Inwido AB (publ)

STO:INWI

Earnings Call Analysis

Inwido's Q3 Profit Rises Despite Sales Dip

In the third quarter of 2023, Inwido experienced a slight 2% dip in sales to SEK 2.3 billion, largely due to weak new build markets and cautious consumer spending. Despite this, the company saw an impressive increase in operating EBITA by SEK 11 million, reaching SEK 308 million, with margins rising by 0.7 percentage points to 13.2%. This profitability boost was attributed to stringent cost management and price hikes. Order intake stabilized, with a 3% increase, and cash flow showed a robust yearly improvement of SEK 49 million to SEK 342 million. The inclusion of Sidey Group's backlog after its acquisition facilitated a substantial backlog growth to just under SEK 2.5 billion. Eastern Europe notably improved its margins by 3.7 percentage points, while e-commerce upscaled by 15% in both sales and profits, and the operating EBITA margin grew by 1.2 percentage points. Western Europe was invigorated by the Sidey Group, contributing to an 89% sales boost in the region. Post-acquisition, net debt relative to operating EBITDA stood at 1.1x, or 0.8x excluding IFRS 16.

Inwido's Q3 Performance: Steering Through Market Turbulence

Inwido, Europe's leading window group, showcased resilience amid market challenges in its third quarter of 2023. The company witnessed a slight dip in sales by 2%, amounting to a little over SEK 2.3 billion primarily due to a soft market in new builds and cautious consumer behavior. Despite this, the firm adeptly maintained profitability and margin by ramping up cost efficiency, benefitting from strategic acquisitions like Sidey Group and capitalizing on lower material prices and price increases implemented previously. The Scandinavian market displayed a notable stability with a minor decline of 0.2 points in operating EBITA margin, staying robust at 16%. Contrastingly, Eastern Europe saw a remarkable elevation in its operating EBITA margin, rising by 3.7 points to 12.7%. Supporting this positive outlook is the e-commerce sector, which surged by 15%, alongside business in Western Europe that grew by 89% due to the inclusion of Sidey.

Acquisitions Fueling Growth Amidst a Contraction in Organic Sales

Inwido's acquisition strategy bore fruit, notably with the purchase of Sidey Group, Scotland's top window and door supplier, which contributed significantly to Inwido's order backlog and financial standing. Despite a reduction in year-to-date sales—down by 3% organically—Inwido demonstrated strategic strength by leveraging acquisitions to bolster its order intake and maintain a stable operating EBITA margin, with modest fluctuations compared to the previous year. The integration of Sidey has not only fortified Inwido's presence but has also provided a cushion against the organic sales dip of 13%, as the acquisition adds roughly SEK 800 million in sales and an operating EBIT margin impressive at approximately 15%.

Strained Margins and Cost Management Efforts

In the wake of the economic pressures, a strong focus on margin and cost-efficiency has been essential for Inwido. The increased administrative and sales expenses—attributed to factors including the acquisition of Sidey and heightened marketing investments—were offset by robust operating EBITA margins that rose from 12.5% to 13.2%. Financial headwinds such as higher interest rates and foreign exchange fluctuations led to a downtick in profit after tax by 13%. However, this headwind didn't stop the company from posting record third-quarter operating EBITA exceeding SEK 300 million.

Positioned for a Sustainable Future

Sustainability remains a key performance metric for Inwido, although the sector's overall struggle was notable in Q3. Despite concerted efforts to reduce absolute figures in sustainability, the company's performance indicators tied to unit production reflected the market's difficulties; however, expectations of positive growth continue as the EU tightens its energy efficiency requirements for buildings, which is poised to play in Inwido's favor.

Leadership Transition and Long-Term Strategies

Inwido's strategic direction remains steadfast despite the announcement that CEO Henrik Hjalmarsson will be succeeded by Fredrik Meuller. The senior management's alignment with the company's growth-driven strategy, particularly in inorganic expansion, underscores a commitment to continue exploring mergers and acquisitions, supporting their ambition of achieving SEK 20 billion by 2030. This succession and strategic continuation, unfazed by broader economic challenges, is testament to Inwido's robust governance and vision for future expansion.

