Ladies and gentlemen, thank you for holding, and welcome to the Sriraldi Vancom. During the presentation, all lines will be in conduct a question and answer session. I would now like to hand over the call to Mr. Rob Vanenzuelas. Go ahead please sir.
Thank you. Thank you everybody for joining in this call on our half year figures for 2018. I will start with a short presentation, I will use the slide deck, which you can find on the website of Sleepro Food Group. I'll refer to the slide numbers I'm speaking about. And after the introduction, there will be room for questions.
Well, I would like to start off with the net sales of the the activities. Maybe just upfront, all the figures presented are, based on continued operations. Which means that the retail activity is completely summarized in the last line of this P and L overview net profit from discontinued operation. So the rest of the figures is the food service activity. We've seen that net sales increased by 11% and that was a result of the acquisitions that we did last year.
And are now coming into effect in our figures in the first half of twenty eighteen. We see an atypical picture for sleep growth with a small minus on organic growth of minus 0.1. That's also the result of a number of more technical effects which you can see on slide number 3, where we have presented our features in a slightly different manner. There's a number of effects that, that are involved in explaining the organic increase One of them is change in bookkeeping rules, IFRS 15 is in effect as of January 1st last year. Which means that the fees that we get from our fresh partners no longer account as sales, which means that sales have declined compared to last year by 9,000,000.
And another more technical explanation, but it is actual turnover loss for our company. It's export volumes of baby powder specifically to Asia. A number of our customers have been exporting these products, the last two, two and a half years. At the peak of that proceedings early last year, we had an annual volume of a little over 1,000,000 but this market is stopped, which means that these sales are disappearing from our books last year already in the second half of the year, 10,000,000 This year, we also expect it to be 1000000 decrease, but we expect that the full effect will be gone. So, in the first half of the year, we lost 14,000,000 in sales we expect to lose another 8,000,000 to 10,000,000 in the second half of the year.
And of course, if we compare the quarters, then we have to take into account calendar effect of the shift in Easter, but of course on the first half of the year, that is a net effect of 0. Which means we have one line left, which is what we call other organic and what we think is representing market development or at least our development best. And we see there that in the first quarter, we
had a
1.3% sale increase and a 2.9% increase in the 2nd quarter. So circumstances for us are improving especially if we take into account that the comparables for Q2 were the highest, sales development last year in 5 year period. So, we think that the plus of 2.9 is, is a confidence booster for, the quarters to come. If we then look at the breakdown of the organic, non organic increase, then, we see that Heineken is, of course, the big impact $86,000,000, which is nicely in line with the effect we kind of immediately see that there are big seasonalities in the development of the Heineken related turnover with 1,000,000 in the first quarter and ISPC is now fully in the comparables. So these are the 1st 4 months of the year, 1,000,000, which were added non organic and Tinterling is only a small part, is now also fully in the organic sales as of July.
If we move on to the next sheet, we see the developments in the Netherlands and Belgium, so the split up in countries similar type of overview and bottom line, we see that the other organic growth in the Netherlands was 1.9% in the first half and in Belgium 5%. So in the Netherlands, we are below market on organic sales in Belgium, we think we are clearly above market sales with a 5% growth in the activities. If we move to the next sheet on gross margin, sheet number 5, then we see that the margin as a percentage of, of net sales has increased significantly The majority of that effect is caused by the consolidation of the acquisitions, both Heineken, but also IPC have high gross margin but also higher cost as a percentage of sales, higher expenses as a percentage of sales, saw in the presentation here that causes quite a shift in the percentages, but also underlying margins, gross margin in cash and carry and delivery are increasing and that's the result of increased promotional margins and monetization of data through our Svygrove Insights program. I will touch upon that a little bit later on in the presentation.
