Ladies and gentlemen, welcome to the presentation of Indutrade AB Q1 Report 2019. Today, I'm pleased to present Mr. Bo Annvik, CEO, and Patrik Johnson, CFO. For the first part of this call, all participants will be in a listen-only mode, afterwards, there'll be a question and answer session. Speakers, please begin.
Good afternoon on my behalf as well here, welcome to this webcast. We start with some highlights of the first quarter. All in all, a very good quarter from Indutrade. We continue to see stable demand on a high level, which we have basically seen for quite some quarters now, no change in terms of this, which is positive. Both good order intake and sales. It's also positive to see that we have good leverage from the top line to the bottom line with good organic growth in terms of our profit level. We also have a good cash flow in the quarter, quite a lot better than a year ago. However, we still have a high working capital, and we are working actively. We're trying to reduce that, we will comment more on that later on. It's also positive in terms of acquisitions.
We have had a good start of 2019. We bought two companies in the quarter, one company right after the close of the quarter, we will obviously elaborate a bit more on them later on here as well. As one important strategic initiative, we are working more and more with sustainability, we see sustainability as a clear business opportunity. As a company now, we have signed the UN Global Compact, we'll talk a bit about that as well. All in all, a good quarter from Indutrade. If we look more closely on the order intake, it was, I would say, strong through the quarter.
All the different months in the quarter were good, sometime we have effect from number of working days due to Easter and so on in quarter one, this year there were no effect regarding this, same number of working days, basically. Overall, in total, order intake up 10%, which is a good and high level corresponding to our financial objectives. Also good to see that organic growth rate continue to be on a high level of 5%. It's basically good in most business areas. A really strong increase in the DACH area, where some of our companies are making good progress in terms of the pharmaceutical and chemical industries. We saw some decline in the Benelux area and also in the measurement and sensor technology area.
I would say that mostly this is relating to difficult references from a year ago, shouldn't be seen as any big worrying signs. However, we have had a bit of an issue in terms of the larger company we have making valves for the power generation sector. They came back in terms of order intake quite okay, but came into the year with lower order intake, which affected sales negatively. I will elaborate a little bit more on that as well. Overall, good order intake, plus 10%, and organically plus 5%. This was also rather equal in terms of the sales situation. Seasonally, quarter one is usually a bit weaker for Indutrade, we ended the quarter with plus 12% and organically plus 6%, so overall a good positive situation and as we have expressed before, stable on a high level.
Also here, no effect from number of working days. Basically all business areas improved except for the Benelux area where the power generation business linked to the valves we have there were low. That was linked to the order intake in quarter three last year, which came in low and the lead time from order to delivery is about six months on average in that business. That's why sales were very low in quarter one this year. I can comment on that now directly. The management of that company is transforming the business. We see a business shift from, I would say, North American and Western European customers to more Asian customers. We are trying to adopt and align to that. We are setting up a new sales company and have been doing that for some time in China.
There is a market. We are active in the market, and I think we step by step will be more successful here. The year will hopefully be fairly okay. We are also trying to transform the company from being more or less 100% relying on power generation to also penetrate more of industrial segments. We have close to cooperation with an external partner to help with that transformation, which we will talk more of in the coming quarters. The company is working with a cost base, also reducing the cost in order to improve profitability. All in all, I think the company is making progress both short-term and long-term, and I think the year will end in a fairly okay perspective. We saw strong improvement in the U.K. and the industrial components.
Good work in all companies, I would say, basically in those two business areas. In the U.K., it's both linked to domestic business and business where you have an export dimension. We see some effects from Brexit, not really material. Also, some positive dimensions linked to pre-buy in the market, also some issues where some customers have chosen other suppliers than some of our Indutrade companies. Both dimensions, the net effect is probably slightly positive, in the big picture, not a dramatic influence on the business area U.K. I would say industrial components sales improvement came from a number of different segments, rather broad-based good progress in that business area. If we look at the EBITA performance, as I said, a good leverage, 19% improvement versus a year ago. We are satisfied with that.
