Good morning, and welcome to the Garo interim report for July to September 2019. You will have the opportunity to ask questions today after the presentation. You can press star one on your telephone keypad for doing so. I shall now hand over to the CEO of Garo, Mr. Patrik Andersson.
Thank you, and hi, and welcome to the presentation of Garo's third quarter 2019. My name is Patrik Andersson, and I'm the CEO of Garo. With me today, I have Helena Claesson, our CFO, to present the financial performance. Next slide, please. I will start with a short introduction of the company. Garo develops and manufactures innovative products and turnkey solutions for the electrical installation markets. We divide our business into two business areas, Sweden, which consists of our Swedish operations, and other markets, which cover our business in Norway, Ireland, Finland, and Poland. We have productions in three different locations, Gnosjö in Sweden, where we also have our head office, Värnamo in Sweden, and Szczecin in Poland. During the last years, we have invested more in our capacity in Poland, where we today have a very modern and efficient production site. Next slide, please.
Product areas. Our business consists of 4 product areas, and on this slide, you can see the different product areas shares of the total sales in the first 9 months of this year. Our largest product area is electrical distribution products, which contributes to almost half of our revenues. This area had a strong development so far this year. Our fastest-growing product area during the last few years have been e-mobility, which today is our second-largest product area, together with our product business, both of them with 22% of the turnover. Both product areas have had a good development so far this year. In the third quarter, we have seen some slowdown within temporary power. However, sales within this product area has been volatile and somewhat slow over the past 12 months. Next slide, please. Operational highlights in the third quarter.
We had a strong development in our largest business area, electrical distribution products, especially in Sweden in the quarter. It is pleasing to report that we have significantly outgrown the underlying markets. Garo's product area, e-mobility, continued to expand in all markets. The growth was mainly driven from other markets this quarter. The subsidies for public chargers were reinstalled in Sweden in July. The programs have a different configuration this year compared to similar program last year, which temporarily dampened the demand in the quarter. We continue to invest in market presence and in sales organization within e-mobility to be able to meet the growing demand for the products in all markets. E-mobility is a fast-growing market, and for Garo, it's important to continue our strong position on the markets. Next slide, please.
During the quarter, we signed a contract with Vattenfall for delivery of our smart wallbox that we call GLB+. The agreement includes Norway, the Netherlands, the U.K., and Sweden, all of which are strategic important markets for us. The charging box, which is an OCPP compatible charging box for multi family housing, workplaces, and public environments, will be connected to Vattenfall's cloud service for charging, called In Charge, which enables payment, remote control, and operation monitoring. Next slide, please. During the Almedalen Week, we were active with a high attendance. We showcased our products at some hotspots in Visby, but also through a collaboration with Volvo, where we will present our semi-fast charger together with their charging hybrid. Next slide, please. After the end of the quarter, we signed a three-year cooperation agreement with OKQ8 regarding Garo's public chargers and wallboxes.
The agreement gives OKQ8 in Sweden and Denmark access to Garo's range, but can also be extended to additional countries in Europe, where OKQ8 and sister companies operate. Next slide, please. Portable heating and drying fans are two newly launched products within temporary power. Both of these products are unique among their kind, since Garo using electronics to provide efficient energy use of a part of Garo's digitalization strategy. With these launches, our product offer in this area is power, lighting, heating, and drying, which make Garo as a complete supplier.... Now over to Helena for more comments about our financial performance. Next slide, please.
Thank you, Patrik. I would like to start with some financial highlights for the third quarter. Net sales in the quarter amounted to approximately SEK 235 million, which is an increase of 11% compared to the same period last year. The increased sales all came from organic growth and was mainly driven by increased sales in the product areas, electrical distribution products and E-mobility. EBIT amounted to SEK 23.6 million, giving us a margin of 10.1%, to be compared with 13.4% in 2018. The gross margins were squeezed during the quarter to a large extent as a result of unfavorable product and customer mix, and also a negative currency effect equivalent to SEK 1.4 million.
