Good morning, and welcome to the presentation of Lindab's quarter results. My name is Fredrik von Oelreich, CEO of Lindab since one month, and together with me is our CFO, Kristian Ackeby. If we look at today's agenda, I will take you through the highlights and the outlook, and Kristian will take us through the financials. At the end, we open up for questions. If we move over to slide number four, I believe it is, where we are summing up the quarter, we can say that we had a tough third quarter, where we see the full impact of the higher cost for raw materials. Our operating profit declined from SEK 190 million last year to SEK 162 million, and this is mainly due to lower gross margin in Products & Solutions.
On the other hand, we continue to grow to the largest extent in the ventilation business. Overall, we saw an organic growth of 2% in the quarter. Even though our operating profit declined, our net profit increased somewhat. This is due to a lower effective tax rate. We also saw our net debt continue to decline in the quarter. Now our net debt to EBITDA ratio is 2.2. Finally, we should also mention, to follow up on the announcement from end September regarding an acceleration of the strategy to focus on the ventilation business, the board has now decided to assess strategic alternatives for Building Systems, as well as the non-ventilation related business within Products & Solutions.
If we move over to the next slide, we see continued growth in all our regions within Products & Solutions, with the exception of the Nordics. Regarding the Nordics, last year in Sweden, we had a major building project. In fact, it was our biggest ever, if we adjust for that, we actually see growth of around 1% in the Nordic region. We can also mention that we signed a new three-year agreement with one of our top customers within the Nordics. If we take a grasp on our other regions, in general, we can see healthy growth across these areas.
When it comes to other markets, which is a very small part, of course, of Lindab sales, we see a huge increase with 52%, and this is related to a big project that's been running in the Middle East. If we move to slide six, we see the development in the different product areas. We continue to grow overall when it comes to ventilation, with around 5%-6%. The ventilation are the areas, first four areas there on the slide, Ventilation products, Indoor Climate Solutions, Air Movement, and Fire and Smoke. These areas now represent 63% of our sales. When it comes to the decline in the smallest product group, Fire and Smoke, this is mainly related to weak sales in the Italian market.
The decline in Building Solutions, that's what I mentioned, that's the big building project in Varalöv in Sweden, last year in quarter three, that makes comparisons very tough. If you adjust for that, it's basically flat sales within Building Solutions. And I'll give the word to Kristian, who will then take us through the financials.
Thank you, Fredrik. Moving to slide 8, group financial highlights. Raw material prices continue to impact. During the quarter, net sales increased with SEK 39 million or 2%. EBIT declined by 50%. This, as mentioned earlier, mainly due to the increased raw material prices in the segment Products & Solutions. Finance net has improved as a result of lower net debt and higher interest income. During the quarter, we have changed over to our new credit agreements, which will then have full impact in Q4. Tax rate came in lower than last year, contributing to earnings per share improving by 6% to SEK 1.51. Turning the page, Products & Solutions, continued focus on pricing. Net sales increased with 1%. Organic growth amounted to 2%, including positive impact from price.
Continued positive sales development in Western Europe and CEE and CIS, while it declined in the Nordic region. This, as a result of the project already mentioned, that amounted to approximately SEK 40 million in the quarter. This project was mainly delivered in Q2 and Q3 last year, so that impact will fade out in the fourth quarter. EBIT decreased by 17% to SEK 169 million. This, mainly as a result of the lower gross margin. During the quarter, steel prices have been relatively flat. However, with our days in stock of approximately 90, we now see the impact from earlier price increases on raw material. We have increased prices also during the third quarter, however, we have not been able to fully compensate for the full effect. Further price increases will be implemented. Moving to next slide, Building Systems, improvement, but additional measures to be taken.
Organic growth for the quarter was 3%. There was also favorable currency effect in this area, mainly related to the Russian ruble. EBIT improved somewhat versus last year as a result of the higher sales and the improved gross margin. Backlog at the end of the quarter was on par with the same period prior year. Next slide. Cash flow. Cash flow decreased close to SEK 180 million. Cash flow related to working capital is the main negative impact. This negative impact is mainly related to the following items. First, increased share of overdues at the end of September. A number of large customers did not pay on time. Majority received in beginning of October, this is expected to be mainly timing. The next item, Building Systems, did have a large portion of projects with prepayments last year, so cash inflow.
In this year, we have delivered to a number of projects with prepayments, we've had a cash outflow. This account is impacted and significantly by specific agreements. When looking at the year-to-date numbers, we also see the higher raw material prices, which significantly impact our working cap. Net debt below the same period prior year, and continued improved Net debt to EBITDA compared with prior year. This concludes the financials, and leaving the word back to you, Fredrik.
