Good afternoon and welcome to the Axfood AB Q2 2018 report. Throughout the call, all participants will be in a listen-only mode, and afterwards, there will be a question-and-answer session. Today, I am pleased to present CEO Klas Balkow. Please begin your meeting.
Thank you very much. Obviously, let me also welcome you to the presentation of Axfood's second quarter 2018. As the headline states on the first slide, I am pleased to sum up the second quarter and state that we had yet another strong quarter. Let's now go to the next page that will cover the agenda for this presentation. We will go through the key ratios for the second quarter. We will also go through our financial position. That will be presented by our CFO, Mr. Anders Lexmon. I will then do an update on some of our strategic steps in the quarter, as well as some activities going forward. We will end this session, as I said, with a Q&A, where you will be able to ask questions to both myself and Mr. Lexmon. Let's now turn to page number three.
Before we go into the numbers for the quarter, let me just remind you of where we are today. We have a clear house of brands strategy, and in the quarter, we also added one new brand to our family. This since Apohem launched its online pharmacy in June, which means that we now have five online brands, three in the food supplier, one dinner bag company, and then Apohem. Together with all other brands, we have over 300 group-owned stores, and in total, we collaborate and supply goods to over 1,100 stores throughout Sweden. Let's now turn the page and go into the second quarter's highlight. First, I must make a comment on the warm and sunny weather during the quarter.
This is something that has been positive for Axfood, especially if we look at Axfood Snabbgross that supports the cafe and restaurant business that had a really, really strong quarter. The warm and sunny weather also had a negative impact on particularly Swedish food production, something that I will address later on in my presentation. We also had a favorable performance in all segments with strong profits and actually a record profit for a second quarter. We continue to see high growth rates on our online business. As volume increases, we are pleased to see that we are also achieving better productivity, which decreases the burden on our margin. Let's now go into the next page five, and start covering some of the key ratios for the quarter. Next page six.
If I start with sales, looking at the second quarter, I must comment on the growth rate that is influenced by high comps from last year, and this year also includes a clear negative Easter effect. For Easter, we calculate that we had a negative effect for the group in the range of 1.5%-2%. Despite this, we increased net sales in the quarter by 2.5%. The warm weather had an impact, as I mentioned, but not only for Axfood Snabbgross. The weather has affected harvest and the supply of, example given, fruit and vegetables, which in certain product categories led to some clear price increases. An early summer also kickstarted the barbecue season and increased sales for certain categories such as meat, soft drinks, and frozen food. This in total impacted the consumer behavior and our overall sales mix.
We had also good growth in all our segments, and as mentioned, particularly in Axfood Snabbgross, but also Willys and Hemköp reported healthy growth. Dagab has been impacted by not only Easter but also a negative calendar effect, and I will come back to this when we go through segment by segment a little later on in this presentation. I am now turning to the next page 7. Overall, if we look at the first half of 2018 and our store sales, we had a growth rate of over 6%. Now, we do not yet have the market data for June, but until May, the market has grown by 3%. In the graph, you can see the outperformance of the market, partly due to acquisitions, but in this quarter, all sales are for us organic growth.
If I isolate the quarter's store sales, our April to June figure was up 3.2%, and if I compare that to the figures we have so far for the market, though April, May, the market grew by 1.2% in current prices. So we are fairly confident that we also in this quarter continue to gain market shares. I am now going to the next page 8. If we look at our profitability, we delivered actually the best operating profit for a second quarter ever in the company and also showed top profitability with an EBIT margin of 4.5%. The higher like-for-like sales contributed to our increased earnings, but the warm weather also resulted in a positive sales mix that benefited our overall margins. All segments contributed to the strong earnings.
The fact that we in this quarter only opened one new store and had fewer larger refurbishments was also favorable to our profitability, particularly then in Hemköp. But I also want to comment on that the online continues to weigh down earnings, but the burden on our margin decreases as we manage to achieve better productivity with the volume growth we are currently seeing. Now, let us now go into each segment, and I will start with the largest one, Willys. I will turn to page 9. I am pleased to see that Willys continue its positive momentum and reports another great quarter, both in sales and profitability. The negative Easter effect has a high impact, particularly on the Willys segment, but not only in the Willys stores, but also on our cross-border business, Eurocash, that had softer sales in this period just due to the Easter effect.
