Ladies and gentlemen, welcome to the Inwido third quarter report 2019. Today, I'm pleased to present CEO Henrik Hjalmarsson and CFO Peter Welin. For the first part of this call, all participants will be in listen-only mode, and afterwards there will be a question and answer session. Speaker, please begin.
Thank you. Good morning, everyone, and welcome to this presentation of third quarter results 2019. My name is Henrik Hjalmarsson. I am the President and CEO. With me I have Peter Welin, CFO and Deputy CEO. I will begin by walking through some of the highlights in the quarter and also go through business area performance. Peter will deep dive into the financials of the quarter. As the operator mentioned, there will be plenty of time for questions at the end. Next page, please. Page two. In terms of overall business performance in the quarter, we saw improved profitability and a very strong cash flow in the quarter. We're obviously particularly happy with this given the somewhat softer industrial markets in particularly Sweden and Finland in Business Area North.
As most of you know from before, the industrial market is more cyclical in its nature due to the fluctuating new build activity, whereas the consumer market is more stable and resilient through an economic cycle. We feel we've done a good job in the quarter mitigating the somewhat softening industrial market and capitalizing well on the more stable consumer market. I'm also particularly happy with the strong cash flows, which I see as a testament to the strength of the new operating model, Simplify, that we launched at the back end of last year, where we have full local business unit accountability, not just for the P&L, but also for the balance sheet, which we've seen has given good results on the cash flow side in the quarter. If we look at the numbers, sales was down 1% or organically excluding currency effects, minus 2%.
Operating EBITDA strengthened slightly to SEK 203 million, up by SEK 1 million from last year. The large Danish units continue to perform well with strong organic growth. E-commerce continues to grow nicely, the e-commerce business unit, and is now at 10% of the group's revenues with above average profitability. The profitability and the development in the Norwegian unit continues to progress well, we're achieving increasingly better results in that market. We're obviously taking continued efficiency measures to mitigate the somewhat softening top line, particularly in the big units in Sweden and Finland, both in terms of maintaining conversion efficiency, but also managing overheads. Order intake in the quarter was -2%.
However, if we exclude an acquired order backlog in 2018, the order intake was actually slightly in growth in the quarter, and the order backlog at the end of the quarter was 5% down year-over-year, which is similar to the situation at the end of quarter two. As I mentioned, the cash flow was really strong in the quarter at SEK 319 million, which is substantially up from the SEK 149 million last year. This has then improved the net debt to EBITDA ratio to 2.5, which is on the group target and substantially better than last year when we landed at 3.0. We estimate that we've continued to take market share altogether in the Nordic market in the quarter. Next page, please. Page three.
If we look at the overall market development in 2019, in general, we'll say that the market development in our core markets, which is the Nordics and the U.K., has been somewhat on the soft side this year. The key drivers for that is, as I mentioned before, the somewhat softening of the industrial markets due to reduced new build activity in particularly Sweden and Finland, also obviously Brexit concerns impacting the consumer sentiment and overall investment level in the U.K. market. The Danish market is in slight growth, whereas the Norwegian market has been a slight decrease. If we look in general at the markets in Ireland, Germany and Poland, they are in slight to moderate growth at the moment. Next page, please. Page four.
If we look at some of the important events for the group in the quarter, obviously making sure that we have capable and efficient managing directors in all of the units is a really critical point to the Inwido operating model. I'm really happy to see that we've appointed new managing directors in both Hajom and SnickarPer in Sweden, as well as in Profin and Klas1 in Finland. I'm really glad to see the level of the managing directors that we're able to attract with strong industry competence, broad value chain experience and really relevant commercial background, and I think that vouches for strong continued development for these companies. If we look at Elitfönster, we've commenced installation at the first parts of the preparatory installations of a new planing machine.
This is a big investment, but also a really important investment to further improve the competitiveness and the efficiency of Elitfönster and actually in our biggest production unit in Vetlanda. In Bøjsø and Vindo, one of our premium manufacturers in Denmark, we've started industrialization of a quite significant and new investment to further increase our premium manufacturing capability and cement Bøjsø's position as the number one premium window manufacturer in the Danish market. In Pihla Group in Finland, which is the biggest business unit in Finland and one of the biggest businesses in the group. We've launched a new generation of antenna glass windows, which resolves the issues with mobile signal strength indoors and improves mobile data speeds in new apartment buildings. Next slide, please. Slide five.