Thank you. We have the slide with some highlights from the quarter. We continue to see high activity level across our organization, and just to pinpoint a few things here, we have launched the UltraLink version 2.0 in the Nordic markets, and the product has been well received. We now have some pilot projects in the market, and we have seen, in particular, a good takeoff in Finland. We have also taken our new distribution center in Sweden into operation, which is a very important strategic move that should help us improve service to our customers, and also significantly cut our costs when it comes to distribution. Now we are in the ramp-up phase and we will see full impact of this starting in 2018.
When it comes to some important projects, I mentioned in the Middle East that we had a big project. We have actually been helping to build the new metro in Doha, and that project brought some SEK 20 million into the sales of the quarter. We also have within Building Systems important projects. One we display here is France, worth SEK 60 million, which relates to car parks. Within Building Systems, we benefit from the mega trend of continued urbanization. If we then move over to the next slide, we have some highlights regarding the UltraLink which displays important transformation within ventilation systems. This product is with more technical content, with improved functionality to measure and also control airflow.
This brings benefit in terms of indoor air quality, but also of course, in terms of energy consumption, which should bring savings to our customers. Moving over to the next slide, we see here some key numbers regarding the UltraLink, where we display the important savings that customers can make by utilizing this product. If you look at the big office building, for example, in Stockholm, over the lifespan of 20 years, you can make savings of up to over SEK 10 million by introducing the UltraLink into the ventilation system. This is a major step forward and also builds on our ambition to go from products more into solutions when it comes to ventilation. We move over to slide 16, here is a bit more data regarding the distribution center in Sweden.
It's a big investment. It's a total investment of around SEK 160 million, which is financed via lease, and it's foreseen that this should bring a payback of approximately 5 years. When it comes to Lindab, then we are right now in the ramp-up phase, and I would say that we follow plan, and we don't get any positive financial impacts from this this year, but in 2018, we foresee that we will gain major efficiency improvements in the second half of the year, and then we will have a full impact during 2019. Looking at the investment and the payback time, it gives you an idea what kind of expected benefits we foresee from this investment. That takes us to the next page, slide number 17.
This is what it is all about, that Lindab is now accelerating the strategy in terms of a clearer focus on indoor climate and ventilation solutions. As was press released also today, the board has decided to accelerate the execution of this strategy. That means also that we are now making a strategic assessment of the potential alternatives for the non-ventilation related business within Products & Solutions, as well as our business area Building Systems. When it comes to this review, our expectation is that we will start now, of course, with this work, and we have a plan that we should have a clear view on this and decision during the first half of next year.
We move over to the outlook, and slide number 19. Here we have some market data from EUROCONSTRUCT, and we can see that we are still meeting growth in our markets. However, growth is step by step slowing down. If you look at 2017, and we take the Lindab mix versus residential and non-residential, Lindab is mainly focusing on the non-residential area. We see growth of around 3%, and that corresponds roughly to our growth within product and solution year to date. As we see, we grow in line with the market. When it comes to the regions, we believe that the Nordic region, in particular Sweden, will slow down a bit, but still see growth.
The same goes for the main markets in Western Europe. We still see positive development and good growth in Eastern Europe. When it comes to raw material prices, we expect that the main qualities we buy will continue to increase slightly in quarter four compared to quarter three. If we then end up with summing up the quarter, all in all, we had a weak quarter in terms of EBIT, mainly due to the gross margin within Products & Solutions. We continue to see healthy growth in the ventilation business of around 5% to 6%. Now the important work is to assess future alternatives for the non-ventilation related business starts. By that, we say thank you, we open up for questions.
If you have a question for the speakers, please press zero-one on your telephone keypad now. We have a first question from Max Frydén of Danske Bank. Please go ahead.
Yes, hi, this is Max Frydén at Danske. A couple of questions, if I may. First on the operations and pricing, can you say how much you raised prices in the quarter? How much that contributed to top line?
Yeah. Hi, Max, Kristian here. We don't comment on how much we raise prices, and that also differs from country to country. I cannot give you an overall number for that now.
If I adjust for the, larger orders you had last year, which I assume is some 2% from top line, and look at the organic growth, which is 2%, and I assume you raised prices somewhat, are volumes flat or down in the quarter?
Okay. Yeah, okay. Sorry, I misunderstood you from the beginning. If you look at it from that point of view, it's relatively flat, as you say.
Okay. That's very helpful. Then on third, the price hikes, how has that been received now, by the market? What makes you, sort of confident that you will, offset the higher input costs in Q4?
