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Good morning, everyone, and welcome to Doro Q3 report. With me today, as always, our eminent CFO, Isabelle Senges. And myself, I'm Jorgen Nilsson.
Today we'll start off with some key highlights, and we'll zoom in on the third quarter in more detail, we'll have our concluding remarks. And then we're going to open it up for Q&A.
That said, let's see if we can get the presentation started. Q3 has been an encouraging quarter for us at Doro, especially as we after several years now, we're back at IFA in Berlin. IFA, for those of you who do not know, it's actually one of the world's leading trade shows for consumer electronics. It's also one of the oldest industrial exhibitions in Europe. And although a bit smaller this year than pre-COVID, it was visited by more than 160,000 visitors physically. Online there was an additional 1.6 million people who came through. So for us, at Doro, it was great to be back as an exhibitor and also to be able to meet both our customers, the operators, the retailers, the distributors, but also our new partners and of course, as well the seniors.
We presented some of our new partners, new cooperation at IFA, one being the work with helpline whereby any customer buying a Doro phone in Germany will receive 30 minutes of free support at home or over the phone. Another partnership is the collaboration we're now starting the German Golf Association. And then also, we have a new cooperation with the German Rock artist Doro Pesch, which besides being a loving daughter of a senior mother and very committed to making life better for seniors, she also has her name in common with us, Doro. So we thought it was a perfect fit.
Naturally it felt even better to be at IFA as we were now able to present our 2 new non-phone categories or our innovation categories as we refer. That is the Dora Tablet and the Doro Watch. To our great joy, both of them were very well received. The tablet was well received for its good capabilities in terms of sounds and display. You might know that we're building extra speakers and actually tune the sound of the tablet for seniors' ears. As well as we got a very light and bright display, we do make it extra easy for seniors. And then, of course, as always, we've built in the Doro Response by which a relative can fully remotely configure the tablet on their own smartphones.
In addition, as I said, the Doro Watch, this was very positively received since it seems to fulfill an overlooked need for simplicity and easy to use for seniors. Here, we were even delighted to have extra requests for additional orders received during the fair.
Then last but not least, in the quarter, we all know that it's been tough economic challenges in the world, and we know that our sales in the quarter declined versus previous year. But Q3, for us, was still a step forward. We saw a good rebound in both major operator and retailer channels. And of course, we're also very happy that we were able to generate a higher margin than last year despite the very unfavorable USD. But we will elaborate more on the USD shortly.
If we can get that moving. So if we zoom in a bit on the third quarter in detail. Delving into the more business details. As I said, I don't need to elaborate too much on the economic partnerships for consumers in general, but also for the consumer electronics. Naturally the situation we have now with the uncertainty with regards to Ukraine and Russia, impact on prices in general, heating, petrol in particular, maybe the quickly rising inflation, the interest rates, all of these have made customers concerned about the coming months. And of course also very cautious in terms of their discretionary spend.
Given these, let's call them, tough market conditions, we are still pleased that our sales reached almost SEK 0.25 billion in Q3. Yes, it is a drop by almost 10% compared to last year, but it's also a step forward compared to the earlier quarters of this year. Needless to say, the third quarter is normally the better quarter out of the 3 due to seasonality. And this year, we also saw increased push of sales in September in the light of the price increases we're doing in Q4. Customers took the opportunity to push in some orders. But still, we feel this is a step in the right direction compared to the previous quarters of this year.
Despite the lower sales compared to last year and as I talked about the U.S. dollar and we'll come to it and in general, an increasing cost of goods, our gross margin actually increased to 37.7% compared to the same quarter of last year. This was partly thanks to the favorable currency hedging we do. Yes, it sounds a bit odd, but we do pay a lot for the extra dollars, but we're also very good at hedging in terms of the dollar. But another reason for this good margin was due to our lower royalty costs. And we have put a lot of effort into the many licenses and royalty contracts as of late, and that seems to be paying off.
