Inwido AB (publ)

STO:INWI

Earnings Call Transcript 2018-Q3

[Operator]

Good morning, ladies and gentlemen, and thank you for standing by. Welcome to today's Q3 report conference call. [Operator Instructions] I must advise you that this conference is being recorded today, Tuesday, the 23rd of October 2018.I would now like to hand the conference over to your speaker today, Håkan Jeppsson. Please go ahead, sir.

[Håkan Jeppsson, President & CEO]

So thank you very much, and good morning to you all. My name is Håkan Jeppsson. I'm the CEO of Inwido. As usual, I have Peter Welin aside here to also present to you with all the figures later on. As usual, a presentation and then we open up for questions as been stated.So let's go to Slide 2 and starting off by talking about the market highlights. We have seen in Q3 in general that the -- there's a good economic climate and good market conditions. I mean, everybody expects still global growth for the remainder of 2018 but also into 2019. And over time, experience say that the windows and door industry normally grow at the pace of GDP. So that is a good sign for us.Consumer confidence remains high across Europe. Right now, the only question mark would be, of course, U.K. where we have seen a slight drop in the consumer confidence, along with the negotiations that are a little bit tough regarding Brexit, of course. The hot summer that we saw, extraordinary hot summer, dampened demand generally on the consumer side, though, so it's been a remarkable year from a weather perspective. We had a late and harsh winter and that was bad for Q1 and Q2. And then we got in many ways a fantastic summer, hot summer, and that also dampened demand in Q3. So it's been a strange business year from that respect. And as you all know, we are, to some extent, weather-dependent so that always has some impact for us.We can see that the industry markets are leveling out a little bit now. Building starts and new permits are clear signs of that. And for Inwido, that means that Sweden and Finland would, to some extent, be impacted. But we have to remember that we are coming from really, really good years when it comes to new-build in those markets and across Europe. So we are -- there is a slower development from a very, very high level.We see tough competition, especially in Sweden and Finland. That is, of course, because of slightly lower volumes in those markets. Good capacity in the window and door factories in general and some new competitors also coming into the market and fighting for volumes. So that -- those are the reasons for the tough competition. Not a big change, I would say, in comparison to the latest years. It's more or less the same situation we have seen for some time now.There is, of course, uncertainty in the U.K. with the Brexit negotiations. And to some extent, U.K. is a struggling market and several companies see profitability dropping, not the least some of the Scandinavian competitors we have over there coming back to how we are doing in the U.K. market later on. We also see -- have seen and will continue to see increased raw material prices, especially glass, wood and aluminum. And that is, of course, because of the global strong economy and general demand in most sectors. Some shortage of capacity in some of the big providers because of that. And then on top of that, Inwido also have some timber problems because of one of our key suppliers has some challenges with a few new investments. But we have managed well, I would say, and we have the situation in control. That is absolutely my view on this right now.Going to Slide 3 and talking about the Inwido performance. And I'm very happy to announce that basically all our companies are performing better or at least 25 out of the 29 companies that we now follow perform better than last year. And we have also managed to deliver the best Q3 so far in the history of Inwido. And we had an increase in earnings per share of 25% in the quarter. So all in all, we have to be rather satisfied with the development in a somewhat challenging market situation.Sales development continued to hold up, plus 8%. A lot of acquisitions but also, of course, currency effects. So the organic development was minus 1%. And I must say that is a -- it's a good figure with the summer we have seen with the tough demand in some of the North European markets. Sweden-Norway is the negative deviation. We haven't got the figures for the third quarter yet but we have seen that the total market volumes in the Swedish market at least fell by 5% first 6 months. So in a strong economy but with the weather and with hesitating consumers, we got a market volume drop in the first part of the year.E-commerce growing rapidly and taking a bigger and bigger share of total group sales, now around 8.5% in the quarter. It's a very important strategy for us and we will continue to invest in this part of the business. As I said, the highest operating EBITA so far in third quarter, SEK 202 million, 18% higher than last year. However, with some pressure on margins because of the rather tough competition, but we have managed well and we have taken measures to keep our profitability on a very high level.Denmark is the main contributor, very strong development there and that seems to continue. Sweden, the main deviator. Overall, we are not completely satisfied with the development in some of the biggest units in Sweden and also in Finland. So we have some things to work on both externally and internally to come back fully to the levels where we expect to be. And I'm fully content that we will reach that later on. The quarter started weak. July and August was very hot months, and then volumes and performance came back rather strongly in September with the start of the fall. So the summer season was a bit challenging for us but the ending was strong.Order intake, minus 7%, adjusted for acquisitions and currency effects. Again, summer weather and Finland, especially, had a drop in the quarter. E-commerce and Denmark in a very positive trend and that seems to continue. Finland, the main concern currently and we had a order intake of minus 24% like-for-like in the quarter. And that is, of course, a low figure and I think that is right now at the bottom for us. Many segments developed well, but we have a few segments in Finland with weak development right now. I'm coming back to that later when I talk about Finland explicitly.Consumer share slightly below 75% in the quarter, a little bit too low but still on a decent level. Challenge for us still in some of the main markets, especially Sweden, is that our core retailers and customers, they focus a lot on what we call product sales, that is new-build projects. And that delivered some challenges for us to get the mix that we want, and we are working hard with that issue to again get a