The lower operating margin is a result of the lower gross margin, but also a result of continuing investments in higher market presence and sales organization, mainly within E-mobility, which has had a greater impact seasonally on costs in relation to sales in the quarter. Tax rate in the quarter was 21.5%, compared to 17.8% in Q3 2018. However, last year, the taxes were positively affected by SEK 2 million from our Polish facility, where we work in a so-called tax-free zone, giving us some tax benefits from time to time. Next slide, please.
Looking at the development of net sales and operating profit from Q2 2017 and going forward, you can see some volatility in between the quarters, reflecting the seasonal changes in the business cycle of Garo, where we normally have our strongest quarter in Q4 and a weaker Q2 and Q3 due to summer and public holidays, giving us less working days in those periods. Rolling twelve months for the next phase shows a good trend of growth over time, while rolling twelve months for operating profit levels out with a slight decrease in this last quarter, as already mentioned. Next slide, please. As Patrik mentioned earlier, our business is divided into two segments: Segment Sweden and Segment Other Markets. Here you can see the split of sales between both product areas and segments.
In electrical distribution products, where we have half of our business, we can see a good growth of 16% in Sweden and 4% in other markets. The third quarter is also normally a quarter with high activity in the project business, which we can see in this quarter, especially in Sweden, where we had a growth of 13% compared to the same quarter last year. Temporary power was overall slightly lower compared to last year. Then finally, our business, E-mobility, where we had growth with 14% in Sweden and just above 50% in segment Other Markets. Next slide, please. Now, looking into the two segments separately, starting with Garo Sweden. The underlying market in which Garo operates grew with approximately 4%, both in the quarter and for the first nine months this year.
For Garo, the net sales of segment Sweden amounted to approximately SEK 154 million, which is an increase of 11% compared to the same quarter, 2018. This was driven by a strong growth within our largest product area, electrical distribution products, but also in project and E-mobility. EBIT amounted to SEK 14.9 million and gave us a margin of 9.7%, which is lower than last year. The gross margin was lower as a result of the unfavorable product mix and the negative currency effect equivalent to SEK 1.4 million. The lower operating margin is a result of this lower gross margin, but also a result of continuing investments in higher market presence and sales organization, mainly within E-mobility, where, again, these costs seasonally have had a greater impact on cost in relation to sales during this third quarter.
Next slide, please. Other markets. In our segment, Other Markets, net sales amounted to approximately SEK 82 million, which is an increase of 10% compared to the third quarter last year. In this segment, the growth was to a large extent driven by E-mobility, although from lower volumes compared to the segment Sweden. We saw stable growth in electrical distribution products, while sales in temporary power and project decreased compared to the same period last year. Operating profit decreased to SEK 8.7 million, giving us a margin of 10.7% to the quarter, to be compared with 14.5% for the same quarter last year. Increased market activities, relocation to new premises in Norway, and organizational improvements within E-mobility have had a negative impact on profitability in the quarter. Next slide, please.
Our cash flow from operating activities were lower in the quarter than the same period last year, and amounted to SEK 15.3 million, to be compared with 29.5 in Q3, which is explained by lower earnings, combined with higher need of working capital. Cash flow from investing activities was minus SEK 10.8 million, of which 2.6 was related to product development. Net debt per September amounted to SEK 94.5 million. However, when adjusted for the new IFRS 16 lease regulations, the net debt amounted to SEK 53.6 million. Now back to you, Patrik. Next slide, please.
Thank you, Helena. Our strategy remains the same. The main driver of the growth will be organic growth. A successful product development has been and will be the key to this growth. On top of this, we are always looking for potential acquisitions, where we can add either new additional products, product areas, or companies with an edge. Example of this is in 2017, when we acquired Beppel, bringing new and additional R&D knowledge to our company. It can also be acquisitions of other Nordic electric companies, in order to strengthen our market position, such as the acquisition of Emedius in 2017. We are also looking at new geographic markets, with a focus mainly of northern part of Europe. Next slide, please. Outlook.
