Hello everyone, welcome to the Axfood AB Q2 2019. Throughout this call, all participants will be in listen-o nly mode, and afterwards there will be a question-a nd- answer session. Today I am pleased to present CEO, Klas Balkow and CFO, Anders Lexmon. Speakers, please begin your meeting.
Thank you, good morning everyone, and welcome to Axfood's financial report for our second quarter. As you heard, with me today I have our CFO, Mr. Anders Lexmon. Let's now move into the report and kindly then ask you to turn to page number two. Our agenda for today will follow our normal structure. We will go through our key ratios for the quarter as well as our financial position. This time I will also be fairly brief in our strategic update. We will, as always, end the conference with a Q&A session. Turn page to number three. Let me start with a quick overview of Axfood. Our house of brand structure is clear with a common logistics and sourcing that create economy of scale. Versus last time, you may see on the slide that the brand Direkten is no longer there.
This is due to in the quarter we have divested our shares. We had a 50% ownership to the franchisees. At the same time, we have prolonged our agreement to be their supplier for the coming years. Going to page number four. Before we get into the key ratios, I would like to highlight the essence of the report. With our growth of approximately 7%, we are clearly gaining market shares. We also report a solid profit as we even exclude in the IFRS 16 effect, we beat last year's record quarter. Our profit is also solid as our number includes several investments for the future. Kindly ask you to turn page to number five. Let's now move into the key ratios for the second quarter. Please go to next page.
For Axfood as a whole, we report the net sales growth of 6.7% to slightly above SEK 13 billion. This then includes a positive Eastern effect in our case of approximately plus one and a half percentage points. Worth noting is that we are meeting high comps, not only from last year. Since 2016, we have performed a 20% growth over the three-year period. All our segments have contributed in this quarter, while it must be said that particularly Willys and Axfood Snabbgross shows really strong like-for-like numbers. Turn page to number seven. If we look at our sales development in our stores and online, including then Hemköp franchise, it shows a total growth of 7% compared to the market growth of 4.3%. Both numbers include then the positive calendar effect due to Eastern. We are clearly continuing to gain market shares. Turn page number eight.
Food online in Sweden, if I base that on Svensk Dagligvaruhandel index, they noted a 24% growth for the second quarter, while for us in Axfood, we report 37% online growth. Please go to next page number nine. Moving to our profit. Our operating profit came in at SEK 601 million, including IFRS 16, and SEK 557 million excluding the IFRS effect. Last year, we noted a strong record quarter, so solid that we're able to slightly over-perform even last year's number. This is mainly driven by strong like-for-like growth and a balanced cost control, particularly in Willys and Snabbgross. On the other side, Hemköp is still in its investment phase. That has influenced our margins negatively. Also, we have in this quarter started our dark store in Stockholm, a project that we have several learnings from and initially drives additional costs.
I will come back to all of this later on in my presentation. Let's now go through all our segments, and I'll start with our largest one, Willys. Turn page to number 10. Even if we, for Willys and for all of us, had a positive Easter effect, it must be said that Willys shows really strong like-for-like growth as comps are very high. Behind our refurbishment program, more customers, and increased basket, Willys noted an 8.9% growth and almost 8% like-for-like growth. Versus last year, we have four more stores in the network, and we continue to roll out our online offer to more stores. In the quarter, we've added nine stores to total 70 stores with our online offer.
With the positive like-for-like, we also increase our profit to SEK 368 million, or SEK 342 million excluding the IFRS 16 effect, versus last year's SEK 307 million. With the latest year's development, we think it's well-deserved that Willys in May received Retail of the Year award among all retailers in Sweden. Please turn to page number 11. Going into Hemköp. Hemköp as a whole came in with a 3.4% growth and 3% growth in like-for-like. Our franchise stores continued to outperform the market, while we had slower growth in our group-owned stores. As you are all aware, we continue to invest in Hemköp, and even if I would have liked to already now see stronger effects out of these investments, we are confident that over time, investments will pay off.
Our profit came in at SEK 52 million or SEK 42 million excluding the IFRS 16 effect, versus last year's SEK 68 million. This is mainly due to slow like-for-like in our group-owned stores, less favorable sales mix, and market investments. Please turn to page number 12. Going to Snabbgross segment. It is pleasing to see this quarter's growth in Snabbgross as we are also in Snabbgross meeting high comp last year. Our growth rate of 6.8% is driven by more customers and higher average ticket. Behind the positive like-for-like and some lower campaign intensity, we are improving our profit to SEK 57 million or SEK 55 million excluding the IFRS 16 effect versus last year's SEK 42 million. Turn to page number 13. Our last segment, Dagab, reports a stable quarter. Our positive sales growth of 6.7% is driven by strong sales in Willys, Snabbgross, and Hemköp franchise.