stronger position and reach out to the consumers we would like to have in our business.Cost-efficiency initiatives are paying off. We have lower both fixed and indirect production costs in the quarter, especially in EBE in Europe, that means Norway. But basically, we see lower costs now during the quarter everywhere. A little bit offset, of course, by currency, that has been negative again and also, of course, the acquisitions that add on to the cost level a little bit. Net debt-to-EBITDA is decreasing again, positive for us, creating a more healthy balance sheet going forward and opening up for more acquisitions later on to continue to grow the business.Turning to Slide 4. First 9 months was, to a great extent, impacted by the Swedish performance a little bit and dragging down the total development. But key figures, we had sales up with 4% to SEK 4.8 billion. Organically, that was a drop of 2%. Quite okay figure, having the markets that we have seen. Operating EBITA, SEK 442 million, almost on par with last year. Basically, the drop came in the first quarter where we had very, very tough comparison figures from the first quarter of 2017. Operating margin improved in the third quarter, but over the 9 months, it's slightly lower than last year on 9.2%. We are back on track, that is the clear feeling, but we still have some way to go to again reach the 12% over a full year that we are going for.In general, as I said, tougher competition with lower margins. We can clearly see that the value chains in various ways are breaking up. And again, weather capacity, slightly more hesitating consumers and more competitors are adding up for a little bit tougher situation in the marketplace that we have well, I must say.Bedst & Billigst, the e-commerce trader, Danish company but with a Nordic business acquired in -- within the business unit e-commerce in Q2, and that would strengthening the Inwido Nordic business within e-commerce. And then in the third quarter also, Profin Oy in Finland, a strong premium player within sliding doors predominantly, had also -- has also been added to the portfolio of companies. We have also started to work on our -- and launched our new governance structure for better customer focus and efficiency. We call that strategy Simplify, to increase customer focus and speed in the marketplace. To increase efficiency, we have decided to break up the old BA holding companies, so to speak, and we now let the individual, around 30 companies, to be fully responsible for all performance, all P&L and balance sheets and we drive them from there. And we are quite sure that this will also improve our competitiveness going forward. Will be fully introduced from January 1, 2019.Going to Slide 5. Starting to go through the business areas, starting with Sweden-Norway. We are in a change mode still in both the countries and in this business area. There has been a dampened demand in the market, total window volumes falling and, of course, the hot summer added to this in Q3. So we have to work very, very hard to make up for lower volumes in the market. Very positive to note is it that the efficiency in production has improved. It was, of course, a low performance, a weak performance 1 year ago when we had the biggest supplier issues and now we are coming absolutely back on track. And in September, the efficiency was, in the Swedish factories, between 15% to 20% better than in 2017. So we are approaching the level where we should be and it looks promising.Norway continues with positive profitability trend, back in black, lower sales but substantially higher margins. And on top of that, also lower fixed costs also made Norway into a profitable business again after some years of losses. Reported sales totally in the business area, minus 4%. And the order backlog after the warm summer, minus 8% at the end of the quarter. Many actions are being driven now in Sweden-Norway. New sales concept for the leading brand in Sweden, Elitfönster. And together with that, vast investment in category management in the retail chains that looks very, very promising. We are going for a simpler, more customer-focused organization under the strategy called Simplify. We are working hard and getting quality and efficiency back in the factories, looks promising. And we have also launched a lot of digital products and tools and concepts for our customers in the Swedish and Norwegian markets. So many things ongoing and we are clearly seeing brighter times ahead when coming through all these good initiatives.Turning to Slide 6. Talking about Finland, where we actually see a very mixed development in the different segments. And because of that, because of some of the weaker segments also, sharpened competition. There is now more capacity in Finland. There are more players, more competitors in the market. A lot of these players are now fighting hard to fill up factories. Biggest competition we can see in the housing union segment and also in the construction market right now, whereas the consumer-driven segments are strong and actually consumer confidence in Finland is on a level very, very high and one of the highest we have seen ever in a long, long time.We have invested a lot in the organization. So we got a cost increase in the first part of the year. But costs are now decreasing here and there will be more cost savings to come going into 2019. But the investments in the sales organization have shown also continued growth in dire consumer sales, and we have also defended our very, very strong position in new-build in a weaker and tougher market where building permits and building starts are now coming to a lower level turning into 2019.The latest acquisitions in Finland, Profin this year and Klas1 a couple of years ago, performing very well with good organic growth and improving profits. Looks promising for us. But as I said, the housing union segment is under pressure and we have to take a lot of measures there to really defend our strong and market-leading position in that segment where basically all key competitors are fighting for volumes.Reported sales, plus 15% with the newcomers in the portfolio. But order backlog per end of quarter, minus 14%, and the order intake was weak in Q3 in some of the key segments. And there, we clearly have to fight back to be on track again for the coming months.Turning to Slide 7. Denmark, continued very strong development with improved profitability and really, really good performance. And overall, you can say right now we don't see a lot of clouds in the Danish sky. Strong market indicators where consumer confidence is high. The general demand in the Danish market seems to be holding up well, and we are also holding up a good and strong market share in the consumer segment in Denmark. So we are well off there.Good order intake after a slow start of the