Welcome to Ferronordic's Quarter Three Presentation 2022. Throughout the call, all participants will be on listen-only mode, and afterwards, there will be a question and answer session. If you wish to ask a question, please press zero one on your telephone keypad. I will now hand over the word to CEO Lars Corneliusson and CFO Erik Danemar. Please begin your meeting.
Thank you and welcome everybody to this presentation on our third quarter report for 2022. If we turn the page to slide number two, we call the report Refocusing Resources, and for the group, we had a revenue decrease of 11% to SEK 1.48 billion, which was partly offset by currency effects. We had a one-off SEK 321 million payment from Volvo CE, which was related to the termination of the dealership in Russia. During the quarter, we effectively have isolated Russia from the rest of the group. In Germany, truck sales and units decreased by 5%, which was mainly due to supply constraints. Revenue increased, however, 10%, because we saw good growth in the aftermarket sales.
We received our first state subsidies for seven electric trucks for our rental fleet to customers. Russia/CIS, we are actively trying to sell our Russian business, and new equipment sales decreased by 84% as inventory declines. In numbers, that means an 11% revenue decrease, an adjusted operating profit decrease of -12%, an adjusted operating profit margin of 8.8%, an adjusted EPS increase of 1%. Adjusted here and in the rest of this presentation means excluding the effect of the compensation payment we got from Volvo of SEK 321 million in the quarter. If we turn to page three, the conditions for our business in Russia continue to deteriorate, and we take all measures to ensure that our operations in Russia comply with the laws.
As a result of that, our business is limited in scope, and obviously, we're facing an uncertain future, and we are working towards divesting the Russian business. By the end of August, we had settled the last outstanding Russia-related payables and obligations that were secured by the group companies outside Russia. During the quarter, we also agreed with Volvo CE and Sandvik to terminate our dealership agreements for Russia. Effectively, Volvo and Sandvik have not delivered anything to us since February, so in reality, that termination didn't mean much for our business. However, we continue obviously to develop our business in Kazakhstan and Germany, and in the quarter, we became dealer for Sandvik mobile crushers and screens in both Kazakhstan and Germany.
In Germany, we're increasing our efforts to promote electric trucks from Volvo and Renault, both through our dealer business, but also as a rental product. In Kazakhstan, we're looking for opportunities to develop our Contracting Services business, and obviously, we look for opportunities to grow our business, both in terms of new products and services and new markets. If we turn to page four, some group summary financials. As we said, revenue down 11%. Revenue in Russian sales down 44% in local currency and 16% in SEK to 1,119 million. Equipment sales down 67% in Swedish krona, around 78% in euro. Aftermarket sales also down in euro, but 15% up in Swedish krona.
Contracting Services showed very good growth and doubled its in Swedish krona, up 44% in local currency. Also Germany grew 10% to SEK 359 million, which was 5% in EUR. Equipment sales down 5%, but our aftermarket sales up 42% and other sales 35%. By that, group-adjusted operating profit decreased by 12% to SEK 130 million. In Russian sales, operating profit decreased from 179 to 137. German operating profit increased from a loss of SEK 32 million last year to a loss of SEK 7 million this year.
Group-adjusted operating margin then decreased slightly to 8.8% from 8.9%, which led to a 1% increase in adjusted earnings per share. Our net debt is now at SEK 509.79 million or 0.5x EBITDA. If we move to slide five and talk a little more about the operational highlights. If we start with Russia, CIS, according to AEB, which does not include Iran, the Russian market declined 43% in Q3. However, our assessment is that the total market indeed has declined, but that Western brands are being replaced by mainly Asian, Chinese suppliers. As we said, we are actively trying to sell our business in Russia.
To the extent permitted, we have so far continued to sell new and used machines from our inventory. As you saw, our sales decreased 84% to 50 units in the quarter. Most of the sales was in the beginning of the quarter, and also about one-third of it was in Kazakhstan, where our sales of new machines increased by 45%. We have a population of active machines in Russia that will gradually decline, and as a result of that, the aftermarket will slowly decrease. Again, we're taking all measures to ensure that our business complies with applicable sanctions, laws, and regulations. If we move to slide six and talk about Germany, the total market for heavy trucks increased by 6% year-on-year.