Despite this calendar impact, Willys is showing a like-for-like sales over 2%. If I compare the quarter with the same quarter last year, we have three more Willys stores in operation. In this quarter, we open up one more Willys Hemma in Malmö, but we also closed one Willys in Stockholm greater area due to an overall area reconstruction, and the store and the area will open up again in 2020. We continue to roll out online to its store network. In the quarter, Willys offers online shopping in five additional cities and more stores in larger cities have been added to our service. Number of stores are important for Willys due to the high share of click and collect that is actually now still above 50% click and collect rate for a store on average.
All in all, we now offer online in 48 Willys stores in 27 cities, and at the year-end, we plan to have approximately 60 stores in 30 cities with our omni-channel offer in Willys. Finally, let me also comment the strong profitability Willys is reporting in this quarter, which clearly is impacted not only by the positive like-for-like sales, but also a positive sales mix effect due to Easter, since Easter is a low margin period, as well as the warm weather has been supportive, as I mentioned earlier, in terms of our margin mix. Let's now move to the next page 10. Going to Hemköp. Hemköp is also showing a good growth rate overall, which is positively affected by the last year's closure of Hemköp City. Hemköp reported more customers and also higher ticket value.
Our like-for-like in total, Hemköp came in at 1.7% increase, somewhat softer in our group-owned stores. The increase in earnings were positive and satisfying. However, it's fair to say it's boosted by the fact that this year we didn't have the new openings as we did last year. We did not have the same refurbishment as well in the larger stores as we also did last year. For Hemköp, the sales mix has been positive to our margin, just the same as we noted in Willys. The development for online has been favorable also in Hemköp. With strong online growth, we also state better efficiencies as well in Hemköp, which is reducing the negative margin impact from the online business. Move to next page 11. Going into Axfood's Snabbgross. From a growth perspective, Axfood's Snabbgross is this quarter's star.
It really stands out in the quarter. I return to the comment regarding our early and steady warm weather, which boosts the demand from restaurants and cafés. Axfood's Snabbgross grew with almost 10% with a like-for-like sales of almost 9%. If we look at the market, overall market for April to May, we don't have data for June there. We have seen a 6% growth, the overall market is actually positive. But having said that, we are noting that we are growing faster than the market, which indicates that we're also gaining market shares in this segment. On profitability, we have a slightly lower margin than last year. This is mainly explained by the recent store expansion program in Snabbgross. Moving on to the next page 12. The last segment that I would like to comment on is Dagab.
On the first glance, it looks like it comes in with a soft sales with 1% growth. Here we have to comment on the Easter effect as well as less delivery days in the quarter. In addition to this, as you know, we don't any longer support Mathem. If I add the calendar effect and the loss of Mathem, there is another 2% growth for Dagab. Total underlying growth is then 3%. Looking at the profitability, Dagab maintained its margin in the quarter, despite slightly higher cost in logistics and the online growth we see in Mat.se. A final comment on this slide, Axfood's private label share increased in the quarter. Obviously it's very positive to see the increase by more than 2 percentage points.
I also want to be clear on that half of this is the organic growth. The other half, approximately 1 percentage point, is due to reclassification of parts of our seafood business that has impacted the number in a positive direction. With this, I'll turn to next page and at the same time hand over to our CFO, Mr. Anders Lexmon. Anders?
There you go. Thank you, Klas. I will now lead you through Axfood's financial position. Next page, please. Let me first summarize what you just heard from Klas from the second quarter with the development of the first six months. Net sales shows a good growth for the first half year with 4.9%. Our like-for-like sales within the stores were healthy 3.5%. The operating profits summed in the first six months up to 980 million SEK, which implies an operating margin in line with our long-term goal of 4%. Next page. Our cash flow was much stronger this year, minus 863 million SEK compared to approximately 1.4 billion SEK in 2017. The main difference is the four acquisitions we did last year. This ends up in a stronger cash position at half year end compared to last year.
Our business generated a good cash flow, 130 million SEK more than last year. The cash development are mainly dominated by our investments in our business and the dividend payout in the first quarter. With the dividend increase of one SEK to seven SEK per share, we increased the total dividend payout with another 200 million SEK compared to last year. In total, we paid out 1.5 billion SEK. As last year, we have also this year in the second quarter repurchased shares to match this year's long-term incentive program that the AGM approved in March. This year, 30 million SEK compared to 28 million SEK in 2017. To match this and last year's program, we now hold less than 400,000 treasury shares. This dilution has no effect on earnings per share. Next page.