Then going into the expenses on sheet number 6, we see in line with the effects in gross margin that consolidation is of course causing quite a shift. Big increase in the cost of 2.3% of the of the net sales Also, they are the result of the, the consolidation of the acquisitions. But we also see that we have started calls in Belgium, which are increasing compared to last year as we are running up to the opening our store and outlook later this year and also calls for IT transition program, IT 2020 are coming into effect still rather limited in the first half of the year. And if we compare it to last year where we also had both started costs for Belgium on the other hand, some costs of advisory costs for acquisition, then the exceptional items were more or less the same as in previous year. So that means that we conclude for ourselves that we have not been as effective as we like to be in the first half of the year in reducing costs or at least banking on economies of scale in that sense.
So also for ourselves somewhat disappointing the developments on the cost level. We do have quite a number of programs up and running that will have effect in the second half of the year but we expected a little bit more in the first half. So, especially our challenges are on the cost side of the profit and loss discount. On the next sheet, sheet number 7, some more details specifically on amortization because there's, the software, which is more on the, recurring CapEx side that is continuous investment in software and software development. Customer contracts is part of the commercial agreements that we have with our customers but the acquisition related amortization that is related to non recurring acquisition prices that we paid and we amortize through the P and L and with the big acquisition of Heineken last year, but also ISPC lending and that part is increasing significantly compared to last year.
But it is something we have to take into account and is a part of the EBIT that we need to show. If we move on to overall conclusion on EBIT, the non continued operation EBIT is $2,000,000 down. We started off with a weak first quarter. And we were not able to compensate that in full in the second quarter of the year, although that was already better. We see that the acquisitions are already contributing, but still marginally we took over in the asset situation and it requires further levels of integration before we can bank on cost efficiencies.
And also the loss of the export volumes is depressing results. We do have the cost savings programs, but it will have an impact at the later stage and I already explained about the exceptional items. And if we go to net profit on the next sheet, sheet number 9 for the group Then we also have the profit of the discontinued operations, as these activities are classified as discontinued we don't have any depreciation or amortization which is boosting the net profit for this part of the business. And that's why we see the increase from 2 to 4. If we take out the these technical effects and also last year had some comparables in book profits than the underlying result development in in the retail activity has been more or less similar to last, to last year.
So overall for the group, a small increase in the profit for the half year, from 1,000,000 to 1,000,000 and looking at the balance sheet of the group, which is still strong in this result development has led us to propose an interim dividend for the first half of per share. If we then look at the cash flow statement, we see some shifts compared to last year. There's some seasonality in the cash flow cost by working capital positions. We do not expect a, on an annual basis, a big shift in the working capital, even some improvement in working capital as a result of the last stage of these Bi Chain Finance Program. So this is, yeah, midyear, more or less technical effect.
And in the investments last year, we had 9,000,000 of book, or 9,000,000 of proceeds from the sale of store locations of M. A. Which we don't have this year and that these two items combined explain the decline in free cash flow that we have seen. If I then move on to the discontinued operations, I skip one slide and go to slide number 12. That we have some more qualitative analysis on the results of MTech.
Of course, this is the last time we will comment on the MTech developments We've seen that like for like, sales are further down by 3%. Of course, after the announcement of the sale of MTech, that's a very difficult positioned to be in both for the staff as the operations to keep up the performance we are proud of our employees that they've done a good job in that respect. But, yeah, of course, we were already in declining sales mode. And announcing that you will stop with the format and that you saw the format is not helpful in that respect. So again, further, a bit of decline in sales we were able to compensate that, in reducing costs.
And I already explained that there was no depreciation, amortization. So the underlying results of Mtell over the first half year were in line with last year. What is a very important and that's the last remark on this slide is that transfer to the buyers has gone very well with few disruptions of the business that's good for us because we want to have a nice and decent handover also, of course, for the buyer, which have a future with this business, they don't want any disruptions of course in their operations. And so far, things are running smoothly in that respect. If I then move on to the next sheet, we can see the financial impact, of the results.
The deal with MTech finally closed on July 2nd with the retrospective effect of July 1st from an economic perspective. Net profit in the first half year was 4,000,000, but the whole transaction is accounted for in the second half of our, book year but given the fact that it's so close to this moment, we already disclosed the numbers, the book profit on the sale of empty holding shares will be 215,000,000. The book profit on the sale of the related real estate is 18,000,000 Then we have the consultancy and non recurring separation costs of 11. And then, the tax effect. And so the book profit on the sale of the shares is non tax.