Rigids declined by 11%, while tractors grew by 24%. The market remains strong and supply constraints continue to hold back market growth. However, rising inflation and energy prices, higher interest rates, and weaker business indicator may affect the demand for trucks negatively going forward. New trucks registered in our sales area increased by 11% and represented 18% of the total German market. Our own sales then decreased by 5% to 166 units which was due to limitations in supply chain. Good growth in aftermarket sales, as I said, by 42%, of which 6% was organic growth, and the rest came from the acquisitions we have made during the year.
We saw a good increase in the gross margin in Germany from 10.4%- 13.5%. If we now move to slide number seven, looking ahead a little, of course, we're working on a sale of the business to free up and reallocate resources to group-only business areas from Russia to other areas. Russia is a very complex market for corporate control at the moment, and international capital flows are restricted and subject to certain approvals. In Kazakhstan, we saw businesses growing well from a low base, and we became a dealer for Sandvik mobile crushers and screens, which we think has the potential to reach around 10% of revenues, and we're looking to develop Contracting Services. In Germany, we are marketing electric trucks from both Volvo and Renault Trucks.
We are launching a rental business for electric trucks with a vision to offer sustainable transport services for our customers. We also then became dealer for mobile crushers and screens in northern Germany, which we think has the potential to reach 15% of the revenues. We continue to make investments into our network and organization in Germany. In the quarter, we opened a new workshop in Aschaffenburg, and a site for used trucks, a center for used trucks in Coswig. I will show where that lies on the map on slide number eight, where you can see our network, how we have developed since we took over from Volvo in early 2020. We now have 20 outlets in Germany.
As I said, Aschaffenburg in Q3 this year, and Coswig, just north of Dessau, is our used truck centers. We have a very big used business, and we're developing a center up there. All in all now, 20 outlets in Germany, and we need to expand it further. We need to take more share of the aftermarket in our region in order to reach our profitability goals. We're in a good way, and we're moving in the right direction. By that, I'm handing over to Erik for economic developments.
Thank you, Lars. If we turn to slide nine, please. High-level overview of the economic environment we're working in. We see Germany Q3 +1.1% in terms of growth. Expected 1.5% for a full year, 2022 for growth, and then turning into flat or slightly down in 2023 is the current expectation. Inflation peaked in October or peaked, we will see, but reached 10.4%. With very high energy price rises noted as high as 43% obviously being a driving factor in that inflation reading.
Kazakhstan, a 3.5% growth, that's over nine months according to local authorities, and expected 2.5% for the full year, and then stronger growth when we look into 2023. Some tailwind in the Kazakh market. Russia, down 4.4% in Q3, probably less than expected. That is local data, less of a decline, I mean, than was expected previously. Minus 3.4% expected in the full year and a decline of 2.3% expected in 2023. When it comes to inflation, that has come down from high levels, but it's still higher than it was last year at 13.7%. Central Bank has cut its rate.
It was up at 20% back in April and has then been trimmed down to 7.5%. Ruble appreciation if we look in Q3, 34% appreciation on the average, which is what we use when we convert basically the income statement, and 38% on the end of period for the balance sheet. These are big effects that impacts our financial statements, and that's why we make these explicit here. With that, if we move on please to the next slide, number 10. Starting here, a bullet saying what I just referred to with regards to the FX.
Here you would have that year-on-year 34% boost, so to say, from the currency effect. Total revenue at about SEK 1.5 billion. Still, Russia, Kazakhstan is a big share, 76% of the group, Germany 24%. We do expect that to decline and shift. Similarly, if we look at the product mix, we see now only 1/3 approximately is equipment and trucks, 30% aftermarket, and Contracting Services as much as 36%. A year ago, that was 15%. If we look at aftermarket then for the group at 30%, a year ago that was 22%.