Looking at our CapEx, we had investments of over SEK 400 million during the first six months. This is less than half the estimated CapEx for the full year. We plan to invest some more in the second half of 2018. For the full year, we reiterate our guidance of a CapEx range between SEK 900 million-SEK 1 billion. The difference in investments between 2018 and 2017 is mainly the SEK 1 billion we invested in the four acquisitions last year. During the first six months, we have invested some SEK 100 million more excluding acquisitions compared to last year. The difference is mainly due to higher investments in our wholesale business and IT. In wholesale, one major investment is our new fresh food warehouse in Jönköping.
The warehouse progress has moved into the final phase, where the automation will be installed in the second half of this year. IT investments consist of both IT projects and the infrastructure in stores and expand data capacity. Next page. Our net working capital has improved some in 2018, both in Swedish krona and as a percentage of net sales. These graphs are showing the net working capital for 2018 on a rolling 12-month basis. The decrease in 2017 was due to acquisitions. Now we have improved acquisitions and are back on the share of sales of minus 2.3% as prior to the acquisitions. If you break this down to the most important items, we have a stable or improved share of net sales. The development of accounts payable and accounts receivable are positive. Next page. This chart shows our strong financial position.
During the last five years, we have more often had a net receivable position than a net debt at the end of June. Last year, we utilized the debt as we acquired four businesses. This year we have a small net debt receivable position of SEK 6 million. Everything else equal, this position will be built up through our strong cash flow as the year proceeds. We stand on a solid base with an equity ratio well above our goal of 25%. We are, in other words, well equipped to continue our strategy of future growth. Next page. To sum up, we take a look at our capital employed. We have high capital efficiency with increased earnings over the last years and a stable level of capital employed, which have led to a return on capital employed of around 50% the recent years.
With this, Klas, I hand over to you again. Next page.
Thank you, Anders. Let me now also then give you a quick update on our strategic agenda. I am now moving to page 21. Let me start by reminding you of our strategic platform with the six areas in our strategy, where three is related to growth, customer offer, customer meeting, and expansion. Two is in the efficiency area, our supply chain and work approach. Last, but not definitely the least, our people. Throughout the strategy in all areas, we work integrated with our sustainability efforts. That is actually the area I would like to start with today. If I go to the next page 22. As you can see on this slide, we have now been able to calculate our climate impact for 2017. We have our overall target to become climate neutral by 2020.
We must say we are making good progress. Compared to 2009, we have reduced our CO2 emissions by 84%. Compared to last year, we have reduced our impact by 23%, which is the same pace as the year before. The largest climate footprint is made by our refrigerators and freezer units. This is also where we make our greatest improvements. In pace with the replacement to units using more environmental friendly refrigerants, we are getting better and better. We are well on track and following our plan on phasing out the worst units, and we plan to handle these investments within the normal refurbishment programs during the coming two years. The second largest impact on the environment is the transports to our stores. Last autumn, we took the decision to stop buying HVO biodiesel since it contains palm oil.
This was important to us to drive the development of sustainable transports. However, it means higher carbon footprint for Axfood as a company going forward. There is no significant effect on this in 2017, as you can see on the chart, but it will have an impact on CO2 emissions from transport in 2018 unless we quickly see a change in the fuel offering. Going to the next page 23. Let me now update you on some of the actions within the customer offer. Let me start by making a comment on the recent issue we are facing within the Swedish food production due to the very warm and sunny weather. This is something that we in Axfood look very serious upon as it will have large consequences. Among other things, it is affecting the farmers' supply of cattle feed.
We are working actively to find joint solutions within the food industry to support the farmers in this challenging situation. What and how large the impact will be is difficult to predict at this stage, but most likely, we will see an increase in Swedish meat production and a decrease in dairy products already after the summer. If I now go to page 24, we will then comment in terms of our customer offer that partly relate to this and within our strategy, we want to increase the image of frozen food. We urge our consumers to use the freezer as a tool for better cooking. It is a smart way to get tasty food and to do the right for the environment every day.