Outlook Amid Market Softening and Prospects

Market conditions, particularly in new builds, have shown further softening, but consumer segments are stabilizing, albeit at lower levels compared to last year. The anticipations point to an ongoing market dampening for the remainder of the year, with a forecast of possible stabilization or slight decrease in prices in coming quarters. Despite this, a reduction in input material costs could offer some margin relief, allowing Inwido to navigate through these fluctuations with deliberate pricing and cost-efficiency measures aimed at margin protection.

Earnings Call Transcript 2023-Q3

[Operator]

Welcome to the Inwido Q3 2023 Report Presentation. [Operator Instructions] Now I will hand the conference over to CEO, Henrik Hjalmarsson; and CFO, Peter Welin. Please go ahead.

[Henrik Hjalmarsson, executive]

Good morning, everybody, and welcome to this presentation of Inwido's third quarter and first 9 months results 2023. My name is Henrik Hjalmarsson, I am the President and CEO. And with me, I have Peter Welin, CFO and Deputy CEO. We will spend the coming 20 minutes or so going through a brief highlight of the results for the third quarter and year-to-date, after which time, there will be plenty of time for questions.

But first, for those of you who are new to Inwido, we are a leading window group in Europe, a clear market leader in the Nordic region with a strong presence in the U.K. and Ireland. Net sales of SEK 9.3 billion rolling 12 months with a return on operating capital of 16.2%. We had roughly 4,500 employees at the end of the third quarter in the geographies marked in blue on the right-hand side of this chart. Our production locations are marked with white dots on the map, and we market and sell all the fantastic brands that you can see on the bottom part of this slide.

Before we go into the quarter's results, a few words on the acquisition of Sidey Group that we announced at the beginning of the quarter. Sidey Group had sales of roughly SEK 800 million in the last 12 months and an operational EBIT of roughly 15%, which means that Sidey is actually our largest acquisition to date. Sidey is Scotland's largest window and door company and a clear market leader in the renovation of social housing. They are at the moment in a strong growth phase and the prospects for continued growth are good as there is legislation in place regarding the required improvements in energy efficiency in the housing stock in Scotland. We acquired, at the beginning of the quarter, in the first step, 70% of the shares at a multiple of just below 6x operating EBIT.

If you go then looking at the highlights of the third quarter, I'm really happy to see improved profit and strengthened margin in what is still a challenging market, where new build remains weak and consumers, although with some geographical differences, are still a bit hesitant. Order intake stabilized in the quarter and we continued good cash flow generation. Thanks to good cost control and the full impact of price increases as well as some continued leniency on input material price, we strengthened gross margin in the quarter, particularly then in Eastern Europe. We saw good improvements in business area e-commerce in what is a highly competitive market and strong contribution by the newly acquired Sidey Group. I'm very happy that we closed the quarter with a continued strong balance sheet, giving us good maneuverability and strategic opportunities going forward.

If we look at the numbers, sales decreased 2% to a bit north of SEK 2.3 billion. Organically, that's a 13% decrease. Operating EBITA, however, increased by SEK 11 million to SEK 308 million, which means that the operating EBITA margin grew quite considerably with 0.7 percentage points to 13.2% in the quarter. The total order intake increased by 3%, and the order backlog increased to just south of SEK 2.5 billion. A considerable increase quarter-over-quarter to a not insignificant degree due to the incorporation of Sidey Group's order backlog, which Peter will explain more later. Cash flow continued to be strong, up by SEK 49 million year-over-year to SEK 342 million, which altogether means that after the acquisition of Sidey Group, the net debt versus operating EBITDA is 1.1x, or 0.8x excluding IFRS 16.

If we look then at the summary of the first 9 months, we've seen slight sales decrease of 3% to just south of SEK 6.7 billion. Organically, that's a 12% decrease, with a slight decrease in operating EBITA to SEK 737 million, which means basically a stable operating EBITA margin, down 0.2 percentage points to 11%. Continued good cash flows, increasing to SEK 667 million, and with an earnings per share on the first 9 months at SEK 8.52.