year. Q1 was slightly tougher with difficult comparison to 2017, but Q2 and Q3 has been -- have been very strong quarters for us. And we also see a continued positive margin development with the right segment mix and defending our position. And we have also here launched a lot of new digital concepts in various ways for the different customer and consumer groups. Reported sales, 9%-plus, and order backlog per end of quarter, plus 4%. So Denmark, we are happy about right now as we have been in the last couple of years.Finally, when it comes to the business areas, Slide 8, EBE, Emerging Business Europe, where we see the clearest improvement with strengthened efficiency and profitability. We have more focused business strategies right now in all the companies. We are taking away unprofitable business. We are taking out costs. And we have strengthened our e-commerce, delivering both growth and profitability for us continuously.So e-commerce organic order intake was plus 12% despite the hot summer. And the reported sales with the new acquisition was actually plus 45% in the quarter after the B&B acquisition in Denmark. U.K. continues to improve profitability, better customer focus, better pricing, lower costs, more focused business. We managed to actually improve dramatically the business in U.K. despite Brexit and despite many of our competitors are fighting hard to stay profitable. So that is a very, very positive development for us.All units within EBE improved compared to last year, and we are approaching a decent EBITA margin for 2018 around 6% to 7% and what we have claimed to be the first level to reach within the European business. Reported sales, plus 20%. Order backlog per end of quarter, plus 14%. And we see also here a mixed development between the countries and companies. Many, many acquisition opportunities right now in several European markets, and we will have to come back to that when there is something actual to report.Going to Slide 9, talking about the outlook. There are, as always, different scenarios in the individual markets, of course, but we see global economic outlook looking promising still. And we are expecting good economic growth in most countries. Still, many risks, of course, with all the things going on politically and economically in Europe and in the rest of the world. European demand seems to be leveling out on a decent level. I mean, we are coming from high levels. We have to remember that. Mostly affected going forward will be the industry markets, and they have been very, very strong the last couple of years. So that was something to expect, I must say. Consumer confidence, as stated, on average still very high and we can only see some sliding in the U.K. market right now and that is, of course, very understandable.Danish market with stable, high demand, looks promising. Sweden continues to have its challenges with some changes in the market. But I think we are working in a very focused and promising way with all the initiatives we are taking. It will take some time to fully come back on the level where we think we should be, but it already now looks a bit more promising. And we are on track with all our initiatives.Finnish market continues to be competitive, as I said, with all the fighting competitors and with some margin pressure in housing union segment and in the new-build sector. And this is because too many companies are chasing volume without thinking about protecting the margins and the profitability.E-commerce with continued very good prospects. We expect growth to continue, and we expect to continue to take market shares as well. What we have to do in e-commerce is to expand capacity to be able to create all that growth that we are expecting to get.Raw material prices will still be on an upward trend. But as a big player, the biggest in Europe, I think we had good control of glass, timber, aluminum prices and supply. And we have to protect the situation, but right now, we are working well with that, I must say. We continue to do a lot of investments in IT and digitalization. A couple of new ERP systems, better IT support and also smart concepts in all markets basically also -- are also focus areas for Inwido going forward.I think we are really well positioned for weaker demand in the low season coming up now for the winter. We are flexible. We have shown that. We show that also now in Q3. We have our cost-efficiency programs running. We have a strong position, especially in the Nordics in most segments, and we have shown historically that we handle the seasonality in a very good way. So I am optimistic about the winter season '18/'19.Slide 10, what are the most important things for Inwido? Well, first of all, to handle all the strategic initiatives in Sweden. Sweden is, of course, a very important market for us, but we should also remember that it's now only 25% of sales. So I mean, we are not dependent on Sweden. But of course, we would like to deliver even better in Sweden than we are doing right now, and we will get there sooner or later.Secondly, pricing and segment mix in focus. Always in Inwido profitability before volume, but of course, we also have to defend our strong position in the key markets. We must make sure that we compensate for raw material price increases and there is still an upward trend in some of the core raw materials that we can see.We have a couple of cost and efficiency improvement initiatives running across the group. Some of them are really short term and some of them are, of course, more structural and long term, and we are now seeing that they are starting to show effects. There are more things to do and we will continue to fight hard to realize all the gains.Fourthly, to strengthen the balance sheet will also be important. Otherwise, we cannot continue to drive our acquisition-based growth in a good way. So net debt should come down now in Q4, especially with the good cash flow we will have there. Then we will also take measures when it comes to our working capital situation. So we will be ready, hopefully, for more acquisitions when we come into 2019. But I don't expect something to happen in 2018.And the last and very important thing for us right now is to implement the new governance model, the Simplify model, where we decentralize the way we operate all the way to the individual companies to increase customer and business focus and to be faster in the marketplace. And all the companies will have the full responsibility but also the visibility when it comes to the performances.So those would be the most important things short term. And of course, we will explain more about how we see the situation in our upcoming Capital Markets Day on November 8 in Stockholm. Now I hand over to Peter, and he will give you the latest on the more detailed figures for the third quarter. Please, Peter.

