Good morning. My name is Björn Borgman. I am the CEO of ITAB, and I am here today with our CFO, Andreas Helmersson. I will cover highlights initially. Andreas will cover the brunt of this presentation, and then I will try to wrap this up in the end with our priorities going forward. This is my third or my second quarterly report, so maybe the training wheels are starting to come off today.
We will judge this afterwards. Stepping into this, highlights for Q3. Good quarter, positive sales and adjusted earnings performance. From my perspective, there are two ways to look at this quarter for ITAB. We can look at it either as the best quarter since bringing ITAB and HMY together, all-time high sales, all-time high adjusted profit for the quarter, and EBITA level of 7.8%, EBIT of 7.3%, which is well within our financial target range between 7% and 9%.
Really happy with that. On the other hand, comparing this to Q3 last year, it is slightly better. Q3 for us is a seasonally strong quarter. The quarter, from a sales perspective, is up 2% currency adjusted, and on the profit side, plus 3%. So, slightly better than a really strong versus a really strong quarter last year. I think regardless how we look at this is a step in the right direction for ITAB. If we try to step into what is the difference between reported and adjusted profit in the quarter, there is a very sizable adjustment which we communicated in September. This relates to the discontinuation of our ERP implementation. We have taken a one-off in the quarter of SEK 220 million. It will be close to a quarter of a billion in total when we wrap this up. Why did we do this?
Our ERP project for ITAB was started more than three years ago. The objective at the time was to get one ERP across the ITAB Group. This was good objective and right objective when we started this, but after the acquisition of HMY, the journey to one ERP became much longer and much more costly for the new group to complete. HMY has a well-working ERP with lots of integrated business logic. Changing this is to be compared to an open heart surgery. This is something you would like to avoid. So, moving to a new ERP for only half of the business defies the original objective with the project.
Based on this, across the group, we have done a thorough evaluation and are convinced that we can reach the original objective of bringing the group together with a combination of master data, integration, and common group applications, all with the help of AI that was not available three years ago. I think our conclusion is that we will be able to do this in a faster and likely also a more cost-efficient way. So, we are quite happy that we managed to do this. It is a big decision to make, and it was a big one-off in the quarter, but we are confident that this is the right way forward. Moving on in the quarter, probably on the less strong areas, cash flow. Our view is that this looks worse than it is. Cash flow follows a seasonal pattern.
It is driven by the strong Q3 we have, and it is a back-heavy quarter with a lot of sales in the back end of Q3 due to vacations. This is what is the key driver of the cash flow within the quarter. Other highlights, synergy realization continues to be on track. Really happy with how this progresses. We see this in the underlying profitability in the business. We believe we passed the midway in terms of synergies to be finalized in the end of 2027. Highlights in the quarter, we continue to pick up cross-selling orders. This will probably impact us early in 2027, but the order intake here when it comes to Retail Tech and lighting in the HMY business has been really strong. Happy with that.
The new progression we see is on supply chain, where we are now seeing synergies from footprint consolidation in both U.K. and Turkey underway. Really happy that we start to drive synergies also on the supply chain side. On that, I will leave for Andreas to take us through the more financial details of the quarter.
Thank you, Björn. HMY is now fully annualized, and we are now only using pro forma numbers when going back to Q1 2025 or earlier in our historic comparisons. Zooming in on Q3, we see a sales growth of 3% and a sustained or slightly improved margin.
Adjusted EBITA in the quarter at SEK 266 million, relative to SEK 258 million in Q3 last year. Despite strong comparables and in a market where we have seen cost inflation growing during the first half, we have managed to sustain margins due to synergy execution and a clear focus on profitability improvement. Net profit, as you said, Björn, is negative in the quarter due to the decision to discontinue our ERP development program, impacting our EBIT negatively with SEK 222 million in the quarter. This is treated as a non-recurring cost. Net debt has been lowered by almost SEK 300 million since last year.