The book profit on the sale of the retail is taxed. So that gives us a net profit impact from the deal forecast at roughly SEK219 1,000,000. So the overall impact of the discontinued operations on the profit for the year will be SEK223 1,000,000. We have assessed the what to do with the proceeds from this deal. The 2 70 5,000,000 for the shares and the 60,000,000 for the, for the real estate.
And given our solid financial position given the investments that we need to do. And also if we want to have some opportunities in acquisitions in the coming years, we think that our balance sheet is strong enough and it gives us plenty of room to do those things. And we don't need to hold on to financial buffers to be able to do that. So we decided that we would pay out the full proceeds of this deal to the shareholders. And we will do that in the form of a special dividend, which is the exact amount of per share which is the 1st 18.
We do that rather fast because in this market with the current interest rates, we have to pay interest on, on the amounts we have on the bank account. So every month that we wait will cost us €150,000 of interest which we think is a shame. So we'd rather distribute as soon as possible to the shareholders. Then on sheet number 14, important to realize think is that we have, we think, done a good deal on the sale of MTech, but of course, it was an integrated part of our business and with the carve out of these activities We will have some dis synergy effect on the remaining part of the business. Initially, we estimated and communicated this to be 1,000,000 to 1,000,000 per year.
But we did some compensating factors in the deal, which means that we have a service period, which is called the TSA period with the buyers of MTech. That we will service them on a number of activities. For instance, HR, finance, IP and a number of auto related activity and we get compensated for that on top of the, the price that we paid for, or we got for the deal, which means that for the time being, the staff in the central headquarters. So, Seagro still have a job to do, on behalf of, of, the buyers. Smading, which is our partner for, fruit and vegetables for the whole of the group, dependent for 40% on retail, and we managed to make a deal for them to continue the volumes for at least a period of 3 years and also the profit levels on these volumes.
So it means we don't expect any dis synergy effect for, for them. And of course, we had the La Plas contract with the jumbo that we started delivering in week 26 a 1 week, in advance of closing. And these elements will compensate in part that's temporary So the service, fee that we get for the TSA period, of course, will stop to exist and then the employees of Slicrow are out of work. And that's something we need to remedy. That's why we are starting a program to right size the organization.
Not only in numbers but also in quality because it's not just the carve out of M and A, but also preparing ourselves for the future food service and more on international context. So it also means we need different competencies and quality of people. So we have a very detailed plan It's not a reorganization as such. We're also very careful not to use that wording because we are really going to, do a very precise exercise. And that also means that the cost of reducing the number of staff is quite significant 1 off of 16,000,000, which will be fully accounted for in the results for 2018.
But to give an order of magnitude, this relates to reduction of roughly 200 people in the central headquarters of Slicro. And this program will be finalized, we expect, by the end of 2019, but as mentioned before, the costs are fully incurred in 2018. And the other big effect is on the terms and conditions for food service. Of course, we did combine purchasing in the in the past. We know that as a result of the loss of the volume of M and A in second half of the year.
We won't meet the required levels of purchasing to get all the bonus levels that we agreed. So, we will lose them uh-uh most certainly in this year of course, in negotiating the conditions and terms for next year, we already can take into account the loss of the volume. So we will make other agreements So, we expect that in 1 or 2 years, the dis synergy from the terms and conditions will be gone. Then going into some of the analysis of Sliver Foodberg, I will try to speed up a little bit, so we have sufficient time for questions. If we look to the market in the Netherlands, well, compared to last year, the market is a little bit slower, where we anticipated that it would pick up or at least be stable.
So in that sense, it's a little behind on what we expected with 3.3% growth over the 1st 6 periods of this year. In total in the Netherlands, we increased our sales by 8.8% costs on the back of the Heineken deal, most of that. So we again gained market share in the Netherlands. If we look at the underlying, development, which was plus 1.9% in the Netherlands. Organically, we are not outperforming the market.