[Peter Welin, Chief Financial Officer]

Thank you so much. And then we turn page and we go to Page #12. This page shows the income statement per quarter as well as year-to-date and latest 12 months. Sales was increased by 8% in the quarter. And adjusted for currency and also adjusted for acquisitions, sales declined by 1% in the quarter. We had slow start in the quarter as Håkan mentioned, but September was improved and better than last year.Operating EBITA ended at SEK 202 million, which is actually the highest result for Inwido in a Q3, but only a couple of hundred thousands better than previous record for Q3 in 2016. Gross margin was somewhat improved in the quarter despite the market situation with lower degree of consumer sales, mainly due to our cost-saving program and better efficiency compared to last year when we had production deficits. Profit after tax was improved by 17%, and earnings per share before dilution was improved by 25%. Higher increase in profit after tax due to less minorities in 2018 compared to last year.Year-to-date, January to September, sales grew by 4% where the organic growth was minus 2%. Operating EBITA ended at SEK 442 million compared to SEK 448 million last year. And profit after tax has been improved by 4%. And earnings per share has been improved by 11% from SEK 4.65 per share to SEK 5.16 per share.Thanks to better Q3 performance compared to last year, the operating EBITA margin last 12 months has been improved in the quarter compared to June, from 9.5% in June to 9.8% rolling 12 months end of September.If we turn page and we go to Page #13. In Q4 2017, Inwido launched a cost-saving program of SEK 100 million. The cost-saving program was implemented in 2018 and is going to give full effect from January 2019. The savings are within several areas: expenses, indirect production costs and also due to closure of nonprofit-generating businesses within the group. In Q3, expenses have been reduced by SEK 15 million compared to Q3 last year. However, this cannot be seen in the income statement due to acquisitions and due to the currency impacts. So the graph in this page is showing the net impact of expenses adjusted by acquisitions and currency. And as you can see, expenses within sales administration and development was in Q3 net SEK 15 million below last year.In addition to savings within expenses, savings can also be seen in cost of goods sold such as installation teams in the U.K, closure of Väröbacka, Sweden, restructuring of Austria and closing of loss-making businesses in Denmark. The cost-saving program is one of the explanation behind the profit improvement within EBE and Denmark.If we then turn page and we go to Page #14, and this page shows sales and order intake in Q3 for the years 2016, '17 and 2018. So left, you can see the sales development. Sales grew by 8% in the quarter where the organic growth was minus 1%. By organic, we have included sales of acquisition last year and also adjusted for the currency impact.To the right, you can see the development of the order intake. Reported order intake was plus 8%. However, acquisitions as well as currency had a positive impact in the order intake. And excluding acquisitions and adjusting for currency, the order intake declined by 7% in the quarter compared to last year.If we then turn page to Page #15, this page shows the order backlog end of each quarter. Due to lower order intake in Q3, the backlog has decreased and was, in September, somewhat below last year. The total backlog was 2% behind last year. However, also, here have acquisitions and currency had a positive impact compared to last year and organic deviation is, thereby, larger than that 2%. It should be noticed that the backlog only indicates sales for the next coming weeks. Lion part of the backlog are delivered for the next coming quarter. In a quarter, in average, about 50% of the sales in the quarter was in the order backlog when the quarter started and the remaining sales in the quarter is from orders in the quarter to be delivered in the quarter. This figure differs, of course, from quarter-to-quarter due to level of consumer sales where consumer sales have, in general, short delivery times compared to industry sales. So the backlog only indicates the performance next coming weeks when analyzing the future performance.If we then turn page to Page #16, this page shows operating EBITA and operating EBITA margin for the quarter as well as year-to-date for the year '16, '17 and '18. To the left, you can see the results for the quarter. Operating EBITA ended at SEK 30 million higher compared to last year and on the same level as 2016. The margin was improved in the quarter compared to last year but not compared to the level of '16. The main difference between Q3 2018 and Q3 2016 is level of consumer sales in the quarter. The operating EBITA of SEK 202 million was on the same level of '16. However, when including decimals, the result over '18 is slightly above 2016.To the right, you can see operating EBITA for the period January to September. Inwido had, compared to last year, a slow start and the result for the first 6 months was below last year, mainly due to the effects of the late winter and lower degree of consumer sales in the first 6 months. The result was improved in Q3 and operating EBITA now year-to-date end of September is slightly behind last year and also slightly behind the level of 2016.Turning page to Page #17, and this is the final page before we open up for questions, this page shows net debt and net debt versus EBITDA. The net debt decline in Q3 2018 despite the acquisition of Profin. Inwido has a large seasonality within the business and large seasonality effects. And the net debt is always increasing in the first 6 months and the profit cash flows are generated end of Q3 and then especially in Q4. So in general, Inwido has an increasing net debt, more or less, until August and then the cash flow of the year are generated in the last month of the year.Net debt versus EBITDA has, due to better restock in Q3 compared to last year and also due to lower net debt, been reduced in the quarter and was end of September 3x. Inwido has, in 2018, made 2 acquisitions: Bedst & Billigst within e-commerce and Profin in Finland. In the calculation of the net debt versus EBITDA, the full result of the acquisition latest 12 months are not included or consolidated. So the red line in this graph, we can see the red line for Q2 and Q3 of 2018, the red line is showing the net debt versus EBITDA excluding these 2 acquisitions. So excluding the 2 acquisitions, net debt versus EBITDA should have been just above the target of 2.5x end of September.This was our presentation, and we hereby open up for questions.

