Hello, and welcome to the Bufab quarter three earnings call. My name is Caroline, and I will be your coordinator for today's event. Please note that this call is being recorded. For the duration of the call, your lines will be on listen only mode. However, you will have the opportunity to ask questions at the end of the call. This can be done by pressing Star one on your telephone keypad to register your questions. If you require any assistance at any point, please press Star zero and you will be connected to an operator. I will now hand over the call to your host, Mr. Erik Lundén, to begin today's conference. Thank you.
Thank you, Caroline. Good morning, good afternoon, everyone, and warm welcome to Bufab's Q3 report. My name is Erik Lundén, and I am President and CEO of Bufab, and I'm sitting here in our head office in Värnamo, Sweden, together with my CFO, Marcus Söderberg. I will start this presentation to give you a Q3 summary of our performance in the quarter, and then I will leave the word over to Marcus for some financial highlights. Then at the end, I will sum up the quarter, looking a bit on the outlook. Then, of course, we will have time for Q&A at the end. If we start then and go to slide number one, and the Q3 summary.
As you know, this was my first quarter as CEO of Bufab, and I'm very pleased to report that we had a very strong quarter despite, I would say, challenging market conditions. We had a healthy growth, stable gross margin, and a strong result overall. You can also see that due to the geopolitical and macroeconomic situation, uncertainty for the future has increased for us. Looking on the growth, we had a 49% growth during the quarter. The growth was largely driven by acquisitions that were completed in the year, but we also noted a strong organic growth of 9%. The underlying demand was relatively stable, and organic growth was mainly a result of price increases that we've been working with throughout the quarter, but also capturing market shares.
When we look at the profitability, we had a stable gross margin, and a lower share of operating expenses. We saw that operating profit and operating margin increased significantly in the quarter. I would say that there was continued strong cost control within the group. Together with organic growth that we've seen and the acquisitions we added, we ended up in a really strong profit development in the quarter. Overall, we end up in EBITDA +66% compared to the last Q3 2021, and that end up on an operating margin of 12.8%. The cash flow remained weak during the quarter, and this is a direct result of continued increase in working capital for us. This is of course mainly driven by the inventory.
We have seen a strong organic growth in the past, and the combination of two years of longer lead times, this has led to us for a need to increase our inventory. What we do now is taking different measures to ensure that our inventory goes down, and we expect the trend now to go down in the fourth quarter. If you look then on the focus areas in the quarter and deliverables, we've been working hard now to be well-positioned if the demand weakens going forward with company by company situation specific measures in place. Of course, we focus on inventory reduction, efficiency improvements, cost savings, and of course also continuing price increases towards our customers.
We have done three acquisitions during 2022, so the work is in full now to integrate those acquisitions in the company in a good way and of course also realize synergies now. This work will continue also in the coming quarters. That was my first summary of the quarter, and I will now leave the word over to Marcus for some financial highlights. Please, Marcus.
Thank you, Erik. If you please turn to page number two, you will see a schedule over the group's financial highlights. As you can see here, the order intake came in more or less in line with just slightly below net sales. Net sales increased with 49%, just like Erik said, and much was driven by acquired growth from the recent years' acquisitions. The organic growth was still quite strong, 9%. Organic growth was mainly driven by strong development in Segment East and UK/North America, even though all segments showed positive growth, organic growth. The organic growth comes from mainly from price increases, but also due to that we're continuing taking market share and the underlying demand, I guess you can say, was relatively stable.
Gross profits remained stable, and our OpEx as a percentage of net sales decreased with approximately 1.5 percentage points. The main reason for that is due to that there were some adjustments for reevaluated additional purchase consideration in the comparative quarter. If you adjust for this, the OpEx percentage of net sales was more or less unchanged year-over-year. In total, this resulted in a strong EBITDA development, just like Erik said. The EBITDA increased by 66% corresponding to an EBITDA margin of approximately 12.8%. The nice result development flows down also to the bottom, so to say, meaning that earnings per share had also strong development with an increase of nearly 62%, and amounted to SEK 4.71 per share in the quarter.
