Ladies and gentlemen, welcome to the Lindab Q2 Report 2017. Today, I'm pleased to present CEO, Anders Berg, and CFO, Kristian Ackeby. For the first part of this call, all participants will be in listen-only mode, and afterwards, there will be Q&A session. I'm now pleased to hand you over to Anders. Please begin.
Thank you very much. Good morning, everyone calling in, would like to start with moving to slide four. Our net sales in the quarter grew by 5%, and operating profit increased by 9%. This achievement is particularly thanks to our continued focus on ensuring profitability to increase sales, combined with the management of significant rise in feed prices, as well as continued work with execution on our strategic plans and operational activities. We summarize the second quarter of 2017, the net sales increased to SEK 2,180 million, with an organic growth of 2%, while operating profits amounted to SEK 151 million.
Now, operating margin improved to 7.1% from 6.9%, and the profit for the period increased 23% to SEK 106 million, with earnings per share increased to SEK 1.39, up from SEK 1.13. Cash flow from operating activities amounted to SEK 162 million, and net debt continues to improve and decrease to SEK 1,449 million. Also, as announced this morning, we have a new credit agreement signed with improved terms. These agreements secure the funding for the years to come, which is very positive. Now, moving on to slide five. Looking at the markets, we continue to see good growth in most of the markets where we're present, and see a gradual strengthening of our market positions.
In the quarter, we continue to focus on margins by balancing volume and profitability, as well as our long-term and very methodically efforts to develop and offer to the market a comprehensive range of system solutions and related products. To summarize, the Nordic market had a slower sales development in the quarter, now representing about 44% of our total business. This lower sales is explained by a large project delivery in Sweden during the second quarter last year, which was the Båstad project, which was, in fact, our largest building solutions delivery ever, which we also press released in 2016. Looking at Western Europe, those markets had a growth of 2%, representing 34% of our business. In CEE, Russia, and CIS, we had a strong sales development with 11%, where the region represents 19% of our business.
Finally, other markets, primarily then represented by Africa, that we had an increase in sales with 30%, relating primarily to larger project deliveries in building systems. Let's then move on to slide six. Take a look at our product areas. We continue the trend from Q1 with strong growth in our larger product areas, ventilation products, Indoor Climate Solutions, air movement, all show good development across most markets during the quarter. As for fire and smoke, we had overall slightly lower sales, but large deviations between individual markets, with continued growth in largest markets, U.K. and also Nordics and CEE/CIS. Sales of rainwater and building products and building solutions decreased during the quarter. Once again, during the 2nd quarter of the previous year, we had this delivery to the Båstad project, as I've mentioned earlier.
As for building systems, increased sales during the quarter are mainly due to positive growth in the CEE/CIS region. South Africa also grew, while sales to Western Europe decreased. The sales and market conditions developed well in Russia, while demand was weak in the remaining CIS countries. In the CEE region, sales increased, in particular in Poland and Slovenia, while the reduced sales in Western Europe are mainly due to lower activity levels in the quarter in Germany and Italy. Having said that, I would like to hand over to Kristian to go through our financials for the second quarter.
Thank you, Anders. Moving to slide eight, group financial highlights. During the quarter, we have had continued focus on earnings and margin improvement. Net sales increased with SEK 102 million or 5%, and EBIT improved by 9%. This is mainly due to continued improvement in product solutions. Financial net improved as a result of lower net debt and higher interest income. Tax rate came in lower than last year, contributing to a 23% higher net profit. Turning the page, product and solutions showed fifteenth consecutive quarter with organic growth and higher EBIT year-over-year. Net sales increased with 4% and organic growth amounted to 1%. Strong sales development continued in Western Europe, with growth in all major markets except Germany.
The recovery in Eastern Europe continued as well, with organic growth in the four major markets for the region. Sales declined in the Nordic region, mainly as a result of significant deliveries to Båstad in Sweden last year. EBIT improved by 7%, giving us an operating leverage of 16% in the quarter and 22% year to date. Moving to the next slide.... Building systems. Organic growth for the quarter was 8%. There was also a favorable currency effect of 9%, mainly related to strengthening of the Russian ruble. EBIT was negatively impacted by increased raw material prices that we have not been able to fully compensate for when we compare with prior year. Sequentially, we do see improvements compared with a significant amount of losses shown in Q4 2016 and Q1 2017.
Backlog at the end of the period is higher than one year ago. Moving to slide 11. Free cash flow in Q2 was at the same level as last year. Lower cash flow from working capital is mainly due to inventory and high raw material prices. Lower investing activities was mainly related to timing in projects. Investments in tangible and intangible assets year-to-date are in line with prior year. Net debt is clearly below the same period previous year, and our net debt to EBITDA ratio at 2.2. Moving to next slide. Lindab has signed two new credit agreements, one RCF and one term loan. Both agreements are valid for three years, with options to renew them for one plus one year. At current utilization, it will reduce our interest cost with approximately SEK 8 million on an annual basis when changeover is completed.