We came out with an EBITDA margin in total of 12.3%, which is significantly higher than a year ago, which was at 11.6%. Since Indutrade became public in 2005, this is the best Q1 EBITDA margin we have had, so very positive. I would say most business areas improved their EBITDA margin. Strongest performance improvement in the flow area, that was mainly driven by the organic sales increase. The decline in the Benelux area and in the U.K., I already elaborated a little bit about Benelux. I can say this, that if the bigger company in the power generation sector had been on equal level with a year ago, there had been organic growth in Benelux, and there has also been an EBITDA margin improvement in Benelux. The underlying business from the many companies in the Benelux area is developing well, I would say.
In the U.K., the headwind came more from, I would say, mix issues, products and customer mix issues, and some one-off cost issues in a few companies. If we look at the organic sales growth by business area, it's been, as I said, very good in the U.K. and industrial components. In most areas, you see improvements between 7%-11% organically. Slightly lower in DACH, that's linked to some specific situation in certain companies there. No sort of trend or any bigger worry. I think we will step by step improve that situation. I have already discussed the situation in the Benelux business area, mostly then linked to the power generation business. EBITDA margin in the different business areas, in absolute terms, improving in six out of eight areas, so a really good situation.
Where we had some decline in EBITDA margin in the U.K., I already touched upon that. We saw some mix changes and some one-off cost issues in a couple of the companies. In DACH, we have seen also some companies having some sort of issues versus a year ago. All in all, a positive situation. Finland improving, even if the market is rather flat in Finland, so benefiting a bit from the restructurings and divestments we did last year in that business area. If we look at the acquisitions we have made, we bought a very interesting company in the U.K. in the beginning of the year called Weldability Sif. They are developing, making welding equipment, and have a very interesting and unique concept where they educate welders in the U.K. and have done that in large amounts.
There is an installed base of certified and educated welders in the U.K., which are closely linked to the weldability products and equipment. Good development potential, growth potential. It's a generation shift where the parents are leaving the business to their children, and the children have been involved in the business for many years and know the business extremely well. The company's in good hands, I would say, in the second generation here, supported by Indutrade going forward. We bought another very interesting company in Sweden called STRIHL. They are in the market for external light equipment and have a strong, I would say, market position and have an extremely good business model and modular concept, it's a company really geared for growth going forward. A great, experienced management team, engaged owner, and a positive outlook for that company going forward.
We know that market a bit from before. We already have companies in that market, and I think from a capability and competence perspective, they can support each other. Right after the close of the quarter, we also bought a company called Acumo. They are working in the area of automation solutions, primarily in the Swedish market, and have a strong knowledge base, strong customer relationships, and a bit of a unique edge. Also here, we have other similar type of companies and, I would say, a good knowledge base in order to help and support them in their growth path going forward. We also divested one company in Germany. It's linked to the Meson Group, where we have had a successful restructuring, and this was one important, I would say, brick in their restructuring path.
With this being closed now, we see a Meson which is now making profit and step by step will achieve profitable growth going forward. We have an extremely strong pipeline in the acquisition area of projects in different stages. I'm very optimistic in terms of us making several more acquisitions going forward in the year here. With that introduction, I leave the word over to Patrik.
Thank you, Bo. Going through the financial key data a little bit more in depth. First, I note, and sorry for that the headings in the table are wrong. It's of course the Q1 2019 we're looking at. Order intake came in, as Bo already said, plus 10%, double-digit growth, also sales, plus 12%, still a very good demand situation. Gross margin, 34.1%, I think that is still a good level, but it's slightly lower than last year. You have to remember that last year is a tough reference. Q1 last year was actually the best quarter of last year. I think even though slightly lower, it's a good level on gross margin. EBITDA up 19% to a margin of 12.3%. Again, as Bo said, a record for Q1.
Finance net is up 35%, that's a relatively big increase, but that's mainly due to the implementation of these IFRS 16 leasing rules. If you exclude that, the increase is relatively small. Tax up 18%, which means that the underlying tax rate is basically the same as last year, 21%. Return on capital employed up two percentage points. That's actually mainly due to that last year included 2017 restructuring cost for the Sander Meson Group. As you know, we calculate these measurements always on that 12 months rolling basis. Cash flow up to SEK 168 million from the low levels of SEK 4 million last year. A big increase, but it's still impacted by increased working capital, and I'll elaborate in a few slides on that a little bit more. Net debt EBITDA, it's lower than last year, even though it's actually impacted negatively by these IFRS 16 rules again.