If we look at the business areas, starting with business area Scandinavia. We saw a quarter where a higher gross margin that provided for stable profitability and impressive margins. Sales declined by 16% to just north of SEK 1 billion. However, successfully defending the operating EBITA margin, 16%, down only 0.2 percentage points year-over-year. We've seen some continued decline in input material prices and a full effect of price increases strengthening the gross margin; however, we've continued to take efficiency measures in the quarter and see that there is more of this to come in effect in the fourth quarter. Very pleasingly, we have initiated, over the year, an investment program in our factory in Bergen supporting the long-term continued growth in Norway through the local business unit Lyssand-Frekhaug, creating conditions for increased capacity, improved profitability, and a more sustainable production.

Looking then at Eastern Europe, we saw a significantly improved margin and profit in the quarter. Sales declined 15% to SEK 559 million, mainly driven then by a considerably more hesitant new build sector. Operating EBITA margin, however, increased significantly by 3.7 percentage points to 12.7% in the quarter. We've done a good job ensuring full impact from price increases, but also seeing clear impact from efficiency measures taken to decrease cost and adapt to the supply chain to lower volumes, which then strengthened profits and margins in the quarter. Overall, a continued weak industry market that's impacting sales in the quarter as well as order intake, while the consumer market is more stable.

Looking at business area e-Commerce, we saw increases in both sales, profit and order intake in the third quarter. Sales grew by 15% to SEK 267 million. Operating EBITA margin also then increased by 1.2 percentage points to 7.5%. We've seen growth and profit increases in markets that remain competitive with hesitant consumers, which we're really happy about. And we continue to do investments in sales and marketing to drive long-term growth in this sector. Also happy to see that the growth initiatives that we took with a launch of the e-Commerce concept in the Netherlands, sparkozijnen.nl, has come off to a good start.

Lastly then, looking at business area Western Europe, where obviously, Sidey Group, after the acquisition, is a substantial part and has come off to a really good start as a part of the Inwido family. Sales grew by 89% in the quarter to SEK 456 million, and operating EBITA increased by 1.5 percentage points to 11.4%. As I said, we saw really good contribution in the quarter by the newly acquired Scottish Sidey group. But the market continues to be impacted by hesitant U.K. consumers and lower activity on the new build side. Order backlog in the quarter, as I mentioned, positively impacted by the acquisition of Sidey Group.

Looking then at the sustainability performance in the third quarter, and the third quarter was indeed a tough quarter for us in this sense despite considerable efforts to continue to improve our sustainability performance. Several of the key performance indicators that we use to track performance are dependent on unit performance, so indeed calculated as performance per unit. So despite continued positive development in terms of reducing the absolute numbers, the number per unit increased in the quarter, thanks to lower overall unit activity in our factories in the quarter.

Also, we've seen a slight temporary negative impact from the businesses that we acquired in 2022, which will obviously, however, come up to the high Inwido standards as and when they are fully integrated into the group. We continue to take significant efforts to preparing the organization and our business units to comply with their corporate sustainability reporting directive. And personally, I am very happy that we continue the positive development in terms of accidents with lower lost time accidents per million hours worked than we saw during the full year last year.

With that, I'm going to hand over to Peter, who's going to take you through the numbers.

[Peter Welin, executive]

Thank you so much, Henrik. I'll start with this page. This page is showing the income statement. To the left, you can see the Q3 this year versus last year. In the middle, year-to-date, January to September. And to the right, the rolling 12 months.

We start with the acquisition of Sidey. Sidey was acquired in the beginning of the quarter and Sidey has been fully consolidated from the 1st of July 2023. We have acquired 70% of Sidey, and we have a call put option on the remaining 30%. This means when it comes to reporting, that we have fully consolidated Sidey when it comes to sales and operating data, but only 70% of the net results. The remaining part of the net result is booked as minority costs, the 30% that we don't own.

So we started the quarter, sales was down by 2%, including Sidey. Excluding Sidey, and also adjusted for a currency impact, meaning organic growth was minus 13%. The gross margin was improved from 24.5% to 26.7%, an improvement despite lower organic growth, and thereby also lower volume, meaning Inwido has been able to improve the margins and reduce the costs to mitigate the impact from the lower volume in the productions.

If we then see on other costs, administration expenses and sales expenses, they have increased in the quarter due to currency impact and also due to acquisition of Sidey, and we also made some investments when it comes to sales and marketing, especially within e-Commerce. So the operating EBITA was SEK 308 million compared to SEK 297 million last year, 3% higher compared to last year. And for the first time ever, Inwido has an operating beta above SEK 300 million for the Q3. So the margin was improved from 12.5% to 13.2%.

