiency, and customer experience. With that, I will leave the word to Jesper.
Thank you, Gustaf. Slide eight p lease. In Q3, we delivered double-digit organic growth for the first time since Q2 2021, driven by strong performance across all three segments. Net sales increased 10%, reaching SEK 2.6 billion, and organic growth was 13.4%. The strongest acceleration in growth compared to the previous quarter was seen in the Home Improvement and Premium Living segments. In both segments, we're seeing increased demand in our largest market, Sweden, while Premium Living also recorded a sharp growth uptick in Germany. Turning now to page nine and profitability. Profitability improved for the eighth consecutive quarter. This quarter, profit improved by SEK 40 million, or 76% year-over-year, driven by improvements in all three segments. Adjusted EBIT amounted to SEK 92 million in the quarter, corresponding to an EBIT margin of 3.6%.
Most notably, all three segments improved earnings by over 50% and margins by more than 1.5 percentage points. Move on to slide 10 and the EBIT bridge. Our EBIT margin improved by 1.3 percentage points in the quarter. Simply put, the improvement in profitability is driven by strong growth combined with solid cost control, providing scale on fixed costs as well as by efficiency gains in direct selling costs. The negative impact on product margin comes from the Home Improvement segment and is driven by, one, the divestment of IP-Agency and, two, clearance of seasonal products towards the end of the outdoor season to maintain healthy inventory levels. All in all, our EBIT margin amounted to 3.6% in the quarter. Slide 11 and cash flow, please. Strong EBITDA offset by a seasonal negative working capital effect resulted in a cash flow from operating activities of SEK 52 million.
The development in working capital was mainly driven by supplier payments following the seasonally high sales in Q2. The right-hand graph showing the development in liquidity walks us through the starting period position of SEK 473 million, adding the cash flow from operations and the impact of investing activities, and finally deducting the financing activities, which are primarily related to amortization of leasing liabilities but also include interest payments, bringing us to the period end, SEK 262 million of liquidity at hand. Slide 12, 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 3.4x . 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 204 million at the end of the quarter.
Cash flow-wise, we have no more payments this year and around SEK 100 million in 2026 and 2027, respectively. With that, I will hand back over to you, Gustaf, to summarize and conclude.
Thank you very much, Jesper. Slide 13, please. Now, let me try to summarize this: growth rate accelerating, double-digit growth in all three business units, increasing profitability with a 76% improvement versus last year, this being the eighth consecutive quarter with earning improvements. We have seen market recovery for the first three quarters of this year, and our forward-looking outlook remains unchanged. We expect a continued market recovery driven primarily by improvements in disposable income. Finally, we have done what we set out to do. We have delivered on what we set out to do. Our focus remains unchanged to deliver profitable growth, targeting the 7% EBIT margin we have in our financial goals. Thank you very much for listening, and now happy to do our very best to answer your questions.
If you wish to ask a question, please dial pound key five on your telephone keypad to enter the queue. If you wish to withdraw your question, please dial pound key six on your telephone keypad. The next question comes from Benjamin Wahlstedt from ABGSC. Please go ahead.
Good morning. Three questions, if I may. First of all, you referred to an increased market share. I was wondering if you could give us an idea of what market you are referring to and what that market grew, please.
Hi, Benjamin. Gustaf here. I'll do my best. We are trying to follow all the data points we have, and I think we're getting better and better data points trying to follow market share both on geography level and on category level. Most of those data points that we study, we're confident that we have taken market share in this quarter.
Thank you. I was wondering as well if you could specify when demand picked up. Did any one month stand out in terms of growth?
I wouldn't really say that. I think if we look back at the beginning, since the beginning of the year, as you recall, we had a very strong first quarter. We got the warmer weather quite early, and we had a tougher beginning of spring. The second half of the second quarter was definitely an improvement. I think through the third quarter, it's been fairly flat with no larger variations. We're very happy that it has continued to improve and continued to stay on a high level, even if there were some seasonal changes primarily in the second quarter.
Perfect. Thank you. Finally, I was wondering if you could comment on any FX or shipping-related gross margin support, thinking specifically about the weak dollar, perhaps in FX, and when we should expect it in numbers, please.
No, Jesper here. I don't think there's any major impact to the numbers. To put it very simple, I mean, the products sold in Q3 have been purchased in previous periods. FX hasn't affected the gross margin that much.
Do you expect any support going forward either?
I mean, looking into the coming outdoor season in 2026, of course, if the dollar stays on this level, I would expect a positive impact.
Thank you very much. That's all I had for now. Thank you.
Thank you.
As a reminder, if you wish to ask a question, please dial pound key five on your telephone keypad. There are no more questions at this time. I hand the conference back to the speakers for any written questions and closing comments.
No further questions, and we have no written questions. With that, I say thank you very much for listening and wish you all a great weekend. Thank you.