We're behind the market. And of course, that's not the ambition for Sleekro Food Group, but we expect that we can make up in the second half of the year to quite a bit stand. If we then go to the next sheet, sheet number 17, and we see that we have growth in the Netherlands and in Belgium, both gaining market share in these areas. The integration of Heineken activities is running according to plan. Of course, we are now running in the as is the situation.
I will explain a little bit, later on. And of course, we are preparing for the physical integration of all the locations because from that moment onwards, we can start banking on the emphasized benefits in supply chain and also start generating upsell to our customers. In the meantime, we are at 19 outlets in the new format. We opened up 2 more in the first half of the year in the 3.0 format and 2 more to follow in the second half. And our online platform almost all our customers are now on the new, web based ordering platform We did a quite a big number of improvements on the website, which reduced the number of incidents significantly but stability, we would still like to improve further and performance is improving also slightly, but that's continuous development to make sure that our customers have the best experience on, on our ordering platform.
While we see the building activities on sheet 18, in the for the for this year. So I will skip that and then move on to sheet number 19, a little bit more background on Heineken. As mentioned before, we took over operations as is, which means that the people that used to work for Heineken still operating the activities today. They will do so until December 1st this year. That's what we agreed with Heineken and then we can start changing the staff and also integrating the activities in our own warehousing environment We expect that from that moment onwards.
We can start banking on some of the advantages in the supply chain. In the meantime, all the Heineken distribution center are already transferred to this legal IT system, the current IT system, which means that we have more control over the process over there. Our initial focus to date has been on customer retention. And convincing them that we will have continuity of delivery at the same or improved quality. We've been quite successful in doing that.
But that means that there has not been a lot of focus on generating upsell as of yet. And we are preparing for further physical integration. Which you can see on the next sheet. So if we move to that next sheet, we see eventually the new landscape of of the sliver distribution platform with 10 locations. We see 11 on the sheet, the one in Sattogginbosch, the one in yellow, on the left hand side, we will convert that to a EDC slow mover distribution center.
So that will not be a specific customer delivery center as it is today. And all the ones in green are either being remodeled or our new locations And, yeah, for the Breida, David, the Emma Street area, we have already bought or have options on the premises where we will realize the new distribution center. In the province of Utrecht, it is a little bit more difficult. So, we don't have premises yet, but in all the other areas along the coastal line up to Kraken in the north, we are already remodeling and rebuilding the distribution capacity so we can start integration before the summer of 2019. The building activity will be completed, in the second half of twenty eighteen.
That's the phase 1. We will use it and integrate the activities, in these attribution centuries and geographies before the summer of 2019 and phase 2 that the other centers will be done after the summer because in the midst of the summer, that's the peak of the season. We don't want to disrupt operations with building activities. If we then move to sheet number 21, there we have Belgium. Also there, we are trying to integrate as much as possible.
That's mainly the services in the back end and also some combined purchasing, but through breakthrough will come when we have physical integration to the Figro IPC format and we can only do that after the IT transition which we are planning for 2019 in Belgium. We will open legal anti open before the Christmas season in this year. And we have started the preparations for the permit process in Brugge and also starting up for some other areas in Belgium. Then a few sheets on this figure. Insights, I will not treat the individual of them, but it's a very important step in improving the relationship with suppliers and also customers on the one hand, but also financial improvement in gross margin.
We are partnering with, with IRI in this respect because they supply the technology and they sell the technology of the tool to suppliers but we remain in ownership of the data and we sell the data to these suppliers. And of course, we can make money on selling the data but more importantly, in combining efforts with our suppliers based on our data, we can have better and more profitable propositions for our customers and have better performance overall of the categories where we cooperate with our suppliers. So it means this is a boost for gross margin. On the short term but also on the longer term where a better performance of a specific product categories should also translate in better sales with better gross margin. Higher concentration levels at our customers.
Then I will go to the outlook for the remainder of, of this year and the periods to come. We expect that the market growth will end up somewhere between 2.5%, 3.5%. That's a little bit slower than last year. But still, we think we are in the high end of the cycle of our business. So still a good market development, we think, and visibility is a little bit off because we started very weak in the first quarter.