There is a shift in the revenue mix, and that is what's driving the next bullet there. Not so much difference in necessarily margins across the revenue streams, but when the mix shifts, we see a shift in our gross margin in both segments as it were, and for the group as a whole, gross margin was just below 25%. That was up about 5% versus last year, same period. SG&A as a percent of revenue 12.4%, that is an increase. Germany is driving up the average with a higher level, a level that is too high.
We need to get that down, and we're working on that, mainly by increasing revenue, not so much on the cost side, but really driving revenue growth there, both in new trucks and aftermarket. We have Russia, where it's also higher, and that's partly due to lower revenue, of course. In Russia, we took further additional provisions, SEK 54 million in this quarter. As you may remember that we had, as we took additional provisions, I think in first quarter it was around 44, if I remember correctly, and 99 in the second quarter, and now 54.
I mean, we are in a new environment, so these are maybe more normal, but these are at least extra provisions that we have taken. Adjusted operating margin, as Lars said, declined slightly, but still then also partly driven by the shift in revenue mix, 8.8%. Adjusted operating profit, i.e., without taking into consideration the one-off compensation payment from Volvo CE, minus 12% to SEK 130 million. If we move to the next slide, briefly on cash flows, what that picture looks like. Start again by saying that, of course, the cash flows of the group as a whole was impacted significantly by the compensation payment from Volvo CE to the parent company.
Adjusted for that cash flow, i.e., this compensation payment, the underlying operating cash flow was negative SEK 81 million. That was partly or mainly a result of higher working capital in both segments, as we'll see. Overall, trade payables decreased faster than inventories and receivables. Investments mainly into rental trucks and workshop network in Germany. We point out that cash flows in Russia are not immediately available to the group due to these restrictions that Lars mentioned as well on transfer of capital between Russia and Sweden and Russia internationally, we should say. With that, we can move on to the balance sheet on next slide number 12.
And here I would start out again by reminding the audience that the 39% appreciation of the Russian ruble, so that's driving a lot of these balance sheet positions, given the weight of Russia still in the balance sheet of the group. PPE up on that basis a lot to some extent also those investments that were mentioned in network and rental fleet. Also end of last year, we still had investments going into Contracting Services in Russia for the commitments to customers we have there.
Higher cash balance reflects partly operating results, but then also again this compensation payment, of course, from Volvo CE, and that partly offset then by outflows from investing activities and the high working capital that we mentioned. High working capital. We have high working capital in both markets. In Russia, CIS, it's because payables are down faster than inventories and receivables. Whereas in Germany, we have higher inventory and receivables and payables, but the inventory and receivables rising faster. In Russia, balance sheet shrinking, Germany balance sheet growing, but higher working capital in both due to these different effects.
Net debt at SEK 579 on unadjusted EBITDA, that's 0.5 net debt EBITDA. On an adjusted EBITDA, i.e., adjusted for the one-off payment from Volvo CE, that's 0.7 x EBITDA. If we move on to the next slide, we here just put in what we have as an additional disclosure for Russia for the last three quarters separate balance sheet to give basically readers of the report a better insight of the dynamics, mainly on the inventory side but also the other balance sheet positions in Russia as it has developed. Then we also published the preliminary sales result. These are preliminary, so they will probably change, but should give a good picture.
It stands out, of course, the unit sales when we look both new and used, only five units sold in October. If we move to the next slide, this is an overview of NAV as it looks in Russia on a standalone basis, looking only at Russia. Probably worth pointing out then that trade receivables, we did take further provisions there, but this is still a significant item. Parts and other inventory, and mostly parts now you see, versus 50 or less, SEK 123 million in terms of new equipment. Parts is the bigger part. A big part being the Contracting Services machines, which sits in the PPE of the balance sheet.