When it comes to EBITA, the difference between operating EBITA and EBITA in the quarter is SEK 7 million, and that is mainly connected to acquisition cost of Sidey, and we also have some minor restructuring costs in the quarter.

Further on the income statement, the profit after tax was down by 13%, because we had in the quarter a negative financial impact. Last year, the financial net was minus 8%. This year, it was minus 14 -- sorry, SEK 8 million -- was minus SEK 8 million last year, this year it was minus SEK 49 million, a negative deviation of SEK 41 million, due to higher interest rates and also due to higher debt, thereby higher interest rate costs, and also due to currency impact. We have a negative currency impact in the quarter. Earnings per share was then down by 16% from SEK 3.88 to SEK 3.25.

Looking at year-to-date, January to September, sales is down by 13% (sic) [ 3% ]; organically, it's down by 12%. The margin has been improved during the whole year from 24.1% to 25.7%. Operating EBITA is down by 5%, and the margin is slightly down from 11.2% to 11%, mainly driven from development in Q1. EBITA is down also by 5%. We have restructuring costs also year-to-date for about SEK 7 million. We have some positive impact in the beginning of the year, mainly from electricity subsidies from the government of Sweden, and the total net impact year-to-date is then SEK 7 million. The financial net year-to-date has increased from minus SEK 39 million to minus SEK 77 million, and that's mainly due to higher debt and also due to higher interest rates. The current impact year-to-date is more or less 0.

Earnings per share has declined from SEK 9.62 to SEK 8.52. On a rolling 12-month basis, sales is now on SEK 9.3 billion. Operating EBITA is SEK 1.052 billion, a margin of 11.3%, and earnings per share is SEK 12.63. This page is showing the sales development for Q3, and the order intake development for Q3 for the year 2018, up until 2023. To the left you can see the sales development, and to the right, you can see the order intake development.

As I said before, sales in the quarter was down by 2%. Adjusted for currency and acquisitions, the organic drop is 13%. Organically, Scandinavia declined by 19%. Scandinavia (sic) [ Eastern Europe ] declined by 21%, e-Commerce was up 9% and Western Europe was up 4% organically. In total sales, Western Europe was up 89% when including the Sidey acquisition. The order intake to the right -- you can see the order intake development to the right. The total order intake was up 3%. That means including Sidey. If we exclude Sidey, the order intake was down by 7%.

Meaning we have a lower decrease in order intake in Q3 compared to Q1 and Q2, where we had minus 20%. We had negative order intake development in Scandinavia and Eastern Europe, and we had a positive order intake development in e-Commerce of 22%, and Scandinavia was plus 86% in total, including Sidey. And if we exclude Sidey, the Western Europe had also positive order intake development in the quarter compared to last year. Looking over long-term perspective, the order intake in Q3 this year is above the levels before the pandemic.

This page is showing the order backlog. And now when we acquired the Sidey, Sidey has a different business compared to Inwido. Sidey are selling to the social housing in Scotland, and they have a large order backlog, more or less 1 year of sales in order backlog, compared to the rest of Inwido, with high degree of consumer sales and quite low order backlog. So when comparing this year compared to last year, the order backlog in the total backlog is more or less the same as last year when excluding Sidey. And the order backlog with Sidey, the order backlog is down by 38% compared to last year. Scandinavia is minus 41%. Eastern Europe is down 50%, e-Commerce is down 2%, and Western Europe, including Sidey, is plus 86% due to the high order backlog of Sidey.

This page is showing the operating EBITA margin for the Q3 for the year 2018 up until 2023, and as you can see on this page, it's the first time ever Inwido is above the SEK 300 million mark for the Q3. The margin has been improved in the year compared to last year. Scandinavia had a negative margin development. The EBITA went from 16.2% to 16%. So we have more or less the same operating EBITA margin this year in the third quarter compared to last year's third quarter, where Eastern Europe, e-Commerce, and Western Europe have all improved the margin this year compared to last year. Looking at long-term perspective, the margin is not as strong as it were during the pandemic, 2020 and 2021, but the margin is above the level before the pandemic.

