Good morning, everyone, and welcome to Karnell's third quarterly report and this earnings call for Q3. I'm Petter Moldenius, CEO of Karnell, and with me today is our CFO, Lars Neret. As usual, we'll begin with an overview of the quarter and how our strategy continues to drive profitable growth. Lars will then take you through the financials more in detail, look at the segment performance, and afterwards, we'll return to discuss our latest acquisition and key takeaway before we open the floor for questions. As a short reminder for our recurring audience, but also then for those joining us for the first time, Karnell is an active and long-term owner of industrial technology companies. We are focusing on acquiring small to medium-sized businesses with strong positions in niche markets, guided by our disciplined acquisition strategy that prioritizes quality and industrial leadership.
Today, Karnell comprises 18 companies across Finland, Sweden, and the U.K., and we employ about 750 people. As always, our goal is transparency and focus, highlighting here what matters most for value creation to our group. With that, let's dig into the Q3 results. Karnell continued to combine growth with improved profitability, delivering the group's highest margin and return on capital to date. The revenue increased by 22% to SEK 436 million, supported by around 4% organic growth. EBITDA rose 26% to SEK 69 million, corresponding to a margin of 15.9% compared to 15.4% last year, which is a clear improvement achieved again versus a strong Q3 in 2024. Also, very happy to see that both our business areas contributed positively. Product companies showed strong development driven by both our acquisitions and solid organic growth. Niche manufacturers delivered stable performance and maintained good efficiency in a mixed market condition.
Cash flow from operating activities was SEK 46 million, almost quite in line with last year, and our net debt to EBITDA ratios remained low at 1.6 x. This provides us with continued flexibility for further selective acquisitions. Overall, I would say we had a solid quarter combining growth, margin improvements, and balance sheet strength. Zooming out, looking at the last 12 months, our EBITDA margin reached its highest level to date at 13.6%, and continuing our steady progress towards our long-term goal of at least 15% EBITDA margin. This improvement reflects the combined effects of operational excellency across our group and also the contribution from recent high-quality acquisitions. In the market, we are seeing early signs of stabilization in our core markets, particularly in the industrial technology sector, infrastructure-related areas, while construction markets, especially in Finland, remain more subdued.
Market visibility is, in general, still limited, but activity across most of our companies remains stable and execution levels are high. Our focus remains unchanged: profitable growth through operational improvements and carefully selected acquisitions that strengthen our industrial technology platform. With that, I'll hand it over to you, Lars, to walk through the financials a bit more in detail.
Thank you, Petter. If we then look a little further into Q3 and start with a breakdown of net sales on the left here, net sales increased by 22% to SEK 436 million, for which organic growth was 4%. As Petter mentioned, the markets were still somewhat cautious but stable during the quarter. Acquisitions represented 21% of the increase, and currency effects were a negative 2% in the quarter. EBITDA increased by 26% with an organic growth of 2%. If we exclude central costs and only account for our two business segments, we had a combined organic growth of 5.5%. We are happy with the growth this quarter with these market conditions, and the growth comes from acquisitions as well as organically from both business segments. Acquisitions accounted for 28% of the growth, and currency effects a - 3%.
The EBITDA margin increased from 15.4% to 15.9%, which is our highest to date. Moving on to our business segments and starting with product companies, sales increased by 45% to SEK 249 million. Most of the increase came from acquisitions with 44%, but we also had an organic growth of 3%. The EBITDA increased by 61% to SEK 46 million, of which 54% came from acquisitions and 10% organically. The EBITDA margin improved from 16.6% last year to 18.4% this year. Product companies had a strong quarter even when compared with the strong quarter last year. Activity levels were high across the segment, and profitability improved. Our latest acquisitions continued the strong performance. For our niche manufacturers, sales increased by 1% to SEK 187 million. The increase was organic with 4%, and currency effects were a negative 3%. We had no effects from acquisitions in the quarter.