EBIT in our quarter came in at SEK 27 million, 11%. That is definitely improvement versus previous quarters of this year, but still a decline compared to last year. In this context, I think it's important that we remember, though, as just said, we have lower sales and we have higher COGS this year. But the biggest difference compared to last year is that when we -- in 2021, started comparing, we got significantly lower cost due to the reallocation between the phone and care business areas, hence the drop in operating margin compared to last year.
If we zoom in a bit on the regions, we see that our Nordics had a tough quarter with low sell-out overall and a higher level of stock at customers. In this context, however, it's important to remember that it seems like a major drop of 28%. And it seems frightening, but this is rather a drop of about 5% if you compare like-for-like. Because in 2021, in Q3, we had a major one-off boost of sales campaign at one of the major mobile operators in the Nordic. That really starts sales last year. So the numbers for the Nordics are not so bad as they seem.
If we go on further to Central and Eastern Europe or DACH as we call it now, sales dropped compared to the same quarter last year as we once again faced strong -- a lower demand from our distributors. On the upside, we have to acknowledge the fact that September last year was the first month after COVID opening up. So we did have a very strong September in DACH last year.
And the real upside for DACH is that our retail customers are coming back quite strong, and especially the biggest and the most important one, media markets. Although we are, so to say, weaker in DACH than we are in the other regions, we also feel that DACH is our biggest growth opportunity because contrary to the other regions here, we have only about 25% of the market share as compared to the other regions where we're somewhere between 83% and 90%.
Sales in U.K. and Ireland exhibited higher demand from most channels, but was still basically flat compared to last year. In some regard, you could argue that this is quite strong as the economic situation in the U.K. seems even more strained than in the rest of Europe due to the internal turmoil. Also we had quite some late orders, which could not be accounted for as sales in September since they could not be delivered in the month. But on the upside, U.K. year-to-date has grown in sales as a whole compared to last year. So that's really good.
Finally, West and South Europe or [ FRABEL ], there our sales reached SEK 96 million, which is an increase of almost 2% versus last year. This is mainly thanks to a very high demand from retails, the big ones like [indiscernible], but also from our major operators. The increased sales were, of course, also partly anticipation -- in anticipation of our Q4 price increase. i.e., customers took the opportunity to place order in September before the price increased.
But on the real upside, Dora still keeps on growing our market share in FRABEL, West and South Europe. And we now account for 83% of the sales volume and 90% of the sales value for senior phones as per GFK.
With that, I'll hand to Isabelle to go into more details on the accounts.
Yes. Thank you. Some more numbers. Some will be repetitive, sorry for that.
As already said by Jorgen, the sales for the third quarter landed at SEK 241.2 million, by far our best quarter this year, but a decrease of 10.5% compared to third quarter 2021. We can mention again that the third and fourth quarters of 2021, they were quite strong quarters for Doro. It was following the easing of the COVID restrictions, but also due to some major one-off deals in Nordic and DACH region. Consequently Nordic and DACH region are the region which performed less good this quarter, while Western Europe and U.K. performed more or less on par with last year.
There was quite a high number of orders coming in late in the quarter. This is partly due to our customer anticipating the coming price increase, also due to our customers being more restrictive in their stock management, placing order quite last minute. Product wise, there was a good demand for our 4G phones during the quarter and it's a very positive sign for future as 4G is becoming the main category for future homes. We were also able to resume deliveries of DECT phones during the quarter, which have been suffering from shortage and long-lead times.
The gross margin ended up at 37.7% compared to 35.9% same quarter last year. Just as previous quarters, our margin is negatively impacted by higher cost of goods due to the U.S. dollar rate. But again, we can say that this negative development was very strongly mitigated this quarter by a very positive favorable hedging of our forward purchase contracts.