This page is showing the return on operating capital. Return on operating capital is defined as EBITA, latest 12 months, in relation to operating capital -- average operating capital calculated average for the latest 4 quarters. The target is 15%, and we are today at 16.2%, meaning 1.2% units above the target. However, it is a decline in this year, and decline is due to lower results, lower EBITA rolling 12 months and also due to higher operating capital. The operating capital has increased due to acquisitions, due to higher IFRS 16 debt, and also due to weaker Swedish kronor. When transforming the equity in our subsidies to Swedish -- to SEK, the equity has increased due to higher or weaker Swedish kronor.

This page is showing our net debt including as well as excluding IFRS 16, and also showing the relationship between net debt and operating EBITDA, including as well as excluding IFRS 16. We have acquired Sidey, as said before, we have only acquired 70%, and we have a call put on the remaining 30%. We have, in our debt, included the valuations of the call put of the remaining 30% that we're going to pay in the future based on our estimations, meaning that the call put is included in our net debt as of September 2023.

If we look at the development, excluding IFRS 16, the net debt has increased from last year -- September last year at SEK 610 million to SEK 1,018 billion, an increase of SEK 408 million, whereas the dividend payment in the last 12 months has been SEK 377 million, meaning Inwido has more or less only increase in net debt by the dividend, meaning also then that Inwido has generated, through the last 12 months, cash flows to acquire Sidey Group with sales of SEK 800 million.

The IFRS 16 debt has increased. Last year it was SEK 383 million, this year, it's SEK 560 million, increased due to inflation, and thereby higher rent payments, and also due to the acquisitions, because Sidey, they don't own their facilities, and thereby, we have increased IFRS 16 debt connected to Sidey. If we look at the relationship between net debt and EBITDA, including IFRS 16, we are at 1.1x today versus 0.8x last year. And excluding IFRS 16, we are today at 0.8x compared to 0.5x last year. Meaning we are still far below the target of maximum 2.5x. Inwido has good headroom and good possibilities for further acquisitions.

[Henrik Hjalmarsson, executive]

Yes. And then to summarize. So the third quarter, as I mentioned earlier, obviously characterized by continued soft and pockets of challenging markets, although with some geographical variation. However, we delivered improved profits, improved margins, and cash flows, as well as a stabilized order intake that really proves the resilience of our business model. Eastern Europe, e-Commerce and Western Europe, and the latter one driven by Sidey Group, with a really strong performance and impressive margin protection on top of that in Scandinavia in the quarter.

A strong balance sheet, as Peter just mentioned, allows for continued focus on value-creating M&A, and we see good long-term growth opportunities as the EU is now sharpening the energy efficiency requirements for buildings.

With that, before we wrap up, just a few words on the pending President and CEO change. The Board of Directors yesterday appointed Fredrik Meuller, 53 years old, as the new President and CEO, following my resignation after 5 years in office. Fredrik has recently been the CEO of Nord-Lock Group, part of Latour, for more than 5 years. And prior to that, a long career within leadership positions in the Trelleborg Group. Fredrik will start no later than the 1st of May next year. And with that, we close this part of the presentation and open up for questions. Operator, please.

[Operator]

[Operator Instructions] The next question comes from Victor Hansen from Nordea.

[Victor Hansen, analyst]

It's Victor from Nordea here. A couple of questions from my side. The first one, I'm wondering how much will the headcount be down in total now after the ongoing layoffs are concluded, compared to your 2022 level?

[Henrik Hjalmarsson, executive]

Yes. Thanks, Victor. I guess that -- I mean, in reality, actually, our headcount increased in the quarter, thanks to the inclusion of all the great employees in Sidey Group, obviously. If we look forward organically, we would expect -- on the one hand, typically, the activity levels are at its highest this time of year, but they will ramp down, and we expect a lower overall FTE count at the back end of the fourth quarter than we have presently. An exact number of that is really hard to give because whilst there are pockets of challenging markets, particularly on the new build side, we also, as is clearly visible in the results, have a really positive development in other parts of the business. And what the exact net in terms of FTEs will be is a bit hard to say right now.

[Victor Hansen, analyst]

Next question here then for Western Europe, the margin in your legacy business, so excluding Sidey, it seems to me like it's down quite a bit. I did some back of the envelope calculations here and the implied EBITA margin for your legacy business is down to 8.6% compared to 9.9% Q3 last year, and also SEK 2 million lower in absolute numbers year-on-year. So I'm wondering, is this how we should see it? And if that's the case, what's driving this?