This concludes the financials. I'm turning the word back to you, Anders.
Thank you, Kristian. Let's then move on into the highlights. Summarizing, though, moving to slide 14. During the quarter, two of our teams brought home two very prestigious awards for UltraLink. These were the product innovation of the year in U.K., and Stora Inneklimatpriset in Sweden. We're, of course, very happy and grateful for this, also very proud of our teams working with this, who make it happen. Clearly, these awards are based on the result of the fantastic work which has been done in developing this new innovative technology in the field of ventilation, clearly showing that our focus on innovation is starting to take off. Moving to the next slide 15. As an example of a very interesting delivery in the quarter, we were involved in the delivery of a project for an office property in Karlskrona, Sweden.
In this project, we deliver a complete solution, including air handling units, fire damper systems, fire dampers, ducts, silencers, diffusers, and also VAV systems, which is then Pascal. The feedback from our customers show that the work done to simplify construction from design and documentation to assembly and commissioning, really helps our customers to minimize their challenges and, hence, also become more profitable. Moving to the next slide 16. There you have some other example of prestigious orders in the quarter, and the first item is a very good example of customer relationships. In 2014, we worked on stage one for Posten's Central Warehouse, and we are very proud now that we were also chosen to continue on stage two, which is an order consisting of roofing and wall solutions worth about SEK 9 million .
As for building systems, we received two larger orders during the quarter. The first order is an industrial building in Armenia with a value of about SEK 20 million, and this project will itself consist of three different buildings. The second order, a warehouse in Russia, with a value of about SEK 40 million, where delivery and assembly is carried out by the Astron Builder, which is one of the principal routes to the market for us, where the other one would be the key accounts. Moving on to the next slide 17, some deep dive into building systems. From taking a closer look at building systems, no doubt the work with the long term continues with positive development in the quarter.
The result in this quarter has significantly improved compared to the previous quarters, due to several reasons, but of course, also driven by positive sales development. We are, as Kristian mentioned, still challenged from not being able to successfully fully compensate for the significant prices, or significant increases in prices of raw material, which then, of course, the impact of steel and truck deliveries. However, we have improved our product governance and quotation process, and also implemented a new pricing model. Furthermore, we have proactively worked with the turnaround by strengthening our profitable markets, and in general, I would say, worked very good with the development of our market and sales organization. Moving on to slide 18, some additional highlights from the quarter that you can find on this map, besides the ones I already mentioned.
We participate in a project with Michelin in their tire cord factory in Zalau, in Romania. This project began in 2016, and we have delivered four popular cooling units, where the biggest is 90,000 cubic meters per hour. This project is still in progress, and we will also deliver other products into this. Another highlight is the InterContinental Hotels, where we delivered a complete range of Lindab products for this five-star hotel in the center of Ljubljana, Slovenia. This luxury 21-story building, with more than 150 rooms, will open its doors already during this year. We delivered several different ventilation solutions.
Including silencers, ICS, VAV, floor convectors, also with heating and cooling capabilities, and of course, air handling units, and in this case, for indoor swimming pools, and of course, fire and smoke solutions as well. The next highlight takes us to Switzerland, where we take part in supplying the construction of the longest railway tunnel in the world, with fire protection and smoke evacuation. We will also deliver silencers moving forward in this project. This project is a new part of the railway, San Gottardo Tunnel , which is a connection between Lugano and Bellinzona, in the Italian side of Switzerland. Finally, the trend with digitalization and how that drive change.
As you all know, it's imperative to stay ahead on this development curve, and really, the only thing we can do is always make sure that we challenge existing concepts and use innovation to find even better ways to solve our customers' problems and challenges, and really support them. Using all competence we have in our company, innovating new ways of working, product and solutions, to all the time strive to be a logic partner to anyone in our business, regardless if it's an installer, designer, contractor, consultant, or architect, and really make sure we create healthy and energy efficient buildings with indoor climate. This is very much on the top of our agenda, and really every single day. One example of this can be found in this video, that you can click on, where you can also take a closer look at the Lindab Connect.
Moving on then, and go to slide 20 to summarize the outlook. We see that EUROCONSTRUCT now forecasts the European construction market to grow 3.1% in 2017, where growth mainly is driven by residential markets. The Nordic region is forecasted to continue to grow the coming two years, but to slow down from current high or very high growth rates. CEE is expected to have the opposite development, and for us, the most important is to continue to improve our customer offering and to increase targeted market shares, and how we can provide more value to our different customers. Moving on to slide 22, to wrap up before we open up for questions and answers. To summarize the quarter, we have a net sales increase with SEK 102 million, or 5%, of which 2% were organic growth.