With that said, we turn to page number three, and we have some graphs showing the more long-term development of the Bufab Group. If you start with the first graph at the left, you can see it's basically a record showing our growth over the last 28 quarters, I believe it is. As you can see here, we have shown growth now again for nine consecutive quarters, and not only growth, but also strong organic growth in basically all of those quarters, which is, of course, very nice to see. If you look on the right graph, you see the rolling 12 months development of net sales in the group, but also EBITDA. As you can see, both the net sales and the EBITDA trend strong trend is continuing.
The growth trend is of course, highly supported by acquired companies that we have made during the last couple of years, but also due to that organic growth has been there for most quarters as well, and now in recent quarters, also on a strong level. Also strong EBITDA trend as you can see it's continuing and it's supported by strong growth in combination with a stable and somewhat increased gross margin over the last couple of quarters, as well as good cost control. With that said, we turn to page four, and we'll have a look at Segment North. The order intake in Segment North came in slightly under net sales for the quarter. Net sales increased with 20%, where 4% was organic.
Most of that organic growth came from price increase over the last couple of quarters. Gross margin decreased versus previous year, mainly as a result of lower volumes in the segment's manufacturing companies. OpEx in percentage of net sales decreased significantly, mainly as a result of that the comparative quarter was burdened with cost of those reevaluated additional purchase considerations that I just talked about some minutes ago. Adjusted for this, the OpEx in percentage was somewhat increased. In total, the operating profit increased with 39% to SEK 70 million, corresponding to an EBITDA margin of approximately 10.7%. We turn to page five and have a look at Segment West. The order intake in Segment West came in line with net sales for the quarter.
Net sales increased with strong 45%, where 15% was organic, and the other 30% mainly comes from acquisitions. Organic growth was mainly driven by price increases together with market share gains and also continued strong or good underlying demand in most of the companies in the segment. Gross margin increased slightly versus previous year, but this is mainly a result of the acquisition of the Novia Group that has a lower gross margin, but a comparable EBITDA margin with the rest of the companies in the segment. Also as a result of that, lower OpEx versus previous year, also a result of the acquisition of Novia Group.
Also, which should be commented on is due to continued good cost control and operational leverage on the slightly higher volumes. In total, the operating profit increased by 1% to SEK 49 million, corresponding to an EBITDA margin of 11.7%. We switch over to page six and have a look at Segment East. The order intake in Segment East came in lower than net sales. Net sales increased with 23%, whereof 10% was organic growth. Organic growth was mainly driven by price increases and increased market share.
Gross margin increased versus previous year, mainly as a result of the acquisition of CDA Polska, that has slightly higher gross margin than the rest of the company in the segment, but also due to tax increase through price increases to customers. OpEx in relation to net sales increased mainly as a result of one-time cost, I guess you can say, or final costs from the earlier communicated sale of the segment's Russian entity. That is now fully closed, but there was some additional costs booked in the quarter. In total, the operating profit increased with SEK 4 million to SEK 39 million, corresponding to an EBITDA margin of 14.4%. With that said, we change page to page number seven, and we'll have a look at Segment UK/North America.
Also in UK/North America, the order intake came in more or less in line with net sales. Net sales increased by a strong 111%, whereof 15% was organic growth. Organic growth was mainly driven by price, but also by continued healthy demand and taking market share. Gross margin decreased due to the acquisition of TIMCO, who just like Jenny Waltle have a lower gross margin than rest of the companies in the segment. Adjusted for this, the gross margin actually decreased just slightly.
Lower OpEx on the other hand, due to strong growth and continued good cost control, helped the overall EBITDA development, which increased with strong 85% in the quarter to 115 million SEK, corresponding to an EBITDA margin of 14.9%. With that said, we turn page and we'll have a look at page eight showing two graphs, one showing our cash flow track record and one that shows our net debt/EBITDA development. If we start to look at the left graph, we can see that the development of EBITDA and our cash conversion during the 13 quarters.
The cash flow remained weak during the quarter as a direct result of the continued increase in working capital, mainly in terms of inventory, just like Erik said. It is a strong organic growth in combination with almost the last two years longer lead times that we have seen that has been significantly longer than what's normal, so to say. This is the reason for us needing to increase our inventory. The lead times, however, just like Erik also said, have now been decreasing for some time, and we have taken action, several such. In order to make sure that our inventory follows the same trend going forward.