We had a recovery in the second one. So we'll see in the next quarters what happens, but we think we will still see an upswing in the market development. We already discussed about Antwerp and Heineken and I will come back a little bit later on the IT transition program, which we plan to start in the fourth quarter of this year. But more, to the figures in the outlook on sheet number 27. Of course, this is a very transitional year for Slee Grove Food Group, where we are changing from a food player in retail and food service to 1 in food service specifically with the international ambition.
But we have the integration of Heineken. We have the sale and carve out of MTech. You have an IT program. You have Belgium. So a lot to do.
And that means that also has some effect of course on the results development twofold, we expect it to do a little bit better, to be honest, but also, all the attention to the major programs has had some effect and we started out quite weak in the first quarter. So, if we then have a look through for the remainder of the year, then we expect that we will end up, at a EBIT for, of 55,000,000 for the continued operations. So the food service operations. Of course, 2 major elements to take into account that is on the one hand of dissynergy of the carve out of MTech of 12,000,000 and the 16,000,001 off cost for changing the organization, but also if we, correct for that, then we end up at 83,000,000 EBIT for 2018 compared to 88 comparable last year. And we see in this graph or this waterfall diagram, what causes the decrease in results.
The first 4 elements as on the acquisition, export volumes started cost Belgium and IT program are more or less as expected. The growth and improvement from operations with 5,000,000. Well, we started out the year with a little bit higher ambition. We think this is a realistic number, but of course, we are working hard to try and improve that further. But this is at this moment with the knowledge of today, our best estimate of the number we decided to give this insight because we saw that many, of our followers, analysts and investors were really struggling with all the moving parts and we hope that this way of presenting it helps at least in structuring the thoughts around it.
And combined with this EBIT level on food service and of course should book profit on the sale of MTech, we anticipate that we will have a net profit for this year 2018 of 1,000,000 for the group as a whole. Then, a short note on the CapEx, on C28. We always communicate and still remain confident that our longer term average percentage of sales in CapEx is around 2.5%. But, we've changed the way we made the deal with the IT suppliers in our key transition program. Which means that the CapEx is more front loaded, and also in relation to the distribution center infrastructure.
We see that we have some more costs than anticipated. So we initially thought a net CapEx level around 20 to 25,000,000, we think at this moment it will be around 35,000,000. And it's also something for the next next few years. So that means that we will have an investment peak of approximately $90,000,000 to $95,000,000 in 2018 2019. Still overall over the next 5, 6 years, the average of these 5 to 6 years will be around 2.5% of sales.
So, that means that after this peak in 2018 2019, CapEx will go down quite significantly in the years thereafter. Given the plans that we have today. Then one last remark that's on the IT on sheet number 29, I have to explain a little bit about the graph because what we see in this graph is, how the total 60,000,000 that we announced as one off cost for the IT transition will affect the P and L. These are the orange bars combined over a period of 8 years. And the orange bars represent basically the operational expenses on the one hand, but also the amortization on the CapEx, that we do in the next couple of years.
And, the amortization of the CapEx and the operational expenses combined, that will be 1,000,000 in the next, few years in the division as we see it in the orange bars. That's different than the CapEx because the CapEx which is 1,000,000 out of the 16. That is front loaded as explained already. That's the way we set up the contract with the software suppliers we pay initially a significant amount and the development costs will be significant in year 2 3. And these are all accounted for CapEx and then we will start amortization when we when we start using the soft swear, which is by the end of 2019 in Belgium and by the end of 2020 in the Netherlands, and that gives the orange picture of the towed 1,000,000.
So nothing has changed on the total amount, okay, 1,000,000 for the 1 off transition, which is divided in 1,000,000 CapEx and 1,000,000 OpEx but the division and the impact on the P and L is represented in the orange bars. While we are well underway in preparation for that program, the internal organization is set up and ready to go right after the summer. We've entered into the contract with SAP around the mid year and we selected the PwC as our business partner for the change that we need to do in the organization. And we are in the last phase of selecting the system integrated partner, which is the party that will actually build the SAP module conform to be able to perform in this legal situation. So we expect to launch the program at the beginning of fourth quarter end of third quarter.
