Ladies and gentlemen, welcome to the Lindab Q3 Report 2018. Today, I'm pleased to present CEO Ola Ringdahl and CFO Malin Samuelsson. For the first part of this call, all participants will be in a listen-only mode, and afterwards there will be a question and answer session. Speakers, please begin.
Hello, everyone, and welcome to this call. My name is Ola Ringdahl, and I'm the new President and CEO for Lindab Group since June 2018. I'm sitting here together with our CFO, Malin Samuelsson. We move to slide two on the agenda. In today's presentation, the agenda is as follows: first, summary and overview, then some financials. We have some highlights. We present a short outlook, and at the end, we will open up for questions. We start with the overview on slide number four. The key highlights for the third quarter in 2018. Organic growth was strong. We increased our net sales by 15%, and the organic growth rate was 8%.
The operating profit increased to SEK 209 million compared to SEK 162 previous year as a result of strong volume increase. Profit for the period increased to SEK 152 million with some negative impact by one-off items. Building Systems had its best quarter since 2015, and we have also improved profitability in Products & Solutions. We will come back to both of those areas later in the presentation. The strategic assessment of the non-ventilation related business that was initiated in 2017 is now completed. The strategic review has shown that there are valuable cost synergies between the ventilation and non-ventilation related businesses.
Lindab will continue to develop these businesses. Therefore, we will split Products & Solutions into two business areas. That will result in a situation where we will have three business areas in the Lindab Group from Q1 2019. They will be called Ventilation Systems, Profile Systems and Building Systems. We move to the next slide, number five. We look at the Geographic Perspective here. We showed good organic growth in all major markets. The Nordic markets had positive sales development during the quarter, and it is also our largest geographic area. All countries in that region reported good organic growth. The Western Europe markets grew by 4%, and the strongest growth came from Ireland and the U.K.
In Central and Eastern Europe and the CIS region, we continued to see very positive sales growth, 21%, mainly related to Poland and Hungary. We turn to the next slide and look at sales by product area, slide number six. Here we can see how our product areas have developed during the quarter. We had a very positive sales trend in ventilation. It continues, and we see good growth for both ventilation products and building solutions. The air movement product area had a comparatively weaker development because we had some quite large project order deliveries last year in Q3, 2017, and they were mainly related to the Middle East.
Rainwater and building products had very good sales in the Nordic region. The more project-based building solutions continued to grow strongly as a result of good development in the largest market, for that product, and that is Sweden. As for Building Systems, the increased sales during the quarter are mainly thanks to positive growth in Russia, Belarus, and the Czech Republic. We move to the next slide and the financials. I'm handing over to our CFO, Malin Samuelsson, who joined Lindab in September this year.
Thank you, Ola. We move to slide number eight and the Financial Highlights. We start with the Group Financial Highlights, and during the quarter, the Net sales increased by SEK 316 million, equivalent to 15%. The organic growth was 8%. EBIT margin increased as a result of the sales growth and improved growth margin in both Products & Solutions and Building Systems. Financial, Net, and Tax rates are both in line with prior year. The net profit increased 32% to SEK 152 million. Let's move to the next slide and have a look at the Products & Solutions. The Organic Sales increased by 7%, and the Net sales amounted to SEK 2.1 billion, which is the highest sales ever in a quarter for Products & Solutions.
Continued positive sales development in all regions within Europe, with particularly strong growth in the CEE, the CIS, as well as the Nordics. All markets within the Nordics had good organic growth. The EBIT increased to SEK 202 million, positively impacted by the higher sales. Activities to compensate for the previous raw material increases continues to have the highest priority in order to improve the segment's cost margin. Moving to the next slide. Building Systems financial performance. The organic growth for the quarter was 12%, and there was a favorable currency effect of 6%, with a positive impact from Euro and a negative effect from Russian ruble. The EBIT improvement versus last year is mainly explained by higher sales, favorable market mix, and positive outcome from the turnaround program.
We have had a particularly strong order intake in the quarter, with significant orders from Poland and Russia. The backlog at the end of the period was significantly higher than the same period prior year. Moving to next slide, the cash flow. The Adjusted cash free cash flow improved by SEK 310 million to SEK 243 million, positively impacted mainly by the change in working capital. The impact on working capital is mainly due to Building Systems having a large portion of projects with prepayments this year compared to last year. In addition, there's a favorable impact on accounts receivable. The net debt amounted to SEK 1,249 million, with a net debt EBITDA ratio of 1.9. This concludes the financials, turning back the word to you, Ola.
Thank you, Malin. We go into the highlights section and move to slide number 13. On highlights, I want to say a few words about Building Systems. Building Systems had a very good order intake in the quarter, 12 orders above SEK 10 million, with a total order value of approximately SEK 300 million. Two orders in particular stood out, one for a manufacturing building complex in Poland. It is to a repeat customer, and the project is worth over SEK 110 million. One Warehouse building in Russia, worth over SEK 50 million. It's important to have in mind that on a rolling 12-month basis, approximately 60%-70% of our net sales in Building Systems is related to buildings with a value of less than SEK 10 million.
