Good morning and good afternoon, everyone, and warm welcome to this third quarter presentation from Bufab. My name is Erik Lundén, I'm President and CEO of Bufab Group, and together with me here, I have Pär Ihrskog, CFO. This presentation will be recorded, and by attending the meeting, you agree to the recording. I will start the meeting with a short summary of the quarter. So first of all, to sum up the quarter, we had a strong cash flow and stable underlying result in the quarter. It was, for us, a solid quarter in a challenging market. Looking at the net sales, declined by 2%, and organic growth was down 7%. This was driven by a lower demand in some industry segments and also strong comparative numbers.
We continuously very strong developing segment West, and looking at order intake, it was slightly below net sales for the quarter. Looking at results, we are pleased with the gross margin improvement in the quarter. It's a good indicator that the value that we provide to our customers also gets back in our profit and that we have a good development that comes to customer business mix. Our operating expenses for the quarter was up, and this was mainly driven by some remeasurement of additional purchase consideration. This is an outcome of that our acquired company last year, TIMCO, had a very strong development, so we need to put some extra provision for that, and that impact our operating margin.
But adjusted for that, we had a solid operating margin of 12.6% in the quarter, and a good contribution from segment West and North, but lower impact from segment East. Looking at the cash flow, I'm very pleased with the development. We continue delivering a very strong cash flow, and the work we have done to improve our inventory is paying off, and we end up having a operating cash flow of SEK 470 million, and this correspond to a cash conversion of 178%. And we expect to continue to have a strong cash flow throughout the 2023. I will now leave the word over to Pär for some financial highlights. Please, Pär.
Okay. Hi, good day. So some more details on, on the financial numbers then. Let's start with order intake. It was slightly lower than the net sales, ended up at SEK 1,983 million. Our net sales in the quarter decreased by 2% to SEK 2,071 million, which was a net effect of -7 organic growth and +5 coming from currency translation effect. Our year-to-date net sales ended up at SEK 6,737 million, an increase of 6%, where organic is -5, acquisition effect is +5, but also a positive effect from currency, 6%. Our gross margin in the month continued to be strong, ended up at 29% versus 28.3%, quarter three last year.
The higher gross margin is explained by favorable customer and business mix. Our operating expense of SEK 381 million was affected by this revaluation of additional purchase consideration of SEK 40 million. Excluding this effect, our adjusted EBITDA margin ended up at 12.6% versus 12.9%, quarter three last year. Our profit before tax was SEK 98 million, and earnings per share was 2.6 SEK. Both were negatively affected by the additional purchase consideration, but also the higher interest rate that we are facing right now. Well, to the left here, we have a graph showing the net sales growth quarter versus quarter last year, and it also displays the contributing components, which is either organic growth, currency-related, or acquired related growth.
The net effect was -2, as I said, and the organic growth, -7, and the positive currency effect is +5 in the last quarter. So the yellow line here is the net, the growth of all components. And, in the graph to the right, we have the twelve-month rolling or LTM net sales, which is the blue line, where we now are hovering around SEK 8.8 billion, twelve months rolling, and our adjusted EBITDA profit is now at SEK 1.1 billion, twelve months rolling. Let's continue to the next slide and look into the cash flow a little bit. Our cash flow continued to be strong in the quarter.
Our operating cash flow was SEK 417 million, which is a result of strong improvement in our net working capital. Coming from the reduction, very much coming from the reduction in inventories from the high levels we were back in 2022 with the long lead times and constraints in the supply chain. Which we now see the positive effect of when we're reducing that. As a consequence then, the freed up cash help us to reduce our debts and improve our leverage KPI net debt in relation to EBITDA, which ended up at 2.7, an improvement of 0.7 points versus quarter three last year. Yep.