Well, this is a job that has to be done now. Of course, you know, we are the market leader in many of our markets, in particular in the Nordics. As a market leader, you know, it's our responsibility to take charge when it comes to price increases, and ultimately we have to transfer raw material prices to our customers. That is done with a certain delay. I think, you know, we have an average some 60 to 90 days notice when it comes to price increases. This is an exercise we have to go through now, and we expect that we will work on this improved margin initiative, and we will start to see the impact of that in the beginning of next year.
Okay. And then on sort of the strategic shift or acceleration of the company, the building products and components or sort of the non-ventilation business, could you just give some more data on that in terms of, well more specifically, what type of product it is, what kind of customer category, and, if the majority of that goes through your store network?
Yeah, we said that it's roughly 30% of sales in total Lindab that we are assessing, yeah. That covers the parts you mentioned. It's the segment Building Systems, and then it's also the building business within Products & Solutions. Those are the main areas. When it comes to our sales network, you know, we believe that that is a strategic asset to be close to our customers and have these, yeah, these branches. That the intention is that that is a strategic asset for Lindab, including ventilation.
You don't see if you're gonna, I mean, divest - s orry, I just need to ask one thing in between here. This is majority a distribution and wholesale part of Lindab, right? Just so I get that right.
Yeah, the distribution part, the branch offices, yeah.
The building products and components that you're looking to divest. Am I misinterpreting? Producing?
There are different routes to market for that business. Yes, that's wholesale business and this big, you know?
Yeah. My question is how much -
Retail outlet.
Yeah. It's less own manufactured products, right?
I think we will not comment in total on that. I think this review will show what part is related to traded product and own production.
Okay. Finally, just on that, you said if you want to divest 30% of sales, of which 20 something is related to these parts and components, and you wanna try to maintain the store network wide, largely intact. Is that, am I interpreting you correctly?
Yeah. The store network is a strategic asset which links Lindab to its customers. That's correct.
I won't linger on here. I am - thank you for your answers.
Thank you.
The next question is from Kenneth Johansson of Carnegie. Please go ahead.
Yeah, thank you. I was curious if you can share a little bit of how the profitability looks like for this part that you're going to divest. I mean, for Building Systems, we know how it looks like because it's a separate division. For the other 20% of group sales, is it, profitable, and can you sort of give a hunch?
Hi, Kenneth. Kristian here. We will not comment on the profitability level for specific product areas that is being evaluated. As you stated, Building Systems is loss-making, and the other products which are part of Products & Solutions, are not loss-making.
Okay. Would you expect large breakup costs for splitting this business out of the ventilation business when it comes to distribution and, I don't know, admin or things like that?
Yeah, this is very early stage, and we have no, you know, clear view on this. You know, we make a strategic assessment, and we don't know exactly what the outcome of that is, of course. There are different, you know, links to total Lindab when it comes to the different product areas. There will certainly be some costs, but it's difficult to judge today. I wouldn't say that it is going to be any major restructuring costs in that sense.
Okay. Since you announced this, in late September, have you had any companies contacting you, being very interested in these assets?
Yes. There is interest, and we have had several companies contacting us regarding this.
Great. Is it mainly financial companies or is it more industrial players?
I don't comment so much on that, but yeah, it's both.
Okay. Sounds good. Thanks a lot. That's all for me.
Thank you.
I remind you that if you want to ask a question, you will have to press zero-one on your telephone keypad now. We have a follow-up of Max Frydén . Please go ahead.
Yes, just a follow-up question, sort of looking around the corner a little bit. If you successfully divest these parts and you're accelerating or focusing more on ventilation products, can you maybe just help us understand and talk a little bit about the gaps you wanna fill within the ventilation and sort of Indoor Climate Solutions?
Yeah, I mean, of course, we intend to go on the offensive as well, and build up this business, and that's both, you know, organic growth and acquired growth. When it comes to the details of that scheme, you know, we will not comment exactly on that. But, you know, we take steps. We have established the, Energy Climate Solutions department in the company to, you know, accelerate product development in this process going towards more solutions. So that's an important step. And also within our sales region, we are increasing the sales people with a technical background to be able to sell solutions, and, and that's also developing.
Now, late in the quarter, after the quarter, we actually signed a new contract within the marine industry, which is very interesting, yeah? That's an example how we move closer towards the end user segment in this new strategy. Certainly we intend and we will make acquisitions also in this ventilation business area in order to complete our offering, yeah? That's part of the strategy.
Yeah. Okay. That's it for me. Thank you.
Thank you. Bye-bye.
There are no further questions, so please go ahead, speakers.
If there are no further questions, we say thank you very much and conclude the call.