Another very positive effect that Jorgen mentioned are decreased royalty costs. Freight costs, they are still higher than last year for the same quarter, but we do see a slight improvement this quarter compared to the first half of the year. Other costs included in the margin such as warranty costs or rework of stock extra, were stable and that helped us achieve this good level of margin.
The EBITDA for the third quarter ended up at SEK 37.7 million compared to SEK 56.5 million last year. The EBIT ended about SEK 26.9 million compared to SEK 40.5 million last year. The EBIT in percentage of sales is 11.2%, which is a major improvement compared to the first 2 quarters of this year. The profit after tax ended at about SEK 16.6 million compared to SEK 29.5 million last year, giving earnings per share of SEK 0.68 compared to SEK 1.23.
If we move on to the cash flow, we had a deterioration of the working capital during the third quarter, and this generated a negative cash flow from operating activities of minus SEK 4.4 million, which is still an improvement from previous year when we landed at minus SEK 13.8 million. We had higher investment costs this quarter just as we had planned. But even though they are lower than last year because last year figures still included the care part of the business. So we landed with a free cash flow of minus SEK 18.2 million this quarter compared to minus SEK 33.8 million last year.
Cash-wise we ended up with a balance of SEK 117.4 million for cash and cash equivalents compared to SEK 73.1 million last year. The equity ratio is 47.8%. It was 53.4% last year. We're still in a net cash position of SEK 27.2 million this quarter, which is less than at the end of second quarter when we had SEK 41 million, but an improvement compared to same quarter last year when we were in a net debt position of SEK 172.8 million.
This was my last number and back to you, Jorgen.
Okay. Thank you, Isabelle. So let's see if we can conclude. As said, everybody knows there is an economic insecurity in the world, there's some turmoil. There is the war in Ukraine. And of course, as a result, customers are very much more cautious with their nonessential spending, if you put it that way. To that, we have a very strong USD, which is hurting us all now, and that results in continuously increasing COGS. But for us, it was a very encouraging quarter still. And most of that revolves around the good attendance we had at the IFA and the many successful customer meetings we had there.
And of course, the big delight was the positive response in our 2 new non-phone categories, the tablet and the watch. Likewise I think it's important to still maintain that despite the economic turmoil, we still have a good gross margin, although most of it is thanks to the successful currency hedging. But also as we said, more importantly, due to the lower royalty costs as the result of that good work that we're doing with license. And then also very much to celebrate, sales in FRABEL plus 2% versus last year and U.K. basically flat despite the turmoil.
Going forward, we will continue with our various initiatives to try to stimulate channel sellout, and we will also continue with our transformation from the senior phones only to try to become the leading technology provider for seniors.
I think that pretty much concludes the presentation, and we will now open up for Q&A from the audience. And so let's see if we can activate the sound for everyone, if that's not already done.
Now I think there should be sound for everyone, but let's see if we can also -- I think we have a question from -- now the camera is going bananas. Sorry for that. [ Fredrik Lloyd ] [indiscernible] there's a question from your side.
So I'm from [indiscernible], and I have a few questions. And starting out with the gross margin. I just want to hear about -- more about the royalty costs. This is going to be a lower level going forward? Or this was a one-off?
It will be lower level. Then what we can say is that we never really know when we will have a new claim from some actor, a new actor in the business. So we need to be very cautious. But for the ongoing contract, there has been some major works done and as a general feature, we're able to lower the royalty costs. And of course, if we go into 5G or other technology; that will have to be challenged again since this technology imply much higher royalties.
And I mean, it was pretty strong growth in the West and South European markets. Can you just talk a bit more about that?
Well, as said, we had good demand for both mobile operators, but especially from the retailers. Also I think it's a testament to the very good efforts of our team in France or in FRABEL where we've been working very much on the same strategy as we have in the Nordics, and we're trying that in every region, of course. But there is, in many channels a, let's say, hesitation in terms of feature phones. Therefore we play it with our customers saying, if you're only going to have one feature phone, why don't you have the best feature phone there is, the one for seniors because I think most people know today that anyone buying a feature phone is, the likeliness of that being a senior is very, very high.