The EBITDA decreased by 1% to SEK 34 million, but organically, EBITDA was up by 2%. The EBITDA margin decreased slightly from 18.8% last year to 18.4% this year. The markets still show a little lower activity but on stable levels, and we see indications that it is gradually improving. The sales increase was across the board from all entities within the segment. Moving on to cash flow, cash flow from operating activities increased slightly from last year on a rolling 12-month basis, as well as for the quarter year-over-year. For the quarter, we had higher profits than last year but also higher working capital. The cash flow from working capital was on a more normal level this quarter than previous year, but looking at a rolling 12 months, we have tied up more working capital than usual, especially accounts receivable.
This is due both to the growth within the group as well as timing differences where September was a stronger month this year than last year. We do expect a positive contribution from working capital during the fourth quarter. As we have previously mentioned, working capital is a focus area for us, but at the same time, we are not trying to optimize it at each quarter end. Onto our capital structure and net debt. We made one acquisition during the quarter, LundHalsey, which caused our net debt to increase to SEK 410 million, but we still maintain a relatively low leverage of 1.6x. If we include leasing, earnouts, and put-call options that you see in the table on the right here, we had a leverage of 2.4x at the end of the quarter. With that, back to you .
Great. Thank you, Lars. Yes. As mentioned on the last call, we completed the acquisition of LundHalsey during Q3. It is a U.K.-based designer and manufacturer of premium control room consoles used in mission-critical environments such as aviation, infrastructure, and broadcasting. The company has over 40 years of experience, a strong global customer base, and a modular product range that meets demanding ergonomic and technical standards for continuous 24/7 operations. It was our first proactively sourced acquisition in the U.K., and it is a clear example of how our dedicated M&A team is expanding Karnell's reach and strengthening the deal pipeline. The pipeline itself continues to build good momentum, particularly in the U.K. and Italy, as we have seen more high-quality industrial technology companies that fit our strategy. At the same time, we remain highly disciplined.
We will always stay the course on valuation and structure, and we will walk away when the terms are not consistent with our return expectations. LundHalsey is a good illustration of how we want to grow selectively with quality and long-term value creation at the center. To sum up, Q3 marked continued progress for Karnell with revenue and EBITDA up double digits, the highest margin and return on capital to date, and strong contribution from both business areas. Our group companies are performing well, particularly given the current market condition. The M&A pipeline remains healthy. Our balance sheet provides the flexibility to stay selective yet active as we continue to scale our platform. Market visibility remains limited but active across our core sectors, and activities in our sectors are still stable.
As we now enter the final quarter of 2025, we do so with confidence in our strategy, in our team, and our ability to create sustainable long-term value for our shareholders. Thank you for joining today's presentation. With that, let's open the floor for any questions you may have.
If you wish to ask a question, please dial pound key five. If you wish to withdraw your question, please dial pound key six. The first caller is Max Bacco at SEB. Max, please go ahead.
Thank you, Lars. Good morning to both of you and well done here in the quarter. Perhaps starting with the product companies. Very solid performance indeed, some 3% organic sales growth and 10% organic earnings growth. Would you say that any specific subsidiaries stood out during the quarter, or is it more broad-based, would you say?
We would say it's more broad-based. Nothing that particularly stands out versus last year, but the sum of the companies are performing better, especially EBITDA-wise.
Okay. Understood. I think you mentioned in the report that in terms of M&A you see a healthy pipeline and that U.K. and Italy are the most interesting markets right now, at least. I mean, you have done three acquisitions in the U.K., LundHalsey, the first proactive one, but so far nothing in the Italian market. It would be interesting to hear how you approach that market given the, to some extent, language barriers and so on and so forth. How is your approach to that?
It's a good question. In short, I mean, we've had and been open with that Italy is an interesting market for us going back to the IPO. I think we have since now roughly six months back, we have a team member on the ground in Italy representing us. I think that has really started to show results. Given that I think it's somewhat of a cultural difference, Sweden, U.K. versus Italy, it's much more face-to-face meetings. It's much more getting to know people before you get into the next phase. Of course, we are also traveling down there quite a lot to meet with new companies. I think the investments we've done over one and a half, two years is starting to bear fruit, and we can see that in the pipeline right now.
