Hello, and welcome to Bulten's 2019 Q3 presentation. My name is Kamilla Oresvärd, Senior Vice President, Corporate Communications. Presenting the report are Bulten's President and CEO, Anders Nyström, and our Executive Vice President and CFO, Helena Wennerström. After the presentation, it will be possible for you to ask questions, both on the web as well as in the telephone conference. Please go ahead, Anders.
Thank you, Kamilla. The agenda for today will be a brief overview of Bulten, development in our market, the result for the third quarter, and some comments about the future. If you turn to page three. Bulten has a lean and well-positioned operation with a global presence. We can offer local content in Europe, U.S., China, and Russia, which is unique in our competitive set. We balance our production between approximately 40% outsourcing, 60% in-house production, and can thereby be flexible and cost efficient. Page four. Bulten has many customers with potential for further growth when consolidation and need for strong FSP suppliers will be required to assembly cars and engines the most cost-efficient way. Cars are the main fasteners market within automotive, and it's also true for Bulten. Bulten's three largest customers are Ford, Geely, and Volvo Cars.
Some words about the market development. If you turn to page six. As we comment in our report today, the demand has continued to be weak also in the third quarter of 2019. In Europe, the market is down 1.3% year to date. In China, the decline has been greater. In Europe also it's impacting European suppliers as well, as some suppliers are still exporting parts out of Europe into China. This is due to several factors, the economic situation, also concerns about Brexit, especially in the U.K. where there's been a lot of uncertainty around that and the general uncertainty in the European economy. Turn to page seven. If you look at production of cars in Europe during quarter three, the most relevant statistics for Bulten, LMC reports a clear drop.
It is of course a result of lower sales but also a result of lower export of cars to other continents out of Europe. Further WLTP emission regulations in several European countries and the uncertainty for Brexit also affects. LMC Automotive is reporting a forecast for the full year 2019 for light vehicle production in Europe of -2.3%. Heavy commercial vehicles is forecasted to grow 0.6%, which with Bulten's mix forecast a market decline of 1.9%. The LMC forecast has been lowered since the quarter two report with influence from Brexit. ACEA reports for the European light vehicle sales, that it will be down -1.6% for the first nine months. In September, they also reported that the demand for new passenger cars increased by 14.5% compared with the same month a year ago. This is the result of a very weak September last year. Turn to page eight.
Production, of course, as we said, is the relevant statistics for Bulten. In the longer perspective, LMC Automotive estimates a bounce back for production of light vehicles in Europe in years to come, with an increase of 1.6% in 2020 and 2.3% in 2021. Similarly, for heavy commercial vehicles, they estimate an increase in production of 1.1% for 2020 and 5.4% in 2021. Switching to page nine, some words about our market and position. Bulten's market share was 18% during 2018 in Europe. We have defended our position as a leading FSP supplier very well and increased our market share with five percentage points from 60% to 65% in 2018. Now over to Helena for the financials.
Thank you, Anders. Page 11, operational highlights. Bulten shows its sales of SEK 780 million in the quarter, down 0.6% compared to the same quarter last year. Our EBIT amounted to SEK -8 million, a clear drop from previous earning levels. As we have communicated in press release previously, this is due to relocation costs related to the move of production in China and by the restructuring by Bergkamen in Germany. Adjusted for these, we have an adjusted EBIT of SEK 19 million. Moreover, we have also a lower production rate, an effect of volumes, but mainly by our efforts to reduce stock, which had a negative impact on earnings during the quarter of approximately SEK 18 million. We will explain this more in detail in a couple of minutes.
In August, Fredrik Bäckström was appointed to be the new Senior Vice President of Production, and he will take up the position on December 1st. He will be a member of the executive management team. Fredrik succeeds Jörg Neveling, who will retire on October 31st, 2019. Page 12. Some comments on the net sales and order intake. Sales for the quarter were down or 0.6%, and adjusted for currency, the sales were down 2.8%. Also, our newer contracts have had a slower ramp-up than expected in Q3. Looking at our order intake, it was up 7.3%. However, the uncertainty about the economic situation and the outcome of Brexit makes the development in coming months difficult to predict. This could also affect the production rate for the fourth quarter, and ongoing adaptations are being made in both purchasing and production. Page 13. Now back to our earnings performance.