[Henrik Hjalmarsson, executive]

So you're right in the sense that the margin on the "legacy business" in the U.K. is down year-over-year. The main reason for that is, on the consumer market side, at the moment, the U.K. has been our most hesitant market, I would say, from a consumer sentiment perspective, and we've seen that throughout basically the back end of last year and the first 3 quarters of this year. That does impact overall volumes, which in turn then impacts margins -- have impacted margins slightly negatively. We expect that to turn around as soon as we see then a stabilizing consumer sentiment. And then obviously, starting with a lower base, the ability to turn around the volume activity in the market.

[Victor Hansen, analyst]

That's helpful. And then changing the topic here. So your balance sheet remains strong. I'm wondering if you can tell us anything in terms of your M&A pipeline?

[Henrik Hjalmarsson, executive]

Yes. So we -- I mean, I think we've proven, not the least, over the past year here that we generate enough free cash flow effectively after having paid dividends, tax, CapEx, and interest, so that we can actually make an acquisition of the scale at least of Sidey on an annual basis without stretching the balance sheet further. That's obviously part of the plan as we go forward with our SEK 20 billion by 2030 ambition.

At the moment, we are exploiting -- sorry, exploring basically all 3 of the levers in our strategy, i.e., actively looking at potential smaller bolt-ons in the Nordics, continuing to evaluate potential compounded growth in the U.K., but we are also evaluating opportunities in Continental Europe. Which of these will happen first will depend a bit, obviously, on the dialogue with the potential sellers, and to some extent, the timing of such a process. But there are activities on all 3 of those stones of the strategy ongoing.

[Victor Hansen, analyst]

That's helpful as well. And a final question here from my side. So Henrik, now that you have announced your departure, could this mean that we could see a lower M&A activity in the short term?

[Henrik Hjalmarsson, executive]

I think, obviously, the activities that we have ongoing at the moment, not the least fueled by a very senior team and also supported back by Peter here as CFO and Deputy CEO, they will continue as planned. And my feeling is very strong in the sense that the Board of Directors very much stands behind the activity-driven growth agenda -- sorry, the acquired inorganic-driven growth agenda that we have, which means that Group management team will continue to work in that direction. So I think timing in relation to discussions on price and process with potential sellers will impact that more than the CEO change.

[Operator]

The next question comes from Rauli Juva from Inderes.

[Rauli Juva, analyst]

It's Rauli from Inderes Equity Research. A couple of questions from me. First of all, on the market, you mentioned in the Q2 report that the market weakened during the spring. So how would you characterize the market development over the summer and fall? Has it kind of continued on a downward trend? Or has it been more stable on a lower level?

[Henrik Hjalmarsson, executive]

What we see on the new build side is that the activity level has continued to dampen. That was, however, very well-known already during the first half of the year, because we can see some leading indicators in terms of number of permits. On an average, I would say that the consumer segment of the market has, if anything, more stabilized, I would say, at lower levels than a year ago, but has stabilized a bit more than we saw during the spring, which I also think is visible if you look at the like-for-like development on order intake, excluding acquisition, which then actually strengthens quite considerably in quarter 3 compared to quarters 1 and 2.

[Rauli Juva, analyst]

Yes, right. And on the new build side, I think -- I guess we should expect to continue downward trend until the first half of next year given kind of where the activity levels are at the moment or...

[Henrik Hjalmarsson, executive]

Yes. I mean, I guess, in detail, it's hard to guess. But looking at the development on permits and market activity, we would expect the continued dampening throughout the rest of this year at least.

[Rauli Juva, analyst]

Yes, exactly. Exactly, yes. Good. Then a second question on the margins. You are facing a softer market, and you mentioned also the input cost coming perhaps more down, but yet you have been increasing your prices actually still. So are you now facing any pressure on the prices downwards? And perhaps more generally, how do you see your pricing power in general?