I wanted to take the opportunity to remind you of our relatively newly launched operating model, Simplify, that we launched at the back end of last year, and just remind you of the five strategic pillars of Simplify. Inwido is a highly decentralized business with accountable people, and an important aspect of this is full local business unit accountability for the profit and loss, as well as for the balance sheet. Inwido is the result of the 50 acquisitions over the past 20 or so years, and when the balance sheet permits and the targets arrive, we will continue to grow through acquisitions of strong companies in Europe. We prioritize the residential consumer-driven businesses, where we see strong long-term potential, but also better resilience over an economic cycle. We run tight local cost-efficient supply chains with focus on maximum customer value in the most efficient way.
We derive synergies from sourcing, finance, technology, leadership, and not the least best practice, which we in group management is a key part in spreading across the group. Next page, please. Page six. If we look at the Business Area performance in the quarter, Business Area South continued strong profitable growth in quarter three. The large Danish units continued to deliver very well in the quarter. E-commerce continued its organic growth and grew 8% organically in the quarter. As I mentioned before, they are now at 10% of the group revenue with above-average profitability. The majority of the business units in the U.K. are performing well despite the Brexit uncertainty, so a good testament to a good work in taking market share in the local market there. We're capitalizing well on a healthy Irish market with good growth in the market there.
In terms of the numbers, sales grew by 7% to 724 million SEK, and the operating EBITDA improved by 1.2 percentage points to 18.7%. The order backlog at the end of the quarter was 13% up year-over-year. Next page, please. Page seven. In Business Area North, if we start by looking at the right-hand side, we see a ring chart, where we can see that we actually have some relatively significant industrial market exposure, particularly in Sweden and in Finland. Obviously, the challenging new build market in Sweden and in Finland is then impacting the top line in a slight negative way in the markets. However, as I've mentioned a couple of times already, positively, consumer demand is more stable, and we saw overall retail sales in the business area in the quarter. We have continued to take efficiency measures to mitigate the negative volume development.
We are both in terms of temporary layoffs, adapting work time to adjust direct labor, but also in some cases, permanent layoffs. We've done a good job managing the overall cost level in the quarter. The Norwegian business unit continues to improve with further increased profitability in the quarter. In terms of the numbers, sales was down 7% to SEK 902 million. The operating EBITDA margin decreased by 1.4 percentage points to 8%, and the order backlog at the end of the quarter was 14% down year-over-year. Next page, please. Page eight. If we look at the outlook for the markets, we do see a mixed development in the different segments and somewhat in the different geographies.
The consumer demand in general is still on a healthy level, albeit softening somewhat and maybe particularly in the U.K. market due to the more acute Brexit uncertainties at the moment. We expect the e-commerce momentum to continue, and we're going to continue to capitalize on the ongoing macro trend of increasing consumer e-trade behavior. The Brexit uncertainty will potentially impact the U.K. and Ireland, obviously, but potentially also Denmark, where we see some quite substantial exports from the Danish geography into the U.K. We see an industry market that is on a softer level, particularly in Sweden and in Finland, and we see that as we're going into the winter season in those geographies, where consumer demand is normally a little bit softer.
All in all, we strongly feel that the organization is better equipped for a mixed development following the Simplify implementation, with better ability to adapt to local conditions and local opportunities. Next page, please. Page nine. If we just summarize the short-term focus, we will continue a very active margin control in the softer markets, particularly in Sweden and Finland, keeping cost levels overall, both on the commercial side and the overhead side under strong control. We will continue to invest in e-commerce growth in most of the geographies. We will continue to strengthen the balance sheet to allow for further acquisitions when the timing and the targets are right. We will obviously continue to secure positive impact from Simplify and the decentralized accountabilities for both the profit and loss and for the balance sheet. Next page, please. Page 10.
With that, I'm going to hand over to Peter Welin, CFO and Deputy CEO.
Thank you so much, Henrik. We turn page and we go to page 11, please. On this page 11, you can see the income statement. You can see to the left, the result for Q3, to the right, the result for Q1 to Q3, meaning year to date. Further to the right, we can see the result for the latest 12 months. For the quarter as well as year to date, you can also see the impact when it comes to IFRS 16. We start with Q3, we can see that sales declined by 1%. Organically, it was minus 2%, we'll come back later to the sales. We can see that the gross margin was a little bit lower compared to last year, mainly due to mix.
We can see that the EBITDA was more or less on par with last year due to the fact that Inwido has reduced the overhead costs. By overhead costs, I mean selling and sales and administration costs. We have reduced overhead costs by SEK 90 million in Q3. Inwido consists of 28 business units, and some business units have been growing in 2019. They had then increased their overhead costs, where our business units have lower volume in Q3, and they have reduced the overhead costs. In total, the net impact is then SEK 90 million. This SEK 90 million savings in overhead costs has thereby compensated the lower volume as well as the lower margin. The result operating EBITDA is on par with last year. If you include IFRS 16, the EBITDA was somewhat above last year.