This is a 10% decrease, but it is up since the end of Q2, driven primarily by higher sales impacting accounts receivables negatively. Q3 is normally our working capital peak of the year. Q3 sales growth of 3%, and 2% if excluding currency impact, is pushing up the rolling 12 line after a slower start of the year. Gross margin has improved slightly, on par with last year, but also EBITA margin is up slightly, despite the recent cost increases. Zooming out a bit, we can see that product mix is stable or slightly negative from a gross margin perspective, mainly because we have had a very strong rollout in the U.K. for loss prevention projects during 2025. Net sales by customer group in Q3, also currency adjusted, shows a continued strength in our core segment grocery and home improvement, and we have seen this trend for a while.
Grocery is normally more stable and holding up well, especially in times of market uncertainty. The U.S.-Iran conflict is still causing some uncertainty in the market, especially around our offices in the Middle East, impacting cost inflation, more broader than that, but also delaying some of our project commitments. At the same time, this drives opportunities for offering, especially in efficiency and loss prevention, where we are strong. In other segments, it is also worth to note a growth in sectors such as travel retail and automotive, in the other columns here, where customers are seeing the value that ITAB can bring from a complete offering and our global presence. We continue to see a mixed development in sales across our markets. Northern Europe, with especially Nordics, sustains its strong performance from Q1.
Southern Europe, led by Spain, continues to grow, and Italy is now finally back to a more normal level after a slow start of the year. The U.K. is a market where we are more exposed to project fluctuations, and after a slow start of the year, we are now catching up, and the outlook onwards looks more positive. Central and Eastern Europe, on the other hand, has strong comparables, but it also covers a few markets where development has been slower for us, especially in our key customers in markets such as DACH, Benelux, and Poland. Looking at our EBITDA bridge year-to-date versus last year, we see that sales volume is impacting us slightly negative, that procurement synergies are mitigating recent cost increases on freight, energy, and powder costs, and that SG&A synergies are pushing back labor inflation and extra costs for EuroShop, and having a positive impact overall.
Next wave of cost efficiencies is planned for execution later in the year. Looking at our EBITDA bridge quarter-on-quarter, we see a similar trend as year-to-date, but with a positive sales volume impact mitigated by an accounting adjustment from harmonizing our accounting policies across ITAB and HMY during Q3 last year.
This impact is not seen year-to-date. It is also worth noting that we have an impact from the heat wave in France during the quarter, causing us to close production a few days, as well as from continued material cost inflation, expected to impact more categories than previously foreseen. This is a key focus for us to mitigate in the near term. Our operating cash flow for Q3 is negative at SEK 168 million, but rolling 12 is positive at SEK 755 million. The quarter is negatively impacted by especially working capital development and accounts receivable due to a seasonal buildup.
Of course, quarterly sales were up around SEK 100 million, and this goes directly to accounts receivables. This is the normal pattern in Q3, where our working capital normally peaks due to extraordinary sales, but also to deliver store experiences before Christmas to our customers. As a percentage of sales, we are improving slightly versus last year. We expect working capital to normalize in Q4. Net debt is now at almost SEK 2 billion, down 10% since last year. Q3 is up SEK 353 million, mainly driven by the working capital we just talked about, but also from extraordinary tax payments and buyout of minority owners. Regarding synergies, we are now finally past the 50% line, and the total synergy potential remains, where we have communicated EUR 30 million per year on an annualized basis, with full effect end of 2027.
Synergies, as we have communicated, comes EUR 20 million from cost efficiencies and EUR 10 million from cross-selling and the commercial synergies Björn previously talked about. In Q3, we have focused on execution of supply chain initiatives in U.K. and Turkey, and we've also planned for the next wave of supply chain initiatives, as well as for our cost efficiency program. At the same time, our cross-selling order stock and pipeline has continued to grow, which is a good sign that especially Retail Tech, but also lighting, is now gaining ground in legacy HMY. With that, I hand over to Björn Borgman. Björn again.
Thank you, Andreas. I'm going to try to wrap this up with our priorities going forward. Before jumping into that, I would like to take some examples of project driving sales in the elusive segment of other, which Andreas was talking about. To the right here, you see travel retail. This is project with Avolta, and as a new group, we've been really successful in servicing travel retail across the globe in a much better way than we did before. This is an Avolta project in Spain. We're looking to continue to do Avolta projects in the Baltics in the end of the year. Really happy with this.