[Henrik Hjalmarsson, executive]

Yes. So just to be clear, I think sequentially, quarter-over-quarter, prices have remained fairly stable in the quarter. However, obviously, versus a year ago, they are up. If we look quarter-over-quarter going forward, I would expect stability or a slight downward trend on the price level, as there are pockets -- particularly then again on the new build side, pockets of price pressure as the market softens. So we will expect, coming into the next quarter and the quarter after, likely a slightly downward trend on its price. However, at the moment, we also continue to see a downward trend on most of the input materials. So that will, I guess, support that trend in terms of margin protection.

[Rauli Juva, analyst]

Yes, yes. And then finally, on the margin topic, you are also still doing your own efficiency measures. So should that -- kind of impact from those be more than the negative impacts from the price pressure and volume drop? Or how is the net impact from those expected to be?

[Henrik Hjalmarsson, executive]

I think, if you separate that into 2 questions, and if we look on the supply chain side, variable and fixed cost, we've shown over time that we are very good at adapting that cost base to the activity level that we see in our supply chain. If you look at the more traditional overhead side, the key question mark will be around timing there, to be quite honest, because we know, as for example, if you look specifically at the e-Commerce side as an example, we are continuing to invest behind market and sales initiatives to drive long-term growth.

And we know that with the right momentum coming out of a tougher period of the market really strengthens our position down the line. So that will be a balancing act between long-term strategic OpEx investments, I would call them, for growth, and obviously, the need to have a continuously lower cost base as activity levels go down. So the net of that, I expect, to be down, but how much depends a bit on the position we take on some of the strategic initiatives.

[Operator]

The next question comes from Sofia Sörling from Carnegie.

[Sofia Sörling, analyst]

And I have actually just a question on this acquisition. So you mentioned that the order backlog -- given this business is a little bit different, so this order backlog is actually almost 1 year revenue. How easy is it for the customers here to actually cancel orders would you say? Or maybe I can put it this way, how likely is it that this order backlog is actually reflecting your 12 months ahead revenue?

[Henrik Hjalmarsson, executive]

Yes. The answer to that is that it's very, very likely, that it's very likely -- very, very, very likely that those orders will also come into fruition and actually be delivered. And in reality, not to dwell on the point for too long, but the underlying commitment in terms of volume procurement from customer is actually higher than what you see in the order backlog. Because our definition of an order is that an order is not an order until you have a fixed price, a fixed specification, and a fixed delivery address, but in terms of Sidey Group, they actually have sourcing commitments from customers that extend beyond that in sort of a frame -- I would say, a fixed framework agreement. So cancellations there are unlikely, and if there ever were, they will not be material.

[Sofia Sörling, analyst]

Right. But are there any risks that you will not have the capacity then to deliver on this really high demand in this area?

[Henrik Hjalmarsson, executive]

Yes. So at the moment, in general, I would say, looking at the growth prospects going forward, the key bottleneck there will not be demand, nor manufacturing capacity, because we are actually busy at this moment making investments driven by the leadership in Sidey Group to grow with production capacity. It's actually on the installation capacity side. That is the key bottleneck for delivering a very ambitious plan for that business going forward. So obviously, at this point, we are fine, but we want to continue to grow that business to the good growth prospect in the market. And the bottleneck at the moment is ability to install windows at the right pace.

[Sofia Sörling, analyst]

All right. And then a final question. You mentioned in your text here, in the report about the margin trend in Scandinavia, and that is actually improving also gross margin. Could you say something more -- give some more color on the other business areas in terms of margin trends, if it's also stabilizing in your view or et cetera?

[Henrik Hjalmarsson, executive]

Yes. So the margin trend is obviously very strong in the quarter in Eastern Europe then given full impact of price increases and a good job managing costs in the quarter. As Victor alluded to before, the underlying margin development in Western Europe is slightly negative, mainly then due to a considerably lower volume activity level as the U.K. consumer has been the most hesitant consumer in our world, which obviously, we know from experience, will turn around and then we'll capitalize on that. And e-Commerce then experienced a slightly positive underlying margin development, driven by both pricing and actually better underlying factory efficiencies in the quarter.

[Operator]

The next question comes from Rasmus Engberg from SHB.

[Rasmus Engberg, analyst]

Just a reflection on the order intake being that much less down. How should we think about that? Is that because the first half of 2022 still was very healthy on the new build side? Is that kind of the main effect here, that we're past those very difficult comparisons? Or is there something else happening in those numbers?

