Welcome to the Careium Q3 2022 report. Throughout the call, all participants will be in listen-only mode, and afterwards, there will be a question and answer session. Just to remind you, this session is being recorded. Today, I'm pleased to present the CEO, Carl-Johan Zetterberg Boudrie. Please begin your meeting.
Thank you very much. Good morning, everyone, and welcome. Today, we are here to present Careium's Q3 results for 2022. After the presentation, we will give you an opportunity for a Q&A session. Together with me here today, I have our CFO, Mathias Carlsson. We can move to the next slide, please, and quarterly highlights. The positive sales development continued for Careium in the Q3 , achieving the second-highest sales in a single quarter for Careium and strong organic growth. In the quarter, we have continued to take market share in the Nordic region after several successful contract wins and implementations in Sweden, both new and existing customers, reaching a new all-time high in number of connections in the Nordic region.
The demand for digital solutions in the United Kingdom continued in the Q3 with strong product sales and evidence of the digital transformation pace had increased. During the quarter, we also continued to strengthen our offering, launching the i-care plus app, which connects users, care providers, and relatives. The app provides peace of mind with improved communication within the care chain, new functionality as well as important time and cost savings. The challenges in the U.K. continued in the Q3 and continued to impact the group's profitability negatively. Despite the efforts during the year, the transformation is taking more time than anticipated. Many actions are now done during the year, such as we moved our operations to a single location in Blackburn. We've implemented a unified platform for alarm handling.
We have started to terminate unprofitable customer contracts, and we have significantly strengthened the leadership team in the U.K. During the end of the quarter, we started to see operating costs in the U.K. that they started to decrease. Of course, the focus going forward will be to restore profitability for the group through ongoing transformation in the United Kingdom, as well as initiatives for improved profitability throughout the group. Let's move to the next slide and give you some more flavor on sales and gross margin in Q3. Net sales in the quarter equaled close to SEK 176 million, which is an increase of 25.5% compared to the same period last year.
For the first nine months, sales equal close to SEK 530 million, which is 24.4% above the same period of 2021. Positive is that the sales growth in the quarter continued across all regions and in both products and services. What's also positive from a sales perspective is good and strong organic growth in the quarter of close to 90%. Increasing the organic growth is something that we worked with in the last couple of quarters, and especially during 2021 to further drive sales and further drive especially organic growth. It's positive to see that that's now showing results. Also, currency adjusted, we grew with 15% organically. Especially the success in the Nordics, driven by Sweden, is the main reason for the good and strong organic growth in the quarter.
Sales of services increased by 20.4% to SEK 134.3 million, with a number of new contracts implemented in especially Sweden and also the acquisition of Innocom in the Q3 of last year. Sales of product was SEK 41.7 million, which is an improvement of 45.2% and in line with the second quarter of this year. The strong growth in product sales compared to last year is driven by good growth in the United Kingdom as we start to see increasing sales of digital equipment as the digital shift is increasing its pace. The gross margin in the Q3 amounted to 34.8%, which is lower than the previous quarter this year and also lower than the same period last year.
Above all, high costs in U.K. operations to ensure quality and service delivery continued to impact the gross margin negatively in the Q3. Also, high shipping costs and component costs, as well as the weakening Swedish krona, have continued to have a negative impact on the gross margin also in the Q3. number of connections in the group continued to increase with 4.5% to 407,400, which is an increase well over the Q2 where the number was 401,000. Next slide, I'll show you some highlights for our different regions, starting with Nordic and United Kingdom.
In Nordic, we saw strong sales increase in the quarter of 36.4%, reaching new all-time high in sales in the region of SEK 88 million, driven by implementations of new contracts in Sweden. Also Norway increased sales in the quarter compared to the same period last year, with higher activity in existing service contracts. Also, compared to previous quarters of 2021, we saw a good sales increase in the region during the Q3. Number of connections equals 134,600 with good growth of 10.4% compared to the same period last year and up from 130,500 in the Q2 of this year. In United Kingdom, we managed to grow our revenue with 3% despite the challenges that I mentioned previously.
Sales equals SEK 64.5 million compared to the same period last year. It is a slight decline compared to previous quarters this year and predominantly a consequence of our challenges in service delivery. The negative effect we've seen in service sales have been more than compensated with strong product sales in the quarter, with increased deliveries of digital equipment. Product sales in the region increased with close to 60% compared to the same period last year. Connections in the United Kingdom region equals 243,900, which is an increase of 1.3% compared to the same quarter last year. Next slide. We continue with highlights for Central Europe and other markets.
Sales in Central Europe increased with close to 75% compared to the same quarter last year and equals SEK 22.3 million. The sales increase is predominantly a result of the acquisition of Innocom that was included in the group from September 1st 2021. Sales was on a similar level as previous quarters of this year. The number of connections at the end of the period was 28,900, which is an increase from the second quarter of this year when number of connections equals 28,600. In other markets, sales increased with 16.9% to SEK 1.2 million, where France is our main market in other markets where we predominantly sell and deliver mobile telecare solutions to the French market. Next slide, please.