Another outlier you see in the bottom right, this is for UK Post Office, where we've been automating the parcel drop process, both with units for parcel drop, but also for selling the equipment and accessories needed for parcels. So, a long-term project going through all the post offices in the U.K. over the coming two years. That gives you an idea of what sits under other. We're probably not going to get back to other. We're going to have more grocery examples in the future, but for this quarter, this was good examples of what we do. Looking forward, priority remains profit ahead of growth. Not all quarters will benefit from the volumes we've had now in Q3. A few things we're working on. We have a revised planning approach for 2027, very focused on detailed action plans on cost and margin expansion across every business unit.
This is one of the slight changes we do as a business to really focus on driving our profitability. Dark gray clouds on the sky. Clearly, we see steel prices coming up end of this year, early next year. This is something we have to mitigate as a business. We've been quite good in mitigating cost increases in the past. I foresee that we're going to be quite good here again, but as always with cost increases, it comes with some delay in terms of implementation. Third one, more flexible cost structure. Clearly, as we spoke about before, this is a project-based business. To get utilization up in the production end of it, we need to manage this in a different way. We see consolidation of U.K. and Turkey today.
We're going to conclude on that, and we're going to look at other opportunities to further move this forward in the future. Clearly, leverage the mix effect we have on our strong Retail Tech business, continue to grow that ahead of the business, and the associated services is key to get mix effect and drive profitability in the future. Lastly, to make sure that we conclude and deliver on the 30 million opportunities. These things together should make it possible for us to reach the targeted 7%-9% EBIT margin, as we have as financial targets. To conclude, not everything is about cost and profitability. We will, during this period, do balanced investment to further strengthen our leading position in Retail Tech. It's important that we continue to invest and grow in this business.
In the mid to long term, our ambition is to come back to drive consolidation in this industry as the industry leader we are. That is not a short-term priority for the business. On that, I think we move to questions.
If you wish to ask a question, please dial pound key five on your telephone keypad to enter the queue. If you wish to withdraw your question, please dial pound key six on your telephone keypad. The next question comes from Alexander Siljeström from Pareto Securities. Please go ahead.
Good morning. Couple of questions from my side. Just starting on the price cost here. Could you talk about price costing Q3 and also what you see into Q4, considering that you're now flagging steel prices?
Yeah, I think that the steel prices are going up is no surprise to anyone. I think these are public information and global trends, and it's the steel prices in Europe in particular that's going up. I think the cost increases we saw in terms of transportation in the beginning of the year, that we are covered for in the end now of Q3. Then we think that from mid-Q4, we're going to start to see steel price impact starting to creep through. I think if history is anything to guide for, it took us three months to digest the price increases from the beginning of the year. I hope we can be slightly better when it comes to steel, as we have a little bit better vision on this.
Okay, that's very helpful. Then maybe on France, can you talk about the performance during the quarter, and also if you see any positive or negative impact from the protests? Maybe negative short term, but positive long term, and if that can move the needle in some way?
I can start, and you follow, Björn, where I missed. I think in France, we've seen the first half of the year being very strong, with exceptional volumes coming especially from the grocery sector, driven by some M&A and rebranding of some of our core customers here. So, that's been a very good strong start of the year. Then in Q3, volume has come down to a more normal level, and that's what we see near term at least. But it's also been some exceptional costs driven by the heat waves in France, as we mentioned on the EBITA bridge slide, where we are taking some investments now this year in order to be able to handle that situation onwards, because this is something we see we need to be better to handle in the future.
I can talk about the impact of the current unrest we see in France. I think there are two sides to this. Will there be investment that has to happen in retail? Yes, absolutely. But I also think that there will be investment in many other things than our business that will take investment from what we do. So, it's impossible to judge the short or mid-term effect of this on the ITAB business. I just think it's a very difficult position in France at the moment.
Yeah. Thanks for that. Maybe just a final one from me. Organic growth here at 2%. Can you talk about the start of Q4? Should we sort of extrapolate this stronger trend, or what do you see?
We don't give any future guidance, so no comment on that.
Yeah. Got you. That's it for me. Thank you.
The next question comes from Anton Lund from SB1 Markets. Please go ahead.