Should have been around 1.8 if you exclude an IFRS 16 effects. Talking about IFRS 16 and supporting you with an overview on the numbers that are in the report and impact our numbers. Net debt increases with SEK 842 million in the opening balance of the year and around SEK 820 Q1 balance sheet. Finance net, it increases the finance cost with around -SEK 5 million. Depreciation levels increase SEK 67 million. All in all, that means that EBITA increases or improves with SEK 5 million and EBITDA increases with SEK 72 million in the quarter compared to one last year. Net equity impact +12 percentage points versus last year. Just a reminder that when you calculate the impact on other measurements like return on capital employed, for instance, you need to consider that we normally calculate with 12 months rolling data for income statement items.
Cash flow, and looking at the trend development. Here you see the increase up to SEK 168 versus last year's SEK 4. That's mainly driven by the increased profit level. It is still negatively impacted by working capital increases since year-end. This increase, it's partly seasonal, and I think you can see that from the previous years that we normally have a relatively weak Q1 when it's mainly receivables increase when you have a strong invoicing month in March. It's partly seasonal, and it's also of course, volume related. We are increasing volumes, which is good, but that impacts working capital slightly negative.
We still have the fact that there is a high capacity utilization in the whole supply chain at our companies, but also even more so at suppliers and customers, which impact lead times, and all that translates into need for higher buffer stocks, et cetera. We have not come out of that situation yet, that it impacts also the numbers this quarter. All in all, it is an improvement up to a level of SEK 168 at least for this quarter. Earnings per share, the trend of that curve, of course, is very similar to the one that Bo showed for EBITA. This one is actually slightly better. The Q1 earnings per share increases with 20% to SEK 2.9.
If you look at the more longer term trend, the 3 and also the 5-year average quarterly earnings per share growth is actually 23% per year, which is, of course, a strong number and slightly stronger than the operational earnings increase. Net debt takes a jump in Q1 to almost SEK 5.1 billion versus the SEK 4.1 last year. The major part of that is relating to the IFRS 16 again, which we talked about. If you deduct that or look at the graph excluding IFRS, it would have been a smaller increase. Net debt equity ratio, as I mentioned earlier, 76% versus the 72% last year. The ratio would have been around 64% excluding IFRS. I think I end there and I leave over to you again, Bo.
Thank you, Patrik. Just to more broadly and generally talk a bit about Indutrade. We are now on our 41st year of successful profitable growth, and it's important to underline and describe that this is very much linked to that we have had a very clear business model from the start based on simply acquiring good companies and keep developing those companies we own. As we are now becoming a bigger and bigger group, we are step by step perhaps changing a little bit the order of those two. Instead of acquiring being perhaps the most important growth parameter, we are working more and more with development and growth initiatives for the companies we already own. Going forward, it will perhaps stepwise be a change from acquiring, develop to develop, acquire.
Both parameters are very central and important, and we will be engaged in both dimensions going forward. In combination to the clear and simple business model, we have already from the start been very values driven and people oriented, and that differentiates and sets us apart a bit from other similar companies in different parts of the world. We are a bit oriented to slower acquisition processes where we really put a lot of emphasis in terms of the company we buy from a leadership perspective, values perspective, and really make sure that there is a strong correspondence to what we believe in a company value perspective. We are on an evolutionary development, building on the past and trying to, however, work with continuous improvement and step by step, year over year, trying to do things a little bit better than last year.
We have launched some new strategic initiatives. We have spoken about these in different forums already some time. One initiative is linked more to leadership and competence development. Another one is more linked to, I would say, active knowledge sharing, where the companies we own share more knowledge between each other and learn from each other, benchmark, and try to achieve new best practices. We are building a general toolbox step by step for relevant, I would say, segment perspectives, functional areas, and so on. The fourth area, which we have worked on more actively in the last year, is sustainability, and where we see sustainability more as a clear business opportunity. If we focus a little bit more on that, as I said earlier, we have now signed the UN Global Compact principles.