Our EBIT margin for the third quarter amounted to -1% compared to 5.2% comparable quarter last year. The earning levels are explained by the restructuring by Bergkamen impacted by the company earnings by SEK 20 million. Moreover, they had a relocation cost of SEK 7 million related to the move of production in China. It is also explained by a lower production rate. According to plan, this has resulted in a reduction of stock, but also lower utilization of the production unit's capacity and thus an under absorption of fixed costs. The reduction of production to the demand impacted the company's earnings during the third quarter by approximately SEK 18 million. The operating margin excluded for relocation restructuring costs ended up at 2.8%. Looking at the year to date operating margin adjusted for the restructuring relocation cost, it came in at 4.6%. Page 14.
Now some add-on comments about our stock efforts the last quarter. As you can see in the graph, our stock in relation to sales gradually increased from Q3 2017 to Q1 2019. This is partly due to create high readiness for a ramp-up of new contracts and the last few quarter, also in combination with a slower market and our preparation for relocation in China and Brexit. In the first Q1 report in 2019, we flagged for our efforts to take down the stock level and to release working capital. We have managed to do so during the second quarter with approximately SEK 50 million. During the Q3, we have managed to keep the stock level on the same level as Q2. Volume reduction has shortened with this, have encountered in the impact of stock reduction measures to some extent. Page 15.
The quarterly cash flow from operating activities before changes in working capital amounted to 38 million SEK and has mainly been affected by operational results, including relocation and restructuring costs and a higher paid tax. The quarterly cash flow from operating activities after changes in working capital amounted to 140 million SEK and is mainly additional to the operating results being affected by a positive effect of change in working capital with 76 million SEK and the main reason is change in current receivables. Cash flow from investing activities amounted to -84 million SEK, and we have a higher investment level as announced earlier, and our investments in efficiency continues as we aim to become the industry's most cost-effective process manufacturer. The cash flow for the quarter amounted in total to -27 million SEK. Page 16.
We have a return of capital employed of 6.4%, mainly affected by the profitability level and the higher investment level, but also by the effect of implementing new accounting principles, IFRS 16. If you exclude the financial lease according, we end up at 6.8%. If we also adjust for restructuring and relocation costs, we end up at 8.7%. Our reported return on equity amounts to 4.8%. Capital to turnover turns was down to 1.6 times, which is lower compared to the full year 2018, mainly due to the same reason as earlier mentioned. Page 17. On this slide, we continue to give you some short guidelines regarding some key figures for Bulten. As always, these guidelines are not to be considered as financial targets.
Average net working capital in relation to 12-month sales amounted to 26.6%, which is above our guidelines. Activities are ongoing to reduce that level. Capital expenditures of percentage of 12-month sales were on a level of 7.3%, evidence of that we invest in future growth activities. These investments will however improve Bulten's production efficiency going forward. Depreciation of 3.2% of 12-month sales, excluding IFRS 16 financial lease is somewhat in line with our guidelines. Our average tax rate was 35.3% rolling 12 months, which is above our guidelines. The high tax rate is caused by relocation cost and negative results in China for the period. These circumstances have an overall impact on the tax calculation for the group. However, the tax rate will vary from quarter to quarter. Page 18.
Now some comments about the financial key ratios in relation to our financial targets. In this perspective, we are looking at the figures excluding our lease liabilities and restructuring and relocation costs. Our rolling 12-month sales are down by approximately 2.4%, but with our pipeline of contracts, we are in a good position to continue to take market shares going forward. Our profitability with an adjusted operating margin of 5.1% on a rolling 12-month basis is affected by our stock efforts short term and a volatile market. Adjusted return on capital employed of 8.7% is lower than our target due to lower profitability level and higher investment levels. Now back to Anders again.