Thanks, Pär. I will then go over to some highlights from our different segments around the globe. I will start with segment North. Total growth for the segment was -2%, with an organic growth of -6%. Here we're seeing a slowdown in the underlying demand for some industries that had a very favorable development throughout the pandemic, like bathroom and kitchen. Gross margin was in line with the previous year's performance in the quarter, and we had some lower operating expenses due to electricity subsidies. Our operating profit and operating margin improved. However, adjusted for those subsidies, the margin was 10.3% for the segment. Continue with the West. Total growth of 8% in the quarter, -1% organic.
Here we continue to see a very good development for the segment. Both Netherlands and France are performing very well. We're doing a change in our operation in Austria, where we go from lower margin product to high-end product, and that's impacting our organic growth for the segment. But all in all, I'm pleased with the development in the segment West. Gross margin in line with last year and our operating profit and operating margin increased, and we had some lower shared expenses due to good control over cost and also good operational leverage. If we continue with segment East, total growth of -11, of which 15% was organic growth. And here we see a continued weak development once again by segments that had a very favorable development throughout the pandemic.
Gross margin in line with last year and a little bit higher ex SG&A expenses due to lower volumes and slightly lower operating margin for the segment as well. Finally, we have the segment UK and North America. Total growth amount to -5%. Organic growth was down 10% due to lower demand in stainless steel operation in UK, but also RV industries in North America. High gross margin due to favorable customer business mix. Very pleased with that development, and SG&A operating expenses increased due to remeasured additional purchase considerations, as I mentioned before. And if adjusted for that, our operating result ended up on 13.5 for the quarter, compared to 14.9 last year.
When it comes to M&A, our work continues now to make us prepared for new acquisitions. As we have continued to improve our cash flow, we will be able to reduce our debt and make our balance sheets ready for acquisitions. So we have started to look more and more into new acquisitions to make that possible in the coming quarters. Looking back for the previous acquisitions, they have had a very strong development since they joined Bufab, so very pleased to see that. And the journey of integrating our companies continues obviously to ensure that we continue with the favorable development.
One example of the good development, of course, TIMCO, and that we had to now change the earn-out provisions for this quarter as the company's continuing performing better than expected. If then take and sum up the quarter and also look ahead and start with a short summary of the quarter. I think it's a solid development in the quarter. I'm very pleased with the strong cash flow and also the underlying results that I think is good. Sales growth was -2% and organic growth -7%.
Once again, we see a mixed bag here, where the sectors that have a very favorable development during pandemic still struggle with low demand, and other segments now are a favorable development, like energy, defense, are performing extremely well in the quarter. The adjusted EBITDA margin ended up on 12.6% and a strong cash flow of SEK 470 million. Looking at the outlook, there's still a lot of uncertainty in the market, which was also reflected in the quarter's numbers, I would say. I think we have a very good position. We are well diversified in terms of both customer portfolio, and we also, of course, have exposed different industries and markets. So I think we have a good position to manage tougher times if it's coming.
And of course, also, tougher times also open up opportunities for us to actually grab market share as well when our customers is looking for lower the total cost to C-parts and often ends up in consolidation of number of C-part suppliers. Our short-term priorities that we set in Q3 last year remain the same. We want to continue to be active in the market and taking market share. It's a good opportunity for us to do that in times like this. Continue to protect our margin. Of course, working on improving our gross margin, but also then our efficiency throughout the organization. And of course, handling the inflation in a good way and manage the cost in a good way. And also continued on working on our cash flow.
We still have work to do here to continue improving our inventory, and we'll continue doing that, and we expect to have continued strong cash flow also in the coming quarter. Finally, I would like to, of course, highlight that we have a Capital Markets Day coming up in December. It will take place face-to-face at Fotografiska in Stockholm, so you're warm welcome to this event. You will have opportunity to listen to me and my colleagues talking about our updated strategy called Discovering the Next Solution. So please register your participation to Sophie, and you are warm welcome, and I hope to see you in person in Stockholm in December. That was it for me.
I would like to open up the Q&A session, and please use the function, Raise Your Hand, if you have any questions, and don't forget to unmute yourself when it's your turn. So please.