Profit came in at SEK 179 million or SEK 173 million excluding the IFRS 16 effect, compared to last year, SEK 181 million. Our underlying operating profit is healthy, while in this quarter the profit has been impacted by future investments like the dark store implementation and investments in Urban Deli and Apohem. In addition, we have some negative currency effect in this quarter, as well as increased fuel costs. With this, please turn to page number 14, and I would like to hand over to our CFO, Mr. Anders Lexmon.
Thank you, Klas. Then we are on page 15. Let me then first summarize the development of the first six months. We see that Axfood had a good growth, and as Klas mentioned earlier, especially from 2016. We had an average yearly growth of 5.6% during that period. Net sales for the first six months this year showed a growth of 5.5% compared to last year, and our like-for-like sales within the Axfood Group stores were healthy 5.2%, and we gained market share also in the first half of 2019. The operating profit summed in the first six months up to SEK 1,096 million, which implies an operating margin well in line with our long-term goal of 4%. IFRS 16 had a positive effect on operating profit with SEK 87 million and on the operating margin with 0.3%. Please turn to page 16.
Our total cash flow for the first half year is in line with last year, SEK -833 million compared to SEK -863 million, 2018. As we had in the first quarter, we also in the second quarter had an IFRS 16 effect that affects both operating cash flow with SEK +760 million for the first six months and amortization of debt with SEK -760 million, thus zero effect on the total cash flow in the period. The change in working capital was negative this first half year, but compared to the first quarter, it was an increase with a little bit more than SEK 100 million in the second quarter. Mainly due to a positive calendar effect at the end of June, but also to improvements in the underlying net working capital, which I will come back to.
We also had lower impact on net investments this year, but that is explained by a divestment of an asset hold for sale with approximately SEK 100 million that we did in the first quarter this year. Share repurchase and dividend payout was in line with last year. Turn to page 17. Looking at our CapEx, we had investment of approximately SEK 500 million during the first six months. This is well in line with the estimated CapEx for the full year. Therefore, we reiterate our guidance of a CapEx range between SEK 1.5 billion-SEK 1.6 billion, including SEK 600 million in automation in our new logistics center outside Stockholm. The difference compared to last year was mainly attributable to higher investments in our retail operation, higher pace in establishments, both in Willys and in Hemköp, and also refurbishments.
In the wholesale operation, Dagab has had some lower investments, mainly due to the major investment in the warehouse in Jönköping last year. The new Jönköping warehouse is now fully up and running. IT investments and others was in line with last year. The IT investments consist of IT projects, infrastructure in stores and licenses. Please turn to page 18. Coming back to the development of net working capital, we saw further improvements in the second quarter, both in Swedish krona and as a percentage of net sales. These graphs are showing the net working capital for 2019 on a rolling 12-month basis. If we break this down to the most important items, we have a stable or improved share of net sales.
Especially the development of accounts payable has a positive trend so far this year, explained both by better payment terms, but also the progress in our work with supply chain financing. Turn to page 19. This is a picture of the development of Axfood's financial position. During the last five years, we have more often had a net debt receivable position than a net debt at the end of June, and so also this year, if we exclude the effect of IFRS 16, as you can see at the right side of this slide. This year, we are back on the levels we saw in 2015 and 2016. If we include IFRS 16, we increase our net debt with over SEK 5.8 billion at the end of June, and the equity ratio dropped to just below 20%.
If we exclude IFRS 16 effect, the equity ratio was in line with last year. We continue to stand on a solid base with an equity ratio well in line with our long-term goal of 20% at year-end. Page 20. If we take a look at the development of our capital employed, we see the same picture. If we exclude the IFRS effect, we had a capital employed level of SEK 4.2 billion and a ROCE of just about last year, approximately 49%. In other words, we continue to have a high capital efficiency with increased earnings, but although a big effect of IFRS 16. Turn to page 21. Finally, let me just repeat the effects of IFRS 16 in a couple of key ratios. The equity ratio decreased with approximately 12 percentage points and net debt increased with SEK 5.8 billion.
In the P&L, EBITDA in the second quarter increased with SEK 389 million to SEK 1,137 million, and EBIT increased with SEK 44 million to SEK 601 million since the lease payments now are divided into partly depreciation and partly interest costs. ROCE decreased from 48.6% to 30.9%, and the cash flow from operating activities increased with SEK 362 million to SEK 1,085 million, and the cash flow from financing activities decreased with the same amount, and the total effect in the cash flow was therefore zero. With this, I hand over to you again, Klas.