Thank you, Helena. Some final remarks about our focused agenda for the rest of 2019. This quarter has been impacted by our efforts to balance inventory by lower in-house production, restructuring in Bergkamen, and relocation in China. These efforts will continue in the beginning of quarter four. Even though we had a somewhat weaker market the last two months, excuse me, Bulten has had a good pipeline of won contracts, which we have pointed out before. We'll continue to secure efficient production, and this goes back to Bergkamen in Germany as well as our plants in Poland, where we remain developing the land that we have purchased, and we're in the final stages of finalizing that deal. The relocation in China develops according to plan.
As always, we aim to win new FSP contracts. We continue to promote innovation and sustainability and to build on our already strong corporate culture. Lastly, on page 21, most of you who have been on these calls before will recognize this slide. We want to underline that the pipeline of won contracts is still there. It's important to know. You can also see that two of our last three business wins are for electric vehicles. Changes in demand driven by macroeconomic effects, positive and negative, will have an impact on this. The contracts are there. This concludes our presentation. We're ready for questions and answers.
Thank you. Ladies and gentlemen, if you do wish to ask a question, please press zero one to register for a question, zero two if you wish to cancel your question. Just as a reminder, that was zero one if you wish to ask a question. We have a question from the line of Mats Liss from Kepler Cheuvreux. Please go ahead, Mats, your line's open.
Yeah. Hi, thank you. Just looking at potential underabsorption here in the fourth quarter, underabsorption of cost, should we expect that to be at a similar level as in the third quarter?
With the order intake being improved from previous quarter last year, I'm not expecting that that will be anywhere near.
Yeah. Good. Yeah, that was my question, I guess. Given the backlog of FSP contracts you have, could you give. You've pointed at them at the last slide there. I guess most of them will be fully operating here in the next couple of years. Do you see any delays or potential delays there given the slow growth and unfortunately affecting the car industry currently?
As we pointed out before, Mats, we had delays in the ramp-up of these contracts that were taken before. We see them coming on stream, and I think that when you also see the order intake, it's a confirmation of these previously taken contracts being on stream to actually ramp up. Whether there will be further delays, as you were asking, delays are by its nature oftentimes surprises. It is important to point out that when we see the increased order intake, it comes from these contracts. That's what's coming on stream now.
Yep. Good. I guess electric vehicles is a very interesting sentiment for you longer term, previously, have you indicated that the electric vehicles increased the demand for the fasteners ? Do you sort of have the similar picture now, or given that you have received a couple of contracts on electric vehicles?
As we've said before, the electrification is coming in 2 stages. Firstly, you have hybridization, which basically adds a powertrain to the vehicle. There's a combustion engine and an electrical powertrain. That, of course, is a great opportunity for us. That's the big volume right now. Everybody's sort of offering hybrid variants of their current vehicle platforms. When it comes to pure electrical vehicles, they are still very immature in their concepts. The first ones that we see, that we've also won contracts for, certainly contain more fasteners than a classic combustion engine platform. That can be confirmed. What we need to do is to closely follow the technical development of the coming electrical vehicles to understand sort of if that's still the case, and what they look like, and what requirements will be on our products.
We're working closely with the customers to stay on top of that.
Yeah, fine. Maybe a big follow-up there regarding, you mentioned that the orders were improving here, and should we take that as an indication that you will sort of run production at a higher rate during your fourth quarter and maybe not close down so much for the holiday and so on? Is it too early to say?
Well, the order intake will, of course, have an impact on our production as well as the sales. We know that the market is still volatile. We know that there will be factory closedowns in November, in anticipation of Brexit. It's a holiday season that's coming up, which is probably the most volatile of the whole year. We don't know until we get there, but indications are good.
Finally, you mentioned Brexit there, and I guess Ford has a quite substantial engine factory there in the U.K., and is it anything you can do to prepare for maybe a hard Brexit?
We have prepared for quite some time, and part of the ramp-up of the inventory that you saw already in end of last year and beginning of this year, were actually due to being prepared for Brexit. We're taking a number of actions in order to be prepared, not only on the inventory side but also on the administrative side, so we know that we can handle any customs clearance documentation and things like that.
Okay. Thank you very much.
Thank you much.
There are currently no further questions registered on the telephone lines.
Okay.
All right.
We say thank you.
Thank you, and apologize for my voice today. It's not the same, but thanks for your patience.
This now concludes the conference call. Thank you all for attending. You may now disconnect.