We are not completely dependent on these large projects, but they of course, are an important part of our mix. The backlog at the end of Q3 was significantly higher versus the same period last year. During the third quarter, we have also inaugurated our extension of the Building Systems facility in Prerov, Czech Republic. This investment is part of the turnaround program in order to improve our efficiency even further. We see on the nice pictures there, on the picture in the top left-hand corner, we see the inauguration ceremony, where our director of the Prerov facility, Mr. Gordon Pringle, is standing to the left. We have Pontus Källén, the CEO of Astron Buildings, in the middle, and on the right-hand side, Václav Šíma, the Plant Manager.
I also want to point out that the lower two pictures on the slide are a couple of examples of buildings made by the Astron Buildings company, which is called Building Systems in the Lindab Group. We move to slide 14 and the strategic assessment slide. Over the past 12, 18 months, there has been a strategic assessment of the non-ventilation related business that has now been completed. The strategic review has shown that there are valuable cost synergies between the different businesses within Products & Solutions. We have come to the conclusion that we will continue to develop both of these businesses, but we need to have better focus, better accountability, and more transparency about how they are performing.
Therefore, we plan to split today's business area, Products & Solutions, into two different business areas called Ventilation Systems and Profile Systems. We will do this from Q1 next year. Building Systems has also been evaluated. We have decided to keep Building Systems under the Astron brand name in the Lindab Group, as we believe that we can generate substantial shareholder value by completing the turnaround program, and we are already showing some quite good signs in that program. Now we move to slide 16 and look at the market development outlook. There is a lot of building and construction statistics out there right now. We, of course, study all the statistics and try to get some guidance about where the market is going.
Currently, we see an exceptionally strong demand in many of the geographies where Lindab is present, and that demand is indeed very strong during 2018. Trying to understand what will happen in the future is always difficult. We believe that there will be continued growth, but not as strong growth rates as today. Probably we will see a slightly lower growth rate going forward in the market, but we believe that there will still be growth in the market also next year. We move to slide 18, which is titled Key Highlights. We repeat and conclude, the strong sales growth has been evidenced during Q3, both for Building Systems and Flooring Solutions. We have seen some result improvements as well.
Another highlight is the decision to reorganize Lindab Group into three different business areas, and that should happen from Q1 next year. With this short summary, we conclude the presentation, and we open up for questions.
Thank you. Ladies and gentlemen, if you have a question for the speakers, please press zero followed by the one on your telephone keypad. Once again, to register for a question, it's zero followed by the one on your telephone keypad. The first question comes from Douglas Lindahl, from Kepler Cheuvreux. Please go ahead. Your line is open.
Good morning, Ola. Good morning, Malin. A few questions from my side, starting with Building Systems. I was wondering what your time plan is for the turnaround and also your ambitions in terms of margin for this business. Secondly, on Building Systems, how important have volumes in Eastern Europe, and maybe Russia specifically, been for your margin recovery in this business area? Would you say it explains more than 50% of the improved margin, or can you give some sort of cover on that? Let's start with those.
Thank you, Douglas. Let me start by trying to answer the first question about the turnaround time plan. The turnaround activities have been going on, you can say, from beginning of this year. It is a two-year turnaround program, we believe that we are starting to see the effects, but we expect to see more effects going forward. We believe that Building Systems, who have had a tough few years, we believe that they will contribute positively to the Lindab Group's profits during 2019. You had a question about the market mix. We are seeing good sales development for Building Systems in several markets.
It is true that we have a good and strong development in Russia, but I would estimate that less than half of the improvement comes from Russia.
Okay, great. I'll go back into the queue. Maybe someone else has further questions.
Thank you.
Thank you. As another reminder, to register for a question, please press zero followed by the one on your telephone keypad. The next question comes from Fredrik Svanström from Nordea. Please go ahead. Your line is open.
Thank you very much. You engaged the bank to investigate the selling opportunities for Building Systems previously. Is this mandate not live anymore now, so you have fully decided to keep it, or could you still sell it if you would get an interesting bid?
That, that mandate is not alive now. We have closed that process. It is true that we have investigated if divestment could be possible and generate the right kind of price for this for Building Systems. We did not think that those indicative bids that we were given were even close to the true value of Building Systems. We have decided to keep it, to further develop it, and to bring it back to a good performance, and we believe that we can do so. The decision to keep it is to increase shareholder value for the Lindab Group shareholders.
All right. After what is it? Seven quarters of negative change in the Gross Margin. You're good now in Q3, you mentioned that steel prices are stabilizing, even rolling over from what we're seeing, and you're also seeing benefits from price hikes. To me, this sounds like we'll see much further growth from the gross margin going forward from here. This is just the start of an improving trend, or how should we see it?
We will, of course, be satisfied if you, if you are correct.
Okay. The pricing then, it has been gradually improved during the year. Are there more hikes on the cards for you guys? Or are you done with price increases? Also, if you could say roughly in % terms, how much is it up in 2018 versus 2017 towards your customers?