Thank you, Anders. I will now end up this part of the presentation through providing a quick and short update on our strategic agenda. Please turn to next page number 22. We'll move on to number 23. As earlier informed, we have six strategic areas with some clear priorities. I don't intend to go through all the six areas today. However, I would like to make some comments in two of them. Please turn to page number 24. First, expansion. We have a target this year to open up five to 10 new stores, and with five store openings this quarter and one store in our first quarter, we must say that we are well in line with our target of five to 10 new stores that we have set out for this year.
In addition to new group-owned stores, I also can remind you all that as of end of Q3, we will welcome the retailer Östenssons with nine stores as new franchise members in Hemköp. We will also continue to roll out our online offer to more stores. Finally, our online pharmacy store, Apohem, is now fully up and running. With Apohem, we now continue to build the brand and reach out to more and more customers. Let's turn to page number 25. Let me then provide some update regarding our supply chain. Let me start by sharing the news that we have after the period end, signed the agreement with NREP for them to provide the facility for our new logistic center in Bålsta, northwest of Stockholm. The agreement is in line with the earlier announced letter of intent, where we'll have a long-term rental agreement with NREP.
Next step is now to finalize the agreement with the automation supplier, Witron. We plan to give you more details around all of this when we have all of this in place, most likely already in the next quarter. Another priority within supply chain has been to implement common dark stores. Please turn to next page number 26. As we have communicated earlier, as of May, introduced our first common manual dark store in Stockholm for all our food online brands. We have many learnings from this introduction in terms of systems, range, and routines. The next step are now to capture all these learnings and to improve our efficiency before we implement this in Gothenburg, which we plan to do in 2020. Let's now go to page number 27.
I'm now going to give you an update on our outlook. Please turn to page number 28. As Mr. Lexmon said, we are repeating our outlook for our planned CapEx. Plan is to spend SEK 1.5 billion-SEK 1.6 billion, which then includes SEK 600 million for the automation of the new logistical center. That is an investment that will happen this year. Go to next page number 29. Before we go into the Q&A session, let me then summarize this quarter, where First, we report strong sales with all segments contributing. Based on this morning's market data from D agligvaruhandel, it's clear that we continue to gain market shares. Two, we report solid profit, which also includes several investments for the future. We'll now go to the Q&A session. I ask you to turn to next page.
With this, I hand over to the operator to moderate this session. Over to Marella.
Thank you so much. If you do wish to ask a question, please press zero one on your telephone keypad now. The first question is from Niklas Ekman from Carnegie. Please go ahead, your line is now open.
Thank you. Yes. First, I'd like to just ask a little bit about Hemköp. If you can talk a little bit more about the reasons for the weak development, and then also what restructuring efforts that have been made. If you could just elaborate a little bit on this topic, I think that would be very helpful.
Hi, Niklas. Well, as I stated, for some time now, we continue to refurbish stores. We continue to develop the concept. We have invested in somewhat more marketing activities. We're also investing in our staff. We also have, in this quarter, opened up two more stores. We have looked into our store network. We also closed one store. All of this is also bringing some additional costs versus last period. These are the kind of investments we are doing, and as I stated, or denied, I would have liked to see more effects out of these in terms of like-for-like growth, which we are sure will come. We have not seen it fully yet. Basically, that's the elaboration.
there's no particular timeline here where you are now in an investment phase and where the payoff is expected within a defined number of quarters or anything like that? It's more a work in progress.
That's correct. We are, for some time now, continued to drive the agenda for Hemköp to further step up our stores, to meet more customers and to drive that. Obviously, we want to see the effects out of that in terms of like-for-like, as we move along. It's a work in progress.
Okay, thanks. Online sales now in the Stockholm area, you have shifted entirely to dark store. Is that correct? You've stopped picking in stores. Were there any costs related to this or anything else?
That's correct for the home deliveries. All Stockholm area now goes from our dark store. Yes, it has been cost connected to this in Dagab. When we do this, we have three or four brands with various range. It has been, as I said, some learnings where we have increased staff particularly to handle this in this initial period. We are capturing all the learnings. We want to see more efficiency as we move along, but initially, we have added more cost into it, particularly or mainly then more staff into the dark store as we're handling it. We're learning and we are getting more experience out of it. The system there is there. We're pleased with that. The structure is there, but obviously it's a startup phase here.
Okay wxlalelrnt. I'm also curious, when you talk about the market development in general, taking a step back here, looking at the sales growth, 7% versus 4.3%. It's clear that Axfood is outgrowing and then Willys here in particular. It looks like ICA has been performing in line with the market. Are we still mainly seeing that the Coop is the one that is losing market share? Have you seen any changes there in the competitive environment in terms of the dynamics there?