It's basically built on 10 principles in four different areas: human rights, employment conditions, the environment, and anti-corruption. I think it's a good structure system for us to work with. Now we are on a development path to implement this in our way in our different companies. It sort of fits our decentralized business model in a good way. Most of our companies have worked with sustainability for quite some time and are quite successful, I would say. They understand that by being good at this, you can impact your revenues, you can definitely impact your costs. It's positive in terms of talent management and a lot of different other dimensions. And we have, for a quite long time, had a clear code of conduct, and that's very much, I would say, implemented and used in our companies already since some time.
When they meet demanding customers or suppliers, they can rely on this and use this on a daily basis, I would say. We have, on a group level, updated our materiality analysis. During the last couple of months, there has been active workshops and training modules for all our companies, MDs linked to this. The way we will actively work with this is more linked to our board work going forward. There's going to be a mandatory part in a board meeting once a year where we discuss sustainability in all our companies. We have developed a toolkit which is relevant for our companies in order to use and support this in their different developments going forward.
This is not administration, this is not cost, this is a clear business opportunity, and it's welcomed, and we have already made quite a lot of progress in this in individual companies. If we try to summarize this webcast and the message from us, we have a positive business climate still. We don't see a trend change. As I just said, our values, our business model, and our strategy is on an evolutionary development and a step-by-step improvement. We came out good in terms of organic growth and total growth, both in order intake and sales. We saw good operational leverage, which resulted in a high EBITA margin in quarter one of 12.3%.
If we potentially were to enter into a weaker business climate, I would still underline that with the diversified group we are, we are very agile and flexible versus a large, more single-oriented product line type of industrial company. I would say that we are well-positioned to tackle a weaker business climate. However, underlining that we don't see that right now at all. We have a very favorable acquisition situation with a strong pipeline and, I would say, great credibility in the market. As previously elaborated on, we see favorably on us making progress in terms of sustainability. By that, we end the more formal presentation and say thank you for listening, and we open up for a Q&A session.
Thank you. Ladies and gentlemen, if you have a question for the speakers, please press 01 on your telephone keypad. That's 01 on your telephone keypad now. There will now be a brief pause while questions are being registered. We have our first question from Elena from Danske Bank. Please go ahead. Your line is now open.
Hi. Just one question on the DACH area. Organic EBITA continues to decline despite having good organic growth on sales. Could you elaborate a bit on that?
It's not a broad-based situation for the geographic area as such. It's more a situation linked to a couple of companies we have there, where they have had some challenges in the quarter linked to increasing raw material costs and some higher production costs. Particular company in mind has a good market situation, good demand situation, but fairly higher costs, which I think will improve, maybe not completely in quarter two, but onwards, I think we will see in terms of gross margin there.
Okay, thank you.
Yeah.
As a reminder, if you do wish to ask a question, please press zero one on your telephone keypad now. That's zero one on your telephone keypad. We have our next question from Oscar Wikstrom from ABG. Please go ahead. Your line is now open.
Hello. I just have one quick question regarding Benelux. You mentioned that order volumes are recovering in the first quarter, you also mentioned this lead time of about six months. I'm just thinking in terms of when we can start to see the company capitalizing on these orders. Would that be more towards H2 2019 rather than in Q2?
Yeah, that's a correct assumption. Quarter two will still suffer a bit, I think, profitability-wise, quarter three and quarter four will hopefully be a better situation.
Understood. Just to follow up on that. When you're saying that you think the year will be okay, could you please help me define okay? Does that mean that you won't see a loss over the year or does that imply growth?
It's definitely not going to be a loss situation. It's hopefully going to end in close to an Indutrade average profitability.
All right. Understood. All right. Thank you very much.
There are no further questions at this time. As a reminder, if you do wish to ask a question, please press zero one on your telephone keypad now.
Okay, we take that as a sign of clarity in terms of presentation, and say, thank you for today. Thank you for listening, and please follow up with calls if you want afterwards. Thank you and bye-bye.
Thank you. This now concludes our presentation. You may all disconnect.