Good morning, welcome to the presentation of Lindab's year-end report. My name is Fredrik von Oelreich, I am the acting CEO of Lindab. I will take you through today's presentation together with our CFO, Kristian Ackeby. Our agenda is that I will cover the overview, the highlights, then wrap up with the outlook. Kristian will, of course, guide us through the financials, then at the end, we open up for questions. If we move to slide 4, summing up the highlights, we had a strong sales development in the fourth quarter with an organic growth of 7%, driven by Products & Solutions. Our operating profit, supported by the strong sales, increased to SEK 190 million, versus SEK 112 million last year.
We had a strong cash flow towards the end of the year, to a large extent, thanks to prepayments, in Building Systems. As a consequence, our net debt continues to decline, and our net debt to EBITDA is now below 2. Moving on to the next slide, we can see healthy growth in all our regions. Our biggest region, the Nordics, is back on the growth track, which is very good. In Western Europe, we see solid growth in markets like France, UK, Switzerland, and also in Ireland. In Eastern Europe, Products & Solutions grows steadily, and in Russia, Building Systems has a very good development. On slide 6, we can see the development in the different product areas. In Products & Solutions, most ventilation-related products and building products and solutions grow with a solid number of 9%.
Building Systems registered declining sales in the quarter, but the order intake was very strong. Now we move into the financials, and I leave the word to Kristian Ackeby.
Thank you, Fredrik. Moving to slide 8, group financial highlights. Raw material cost continue to impact. During the quarter, net sales increased with close to SEK 150 million, and EBIT improved by 6%. The higher EBIT is mainly due to higher volumes in Products & Solutions, partly offset by the lower gross margin as a result of not fully compensated for raw material price development. Financial net has improved as a result of the lower net debt and higher interest income. We now see the full impact from our new loan agreement, where we did have the change forward during the third quarter. Tax rate did come in lower than last year, contributing to an improvement of earnings per share by 6%. Turning the page, Products & Solutions. Organic sales increased 9%, and net sales amounted to approximately SEK 2 billion.
This is the 17th consecutive quarter with organic growth in Products & Solutions. Continued positive sales development in all regions, especially strong in Western Europe and CEE. EBIT improved by 6%, positively impacted by the higher sales and negatively impacted by the lower gross margin. Price increases are implemented, we expect to see positive impact from this during the first half of 2018. Moving to slide 10. Building Systems. Turnaround takes longer than anticipated, a launch for the turnaround plan. Organic growth for the quarter was negative, minus 6%. There was a favorable currency effect of +2%, mainly related to the Russian RUB. EBIT showed a slight improvement versus last year. Margin has been negatively affected by the low capacity utilization due to the lower volumes.
The small EBIT improvement is explained by slightly improved price levels on delivered projects versus the same period last year. Backlog at the end of the period was notably higher compared with the same period prior year. Moving to next slide and the cash flow. Free cash flow amounted to SEK 262 million, and adjusted free cash flow increased SEK 86 million to SEK 326 million, positively impacted by the working capital and the higher prepayments related to Building Systems. Net debt, approximately SEK 100 million lower than last year, despite the acquisition AC Manufacturing Ltd in December. Moving to slide 12. Group financial highlights for the full year. If we summarize 2017, we look back on a year with continued sales growth, but margin pressure due to the increased raw material costs.
Net sales increased approximately SEK 400 million, or 5%. EBIT was on par with last year and amounted to SEK 511 million. This, despite a SEK 30 million lower EBIT in Building Systems. Financial net has improved as a result of lower net debt, new credit agreement, and higher interest income. Earnings per share improved by 13% to SEK 4.54. The board of directors proposed dividend increase of 11% to SEK 1.55. This concludes the financials, I'm leaving the word back to you, Fredrik.
Thank you, Kristian. Let me summarize a few highlights from the quarter on slide number 14. In Finland, we grow nicely with ventilation. We can also mention Sweden. In Sweden, we have now gone over to 100% use of wind power, which is in line with our sustainability ambition. In Building Systems, we see clear improvement in the order backlog, which is mainly related to Russia, but also in markets like Germany. In East Europe, we have continued good development in markets like Hungary and Poland. Moreover, we have strengthened our position in the important Irish market with the acquisition that Kristian mentioned of AC Manufacturing Ltd. Last but not least, we are proud of having obtained the Eurovent certificate for our duct systems.
For those of you who are more interested and want to learn more, there is a possibility to click on the YouTube link on the presentation. Moving on to the next slide, let me discuss some key strategic initiatives. The first point concerns our strategic assessment, with the ambition to concentrate more on the ventilation business. Secondly, it's about growing the core ventilation business, both through acquisitions like AC Manufacturing, but also organically, where we invest in our energy and climate solutions business function. The ambition is to go from product selling to become a ventilation solutions provider. With an extended value proposition, we will intensify our approach towards end customer segments, like offices and schools, hospitals, marine, et cetera.
In a way, we are going from a push strategy to a push and pull strategy to propel our organic growth. On slide 16, we give a bit more information on the Eurovent certification. As the market leader, being the first company achieving this is very important. I move on to the outlook, slide number 18. When it comes to the market outlook, we expect continued growth, although slightly lower than in 2017. Some weakening signs mostly relates to the residential sector in markets like Sweden and Norway, but it's important to remember that Lindab's business is approximately 80% non-residential. When it comes to raw materials, which for us means steel, it has been a rather stable price development during the fourth quarter, and this is a situation we expect to continue in the beginning of 2018.