Financial costs were lower than last year, mainly due to a currency impact. This has been resulting in improved profit after tax and also improved earnings per share. Earnings per share have increased by 11% from SEK 231 to SEK 256. If we look then at year to date, we can see that sales is on same level as last year. Organically, the sales were minus 3%. We were minus 4% in Q2, and then organic sales was minus 2% in Q3, meaning that year to date, January to September, we have organic sales decline of 3%. Operating EBITDA result is somewhat behind last year, mainly due to slow start of the year. We had a weak winter season in Q1 that impacted the result in Q1. Whereas earnings per share is above last year. It has increased from SEK 516 earlier to SEK 520.
To the right, we can see that sales rolling 12 months is SEK 6 billion 682 million, and the operating EBITDA margin is now on 9.7%, and earnings per share is SEK 751. If we turn page, we go to page number 12. This page shows the sales and order intake in Q3. To the left, you can see the sales for 2017, 2018, and 2019, and to the right, we can see the order intake for 2017, 2018, and 2019. We start with sales. We can see the sales declined by 1% compared to last year, and organically it was minus 2%. The order intake was reported minus 2%.
We made an acquisition in Q3 last year, and if we take away that acquisition, because when we acquire companies, we also get an order backlog in that acquisition, and that order backlog is then reported as order intake for us. If we take away that order backlog that we acquired, the order intake for Q3 this year was on par with last year. Small growth. If we turn page and we go to page 13. This page is showing the order backlog from Q3 2014 until Q3 this year, end of each quarter. We can see at the end of the quarter this year, it's 5% lower than end of the quarter last year. We don't have any acquisitions, and we have the same structure this year as Q3 last year.
We can also see that the backlog was lower in Q3 when we start a quarter, it was minus 4%, but the sales ended minus 1% because Inwido succeeded to gain order intake in consumer orders in Q3, which were delivered in Q3. Now we start with the order backlog for beginning of Q4 with minus 5%. If we then turn page, we go to page number 14. This page is showing operating EBITDA as well as operating EBITDA margin. To the left, you can see the quarter to Q3, and to the right, we can see the year-to-date figures, January to September. We can see that Inwido has succeeded to improve the margins in Q3 this year from 12% in 2018 to 12.2% in Q3 for 2019. It's also above the level of 2017. We have a positive development when it comes to the margin.
Inwido has succeeded to improve margin despite lower volume in the quarter. If we look year to date, January to September, we can see we're still behind last year, 9% compared to 9.2%. This is due to the fact of the slow start we had in Q1 in the winter season. Inwido has succeeded to improve the margin in Q2 and also then in Q3, but year to date, we are still behind last year. We're also behind the level of 2017. If we then go to next page number 15. This page is then showing the development of operating cash flow. As we said in this quarter presentations, we have been focusing on cash flows, and we have been focusing on balance sheets with a target to reduce the net debt and thereby also reduce the net debt plus EBITDA.
As you can see, the operating cash flow has been improved. Year to date, January to September, operating cash flow has been improved by SEK 332 million, mainly due to lower working capital and also due to lower tax payments. In 2018, Inwido paid too high taxes in some countries, especially Finland and Sweden, because these tax payments were based on previous year's results. The result declined in 2018 in these countries, thus the tax payments were too high in 2018. In 2019, the tax payment has been more on the right level in relation to the profits. Thereby we have a lower tax payment this year compared to last year. Working capital has been improved due to the working capital program we have launched within the group and with several activities and also a result of the Simplify model we have within the group.
Working capital has not only been reduced due to lower volume, but has also been reduced in relation to sales, which we're going to be seeing on the next page. This page 15, is all excluding IFRS 16 impact. We turn page to page 16. This is the final page before we open up for questions. This page is showing net debt versus EBITDA to the left. The working capital development to the right. As you can see to the right, you can see that working capital has been reduced in value, but also in relation to sales. You can see the yellow line, a decline where working capital and related sales, latest 12 months has been reduced. Working capital on this page is inventory plus trade receivables minus trade payables.
To the left, you can then see the development of the net debt and the net debt versus EBITDA. Due to the stronger cash flows in this year, but also the strong cash flow we had end of Q4 last year, the net debt has been reduced by SEK 367 million compared to September last year, and the net debt versus EBITDA has been reduced from 3.0 one year ago to 2.5 now, a reduction by 50 basis points. Once again, these figures are excluding IFRS 16. That was the presentation. Operator, we open up for questions.