Operating profit improved with 9% to SEK 151 million , generating an operating margin of 7.1%. That's an improvement. Earnings per share increased 23% to SEK 1.39 . Finally, net debt continued to decrease during the quarter, and as we also earlier announced, we have a new credit agreement signed. Having said that, we will open up for questions and answers. Thank you very much.
Thank you. Ladies and gentlemen, if you do have a question for the speakers, please press zero one on your telephone keypad, and you will enter a queue. After you are announced, please ask your question. Ladies and gentlemen, once again, if you do wish to ask a question, please press zero one on your telephone keypad now. There will be a further pause whilst questions are being registered. Our first question comes from the line of Henrik Nilsson from Nordea Markets. Please go ahead, your line is open.
Hi, good morning. First question, steel prices are coming down from the peaks again. I think you've commented on lead times around nine, 12 months in building systems. Should we start to approach the level where we see your, let's say, the new project tenders being at more reasonable level and potentially even reversing to being priced on a much higher steel price level in the coming quarters, you think, or?
Hey, good morning. Well, I agree with you that, the steel prices are slightly flattening out, currently as it looks, even though we, believe that, the world trend will continue to be actually increased moving forward. Now, as for building systems, as you said, we're confident in the development. The assumption you make is not a bad one. Obviously, I mean, it's, it's a project-based business, so where you need to look carefully at each and every individual project. There is a, there is a logic to your assumption, yes.
Okay. Thank you. You made some somewhat positive comments on the trends in Russia, in building systems, and I think CEE was weaker in the quarter. What are you seeing in that region right now?
As we said, I mean, it's, we've done a rather significant number of activities in this turnaround plan. We see that we get traction of the activities we do. Russia is Russia, but during this quarter, we see that we take steps forward and are confident in that development. Once again, it's a project-based business. We need to be careful on each and every individual of these projects. But, I mean, as for the quarter, we're confident that the activities we do and, well, get the traction out of it that we actually were expecting. So far, so good.
Okay. Looking at these arrows that you provide us with, if you look at rainwater and building products, we've seen a long trend now of falling revenues. In this quarter, Nordic specific is problematic. I mean, if we look at construction activity in the Nordics, it is, at least in Sweden, it's on booming levels, so I assume you're losing market share here. Is that a correct assumption? If so, why do you think that is?
No, it's not the correct assumption at all. I do not agree with you that Nordic is at all problematic for us. We are pleased with the development, absolutely not, at least in Sweden. Now, we should keep in mind that last year, in the second quarter, we had the largest project delivery ever in our history in this product group, which clearly impacts the comparisons. We need to look at that separately, and beside that, we are all pleased with the development. As for this whole kind of both building products and building solutions is kind of impacted of that delivery.
Of course, also we have some type of effect on the Easter, even though we not comment on that, explicit, since we believe it's much, much more up to us how to manage it. I wanna be clear that, the underlying business in the Nordics are completely fine, and we are pleased with it as we move forward.
What I don't understand in Rainwater and Building Products specifically then, is that in Q2, which then should, I assume, should have had a positive trend, if you have this massive project, you also have an arrow pointing down.
Well, for Building Products, if you look at that, and rain line, it's a retail business. It's much where we go to market in 2 different types of retail channels, right? While Building Solutions is a project-based business. Those two, for some extent, also are exposed to different mechanisms. For Building Solutions, that project is, or that project area, once again, is impacted by the Varberg project, which was significant, and it's a quarter effect. For Building Products, of course, there were those type of products delivered into this Varberg project as well. While the ongoing business there is simply retail, we do not see at all that we lose market shares.
We do see a healthy and good development, but it's other mechanisms going into retail, that is impacting this. I'm all in all pleased with the development, even though, of course, you always want more, right? Second quarter, it's just 1 individual quarter, we're looking at this, and it's imperative to understand the devil is in the detail in this matter.
Okay, thank you. Coming to a bit of a more technical detail here is if we talk the Easter effect, in products and solutions, specifically then, you had 10% organic growth in Q1, and I think you said you estimated it to be roughly half Easter. Do you estimate the negative effect to be roughly half in this quarter as well? I mean, roughly, you know, 5% negative in this quarter then, or?
Something like that, yes. That's, of course, impacting us, even though we don't break it out and show it separately. I mean, we have organic growth, and then, of course, that was impacted by this Easter effect. I think 5% in that range is, probably a good estimate.
Okay. Thank you. Thank you, that's it for me.
Thank you.
Thank you. Ladies and gentlemen, as a reminder, if you do wish to ask a question, please press zeroone on your telephone keypad now. There will be a further pause while questions are being registered. As there appear to be no further questions registered, I'll return the conference to our speakers.
Okay. I wish you all a good summer, and as you already started it, and hope to see you soon and talk to you, not at least then in the Q3 report. Thank you very much.