I cannot comment on how much a customer will see in terms of price increases, but I can say it like this, over the past two years, the steel prices, if we compare today versus two years ago, steel prices are quite a lot higher. I think Lindab in a pursuit of growth was probably a bit late in increasing the prices when it was necessary to compensate for steel cost increases. I think we lost some quarters timing-wise. We are trying to catch up with that and recover that and close the gap. That takes a little bit of time, and the work is still ongoing.
We are not done with price increases, yet, but of course, if steel prices are starting to stabilize, the need for further price increases will be less. We still need to close part of the gap.
Okay. You are talking about how the strategic overhaul has identified some cost synergies between Ventilation and operations in Products & Solutions. I mean, what kind of synergies are you seeing here? What kind of measures should we give some examples?
You can say that the different parts in Lindab Group, some of the activities we have been doing for the past 30, 40, 50 years, we have expanded our businesses, you can say, in combination with each other. We have many facilities and companies in Europe who represent not only the Ventilation Systems part of the business, but also the Profile Systems part of the business. It's everything from infrastructure and all those costs to management sales companies, et cetera. They are quite intertwined today.
Finally, the cash flow looks very good in Q3, especially due to working cap. Can this go in the opposite direction in Q4? How should we regard this?
Yeah, we saw some really strong development of the prepayment, we don't expect to see a very negative development in Q4. We also know that there could be an element of timing between Q4 and Q3. That may be the answer to that.
Okay. Thank you very much.
Thank you.
Thank you. As another reminder, to register for a question, it's zero followed by the one on your telephone keypad. The next question comes from Max Bahrke from Danske Bank. Please go ahead. Your line is open.
Hi, this is Max Bahrke from Danske. I came into the call quite late, so I don't know if you discussed this already. Just, you talk a lot about price increases, you talk a little bit about the cost synergies, between the divisions. In light of reaching your 10% margin target, could you quantify if there's anything to do in terms of the production setup in Manufacturing Footprint, Logistics, Distribution, et cetera? Is this something you have looked at when you now came into the company?
Yes, I am looking at that. Thank you for that question. We have quite a large footprint in Europe, in the Lindab Group. And that is a great asset for us. Of course, as times are changing, you also need to look at that again. What might have been considered low-cost countries 20 years ago, they are no longer low-cost countries. Logistic costs and Logistic patterns across Europe are changing every day. Logistic costs are quite high at the moment. Yes, we are looking at our footprint, both in terms of Manufacturing, Sales Companies, Warehousing capabilities, and Logistic routes. We will make improvements to that system reflecting today's situation in Europe.
All right. Sounds like you say that there are a few lower, semi- low hanging fruits out there, if I'm interpreting you correctly.
I did not say that, but,
That's my interpretation.
Let's hope that you are right. I think all changes like this, they are not easy. Of course, when we find such opportunities to trim the organization and to make the footprint smarter, we will do so.
Okay. We'll stay cautiously optimistic. Finally, on just on M&A, can you maybe talk a little bit on your M&A experience in integrating companies on your previous employer? In light of that, if you see any scope for Lindab, and probably not in the near term, but maybe in the long term and time plan, et cetera?
I can try. I have worked a fair amount with acquisitions and the integration of acquisitions. I've made a few in my life. How to integrate them or not integrate them, that's unique from case to case. Lindab has a history of acquisitions and has grown through acquisitions throughout the years, and we will most likely continue to make acquisitions in the future, even though it is not my top priority right now. I think we should focus more on that a little bit later. I see acquisitions as an important part of our strategy, so we will be active.
Perfect. Thank you for answering my questions.
Thank you, Max.
Thank you. The next question is a follow-up question from Fredrik Svanström from Nordea. Please go ahead. Your line is open.
Hi, and thank you very much. Just to follow up again on Building Systems, you talk about a really strong backlog here. It seems to have grown considerably. I mean, we know in the past that this has been volatile from time to time in terms of the earnings contribution, sometimes negative. Could you talk a bit on the pricing in the backlog here? I mean, what have you done and what can you do to make sure these are continued profitable contracts for you? Maybe also comment on the duration in the backlog for these new orders.
We don't give so many details about the backlog. The quality of the backlog is good. We have a system to scrutinize and improve that part of our work. That is 1 reason why we see Building Systems performance improving. We are, I think, today, much more systematic, and we are more targeted in what projects we select to be active in, and in what countries we do so. We have, I think, more of a confidence today, than maybe 1 year ago. I think, the quality in the different processes in Building Systems are on a high level today. I'm not too worried about the quality in the backlog.
Okay. Thank you very much.
Thank you. There appear to be no further questions. I'll return the conference back to you, speakers.
okay. If there are no further questions, I want to thank everybody for listening in, and I want to thank you for the questions.
Thank you.
From me and Malin, we close the meeting.
Thank you, ladies and gentlemen, this does conclude today's conference call. Thank you very much for attending. You may now disconnect your lines.