[Operator]

[Operator Instructions] And the first question comes from the line of Johan Dahl.

[Johan Dahl, Analyst]

It's Johan. I was wondering, Håkan, if you could just talk about what's going on in Sweden? You saw -- it seemed to be a fairly substantial margin deterioration, I mean, in perspective of the production problems you have last year. Is this just a competition on price? Or what are the main sort of factors driving that margin erosion?

[Håkan Jeppsson, President & CEO]

Yes. It's -- you can say it's, to a great extent, it's a customer. It's a mix issue, and it's rather hard competition. And we're -- the market lately, for a long time, has been driven by new-build, and we are also the big, historically, the big consumer -- I mean, the big customer delivering to consumers. The retailers are now also more and more fighting for these projects. I think that is the -- and with slightly tougher competition, more project sales for new-builds, that delivers an unfortunate mix and with some pressure on margins. So those would be the main reasons for that.

[Johan Dahl, Analyst]

And I just can't but ask. The initiatives you were talking about specific in Sweden, how -- since it's very much market related, these issues, I don't know how that's -- how should that address these problems?

[Håkan Jeppsson, President & CEO]

Well, when it comes to Elitfönster, it has never before been open for direct purchase for a consumer. Now we are addressing that market directly. It's a very important initiative for us when some of our most important customers, as we see it, are not focusing hard enough on the consumer segment. That is really, really important. Then, of course, on top of that, we are working with the retailers a lot with the category management to try to build our category in a better way. And we are also providing more tools, smart tools for installers, for salespeople, et cetera, to drive sales in a more efficient and better way. So I would say those initiatives and then there are there initiatives as well but I cannot go into more detail to all of these. So we are doing a lot of market-oriented initiatives to keep our strong position and improve it further going forward.

[Johan Dahl, Analyst]

Okay. Just a follow-up. I mean, given the slightly more cautious market outlook that you're communicating today and also Peter alluded to the fact that you reached savings of roughly SEK 60 million on a sort of rolling 12-month basis, what more is needed in Inwido to reach the 12% margin target?

[Håkan Jeppsson, President & CEO]

I think it -- again, it's hard to reach the 12% without having the right mix and growing slightly organically. I mean, during the years where we improved performance, we also had organic growth over a couple of percent those quarters, all those years, and now we are a little bit deteriorating that and having an unfortunate mix. I will also say that most business units, as I stated, are also improving their performance quite dramatically. And we have a couple of big players, one in Finland and one in Sweden, that are now working with our plans and changing their business a little bit, and we have to have those companies up running as they used to.

[Operator]

And the next question comes from the line of Kenneth Toll.

[Kenneth Toll Johansson, Financial Analyst]

Yes. So one thing. We do our deviation tables then we look in your figures and try to estimate what EBIT was in the quarter for different divisions. And when I do that, I get that the other division or the other in the group were unusually low in the third quarter. Now is it just me that is poor in reading graphs or did you have in other costs, excluding the divisions, that were unusually low, and in that case, why?

[Håkan Jeppsson, President & CEO]

What's other in -- within Inwido is our own component companies where we do all our own aluminum, we do some glass and we do some other steel related and -- like hinges and fittings. We do that in some of our own factories and that is a separate business. And there has been a lower, so to speak, performance. It's impacted a lot on how much external sales within that business and how much is internal because internal, obviously, it's not as profitable as when they sell to external customers. And with the slightly weaker volume development in the whole of the industry, we have also seen some lower volumes in those factories. That is the reason behind it.

[Kenneth Toll Johansson, Financial Analyst]

Okay, great. Then also a clarification. On Slide #4, you mentioned that the value chains are breaking up. I didn't understand what you meant really. If you can explain a bit more Slide #4 there...