We see a strong trend for E-mobility product area, with further expansion of the charging infrastructure in all markets. Demand for construction-related products in Sweden remains favorable, but is expected to slow down in 2020, in line with fewer construction starts. However, the important renovation sector has been stable. The trend in other markets served by Garo is expected to remain favorable. All in all, Garo has a positive view of market conditions, mainly driven by the continued expansion of charging infrastructure. Thank you, and now we are ready for questions.
Thank you, Patrik. Ladies and gentlemen, if you have a question, please press star followed by one on your telephone keypad. If you wish to withdraw your question, you can press star followed by two, and when you're asking your question, please make sure your line is unmuted locally. Our first question is from Oscar Wickström, from ABG. Oscar, your line is open. Please go ahead.
Hi, thank you. So I have a couple of questions relating to e-mobility. So firstly, I was a bit curious about this dampened demand for public charging that you've mentioned is temporary. So is that just for the quarter, or do you see that continuing into the following quarter? And also, it seems, you know, growth in Sweden for e-mobility was quite low, if you look at statistics of charging infrastructure in Sweden for public chargers. Could you just comment a bit? It seems that you're growing below the market this quarter. Could you just comment on that as well, please?
Yes. We can start with the public chargers that you mentioned. We haven't—if you look in Sweden, we have a different program, as I mentioned in the operational highlights, that we see that have dampened the demand in the quarter. But this is a different program, and we can see an expanding demand of these type of products. So, we are hoping to see more of this type of business in the coming quarter.
All right. Thank you. And this, so the coming quarter is fine. And then I was just curious as well, you seem to be quite positive about the outlook here. Going into the next quarter, I mean, this is another quarter where, sequentially, quarter-over-quarter, the growth in e-mobility has been low. When we think about growth in this segment going forward, do you think that this Q-on-Q trend will be positive, or should we view growth—I mean, comparing Q4 will be difficult, so I'm thinking about year-over-year growth versus Q-on-Q growth coming into Q4.
So if you look at the Q3, you said that we have a low. You think we are losing market share in the quarter. But to be honest, we had last year in quarter three, we had in the summer some delivery problems, so we delivered more public chargers in 2018 in quarter three, which boosted the sales. So we have a tough quarter to compare to. So to be realistic, we have a better quarter than you can see in the figure. So we are not afraid of losing market shares in the market. We are comfortable in that, and we have a good position, and we have a strong position, so we are not afraid of that.
... Okay, understood. Understood. Thank you. And then I was just curious about this increased cost for investments in e-mobility. It's the second quarter now that you mentioned this. How should we view that going forward? Is this sort of temporary cost or is there a run rate of investment that you have to do to be competitive in this market?
Of course, as we mentioned, this is a fast-growing market, and to be in this position that Garo is, we have to invest in market presence and in sales organization, and this grows really, really quick. As you mentioned before, it's new cars and new infrastructure. So to be this player that Garo wants to be, we have to invest, of course, now we have done it for the second quarter in a row. Of course, we have to do this in quarterly basis in a fast-growing market. So it will continue, but in different steps, so to say.
Understood. Thank you. Also, on the gross margin and the product and client customer mix there,
Yep.
-that's also something that is sort of specific for the quarter, or should we view that as something that might sustain going forward?
That's a bit hard to say, but in this quarter, the mix and the product mix and the customer mix was the explanation. It's for the gross profit, it was the mix was not so good. But hopefully we can see a more positive view on that in the quarter. But I can't promise you that. But in this quarter, the product and customer mix was negative for us.
All right. I think that was all I had. So thank you very much for your time.
Thank you.
As a reminder, if you have any question, please press star followed by one. Patrik, we have no further questions registered, so I hand over back to you.
Thank you, everyone, for listening, and we keep in touch. Thank you very much.