Well, I can only see as you are seeing the total market. I can just conclude that from a total market perspective, we are gaining market shares. Unfortunately, I don't see the other players in the market reporting their numbers. I can only sum up that versus the market as a whole, we are growing faster.
Okay, great. I've also noted here, of course, Lidl is ramping up significantly in 2019, opening some, I think, 23 stores this year. Have you seen any impact to the closest Willys stores or is it too small to have a measurable impact?
Well, if we look at Willys, particularly as you see from the report, we have a very healthy growth in Willys at the moment, both in terms of Willys Hemma, our large Willys as well as Eurocash. From that perspective, we are pleased with our development.
Excellent. Thank you very much for taking my questions. I might come back later with some more, but I'll pause there.
Okay.
Just as a reminder, if you do wish to ask a question, please press zero one on your telephone keypad now. Next question is from Daniel from Danske Bank. Please go ahead, your line is open.
Yes. Good morning, Klas and Anders.
Good morning.
Good morning.
Good morning. Just some more questions on Dagab. They touched upon it when it came to the dark stores and some extra costs. It sounded like you were saying that you are hoping to get better efficiency, but it will take some time. Is that a correct interpretation that we should see some extra costs also for Q3 and maybe for Q4? Could you also add comments for fuel and aspects as you enter Q3? If we start with that.
No, I think you captured it right. Basically we are up and running fully for all Stockholm stores now as of May. I expect to continue to have some higher costs, even if I also have expectations that we will also be more efficient in this. Initially, we have higher costs out of that. That will continue for some quarters, I expect that. Regarding the other comments you mentioned. Currency, we'll see how that turns out. We don't know. As you follow the krona as well, so you see that has an impact. Fuel cost is also somewhat higher. Not so much, but somewhat higher.
Just to remind you all of that I pointed out as well in the report that for us, the change that we are looking into and from a consumer perspective where we are now meeting more prepared food, a consumer who wants to have more alternatives. We have Urban Deli that we think is a fantastic brand, that is now fully 90% ownership is in our books today. We continue to invest in Urban Deli now with more sustainable alternatives. We also start to roll out some of their brands into Hemköp. We see that's part of the structure at this stage. Apohem is up in a phase where it's building up its brand and obviously that also drives some costs. We have some future investments in this report that we actually like to have.
Thats obviously something that we believe is right for the future.
Yeah. I hear you. Good. Just online growth is of course impressive and much higher than the market. Is it any sort of anomaly that it's actually down sequentially, if I'm not mistaken, in terms of absolute numbers coming out of the online, despite the fact that you are extending the number of stores that you are providing online from and that you had Easter in Q2 and not in Q1? If you see what I'm saying.
Not sure. I mean.
I think all you want is Q2 versus three to five in Q1, i.e., sequentially online is a bit lower in terms of absolute numbers.
I think you will see that as we move along, some variances regarding online that differ somewhat from the physical stores.
It has nothing to do with sort of disruptions when it comes to the dark stores in Stockholm or anything like that?
No. It's more related to Normally you see a somewhat slowdown prior to when customers go into vacation period and they go to travel or the summer houses and so on. It's a different pattern, you can say.
Yeah. Sure. Just finally, Easter is at 1.5%. There's no reason to believe that the earnings impact was any different than what you usually said.
We have no. Margins is as we are meeting a sales mix last year, which I think you remember was very positive due to the warm period there. Easter is somewhat lower. We can also mention that we have a somewhat slightly higher Easter effect in Willys and Hemköp is not having that high Easter effect.
Super. Thank you so much.
Okay. Yeah. Thanks.
Next question is from Fredrik Ivarsson from Kepler Cheuvreux. Please go ahead. Your line is open.
Thank you. Morning, guys.
Morning.
Morning.
Quick question here. Most have already been asked. One on the supply chain financing program. Is there any chance you can sort of give us ballpark figure on the positive impact on net working capital there? Also some guidance on what to expect in the upcoming two, three quarters. Thanks.
Yes. We see on a rolling 12 months basis that we have a positive effect of approximately, I would say, SEK 150 million in accounts payable. Regarding to what we see ahead, I think it's quite hard to give a figure there because it depends on how the progress will develop with the supplier section. We will come back to that.
It's fair to assume that it will be fairly positive in the upcoming quarters as well?
We still work with it, of course, and we do what we can, it's hard to give any guidance there.
Okay. Thanks. That's all from me.
Thank you.
There are currently no further questions registered, so I'll hand it back to the speakers. Please go ahead.
Thank you. I think it's summertime, and I would like to say thanks for listening, and I wish you a great summer. Thank you all.
Thank you.
This now concludes the conference call. Thank you all for attending. You may now disconnect your lines.