[Håkan Jeppsson, President & CEO]

Yes. What we mean by that is that, historically, you can say that in some of our most important markets before the digital era, so to speak, I mean, some of the big customers, both construction companies and also the retailers, I mean, they chose their partners and they work long term to develop. And the biggest customers, they had a couple of suppliers, 1 or 2 core suppliers within windows and doors. With the new setup, some market changes, some new people and especially the digitalization in the whole economy but also in our industry, the markets have opened up for more players, more transparent pricing and also that some of the big customer of ours had also chosen to have more suppliers for various products. That is some kind of breakup. And there are also other players reaching out more directly to the consumers like we are doing ourselves. And we can also clearly see that our e-commerce is growing quite fast also. And I mean, 5 years-plus back, this was not possible because you couldn't get products and supply directly and reach the offers without going to the traditional channels. So that is what we mean by it's breaking up, and it's a more open market from all ends right now.

[Kenneth Toll Johansson, Financial Analyst]

Great. And then a final one. I remember that in the financial crisis when volumes were going down quite a lot, you were quite successful in protecting your profitability at that stage. And one method of doing that was to restructure, to close plants, move production and so on. And now for Sweden and Finland, we are probably seeing some lower volumes in the next year or a couple of years. So I know that you had this cut costing program that have still a lot to deliver, but are you sort of thinking about even more actions from the restructuring side?

[Håkan Jeppsson, President & CEO]

Well, it's always a balance between having some kind of basic capacity of satisfying your customers and you -- I mean, in the end, you have to have some factories. But we are working really, really hard. And I think the whole Simplify model that will be explained more later when we meet in the Capital Markets Day is also about that, to be even leaner and meaner and faster and more efficient and more customer focused. And part of that is, of course, also some kind of restructuring to be more efficient towards our key customers. But obviously, we will continue to work with more initiatives when we find them. I think that we actually have done a lot of things already in Sweden. I think that Q3 was a -- not a very strong quarter in the Swedish business. And as I see it, we have also seen the worst and we are really, really prepared to be as efficient as we have to be during Q4 and then the winter season. So it -- from my perspective, it's a promising view I see in the Swedish when it comes to efficiency and cost.

[Operator]

And the next question comes from the line of Rasmus Engberg.

[Rasmus Engberg, Research Analyst]

I just wanted to ask first. You say you're optimistic for the winter season. Do you see that you are on track to continue to grow your earnings in the fourth quarter? Or is there something in there that we should be aware of?

[Håkan Jeppsson, President & CEO]

No, I think -- I am optimistic about -- I mean, we don't give forecasts. But I mean, I'm optimistic about Q4 as it looks now. But we have also seen the last couple of years that things can change very fast. I mean, when -- I understand from the share price development today this morning, a very red morning, that their investors and analysts are seeing, I think, more negative things in this report than there is a reason to have actually. And so we have already been, and I've said that many, many times, already back in 2015, starting of 2016, consumers started to be hesitant in the Swedish market because of all of this real estate debate, the ROT changes, et cetera, et cetera. So we have been in this market for a rather long time now. And we have done a lot of good things to improve what we do and we see effects of that more and more in the next quarters. And that's -- those are the reasons for my optimism going forward. But it's not going to be a walk in the park. It's much harder work today than it was 5, 6 years ago.

[Rasmus Engberg, Research Analyst]

Can you say something about -- we have your order backlog with currencies and acquisitions and all that. Can you say something about the quality or mix in that backlog? Is it still more professional sales? Or are you sort of coming to a situation where there is increasingly more consumer sales in the backlog?

[Håkan Jeppsson, President & CEO]

You shouldn't overestimate the backlog. As Peter said, it's a very short, short view that we have of 4 to 6 weeks. But the backlog we have now, as we can see, it's more consumer orders in that backlog for various reasons, that we are working really hard to get more consumer orders and to have a better mix. Then we have also -- e-commerce is also growing rapidly as a share of total sales. And the latest -- some of the latest acquisitions have also been very, very strong in the consumer segment. So it's a better backlog. But as I said, don't overestimate. We have to win new orders every day.

[Rasmus Engberg, Research Analyst]

Then one other thing for that. I think, by the way, the market is a bit concerned with is the financial leverage. Can you give some sort of outlook on either where we should be at the end of the fourth quarter, maybe when you think you will be back at the 2.5x target or something along that line?

[Håkan Jeppsson, President & CEO]

Well, I mean, as Peter said, I mean, we would have been on that level without the acquisitions. Obviously, Inwido has always been about acquisition-based growth, and we will continue, I guess, try to buy profitable companies. And very seldom they are at multiples lower than 2.5x EBITDA. So short term, when we do these things, and that was also the effect that we had back on [ all those ] times, so to speak, that when we do acquisitions, we will for a short period of time increase. And that is what you have seen now. But in Q4, cash flows will be good and the net debt-to-EBITDA will come down. I will not give a forecast, but it will be a couple of times lower than it is today. So it will go on the right track. If you stop acquiring companies, we would rather quick, come back to levels where we can handle the balance sheet in a better way.