Again, strong currency effects are driving the size of the balance sheet here versus last year if we compare it. With that, I would turn to the next slide. Finance objectives and dividend policy, and here state clearly that this is subject to review. Lars has said we are trying to sell the Russia business. That will change the parameters for us, the outlook. When we're looking to reallocate resources and develop new both the segments we're in and potentially follow our other strategic objectives, and we need to take another look further afield on these financial objectives and update them. I think that's enough on that slide. I turn back to you, Lars, to comment on the outlook at this point.
So as we have said, the prospects for our operations in Russia continue to deteriorate, and we are working towards divesting our Russian business. Our operations in Kazakhstan continue to develop positively, and we actively seek opportunities to grow our product and business portfolio. In Germany, we continue to see strong demand for service and trucks, with supply constraints so far limiting market growth. However, the macroeconomic uncertainty will likely affect the German economy. In a longer perspective, we nonetheless believe that the underlying conditions and business opportunities in the Kazakh and German markets remain strong. By that, I'm handing over for questions and answers, please.
Thank you. If you wish to ask a question, please press zero one on the telephone keypad. If you wish to withdraw your question, you may do so by pressing zero two to cancel. Our first question comes from Adrian Gilani Göransson from ABG. Please go ahead. Your line is now open.
Hi, it's Adrian here at ABG. A few questions from my end. First of all, on the sort of preliminary sales figures in October. They were, I mean, strong at SEK 284 million, but would you say that October will be a sort of representative month for the remaining quarter, or should we expect sales to fall off sort of during the quarter, let's say?
Well, Adrian, the first thing to say is we don't give forecasts. We never did. We won't. I think that the reason why we provide these extra month for Russia is to give the market a better ability to make its own forecast. I think we're in a very sort of unpredictable environment in Russia. What we can say in the report is that of course new equipment sales will decline. You see that it's very low numbers now. Then what we say is that aftermarket while slowly the population declines and that market also becomes more limited. I think that's what you can probably go with. Again, the idea of providing this additional information to you so that you can base your forecast partly on the back of that.
Okay. Just also in Russia, when you say that the cash flows in Russia are not immediately available to the rest of the group, what can you sort of elaborate what that means in practice? Is it that certain amounts cannot be taken out, or is it that everything can be taken out, but it takes longer time? What are the sort of dynamics there?
What we mean by that is that on the one hand, paying for goods and services, that's allowed. When it comes to capital transfers, so like dividends or in a potential sale, we need special approvals to do that. It's not formalized in certain numbers. You might say that there are governing rules, but there's also some degree of discretion, I would say. That's again, when it comes to dividends or capital movements, but not for payments of goods and services.
Okay. Just a follow-up to that then, to clarify, the Volvo CE payment that was given to the Swedish mother company, so that wouldn't be, those rules wouldn't be applicable in terms of dividends for that payment, right?
Well, I mean, the Volvo CE payment was paid to the parent company.
Yeah.
Yeah. That cash would be there.
Yeah. Just wanted to clarify that.
I mean, Swedish company is not subject to effect.
Yeah. I just want to clarify. Regarding the Sandvik deal that you sort of moved to Germany, you now state that the Sandvik deal is going or could be 15% of German sales over time. Can you be more specific on the timeline, or is that difficult right now? What sort of over time in terms of when it will reach 15% of sales?
Yeah. No, I think, I mean, we said so in the press release, and I will reiterate this. I'd be cautious. Again, Adrian, sorry, going back to our not giving forecast. We try to give you a sense how quickly that will take. It is a new product and a new brand for us in Germany. We work with them obviously in Russia. We work with them in Kazakhstan. In Germany, it's worth pointing out that it's not only our sales area for that we have with Volvo and Renault Trucks. It's most of the rest of Germany. There is an area around Düsseldorf which is not ours, but it's mostly.
That's what probably increases a bit the potential of that. If it was only our area, it would be smaller. Over time, we think it could become 15% of the total revenue. That's again then bearing in mind that here we have the reach for the whole of Germany. I am reluctant to give a timeline on that. We need to build the sort of organization and infrastructure and reach out to customers. We have the benefit that there will be a lot of cross-selling opportunities with our current customers, but it'll take some time.