We start with the first question from Karl Norén at SEB. Please ask your question.
Thank you, and good morning, good morning, Erik and Pär. A couple of questions from my side. First, on the price impact, year-over-year, could you comment on how much price contributed to growth?
Yes, and I mean, there is a price factor. We don't disclose the how big it is, but it's smaller and smaller for each quarter you go, you're looking back. So it's not a huge part nowadays.
Okay, that's clear. And then you, on the outlook side, you say that the outlook has maybe worsened a bit, it sounds like. So I'm just wondering, what is driving this? Is it more of that the general economy is weakening, or is it anything specifically you see that is not yet in the figures?
Yeah, first of all, I would say that it's still a very mixed bag, as we have seen now through some quarters, where we have the pandemic-favorable industries are still having a tough time with low demand. And on the other hand, we have others that are performing very well. So it's a lot of uncertainty. I think that's the right word.
Yeah, so it's-
First we-
Yeah, go ahead.
Yeah. Now, and what we see is that, this quarter compared to previous quarter, maybe the general industry, it has slightly lower demand, but it's not a major change, I would say. It's still a very mixed bag in the different industries.
Yeah. So it's a quite similar outlook to what you said in Q2, I guess, then.
Yeah, I would say-
Yeah
... it's not a major difference. I would say it's still a lot of uncertainty, and it's, of course, difficult to predict how this will develop, yeah, going forward.
Yeah.
So, quite similar.
I have a question on the gross margin as well. I mean, quite strong here, and you state mix, but I'm just wondering, because it's basically North America and UK that is driving the whole margin, gross margin improvement, while it's rather flat in the other regions. I would maybe have expected that gross margin would improve a little bit more in the other regions, driven by lower freight costs, et cetera. Can you give any flavor on that development?
Yes, I can. I think that the gross margin development we have seen in the longer trend, I think it's been good and a good development, and in all segments going in the right direction. There is, of course, a factor of lower freight and so on, but the impacts, but both a lot of things that have impacted the negatives are obviously. To offset that, we have also pressure from our customers, obviously. So it's a mixed situation. And then we have, of course, from a company level, different situation as well, where we have more low-hanging fruits in some companies to take actions and improve, obviously, than others, and others take a little bit longer.
So, but the work is ongoing, obviously, across the board to ensure that we have a good development on the gross margin and ensure that we have a good and healthy customer and product mix. And, how quick you get the outcome of that, that depends on the individual situation for each company. So, therefore, I think it's difficult to draw too many conclusions of one quarter, rather looking at the longer trend.
Yeah
... to see that we're doing a good job, so to say, and, and gradually improve.
Yes, good. And then just two questions here. On the financial net here, you have -SEK 77 million in the financial cost. I was wondering, is all of that interest, or do you have anything ever in that figure?
No, that, that is, that is, mainly interest cost.
Okay. We should expect that to be relatively similar in the coming quarters, I guess, then, because you deleverage, but interest goes up a bit, I guess, or interest rates.
Yeah, we follow the market on the interest rates, but I think it will continue on this level for a while.
Yeah. That's good. And then the last one is on cash flow in Q4. You state that you expect a strong cash flow as well. Is that, if I look historically, maybe Q4 has been even better than Q3 in terms of the working capital contribution. Do you agree with that, or has anything changed there?
Yeah, I agree with that looking in the past, that has been the case. I think it's a combination, of course, how we will continue working on the Net Working Capital, but also how the market will react throughout the quarter as well. But what we see clearly is that we'll continue to have a strong cash flow. That's clear, but then we'll see how good time is there.
Yeah, yeah. Sounds good. That's all for me. Have a good day.
Thank you.
Thank you.
... Thank you, Carl. So, Johan Skoglund at DNB, welcome to ask your question.