[Rasmus Engberg, Research Analyst]

So where is your stretch level then? I mean, it's kind of a weird, good thing because normally, you would have up pro forma EBITDA maybe in the numbers, but now we are on the outside so we can't really see that. So where is your sort of level where you would be able to address stuff in terms of net debt-to-EBITDA?

[Håkan Jeppsson, President & CEO]

I don't know. I sleep really well at night. And I think we have -- I think as Peter told me earlier today, we have never had as much cash as we have today. I mean, it's not an issue. I mean, we have more cash than ever and cash flows will be really strong. So I haven't even thought about that. I think I -- when I joined this company, I think we had a net debt-to-EBITDA of 6x or 7x or something. So -- and then we came, after the crisis -- and in the financial crisis, we came back then to 1x, 1.5x with savings and not acquiring anything. And then we started again. So I mean, I know what this company can do and I know that -- how we run it and I know that we have very good control. So I don't think in terms of where I should be stressed out. It will come down and it will improve in the next coming quarters.

[Rasmus Engberg, Research Analyst]

All right. And then just a final question. You have had a fairly strong improvement in the margin in the EBE business now. Still, I can't help feel that there are still businesses in there that don't really contribute to that margin. So is there -- are you thinking about a more medium-term target for what that business should have?

[Håkan Jeppsson, President & CEO]

Yes. I mean, they're all improving but they are not as -- all of them have the same profitability. I mean, e-commerce obviously is strong. Ireland is strong. U.K. is improving. We have a couple of, even within U.K., we have a couple of companies with really, really strong profitability now despite the Brexit times, et cetera. Where a market like Poland is slightly weaker because timber is a super-premium, low-volume market, et cetera. So yes, it varies. There are more things to do and you will see more things done in the coming quarters also when it comes to EBE. I can promise you that.

[Operator]

And the next question comes from the line of Ronald Kuhnen.

[Ronald J. Kuhnen, Principal and Board Member]

Two short questions. One on your structure or strategic initiatives in Sweden and your governance structure. Do we have to calculate any restructuring fees in Q4 for these initiatives or new structure? And the second one would be, could you give us the share of your sales depending on new-build and versus renovation business?

[Håkan Jeppsson, President & CEO]

Yes. First question, the answer is no. Most of this will be handled within normal operations and it will be a process over a couple of quarters. It will be -- I mean, in several places, we have already implemented a new structure and we continue to do that. And it will be full blown in the 1st of January next year. Then -- so -- but no extra cost for that. We utilize the resources the best way we can. Secondly, we are at around 75% renovation-driven business and 25% from new-build. And out of the 25%, you can say that 10% to 15% of the total sales comes from construction companies to real block of flats business. And you have -- around half is from what we call house factories. So that is the split that we have.

[Operator]

And the next question comes from Johan Dahl.

[Johan Dahl, Analyst]

With regards to the inventory and working capital situation, in your plans, what sort of negative impact could that have short term in Q4 to sort of adjust the situation? I'm thinking cost absorption, et cetera.

[Peter Welin, Chief Financial Officer]

Cost absorption, yes. We have some higher increase -- we had some material price increase in the -- now in 2018 and that will, of course, impact the devaluation when it comes to inventory. The main -- the bulk part of the increase this year when it comes to inventory is mainly due to the fact that the problem we had last year, we had a little more safety material in our factories this year compared to last year. So that is the main reason why inventory has increased. And I believe that in Q4, it can be reduced somewhat. But I think it's going to be still somewhat higher compared to last year, plus a little bit more safety.

[Johan Dahl, Analyst]

Okay. So you're not expecting any next significant sort of impact from sort of low production compared to sales, sir?

[Peter Welin, Chief Financial Officer]

No, not many.

[Johan Dahl, Analyst]

It's a made-to-order business, right?

[Peter Welin, Chief Financial Officer]

Yes. We only -- it's more or less all production is made to order. We only have some inventory in Sweden and that is a minor part of sales. And I believe that part will be about the same end of Q4 this year as for last year.

[Johan Dahl, Analyst]

Yes. On top of your head, Peter, the other revenues below gross result of 13.4 in the quarter, what is that?

[Peter Welin, Chief Financial Officer]

Sorry, where are you now looking?

[Johan Dahl, Analyst]

We can take it off-line, Peter. It ties up with Kenneth's question on extraordinary items in the report. We'll take it off-line.

[Operator]

And the next question comes from the line of Emmanuel de Figueiredo.

[Emmanuel de Figueiredo, Chief Investment Officer]

This is Emmanuel from LBV Asset Management. I just have 2 questions. Can you just tell us on the online channel whether your margins are above or below group average? That's one. And my second question, on the conference call, you've clearly hinted that we should expect more acquisitions next year. And I was just wondering if you can just very quickly remind us a little bit of your strategy there. Should we -- can you give us some color on the geography? And could you -- which geography is your privilege? Apologies for the noise. And also, should we expect more revenue or cost synergies when you do these acquisitions?