Hi, Björn and Andreas. Thank you for taking my question. I only got one today, and that is on the Nordics, which grew an impressive 4% in the quarter. I do not think that comes from the framework agreement that you announced this year. Can you just give us some additional color on what is driving this, and should we think of it as a new run rate or more of a peak quarter? Thank you.
Thanks for your question. I think the North has been a stable region for us for several years. They have a very strong position, so they are exposed to the grocery sector as a core. They have a very large presence across most segments. You could say that last year was a bit weaker for them. I mean, if you zoom out a few years, I think 2025 was a step down, and this is more of a normal level, though Q3 was an exceptional quarter for that region. I think we look at 2026 as a strong year so far for Nordics, but it is also a bit weaker comparables when you compare it to last year. We should expect this level.
I think there are specifically two big projects in Sweden that sit in early part of Q3 that might not be a part of the base for next year.
Yeah.
Very good. Thank you.
The next question comes from Karl-Johan Bonnevier from DNB Carnegie. Please go ahead.
Yes. Good morning, Björn and Andreas. A couple of questions, if I may. First, I noticed that when you talk about the supply chain under the synergy program and listen to what you talk about when you talk about creating more flexible cost structure for the future, it is some sort of interlock there. If you could just detail how you see those two complement each other, and maybe if this is an extension then on the supply side opportunity that you see under the program.
No, but I think there are two aspects of this. I think one aspect is linked to the synergies from the acquisition. We are in places like the U.K. where it makes sense to run one operation, not two. We have a few of them to integrate as a part of the synergy program. Then, looking beyond that, there are other opportunities in the larger group where we can, with HMY, but also looking at how do we get utilization in our factories up, where we probably need fewer larger factories and a little bit less internal production, a little bit more external sub-supplier support in the future to be able to mitigate the project fluctuation and be able to disassociate sales with profitability so that we can deliver good profitability even in quarters where we have slightly less volume. I think that's where we are not today.
We are very dependent on our volume to fill our factories to deliver profitability.
I've asked that as more of the second wave of the synergies coming out of HMY. Just to understand, to get the catch-up on the supply chain component of the synergies, that say the EUR 30 million synergies, have you now started all the projects that are supposed to deliver that supply chain gain, and then these kind of things comes as an extra?
No, I think there are a few more things we need to address that sits in 2027. Usually, these are the things that takes longest time to realize, because there is a lot of people involved. There is a lot of negotiations usually with unions involved. So, these processes takes longer time, and we also want to make sure that we get it right first time.
Sounds very reasonable. Looking at getting up to the full realization of the EUR 30 million by year, with full effect 2027, is the supply chain part of that on par with delivering what they are supposed to do in that?
At the end of 2027, we are confident we will deliver on the supply chain synergies. From a run rate perspective, supply chain is where we've been running behind up until now, while we've been running ahead on procurement, for example, which is probably natural because the procurement synergies are easier to realize. So that it makes logic sense.
Excellent. When you look at the next step of these kind of supply chain things and getting the flexibility into the structure, is that a program maybe to drive up towards 2030 or something like that? How do you see the timeframe for it?
I don't think we should look at this as coming as, this is a big program, we're going to take big one-offs and get it done. I think we will try to make sensible steps every year, and this will be a part of everyday business. I don't foresee that it's a big program. We're going to have to do some level of consolidation every year. We have a pretty good idea of how to move forward on this.
Excellent. Looking at the other side of getting to the 30 million synergies, maybe you could help me bridge how much of the EUR 21 million that it was supposed to be the cost for the program have you now spent? How do you see the phasing of the remainder? Is that enough to get up to and then realize it, or do you need for more cost to be able to realize the 30 million?
Yes. On the non-recurring side, we have guided around EUR 21 million, you said, yes. We are slightly above 50% of that as well, and believe that we will reach the 30 million in synergies, but it will also be done as we guided for within the EUR 21 million.
Excellent. On the ERP side, the remaining 28 million to get to the 250 million, how do you see the phasing of that?
That is a commitment. The final payments will be for the coming two years.
Basically spread out over that timeframe?
Yeah.
Excellent. Then obviously we have had seen quite strange things happening to refrigerators at a couple of your clients. Has any impact or do you believe that clients, your customers might be, say, considering different kind of investments for the near term that might not favor you as much, or how do you see that playing out?