Okay. Interesting. From your point of view, just out of curiosity, I mean, you do have some sector colleagues like Lifco, Indutrade, and Addtech that have been active in Italy for a couple of years. When you meet companies, how familiar are they with the Swedish decentralized serial acquirer model? Does it take you a lot of time to explain who you are and what you do?
I think many of them, not Italian entrepreneurs, but the sort of M&A advisors and intermediaries, know Lifco and Addtech to some extent. I think those are the two. The model as such, with the perpetuity thinking, our value creation model that we bring to the table is very unique. There is not, as far as we've seen, any real local peers that offer this perpetuity thinking. Typically, the message, I would say, is very well received with the value proposition that we come to the table with for these entrepreneurs that we're talking to.
Okay. Understood. The final question on the cash flow, Lars mentioned this during the presentation that you expect or foresee some working capital release here in Q4, which sounds reassuring and that it's a key focus area for you. Basically, two questions relating to the working capital. Do you see with acquisitions that you have done lately that capital efficiency or working capital profile has changed for the group in any way? Perhaps longer payment term for customer or something similar. Has something changed during the last year? Or is it more just timing compared to last year?
No, nothing has changed, really. It is more timing. Of course, when we add companies and the companies are performing well and growing, those companies also build working capital. Yeah, no structural change other than the actual acquisitions, I would say, and timing differences.
Okay. Yeah. Would you say, I guess it's a question for you, Petter. Do you have the possibility, I mean, looking at the whole group, to improve capital efficiency? I guess that's one thing that acquired companies initially lag on, something that they haven't focused on before that much. Would you say that on a group level, you have the opportunity to improve capital efficiency? If so, how do you intend to do that? Have you some examples from before where you have had subsidiaries where you have made more specific improvement projects and so on?
Yeah. No, definitely so. I mean, this is something that we work on every board meeting in our subsidiaries. I mean, we've been driving some of these projects that is very hands-on, supporting them on improving efficiencies. Of course, we have metrics of profit through working capital. We have also, since last year, introduced that as part of the bonuses for our local MDs as part of their remuneration as a key metric. We're working with it steadily, a nd there's still room for improvement, but it also takes time. I would also highlight, Max, that our return on capital employed is also the highest to date. I would say that in the light of still quite a high level of M&A activities. That's another view of capital allocation is, of course, how much we are actually paying for the companies that we're buying.
I would say this shows that we're quite disciplined in the evaluations that we do for these. Very stable and profitable niche companies.
Yes. Yes, indeed. Perfect. That was all from me. Thank you very much. Once again, well done in the quarter.
Thank you.
We have a couple of other questions. There's a question. Is the higher valuation for LundHalsey to acquire indication of new trend?
I mean, again, these valuations are naturally something that we look at very closely when we do the acquisitions. I would say that LundHalsey is very well in that span that we typically pay for product-owning companies. There is not higher than anything else than our usual valuations. No, there is no new trend of anything. On the contrary, I would say, again, stress the return on capital employed is picking up, which is a good KPI or data point for us being very disciplined when it comes to valuations. To what extent do we have M&A processes internally? Do the board of directors have input? I think that is also something we can give you a little bit more flavor on.
In general, we try to do most of, let's call it, the value-adding activities, say, commercial DD, the assessments of the team, their capabilities when it comes to production, their machine park, X, Y, and Z. However, we do not know all the legal differences in different countries, so external is always legal to support in the legal DD. Financial, we are doing in some markets ourselves and in others using advisories. Of course, it is a key component to what we do, and I would like us to do most of it internally. The second question, to what extent the board of directors have input. It is their final decision. The decision of acquisitions is made by the board. Of course, the investment team and myself included are putting forward the proposal to the board.
Great. The final question, any reasons for the change of CFO? The reason I'm leaving is strictly for personal reasons. It's got nothing to do with the company. I think we have found a great replacement. Niklas, who will start in January. I think that will be a good replacement and hopefully a very smooth transition. That was all the questions.
Great. Again, thank you for listening in and for your time today. L ooking forward to talking to you again next time. Thank you.