A couple of weeks ago, in connection with Almedalsveckan, Axfood launched its third version of Mat 2030, our suggestion to food strategy for Sweden to get a more sustainable society. One of the 69 suggestions we came up with is to make consumers aware of the high nutritional content in frozen food. There are more advantages. We reduce food waste by filling up the freezer as well as reduce the need for flight transportation. If we want vegetables that is not in season, it's clever to buy frozen ones. In Axfood's report Mat 2030, we point out initiatives that are a mixture of what we urge the politicians to support and what we as retailer can achieve. One issue that both the authorities and we need to emphasize is to reduce the levels of sugar and salt.
We have taken a nice step in the quarter concerning sugar as we relaunched soft drinks of our private label with 30% less sugar. By reducing the sugar content, we save 150 ton sugar per year, and this obviously without changing its taste. Going now to the next page 25. As we already talked about, we had a good development in our private label. During the second quarter, we launched approximately 70 new private label products. Several of them is within the vegetarian product range. 17 of the products were organic within the different product categories. We also launched cup salad in portion packages. Research studies showing that despite its need for plastic for wrapping, it's better for the environment in total due to the reduced food waste. As half-eaten salad packages are too often thrown away as food waste.
We hope to change this with the portion package products. Turn to next page 26. Here, let me also give you an update on our expansion priorities, and it will be going on to the next page 27. On June 12th, Apohem opened up its online pharmacy, and Apohem shall be the challenger to the physical pharmacies and have a price policy that is considerably lower. So far, Apohem has not the approval to handle prescriptions, but an application is pending. Right now, Apohem has an assortment of approximately 4,000 SKUs and 500 different brands in the range, including OTC drugs, health and beauty, fitness item, as well as products for house pets. The ambition over time is to offer approximately 10,000-15,000 items in addition to the prescription drugs. Let's now move to page 28.
Then a final comment on our strategic view, I would like to share with you a touch on our supply chain, which is partly a step we're taking in the direction before we move into the final logistical vision. The steps we're doing at the moment is with the acquisition on going on to page 29. With the acquisition of Matöppet, we got three dark stores, and we now take a further step and integrate the online picking in one joint dark stores to become more efficient. We are using the Matöppet dark store. At present, the products sold online in Willys and Hemköp is picked in our stores. Now we will launch one common picking facility for all food concepts ordered online, delivered to the home with focus on the larger cities.
We start in Stockholm and plan to open up our first picking facility in the first part of 2019. With this action, we will improve the efficiency of the online business even further. As you can see on the picture on the slide, we also coordinate our online distribution, which will also be significantly easier when we have the same picking facility. We coordinate that with the three online brands, we become more efficient and obviously also more sustainable. Let's now move to the last page 30. If I sum up again, we are reporting good sales growth despite negative Easter effect. Our online sales continue to show strong growth rates in all three brands, and we are increasing the productivity in this quarter in the online business.
In our everyday work, we are considering how to run our business more sustainable, and the climate footprint from 2017 is showing we are making really positive progress in this area. The development of our assortment when it comes to good and sustainable food includes the packaging of the products is another testimonial for us. We report record profit with strong profit development in all segments, not least Willys and Hemköp. Axfood has a strong balance sheet, no net debt, and a good equity ratio to support our future development. That concludes the first part of my presentation. With this, we open up for questions and also go into the next page, which is the Q&A page. Over to the moderator.
Thank you. Thank you, ladies and gentlemen. If you have a question for the speakers, please press 01 on your telephone keypad. There will be a brief pause while questions are being registered. Our first question comes from the line of Stellan Hellström from Nordea. Please go ahead. Your line is now open.
Thank you. Good day. First, I'd like to ask on the new dark store here, any effects that you expect from this in terms of maybe initially higher costs and then when it's up and running some savings, if you have any quantification you could share with us?
Well, let me first say that we are using the existing dark stores. This is more of an IT and technical development. It's still going to be manual. As we have shared, we are looking into building a logistical platform with optimization that we will do together with the logistics to the stores. That will be the next more long-term step. This is more to handle short-term step in the larger cities, particularly, I would say Stockholm and Gothenburg.
It will more relate to IT development, and it will be within the range, so it will not be material in that perspective. There will be savings. We will reach for better productivity, even if I have difficulties to quantify it for you.
All right. On the short-term effect, not much will be expensed but rather capitalized, the effects, I suppose.