A little bit about the profitability in the Q3 of 2022. The profitability in the quarter was of course significantly impacted by the restructuring that we are committed to succeed with in the United Kingdom. To some extent, effects from increased cost of goods sold and higher cost of service delivery, which impacted the gross margin negatively. The adjusted EBITDA amounted to SEK 0.8 million in the quarter, and adjusted EBIT amounted to SEK 18.2 million compared to -SEK 1.1 million in the same period last year. The operating profit of -SEK 18.2 million was negatively affected by non-recurring items relating to the transformation in the U.K. of SEK 2.2 million. We take next slide.
Of course, given the profitability in the quarter and also what we see in the challenges that we've seen in previous quarters in predominantly United Kingdom, we have initiated a significant restructuring program of the United Kingdom operations to ensure that we restore profitability both in United Kingdom and through service delivery excellence in United Kingdom, but also restoring profitability from a group perspective. As I did say, the challenges in the U.K. have continued to be significant in the quarter, which to some extent is a disappointment as the transformation is taking a bit more time than anticipated. Having that said, many activities have been completed during the quarter and in previous quarters of this year, such as I mentioned, we moved to a single location in the north of England.
We've implemented a unified platform for call handling and alarm handling. We have started to terminate unprofitable customer contracts. We initiate price increases where possible in both private pay and in other areas, and we've significantly strengthened the leadership team in United Kingdom. All of these changes and improvements will drive further operational efficiencies going forward. Also during the end of the quarter, we did see the operating cost of the U.K. business starting to decrease. In addition to the transformation program in the United Kingdom, initiatives to strengthen the profitability have been identified also in the rest of the group.
We've been taking steps in the Q3 and will continue to take further steps in the Q4 to ensure that our measures will improve both gross margin as well as reduce operating costs with the ambition or the target that we expect to increase operating profits by SEK 68 million on an annual basis, with the total transformation costs of around SEK 30 million. Next slide, please. Cash flow in the quarter. Cash flow from current activities during the Q3 was SEK -20.8 million, which is an improvement from the same period last year, driven by changes in working capital. Free cash flow amounted to SEK -34.2 million, and net debt amounted to SEK 204.8 million at the end of the Q3.
Given the challenges that we've seen in profitability as a result of the restructuring efforts we're doing in the U.K., and that we are committed to succeed with, and where we will see some clear improvements going forward. This resulted in, at the end of the Q3, we broke one of the covenants in the finance agreement that we have with the bank. The bank has issued a waiver for this covenant, and the company, as a consequence, continues to have access to bank financing and have a sort of clear trajectory of restoring profitability and getting back on track also when it comes to the financing agreement. Next slide, some concluding remarks. From a positive perspective, sales was good also in the Q3.
Good sales with strong organic growth and something I had mentioned we worked on significantly to ensure that we drive further growth in Careium. We have seen a step change in sales and in growth and organic growth during the year. The Q3 was no different. We have continued to win and implement new contracts in Sweden, achieving high sales growth in the Nordic region, so strengthening our position, reaching new all-time high levels, both in number of end users served, but also in sales figures in the Nordic regions. We continue to see and show strong product sales in the United Kingdom, which is a testament that we do have a good demand for our digital offering in the region. Challenges in the region.
Challenges in the quarter is, of course, the challenges in the United Kingdom that continued in the quarter and still burdens the group's profitability significantly. High cost in U.K. operations to ensure quality and service delivery continued to impact gross margin negatively and also, of course, impacting the overall profitability negatively. While we did see a clear negative operating profit in the quarter. Going forward, of course, the focus is to ensure that we execute on the ongoing initiatives to restore and return to profitability and finalize transformation program in the U.K. to improve both efficiency but also quality and market position in the United Kingdom. This in combination that we'll continue to carry out our strategy and the purpose and ambition we have in Careium to become the market leader in technology-enabled care in Europe.
As a final word, I would also like to say that this is my final quarterly report for Careium as a CEO. I will take the opportunity to thank all competent and dedicated employees of Careium, but also, of course, as well, to thank all partners, customers, shareholders for giving me the opportunity and pleasure to work together. Thank you very much, and we now move into a Q&A session.
Thank you. If you do wish to ask a question, please press zero one on your telephone keypad. If you wish to withdraw your question, you may do so by pressing zero two to cancel. Our first question comes from the line of Oskar Rönnqvist of ABG. Please go ahead.
Thank you and good morning. Just starting with the terminated unprofitable contracts. How do you think that will hit your sales growth looking forward?
I think it could have some negative impact on the sales levels. Yes. I wouldn't say it will be. Of course, it depends on sort of the level and what we achieve in discussions with the customer. Our first aim and sort of priority is together with the customers to discuss that we need to find a different price level where we can deliver good quality of service in the existing contract. If that's not possible, then we will try to exit unprofitable contracts. As said, the priority is to make sure that we and the customer find a good solution where we can deliver good quality with sort of a reasonable price. Having that said, the purpose of exiting unprofitable contracts is, of course, to make sure that we restore profitability, where getting back to profit is sort of a more important topic for us at the moment than just driving sales.