So that approach has been done -- used very well by our French sales team, and they've done good.
The release of the 4G phones.
I was going to say, yes. And then we also released the 4G, the new 4G feature phone with Orange and other customers. So there is a spike of that. And then you might recall that when we released our first 4G feature phones, for all practical purposes, those are smartphones in a foldable shape. And the very first versions, which were kind of rushed by the market, were quite complex. Now the 4G feature phones that fulfill the technical requirements of the networks, but are still a simple and easy to use as the old phones. And therefore I think we will see even better traction of those going forward.
And what do you think about the coming quarters there? Do you think it's going to continue to grow or?
Well, we're not supposed to make any forward statements, I think. So I think we'll have to skip on that one.
Usually the Q4 is a good quarter for our business. So we hope it will be.
But I mean, as we pointed out during the presentation, we have advised all our customers that there is a price increase coming in Q4. So I think there's also a likeliness that some of them squeezed in an extra order or 2 in the end of Q3 in light of that price increase.
And then I was looking at the inventory, and you managed to push it down. And how do you planning to work with the inventory levels going forward now?
We have some incentives to really work with, let's say, the products that are maybe moving a bit slower than others. So we will be using. But it's a part of the regular work when we're using, for instance, Black Friday, Christmas sales and other and this milestone to try to boost sales to reduce our stock.
But also I think in the light of it, it's important to remember that during COVID, we hedged on the fact that to be able to be -- to be able to deliver was really important, and we did. So we kept our warehouses quite high during COVID, and we struggled a lot, our operations department did an amazing job trying to secure component and getting them there. So therefore we could basically deliver all throughout COVID. Of course we were hoping that this would have continued into 2022 before the, let's just call it, the Ukrainian situation developed. So that has been a bit of a rebound. At the same time, as you say, we worked actively, what we call slow movers. We tried to get rid of these and have different sales, et cetera. So this is a continuous process from our side and it is quite normal for us to have the seasonality.
And then I have a question about the depreciation. It was SEK 11 million in the quarter, it's like 4.5% of the revenue, but it was 11% of revenue last quarter. Is this level is going to be for the rest of the year and going into next year? Or how come it's so low?
Caught me off guard. I would need to come back to you on this one. But yes, I think it will be around in the same level this quarter.
And yes, I saw the release of the Doro watches now out and you can buy it. But the tablet is still pending, right?
It's -- as far as I know, it should be in the stores now in November.
And then a final question for me. I mean, you push in Germany pretty hard now, which I think is very, very good. And what do you see there going forward? I mean you're setting up the -- your own sales team there. Is this all done and working? Or is it work to do left?
There is still work to do, but I think that Michael and the team has -- Michael and [ Mio ] and the team has done a very good job so far. And as you might know that our DACH region was basically run by the daughter company before. That is now being fully integrated. Some people chose to leave the company. They were kind of tied to the older daughter company. And now we're recruiting a new sales team. And I think there's maybe another 1 or 2 resources until it's full. But it was really good when I was down there, I traveled with the sales guys and we went out to our customers. We went to the headquarters of [indiscernible] et cetera.
And you can tell that they have probably not really been given the full Doro DNA story before. And I think now we're seeing the result of that. When we're going out there, we're showing them the [indiscernible] where it really emphasizes what are the reasons to buy a phone, which is specifically made for seniors. And I think we will now take this approach, and we will continue that with the other major customers. So hopefully we could see the same traction with other big customers like [indiscernible]. Do we have anyone else there? I can't see everybody's hands. If there is anyone who has a question, please feel free. No. Everybody is happy for today.
All are happy.
Okay. Then I think we'll conclude. And we thank you very much for your attention. And our next report, which will be the Q4, will be released in February 16 next year. And until then we wish you a happy Friday. Thank you for listening.
Goodbye.
Bye-bye.