[Henrik Hjalmarsson, executive]

No, I think that's, to some extent -- I think there are 2 takeaways from it in my mind. First of all, you are right in the sense that the comparables on the new build side in Q3 are easier on a year-over-year basis than Q1 and Q2. And secondly, I would -- the second one is that we are starting to see a stabilization of the consumer trend -- sorry, the consumer market and the consumer segment in our niche, and as I also mentioned earlier today in an interview, we're also starting to see more and more impact, actual impact from the energy improvement initiatives that are taken by the European Union, and then, amongst other things, with the present subsidies that are in place in the Swedish market for homeowners to take energy efficiency renovation activities.

[Rasmus Engberg, analyst]

So the run rate in consumer is pretty decent, maybe even slightly up compared to -- would you say that? Or is it just stable at least?

[Henrik Hjalmarsson, executive]

We're starting to see stabilization on a sequential basis versus what we saw earlier in the year, which was a deterioration then. So it's stabilizing.

[Rasmus Engberg, analyst]

And then just looking at your 2 biggest units, excluding the newly-acquired business. Scandinavia, great job there with the margin. So what -- is the big impact there coming from mix? And also in Eastern Europe, I know you were lagging with prices. Is that the biggest driver in Eastern Europe that the earnings are so good?

[Henrik Hjalmarsson, executive]

No. I think if you look at Scandinavia, there's not that big a mix impact actually. The biggest driver is actually we had a -- if we look at it in a multiyear comparison, the underlying, how should I say, material coverage margin last year was actually a disappointment, to be quite honest, if you look at that. Then it was partly compensated by the fact that the volumes were very high, which meant that factory efficiencies were very good.

We've actually done a good job recovering that. We have done slight declines on the input material prices and then full impact on the price increases. So it's really that material cost delta that is improving. If you look at Eastern Europe, it's that effect, but even more, because they have some longer contracts and have had even longer lead times in raising prices, plus a really good job in adopting the cost base to a lower activity level that's explaining that.

[Operator]

[Operator Instructions]

[Peter Welin, executive]

Until we wait for new questions on the telephone, we have received 2 questions on our e-mails or sent in to us. The first question is from [ Marcos Ranston ] and that is, how much of the financial cost of SEK 49 million is related to interest rate payments and how much is the currency impact in the quarter?

And to answer that, if you look at currency impact in the quarter, it's negative by SEK 12 million. The rest is interest rates and other financial costs. And last year, the currency impact was actually positive with a couple of millions. So we have a delta of more than SEK 40 million when compared to last year.

The second question is from Roland Könen. And the question is, [indiscernible] see an increase in EBIT and EBITA margin despite a volume drop of 12% to 13%? What are the main reasons for that? Are there any special tailwinds which might not occur in the next year?

[Henrik Hjalmarsson, executive]

Yes. So the main reason for the -- there were several reasons, obviously, for that. I think overall, as I said before, whilst we have negative development in pockets, we have positive development in other pockets, which then obviously impacts the total picture. If you look more specifically at that, it's, in general terms, then the price to material cost delta, which is much more positive this year than it was last year thanks to the stabilization and slight decline in input material cost and price increases.

The second bigger and more material factor is also that we've successfully been able to adjust our cost base to a lower overall activity level, which then obviously also supports the margin delivery. And then thirdly, obviously, looking at the total picture, the acquisition of Sidey Group has come off to a great start with a business that has a healthy overall revenue and above group average margin.

[Peter Welin, executive]

And the second question from Roland Könen is, what is the contribution of the Sidey in Q3 in terms of sales and EBIT?

And if you look in the report, the sales was SEK 213 million in Q3 related to Sidey. The net result was SEK 15 million in the quarter, but then we should add on this minority interest, because we only have consolidated 70% of the net results. So you should add back 30%, and then you should add back the taxes. And then you should also add back the acquisition cost of about SEK 7 million. And then you find out that the EBIT is a little bit more than SEK 30 million, and it means that the operating EBITA is a little bit higher because we also have amortizations of the tangible assets.

And that were all questions. Any new questions on the telephone?

[Operator]

There are no more questions at this time. So I hand the conference back to the speakers for any closing comments.

[Henrik Hjalmarsson, executive]

Okay. Thank you very much. With that, thank you for your interest and time, and we hereby close the conference. Thank you. Bye-bye.