Good morning, Erik, and good morning, Pär, and welcome to Bufab. So some more details would be appreciated on the interest rate increase, and particularly why. I mean, is this attributable to old fixed rate loans being renegotiated? I mean, if your spread is increasing because we see STIBOR is relatively flat over the quarter. So just some more details on that would be appreciated.
Yeah, we have a big mix of different terms in our loans, so that would be hard to explain, I think. But, I mean, we are following the market. We have some fixed terms, and we have some following the market. Yeah, that's all I can disclose right now.
Okay, understood. Thanks. So you also mentioned that TIMCO is performing well. Would you say that UK construction are showing signs of improvement, or what conclusions could you draw from this?
Sorry, you said, construction, how that's developing? Was that your question?
Yes, in the UK.
Yeah, yeah. Yes, I would say, first of all, I think, construction is quite diverse, with different, others, underlying segments within construction, so to say. And here we see also mixed development. If you take construction in Sweden, for example, or new buildings, of course, very low demand, and then others is actually holding up quite well. If you take the U.K. market specifically, I think that the demand has been holding up very well, but also that, TIMCO done a good job in broadening their offering, and ensure that they are good in taking market share. And so the development in TIMCO has been favorable, and they have performed better than expected. So, that's very positive to see.
So a combination of that the market hold up well and that TIMCO done a good job.
Okay, good. Thanks for the additional color. I have no more questions, so good luck with Q4.
Thank you.
Carl, Carl, I can see that you have raised your hand again. Do you have a follow-up question?
Yeah, I can just ask some follow-ups here. Just wondering, when you negotiate with customers and talk with customers, what is the general impression on, on pricing here going forward? Or is there a risk that you will need to lower prices here going into 2024?
Yes, I can comment on that. Of course, there are customers that ask for price reductions. I think that's part of the game in times like this. I would say that in general, I think we are in a good position to manage this in a good way. Our offering to our customers and the value we provide are increasing and improving. And often in tougher times like this, when they look at the total cost, there is opportunity for us actually to grab market share, to show them that by consolidating the separate suppliers and go to Bufab, they actually can lower the total cost. So we have one aspect, that is the general price pressure that we need to manage.
But on the other hand, we also have a good opportunity here to ensure that they understand that Bufab is a better option going forward, it can help them with total cost. So I would say that, yes, the pressure is there, but I think we have the good tools and a good position to manage that pressure in a good way going forward.
Okay, so maybe, maybe flat pricing in 2024 is the, the main scenario, it sounds like.
That's your conclusion. I think that we are in a good position to manage that pressure that we get from our customers. And then, of course, also we have things we can work on our end to sourcing and others to ensure that we can mitigate also the pressure we have from our customers, and that we need to work with and do a good job going forward as well.
Yeah, that's clear. And then a follow-up on the currency situation. I mean, we're a very weak Swedish krona right now, which historically has impacted Bufab quite a lot since you buy a lot in foreign currencies. But can you say anything on how that impacted the margins in the quarter?
Yeah, we had it on the top line, let's say we had a 5% positive currency effect, and that, you know. Yeah, so that's some 100 million SEK on top line, and then on the profit, it's rough numbers, but some SEK 12-14 million on the EBITDA level.
Positive?
Positive, yeah.
Okay. Okay, and then one last question. We see you stated that automotive is a strong market that is still going strong, which we are from a lot of companies, but there are some news here that, you know, Audi is closing down factories. It looks to be like the order backlog or the intake in the car industry is quite weak. I'm just wondering on your thoughts there, and if you see any signs of a slowdown going forward in that segment.
No, we can't say that we see any signs for slowdown. It's, I think that, what we're seeing also, in previous quarter is that it's holding up, very well. And, despite that, a lot of, you can say, news that it should go down, still holding up on a good level, and, we have not seen any indication on something different, so far. Still, good, demand in the quarter.
Okay. That was all for me. Thanks again.
Okay, I think that was all questions. So thanks a lot, everyone, for attending, and wish you a good day ahead. Thank you.