No, but I think everything that takes investment from rebuilding new stores, refurbishing stores, takes, to some extent, money out of our investment budget. I think that's one of many things that impacts the business.
But do you see the hacking incident as a limited kind of thing, or is it a greater thing that retailers might have to consider doing, say, major reinvestments in that kind of equipment?
No, but I think we've seen this across the years. There's been a cash system hacking a year back. Now we are on refrigeration. As we work in the Retail Tech arena and starting to step into connected solutions as well, clearly how we invest and step into this will be important, and the demands from retail will be different, or will be higher. What does this mean for us? It means that probably the threshold for new competition to come in will be higher, but also the investments we need to do to make sure that we are not sitting in this situation in the future will also be higher.
Good color. Looking at one of the things that seems to be working very nicely within HMY is Spain, as you mentioned it a couple of times, I see in both the presentation and the written material. What is driving the business there for the moment, and what is going so well?
No, but I think what we do in Spain and the model they build up long before the acquisition is a great model where they do not produce so much themselves and rely a lot on sub-suppliers in the area. This allows them to have flexibility and take on new business without reaching utilization thresholds. They have been able to onboard business this year in a really impressive way. I think it is a strong business, it is a well-working model.
Excellent. Just on the Dutch minority you now bought out, it seems to be quite a steep price for that kind of minority. Does it represent a huge part of the group minority items that you have reported over the last, say, 12, 18 months?
Yes, we have during Q3 closed two minorities or made them fully owned entities out of ITAB. We still have a couple remaining with the largest one being in China and APAC for us. This is a large part of it.
We should expect, say, minorities to stay stable or go down from here if you are looking at it from a group perspective?
Yes. We don't have any clear plans for the remaining minorities.
Excellent. Thank you very much for the extra color and all the best out there.
Thank you.
Thank you.
There are no more phone questions at this time, so I hand the conference back to the speakers for written questions and closing comments.
We have a couple of questions that have come in writing. One of them is concerning the hacking attack on Fridges, so I think we already covered that. Another question is if we could give some more detail when we should expect to see the synergies affecting the numbers positively in terms of EBITA.
Andreas, will you take that?
Yes. Of course, I think we presented a graph on both Q3 and year-to-date in the quarter report in the presentation. I think if we stay a bit longer on the year-to-date line, we can see that, of course, sales volume is really the part that is impacting us. We see synergies on both margin and SG&A. I mean, margin is up SEK 23 million the first nine months, and that's, of course, on the downside, we're seeing cost inflation during the first three quarters. So, synergies are higher than that. On the SG&A side, it's the same thing that we're seeing plus/minus zero almost for the first nine months. But of course, there's inflation that we're mitigating by the cost efficiencies, and there's also extra cost this year coming from the ERP system that we've taken, but also from the EuroShop marketing costs.
Looking ahead, we are planning for the next waves of both cost efficiency, but also on the wave three of our procurement synergies. It is really our key focus for next year to make sure that we do not expect, we do not plan for volume going up. We plan for further cost efficiencies, and we plan for supply chain consolidation that Björn referred to as well. This is our primary focus, and you should see the benefit also on EBITA for next year, as long as volume remains and at least does not go down.
I think the best way to explain this, it is a linear movement from acquisition to end of 2027, and we are halfway through that now.
Yeah.
Okay. The last question I have in writing is concerning the accounting in Swedish krona, and why are we still publishing in Swedish krona? Your synergies targets are in euros. What proportion of your revenues are in Swedish krona? I think they are all connected.
Yeah. It is a good question. It is something that we have talked about and that we are assessing as well, what are the benefits. Obviously, after the acquisition of HMY, we have a quite large exposure to EUR currency especially, and Swedish krona is definitely a minor part. I think maybe below 10% of our exposure. So, there are definitely benefits, but it is quite a big project as well. So, yeah. So we are taking some learnings from other companies that have gone down that journey and evaluating pros and cons.
Okay. That was the final question we have in writing, so I will hand it over to Björn to some final remarks.
Yeah. Thank you, everyone, for listening. Thank you for good questions. To summarize Q3, a step forward for ITAB. Thank you very much.