Moving on to the summary. To recap, we had strong growth in the quarter in Products & Solutions. Sales growth explains the increase in operating profit from SEK 112 million to SEK 190 million. We have a strong balance sheet, with a net debt to EBITDA of 1.85. Against this background, the board proposes to increase dividend to SEK 1.55 per share. Finally, let me wrap up with our short-term priorities. We are focusing on 5 areas. Number 1, we have implemented price increases, which will generate effect in the 1st and 2nd quarter of this year. 2nd, we have defined and initiated our turnaround plan for Building Systems. 3rd key point is that we are addressing our underperforming units within Products & Solutions.
The fourth important business area, which I mentioned before, is that we are investing in our energy and climate solutions function in order to move up the value chain and drive organic growth. The fifth point is that we are carrying out a strategic assessment in order to focus on the core ventilation business. With that, we say thank you, and we open up for questions.
If you have a question for our speakers, please press zero-one on your telephone. We received the first question from Max Frydén, Danske Bank, your line is now open.
Yes. Hi, good morning, Kristian and Fredrik. A couple of questions from me, and I'll start with the Building Systems restructuring measures here. In our earlier discussion, I was more under the impression that the sort of the low-hanging fruit in terms of costs was taken here, and the main factor for profitability increase was volume and higher capacity utilization. Maybe you could perhaps correct my view and give some more flavor on what you're doing in the restructuring.
In order to improve profitability, which clearly is needed in Building Systems, we invest in a program which consists of three parts, actually. One is to invest in production capacity in East Europe, where we move certain production from the West. A second point is that we invest in higher performing IT systems. The third is reduction of personnel to get down the cost base in Western Europe. With the development we have had, with the software development, we need to take a stronger grip in Building Systems, obviously, which we are doing now. This is the program we are launching.
Okay, it's clear. Could you say maybe in percentage point, how much of the personnel that you're reducing?
no, not really. We cannot go into that detail at this stage.
All right. In general, over the strategic review, will you communicate more in terms of what parts you're actually looking to divest, and how you're gonna shift the production structure or distribution network or anything that could bring a bit of clarity to this?
Yeah, I mean, we will communicate when we have some new information to communicate. In general, We are following plan in terms of reviewing the business that we classify as non-ventilation related, and as we said before, it represents roughly 30% of our turnover.
Yeah, this is still, waiting to be communicated during the first half of 2018?
Yeah, I mean, I believe that during the first half, there will be news to come. It's important to say that obviously we are evaluating this, and what we believe are value-enhancing assets, we will keep within the ventilation business. That is sort of the important part of the strategic assessment.
Yeah. Okay. Just two more quick questions from me, and the first one is on backlog in the Building Systems division. Could you say what that is in absolute terms, and also, how much that has increased, year-over-year?
If you look into the backlog for Building Systems, we see an increase mainly related to CIS and the orders mentioned earlier in the presentation, also related to Russia. The increase we do see in the backlog is more than 10% currently, compared with the same period prior year.
Okay. How long, and in absolute numbers, have you communicated that before? Maybe how big the backlog is. I'm just trying to work out for how long that the order is gonna, the backlog is gonna generate revenues in 2018.
We do not communicate about the timing of the projects. They are also impacted, of course, about a lot of different things from the construction side. It's more than 10% higher than the same period prior year.
That's very clear. Just 1 final question from me, then I'll let someone else in, and that's the raw material price comment there. You see, positive and offsetting the raw material prices. I just want to ask, is that assuming flat raw material price development going forward?
Yeah, I mean, the price increases we have carried through now is based on the current steel price development. Of course, we always have to monitor this and, if need be, take action. As I mentioned, as we see today, the price development on the raw material is rather stable.
Okay. Thank you for answering my questions.
The next question is from Johan Dahl, SEB. Your line is now open.
Thanks. Hi there. I was just wondering, when you may be close to the books for year-end 2017, what is the approximately the carrying value of Building Systems at year-end? Also to justify that value, is the restructuring program you announced today, is that what needs to be met to justify that value? If you could also clarify, how much of the SEK 100 million in charges, how much of that is a write-down of assets?
Just to start with the carrying value, which will be also disclosed then in the annual report, the carrying value is overall in line with prior year, and it's slightly around SEK 1 billion. Every year, we make an impairment test, not only to Building Systems, but for our cash-generating units. That has been done also this year, based on our future plan from a going concern perspective. If we then look into the turnaround plan, we will not communicate about how the amount will be spread. Also, just to clarify there, you refer to it as cost, and as Fredrik mentioned already, this is not only direct costs per se, this is also referring to investments that you will see as CapEx in the cash flow in the future as well.
All right. So you're basically, out of the SEK 100 million, there's nothing sort of in, sort of asset revaluations in that sense?
We do not comment on that now.
All right. How much of this, SEK 50 million in earnings improvement is sort of defined and validated, projects, as such?
We have a very detailed and clear plan, what shall be done. To a large extent, it's very clear and nailed down what we need to do to achieve this profit improvement.
Gotcha. Could you possibly elaborate a little bit on what drove the earnings improvement compared to Q3 in Products & Solutions ? It I know clearly, volume's better, but there seem to be something else here. I mean, the year-on-year progression was so much better in Q4 compared to Q3.
Yeah, I think, like you referred to, volume was a big driver, of course, for Products & Solutions when you look into those items. When you look into the, to the gross margin, we have an improvement in the gross margin compared with what we had at the end of Q3. We do see improvements from the pricing activities that we are working on, but as you can understand, we are not there yet.
Okay, thanks.
Welcome. Thank you.
I remind you that if you want to ask a question, you will have to press 01 on your telephone keypad. At the moment, there are no further questions. Please go ahead, speakers.
If there are no more questions, we say thank you very much for today, and by this, we end the presentation.