Okay. Also on the Kazakh business, now that it's sort of being developed more aggressively and it's becoming an increasingly important part for you, can you say something about the margin dynamics or sort of the structural sort of long-term margins in Kazakhstan? Are they where Russia has been historically? Are the market dynamics similar there, or is it more like the German market in terms of margins?
No, I think the Kazakh market, you should probably compare more with the Russian markets. Similar, I mean, both product-wise, that's what we're doing in Russia with mainly construction equipment and in Kazakhstan as well. I think you should have sort of the Russia as a rough benchmark for how to think about the Kazakh market.
Okay. A final question from my end, more of a sort of strategic nature, given that you now got this big payment from Volvo CE, more than SEK 300 million. What are your thoughts regarding sort of capital allocation? Now, this obviously gives you more room to distribute funds to shareholders, but it can also be used to expand more aggressively in Germany. What sort of what the priority will be for these, for this big payment that you've just gotten?
I think, Adrian, we called this report, you know, refocusing resources. I think one of the ideas that we're now selling that is saying that we want to sell the Russian business. We want to focus on our existing markets, but also the potential to develop the business beyond those markets, both product-wise and market-wise. We are very keen to develop the business, and that will require capital. I think that that's where we are. I also said that, you know, our financial objectives are subject to review. I don't think there should be a guidance at this point. We need to review once we've turned the page, probably in Russia, and then have a clear picture of where we see the best potential and the best return to our stakeholders for developing the business going forward.
Okay. That's very helpful. In that case, that's all from me. Thanks.
Thank you. The next question comes from Victor Hansen from Nordea. Please go ahead. Your line is now open.
Thank you. Hi, Lars and Erik. A couple of questions from my side. I'll begin on working capital. Your account payables have been decreasing as part of sales for quite some time now, which has been driving a much higher net working capital. I understand that it's probably turbulent due to Russia, but you're also now at 17% working capital to sales in Germany. I'm wondering what we should expect for Germany going forward or in terms of working capital needs.
I think we have been building a bigger working capital. There have been supply constraints in the market. Once there have been sort of orders that we can take in as in building our inventory, we've been keen to do so. I think also, I mean, if we look historically and towards some kind of normal, Victor, then it should turn down. I mean, we historically said that, you know, somewhere between 5%-15% is probably more normal.
You know, in the middle of that is probably where you would expect us to be, probably maybe slightly higher in Germany than what normal was in Russia's case. Around that. You know, from that, I think we should see a decline in normalization. As always, I think in our business, it's hard to give any timeline on that, so that I would be very cautious of. These are things that develop over time.
Yeah. Understood. Following up on Germany. So you actually underperformed the market on unit deliveries here in the quarter, specifically, and you mentioned supply chain problems. I'm wondering if you can tell us more about these problems. For instance, is it related to your machine suppliers, or is it something else? Since you were quite a bit more impacted than the overall market, do you expect any improvement here in Q4 also?
Yeah. Victor, it relates to truck supply with constraints in the supply chains. We were slightly below the markets in Q3. Obviously, we're hoping that these bottlenecks will clear out, and we see some tendencies that they will. That's what I can say.
Yeah. Finally, from my side here, on Kazakhstan, you said that you would try to develop Contracting Services here. Could you tell us more about the potential, perhaps, if you would get contracts, how quickly can you ramp them up?
Yeah. That is quite a long process to ramp up these projects. We will for sure not see anything happening this year. It's to mobilize and to procure equipment, et cetera. It's a long process, and it depends. It can take between six and 12 months to do.
That's helpful. Thank you.
Thank you. There are no more questions from the telephone conference. I hand over the word back to you, Lars and Erik.
Okay. Thank you very much, everybody, and I'm looking forward to hearing you again when we report the Q4 quarter for 2022. Thank you very much, and goodbye.