We expect this trend to be seen somewhere in the fourth quarter, and that inventory in absolute figures will peak in this quarter as well. Then we'll see cash flow also gradually improving. If you look on the right graph showing the net debt/EBITDA KPI, as you can see, we have been increasing our leverage during last year, mainly as a result of the last 12-month acquisitions. We made six acquisitions during the last 12 months and also one big two quarters ago. But it's not only due to acquisitions, it's also due to some unfavorable currency effects on acquisition loans in foreign currency that is the explanation, you can say.
Our focus going forward is to do what we normally do when we just have made acquisitions, and that is, like Erik said, also focusing to make sure that we land those acquisitions in a nice and good way in Bufab, and that we integrate them in a smart way, and that we start working, making sure that we start to see synergies and that we leverage on that just like we have done historically. Of course, like Erik also said, focusing now going forward to really make sure that we increase cash flow and that we use that cash flow to pay off debt in order to continue the acquisition journey going forward.
With that said, we go to my last page, which is page nine, showing the EBITDA bridge for the quarter and accumulated for the year. As you can see, we have strong contributions basically from all segments in the quarter, but especially from UK/North America together with West. When it comes to the accumulated figures, it's basically the same, but also then Segment North is also really contributing in a super nice way. Strong overall development, even in Segment East, if you adjust for the cost we have taken for the sale of the Russian entities, I would say. A strong quarter in all terms, I guess you can say. With that, I leave the word over to you, Erik, to talk a bit about acquisitions.
Yes, that's right. Thanks, Marcus. On page 10, you will see a slide about our M&A activities. Bufab was founded back in 1977, had acquisition as one natural part of our DNA to grow not only organically, but also through acquisitions. The last years, we have done three acquisition. We have done TIMCO, the big one in UK two quarters back. We have CDA Polska in Poland and Pajo - Bolte in Denmark. All those three happened during 2022. If you look back in the history, we have done 50 acquisitions since 2014 and added more than 900 entities and SEK 3.4 billion in our turnover by acquisitions. As I said in the beginning, doing acquisitions will be a natural part of us growing the business.
We are looking for profitable companies, well-run companies that suit well in the Bufab group. They should have some kind of synergies with us, how we operate today, but also maybe even further diversify our portfolio. Of course, we should have a price tag attractive for us to acquire the company. If you look back in the history, we have been, I would say, successful in adding that kind of companies into our portfolio, and they've actually grown quicker when they added Bufab. We are one of the few leading players in the highly fragmented market. By doing a good job internally and growing organically, we will also have cash flow and opportunity to do more acquisitions going forward.
If we then go to slide 11 and the final slide, I will try to sum up this and also look a little bit ahead. If we start then with the Q3 summary, as I said in the beginning, it's a very strong quarter overall with continued healthy growth, stable gross margin and a strong result. Looking at the outlook, given the surrounding world right now, geopolitical and macroeconomic situation, the uncertainty about the future has increased for us. We see in some industrial segments cautious when it comes to the future and also a little bit lower demand. Although what I think is very positive with Bufab is that we have very well-diversified portfolio of customers and product items with very good risk diversification.
Looking ahead in short-term priorities, we have today, I would say a good position for meeting potential future weaker demand in the market. We have put action plans in place company by company to be ready. Of course, we also will do our best now to grab market share. In more tougher times, there's opportunities for good companies to grow and take market share, and that is what we aim to do now going forward. Of course, we will also have a big work when it comes to, excuse me, the cost savings and continue working with price adjustment towards our customers. We have work to do still when it comes to efficiency improvements, working with our inventory further, but also work with our operations in terms of productivity and so on.
Talking about net working capital, really normalizing our inventory and secure cash flow will of course continue to be in focus also in Q4 and going forward. That was the final slide of our update here. Now I will leave the word over to the audience for some questions. Please.
Sure. Thank you. As a reminder, if you would like to ask a question.
Make any contribution for today's call, please press Star one on your telephone keypad. We will take the first question from Johan from BNB Markets. The line is open now. Please go ahead.
Thank you, Erik and Marcus, and congratulations on the strong quarter. Could you please shed some light on the actions taken to decrease the inventories and how drastic should we expect this to be going forward?