Thank you. Ladies and gentlemen, if you have a question for the speaker, please press 01 on your telephone keypad. To cancel, please press 02. First question is from Carl Ragnerstam at Nordea. Please go ahead.
Hi, it's Carl Ragnerstam here from Nordea. I have a few questions. First of all, we can see that you managed to take out SG&A quite nicely during the quarter. Is it much more to do in terms of taking out overheads costs for Q4 and going into 2020?
Hi, Carl. Henrik here. Let's say we have continuous activities on particularly the bigger units in Sweden and Finland, where we see the softer industrial markets to adjust overheads reflecting the development of the market. That goes both on the conversion cost side, I'd say, but also on the overhead side. There is activities still to be delivered there. The exact magnitude of that, I mean, this is driven very much on a business unit. I don't want to speculate in that, but there is some work ongoing that we yield some further results.
Okay, perfect. You also mentioned that you are gaining market shares in the Nordics. Could you specify on what geographies and market segments as well?
I would say overall, if we look at, let's say the past quarter and the past quarters, the key areas where we've taken share has been in the Norwegian geography. We've taken some quite nice steps forward. We've also taken some share in Denmark. In Sweden and Finland, we've maintained or slightly dropped share, I would say. On an overall level in the Nordics, we're growing, but the geographies are we've made better progress in Denmark and Norway, and been more stable or in slight decline in Sweden and Finland.
Okay. Speaking of Norway and Finland, they're seemingly weakening. Have you seen any changes to the overall pricing landscape?
I assume you mean Sweden and Finland, which we've highlighted as the more softer industrial markets. Overall, the price levels are, from our perspective, relatively stable, so no major movements, I would say.
Okay.
The next question is from Marcela Klang at Handelsbanken. Please go ahead.
Hi, Marcela at Handelsbanken here. Congratulations on the low working capital. I wonder, how comfortable are you with your inventory level now? Obviously, we are entering a lower season, but are you comfortable with your inventory level, or could there be a risk of any bottlenecks?
Hi, Marcela. What I would say in general is our business model is such that 99% of all the volumes we sell are actually made to order, and we work with very lean and efficient value chains, I would say, going backwards to our suppliers as well. Overall, to optimize the business, we normally don't need a lot of inventory except on some key components. In those areas which we see as the key components, I personally feel quite comfortable with the levels we're at now in terms of meeting demand going forward.
Sounds good. Another question related to e-commerce. It is 10% of the group right now, and you mentioned previously Denmark is the most mature market for e-commerce. How big part that is booked under e-commerce under Inwido South actually relates to Sweden and Finland?
The majority of sales in the e-commerce business unit is in the South geography, so to speak. The order of magnitude is something like between 50% and 2/3 that are in the South geography. It's actually around 2/3. The rest is in the North geography, roughly.
Maybe one-third in the North.
Yeah.
Could you also speak a little about your latest initiative towards the retail segment, Elitfönster på Plats, how that has developed, and do you have more initiatives coming to target consumer in the North?
Yes. I think overall, our perspective is that consumer behavior is changing. I think our success in e-commerce is one, we're obviously doing a good job, but secondly, we're also capitalizing on a macro trend. That's part of that. We see that change of behavior, not just in terms of transferring straight off to an e-trade solution, but also in terms of seeking convenient solutions, et cetera. We will continue to develop our overall proposition to meet that change of behavior. Elitfönster på Plats is one of those initiatives. If you look at the specific performance of that's continuing to grow, in honesty, from a relatively modest base, but it's growing nicely.
We see that more potential for similar types, or I wouldn't even call it similar, but for initiatives that meet the same overall macro trend of changing consumer behavior in other geographies going forward.
Thank you. A final question from me. You mentioned some part of Danish production going to the U.K. and being threatened by Brexit. How big part of Denmark actually goes to the U.K. approximately?
From our perspective, exports to U.K. is very small. We have some exports from our factories to Ireland, to our own Irish entity, but that's relatively small in relation to the total volume. For the markets, it's 5%-10% of the total volumes. This is just a guesstimate at the moment without having the exact data, but in that range, 5%-10%, that goes into the U.K. market of Danish production volume. It's not a considerable number.
Understood. Thank you so much.
Ladies and gentlemen, I remind you that if you want to ask a question, you will have to press 01 on your telephone keypad.
I guess there are no further questions. I just want to take the opportunity to remind you that Inwido holds the Capital Markets Day on the 7th of November this year in Stockholm. You find further details on our website, inwido.com. Thank you for listening in on behalf of us, and have a good rest of the day. Thank you very much. Bye-bye.