And it will have a throughput time of roughly 3, maybe 4 years from now on. That concludes my presentation. Let's use the remainder of the time for question
you. There's a question coming from Mr. Stefan Mayo, Alliance Global Investors. Go ahead, please.
Hi, Rob. Hope you're doing well.
Yes, I am.
Hi. Two questions actually on the growth rates you reported. So within Netherlands, can you please explain a bit more detail how this miss or underperformance to market come? So 1.9 you, you kind of report against 3.3. Why is that?
And eventually due to competitive reactions, of you doing the Heineken distribution deal, how does this affect the overall competitive situation there? And secondly, on Belgium, 5% growth, how sustainable is that or what do you think this number might look like going forward?
I think the first and the second question have something to do with each other. So, what we see as a main reason is that we have used up most of the external Salesforce to, to visit all the customers that we acquired in the Heineken transaction. It means you have to give these customers comfort that they will have security of supply and continue with the their business and delivery with us, which means that the prime focus of our sales force has been on customer retention. Instead of a customer new customer acquisition. And we think that that is one of the major reasons why our first half year performance is below market at this stage.
And then to further on your second question in Heineken, Of course, once you announce a deal like this, then your competition starts to, hunt your customer base that you just acquired because they know there's a period of uncertainty. That's also why we put the focus on customer retention first, because we know this happens in this way. That's the experience we have in the market. Overall, we see that we've been quite successful in retaining the customers on the Heineken portfolio could also see it in the sales figure that we anticipated a net effect of $170,000,000 per year We are now at 1,000,000, so that's roughly half of it and also accounting for the seasonality. We are nicely on track to retain to retain the levels that we that we acquired, but we also think and feel that the time is right now use the second half of the year to be more, on the customer acquisition in the second half.
So that's why we think that we can close the gap to the market development to quite some of an extent, going forward. And then your last question on Belgium, Well, we think we anticipate that this level should be sustainable and should either should even increase because opening up new store in Antwerp and in the second half of the year means that we have a broader basis for a customer acquisition in Belgium, which is an all organic. So, well, we would be very disappointed if the number going forward is lower than 5%. But this is the performance of the current business that we bought. So this is Java and ISBC combined.
And they run more or less standalone from a commercial perspective. So we are very happy to see that their combined efforts are leading to this outperformance of the market. But we think it will increase on the back our expansion in the number of outlets in Belgium.
There's an additional question coming from Mr. Steven Valle. Go ahead please.
Hi, Rob. As I have the opportunity, just on Belgium still, with respect to the number of sales reps you have there, can you give us some more better feeling? How many people there are on the ground and also how aggressively you invested in your personal there?
Yes. So, on the sligro that we did basically from the Dutch base into Belgium. We have said that the team which is currently around 8 sales representatives and now they have joined forces with the ISBC sales representatives, of course, that came to the acquisition. So we have a team of think around 12 people on the road in Belgium. And the YAVA have their own Salesforce, which is, I think, around AP So I think in Belgium, we are around 20 people in the sales force today.
Of course, we also need to have the infrastructure in place to be able to service the customers to really give a push in that sense. So we are pre investing in preparing the market and make sure that for instance, if we open up Antwerp that we already have a portfolio of customers that we can immediately transfer to successfully start up these locations.
This is from the slide. There seems to be no further questions.
Okay. Thank you. Then I will wrap up. I would like to thank you all for joining in on this call. Contrary to what we've done before is we've given more details and insights on the results development and expectation for the remainder of the year.
We hope this provides a little bit more clarity because we also understand that with all the moving parts, visibility was a little bit lower than usual. If you have any further questions or would like to have some specific comments, feel free from a technical perspective to to send me an email and ask questions and I will get back to you as soon as possible. So for the time being, I would like to thank you, and, hope you enjoy your holidays, which is starting now for most of us. I think and I hope to speak to you again next time when we present our annual results. Thank you very much and speak to you again.
Bye bye.
Ladies and gentlemen, this will conclude the Slicher Food Group Event Call. You may now disconnect your line. Have a nice day.