Absolutely. Just like we said initially, I mean, if you look at the reasons behind the inventory increase during the last 12-18 months at least, is due to changes in the market, basically. I mean, the growth has been very, very strong. We're growing quite significantly organically, and that normally leads to that we tie up inventory additionally, so to say. And on top of that, maybe one of the bigger parts of it is the increased lead times, so to say. We have seen increased lead times basically since the beginning of 2021, and they continue through 2021 and during the first half of 2022.
Since the end of Q2, I guess you can say we have now really seen that those lead times are going back more or less to the same level that they were before the pandemic, actually, or at the end of 2019. The same thing that has happened basically with us adjusting our minimum order levels due to longer lead times the last one and a half year, we'll do the same thing now, and we already have taken action on doing the same thing now, making sure that we place lower purchase volumes because that's basically what we're talking about.
Issuing less purchase orders, aligning the volume purchased, in order to not only make sure that we have goods to customer, but we also reduce down the inventory levels to reflect the new reality. It's kind of a If we were in a normalization phase, let's say, a year ago when we started building up inventory, we are in a renormalization phase now where we make the opposite thing, basically. It's we're talking about making sure that we are not placing too many purchase orders, and that we utilize the possibilities we have in the Bufab Group, where maybe we have many companies selling the same kind of parts, making sure that we do not place external purchase order if you have groups internally, for an example.
There is a lot of actions being taken and we already see some of the results in the underlying KPIs. It's just a question of time before we stop seeing it also in terms of actually lower inventory values.
Thank you, Marcus. One more question, if we have time for that. Organic growth was strong, but mixed where they come from. We see price in all segments, volume and sales and market shares in West, East, and UK/North America. Is it mainly the Nordics that you see less volume demand or do you expect the other areas to follow? How do you see the price increases evolving going forward?
Yeah, it's a good question. If you put it like this, there is obviously an uncertainty in the market and we see certain customers placing lower volumes one month, and then they increase them the next month because they don't really know what is going to happen as little as we do and you guys do probably. That there is a slightly weakened demand going forward, I guess, everybody can agree upon that that's what everybody thinks will happen. It's just a question of how much it is, so to say. It's not so that we see any clear trend at all.
I mean, if you look on the level of organic growth in Nordics, for example, and the reason for that, why that is lower than the rest of the group, I guess it's also, you know, a question of market share because many of the companies in Nordic regions are quite big and have historically as well not really grown as fast as maybe the smaller companies in some of their other segments. That's also one thing adding to it, so to say. When it comes to general market growth, I mean, we have certain industries that are ramping up now. There are some that are slightly ramping down. I mean, COVID affected industries, for example, that were favored during the COVID pandemic.
They are ramping down slightly now, but the ones who were struggling during those periods are ramping up instead. I guess that's kind of what's good with Bufab because we are super diversified among different industries and different segments, et cetera. That's also what's reflected in this particular report as well.
Thank you so much for the details.
Thank you. We will take the next question from the line of Robert Redin from Carnegie Investment Bank AB. The line is open now. Please go ahead.
Hi, Robert from Carnegie. There's that strong organic growth in UK/North America with also volume growth. Could you say something about what was driving that? We have learned before that the US business, the RV market is an important down segment, and that has not been sort of bad in a lot of good news in Q3. That's surprised me. What's all that kind of organic growth there?
There is still a good level of volumes, so to say, I mean, compared to the history, if you put it like that. On top of that, there is also quite a big portion of price increases together with taking market share. It's basically a combination of those two, that makes that segment stand out in the quarter as well. It's a combination. It's still high volumes, let's say from the RV market, even if it's maybe a bit less than it has been during the last couple of quarters.
The online demand is still strong in general, together with price increases and that the companies are successful in you know being out there building relations with customers and landing in new business. It's a result of some of paper market, I guess you can say, and that we're doing a good job.
Right. Sounds good. On the question of price, are you still rolling out price hikes across the business areas or are prices being less active now?
Yes, we still do that. We still have work to do when it comes to price increases. As you all know, we see that the pressure on cost for us and others are increasing in a turbulent time like this. We do a combination of being more efficient as a company, but also put some more pricing to other customers as well. It's a combination of what we're doing right now.
All right. Not possible prices are going higher. Okay, cool. Thanks. Those are my questions. Perfect.
Thank you.
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Okay. I would like to thank everyone for attending and wish you a nice day ahead. Thank you.
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