[Håkan Jeppsson, President & CEO]

I think that you should expect more revenues and I think -- I mean, we acquire companies. We hope that we acquire the right companies and we try to develop them. I think, in some cases, we can get some synergies when it comes to IT, purchasing, et cetera. But we seldom merge companies and create huge units, et cetera. And I think even more in the new model now, we try to simplify in a way where the companies will be more independent and there will be less synergies. But we will drive them very hard on their financial development. Could you remind me again on the first question?

[Emmanuel de Figueiredo, Chief Investment Officer]

The first question was on the Internet, whether your margin was below or above the group average? And sorry, and then just finally, on these acquisitions, is there any geographies in particular you would like to beef up more versus others?

[Håkan Jeppsson, President & CEO]

Yes, the margins are good. I mean, e-commerce is actually a contributor to group margin. And even though it varies a little bit, but over time, it's a group contributor. So it's a good business for us. Secondly, we -- I think we will -- we have to be very open. But I mean, we are -- we like the Nordics. I mean, most of the acquisitions we've done lately have actually been in the Nordics where we have a very strong position and we know the markets very well. We also tend to like -- this is something you shouldn't say, of course, I guess, right now, but U.K. has been, especially the last acquisition we did there, the latest, sorry, has also been a very, very good one for us. And there could be add-ons in that business, PVC windows in the U.K. that we're looking for. And then we are looking at the Central and Mid-Europe, so to speak, where we see a lot of interesting markets. We -- I don't think we will be down at the Mediterranean Sea very much in the next coming years. We will continue to build the northern half of Europe in the next phase as well.

[Operator]

And the next question comes from the line of Predrag Savinovic.

[Predrag Savinovic, Analyst of Consumer Goods]

Do you have to do anything on pricing to meet the new competition within the consumer channel?

[Håkan Jeppsson, President & CEO]

I mean, it's a very, very difficult question. I mean, we have 30 companies and they are operating in, maybe in total, in 100, 100 segments. So in some cases, yes; in some cases, no. I think -- but to be fair, I think that we have lost a couple of tenths of organic growth because we are, in many markets, the clear market leader. And in comparison to some of our contesters, we try to protect margins and we try to protect market profitability more than some of the big competitors we have. So in some cases, yes. And we try to balance it. We don't want to get berserk and trying to protect volumes at any price. That would be a very negative or bad strategy.

[Predrag Savinovic, Analyst of Consumer Goods]

All right. And what is the margin of towards housing factories? I think that you have in the past said that it's more like consumer than an industrial customer. And of -- in this channel, what is the split between housing factories and apartment blocks?

[Håkan Jeppsson, President & CEO]

If we have 25% industrial sales, I think, I mean, roughly, it's half-half to house factories and construction companies. And yes, normally, margins are much better in house factories and that is, of course, because you sell one-off houses to individual families and the families are normally, in most cases, rather close to picking materials, choosing windows, choosing doors, choosing what the house should look like even though they are produced in house factories. And that normally have a positive impact on margins where construction companies are tougher there and handle bigger volumes. And very often, we haven't really -- nor the construction company or ourselves have actually seen who is going to live in the house when the material is chosen. And therefore, you tend to spec lower, so to speak.

[Predrag Savinovic, Analyst of Consumer Goods]

Okay. Will you exit some markets at some point if you don't turn your profitability around such as in the U.K. or -- I'm not sure how Norway's progressing now. But how long time will you give it before, before doing some changes there?

[Håkan Jeppsson, President & CEO]

Yes, we will do that. And I think also the -- but we will -- I think in the new strategy or the updated strategy, what we call Simplify, I think we will maybe talk less about markets as such. We will talk about companies. All our companies must perform on the levels we need them to do. Otherwise, they are at risk basically. And that could be -- if we take a look now in the U.K., for instance, if we'd be stupid to exit U.K., but there might be a risk that we exit a company there if that company is not performing because the difference in performance is rather large between different units. So we will absolutely continue to both invest and divest in our businesses.

[Predrag Savinovic, Analyst of Consumer Goods]

Okay. And a final question. Can you tell us something about how Q4 has progressed so far?

[Håkan Jeppsson, President & CEO]

Not much. I'm not allowed to do that really. But I mean, we see more or less the same market situation overall that we are communicating in this report. And I think what is very important now for us is that we don't get a lot of snow and a lot of minus degrees too early in the quarter. That could have a huge impact on the quarter. If we don't get that, I think it's going to be decent.

[Operator]

There are no further questions at the moment. [Operator Instructions]

[Håkan Jeppsson, President & CEO]

But we don't have much more time now because we are meeting other -- so we have to end this conference now, I'm afraid. Thank you very much for listening in, all. Thank you. Have a good day.

[Operator]

Thank you. That does conclude our conference for today. Thank you for participating. You may all disconnect.