All right, understood. Just next one. In sort of across the regions, would you say that you are highly profitable in the Nordics, for example, which looks quite successful? Can you elaborate a little bit on the sort of profitability levels in the successful markets? If it's solely driven by the U.K., the negative margins at the moment.
It's a relevant and interesting question. I think to some extent we don't disclose the profitability per region. I would say, and as we've said, the challenges we have from a profitability perspective is to a very large extent a result of the challenges that we've seen and that we continue to have in the United Kingdom.
Okay, got it. So what do you think, just isolating the sort of sales impact, not your restructuring business. How do you look at the sort of the competitive landscape? Is it sort of generally a lower profitability because of the tougher competitive landscape in the U.K.? What do you think about sort of how do you expect the market to develop when you have your restructuring program successfully completed?
You mean from a market perspective or us in general?
Sort of in general. Would you say that it's a more or a tougher competitive landscape in the U.K. pressuring down margins, or would you say it's sort of equal to, say, Sweden, for example?
I would say depends on the. The scope of the different type of services or how sort of the services are structured differs between the U.K. where you go sort of from a very, you could say, very small service to a very large service, where in between the more sort of towards somewhere in the middle. In the U.K., I would say the services where you, for example, only have alarm handling, and you maybe only have it for out of hours, that's quite the price pressured service. Whereas the large services are not as price pressured. I think to a large extent from our perspective, what we need to do, one, as we said, we are taking measure.
We have taken measures, and we continue to take measures to ensure that we improve our efficiency, making sure that we can turn sort of no profit or unprofitable contracts to become profitable. But then in combination, we need to make sure that we take the right contract with the right price, and that we take the right dialogues with the prospective customers early on to ensure that they tender for the service in the right way with the right expectations on a reasonable service level. I think going forward from a market perspective, it's been, I would say, especially in the U.K., but in general, a challenging market the last few years, especially, COVID, and I would say the after some shocks of COVID, where we could ensure our service delivery and the quality and adhere to sort of the requirements we have.
The challenges in blue light services and in general health care, especially in the U.K., they drive additional work for us, but doesn't necessarily drive additional income as so the contracts are structured today. That's something I think will change going forward, both sort of market dynamics as well as, of course, blue light services and health care services will have to improve going forward.
Okay, got it. I have a question on sort of your last instructions to the organization. If you could distinguish between the two, would you say that it's a focus on profitability rather than growth at the moment? I know they're not mutually exclusive.
Exactly. They're not mutually exclusive. Of course, we would like to continue to grow our businesses, but we need to grow it profitably. It is making sure that we get back to profitability. In restoring profitability, it is important and sort of key that we make sure that we increase efficiency and we work smarter, but that we don't, you could say, hurt our competitiveness and our success in the market. We need to make sure that we increase efficiency and effectiveness in the right places. As you say, they are not mutually exclusive. Of course, we need to make sure that we drive profitable growth because growth is not sort of, you could say, a value of its own. It needs to be profitable growth.
Yeah. Understood. Then just a question on the SEK 60 million- SEK 80 million on an annual basis, increase in operating profit by the turn of the year 2022, 2023, as you write in the report. How should we really interpret that? Is that sort of an isolated cost impact, or is that sort of? Are you assuming sort of any profitable growth in 2023 by then, or what's included?
If you say sort of the improvements of SEK 60 million-SEK 80 million, that's from our current level and improving to our overall profitability in that range from current levels. Of course, going forward, we will continue to drive, as we said before, profitable growth and making sure that we continuously see how we can work smarter to drive further profitability in the group.
Okay. That's just isolated on the restructuring?
Yeah.
Okay. Just a last question on the broken covenant. Is there anything more you can say about the covenant? I assume it was a net debt EBITDA breach. What's the bank telling you to do at the moment for them to continue waiving the covenant?
I think as we said, we did breach one of the covenants in the financing agreement. I would say we have a very sort of good and open relationship with our bank. What we need to do and from that perspective, it sort of goes hand in hand, what we need to do as a business, making sure that we get back to profitability and that we get back to profitability within a short period of time. We have a plan to do that. We and the bank are in agreement with that plan, taking us back to where we need to be and continue to have a good relationship with the bank.
Okay, got it. Yeah, I think I'll stop there and let somebody else in the line. Thank you.
Thank you very much.
Just to remind everyone, if you would like to ask a question, please press zero one on your telephone keypads. It seems we have no further questions. Please go ahead, speakers.
Okay. Thank you very much, everyone, for listening in. As said, in some ways, a good quarter, especially from a sales perspective, we continued to show good growth, including organic growth. Of course, an obvious challenge in making sure that we restore profitability by first and foremost executing and finalizing the transformation in the U.K. business. A big thank you to everyone, both colleagues and partners for my time in Careium and the trust that you've given me. Thank you very much, everyone.