Yes. Correct.
You also mentioned in this quarter that online is burdening your margin less. Is it only due to volume leverage, or have you done anything else in terms of, I don't know, adjustments to pricing or delivery terms, et cetera?
No, we have not done anything except for, as you may remember, we made an adjustment for Hemköp offering last fall. Obviously comparing Hemköp versus last year, that's an impact, but nothing else for the other ones.
All right. Your growth, is the growth rate maintained, so to say, relative to, say, the last two quarters on your online sales?
Yes, I would say so.
All right. Just also on Hemköp, it's obviously a negative calendar effect in this quarter explaining the weak like-for-like sales, but we still have quite a high food price inflation and Hemköp's like-for-like sales is lagging ICA Supermarket, for example, quite significantly. I recall you had a quite weak development also in Q1. I think you said then that you might be a little bit more aggressive on pricing or campaigns, et cetera. Have you done that, or is there something else to explain this?
I think when we're comparing, of course, we need to compare total growth and including we moved some franchise and some to our group-owned stores. I would agree, if you look at the group-owned stores in Hemköp in this quarter, it is on the weaker side. Some of that is reflecting some refurbishment project that we're doing and some rebuild that is happening. Still, we need to work on Hemköp group-owned, continue to do that. We have increased some of our activities in the end of the quarter, but as you can see on the full quarter, we have not seen a significant change from that. It's still work in progress.
All right. Okay, good. Maybe a final one just on Apohem, if you can elaborate a bit on what Apohem brings to the table, say, relative to other online competitors like Apotea.
Obviously, what it brings for us is that as we're building this channel up, we will be able to offer our customer a full online pharmacy that we can include into the offer. That's basically what it brings to us, which I think it will be something that we don't have today, versus many of our colleagues have in the market.
All right. Good. Thanks.
Thanks.
Thank you. Our next question comes from the line of Daniel Schmidt from Danske Bank. Please go ahead. Your line is now open.
Yes, hello. Good afternoon, Klas and Anders. If we just look at the EBIT number for the quarter and compare that to last year, seeing SEK 58 million in improvement despite the negative Easter impact that you mentioned, is it possible to quantify the moving parts here in terms of Easter? You said it in between the lines in terms of the top line impact, then you have maybe the lack of major refurbishments, and you mentioned SEK 15 million, if I remember correctly, when it comes to Hemköp City, and maybe they sort of square each other out. Then if you look at sales mix, how much has that impacted this 12% EBIT improvement year-on-year, you think?
Without going in to quantify the various areas, I think you're spotting the right elements here. Obviously, partly if I look at Hemköp, you're right, we had a large refurbishment last year that costed us some significant money, as well as we have the Easter effect. If you look, and I would say the majority for us is the sales mix that has been positive. It's positive in normal cases due to the Easter effect, as Easter normally is a low-margin period, and we're able to hold up sales, if I look at Willys as an example, in this period, despite the Easter effect. While at the same time, we are not having the low-margin Easter items in this period. That was the starting point of the quarter.
It followed up by a positive for us mix when it comes to the warm May, June, where we had some product categories like meat, frozen goods, soft drinks, and so on. That is somewhat positive for us from a margin perspective, and that mix was favorable for us. Then as I commented on it, we are getting more and more volume into the online business, and we're getting more and more productive, which is also less burdening for us versus last year.
Is it fair to assume that the sales mix, which was supported by the early arrival of the summer, has a more positive impact than less of a dilution effect from online-
That's-
-to last year, or are they evenly impacting the quarter?
I know you're pushing me for giving me some numbers, I think that, again, the sales mix has been very positive with the Easter and the summer sales has been positive for us.
All right. Okay, good. Can I just also ask comment on the pharmacy business? You've been up and running for a month, prescribed drugs will be added to the assortment. Do you know when to start with?
As I pointed out, it's pending the approval and sometimes that could take time. We basically have done what we call the soft launch, where we are out and testing the site and starting to sell to consumers, but obviously it will not be fully up and we will be more out for the relaunch when we have the full offer. We expect that to come within this year, but again, it's pending the approval.
Yeah. If you just look at the assortment that you have now, you are different to some extent. I believe in my eyes at least, when you look at the assortment, it's sort of more a mix between a grocery store and a pharmacy. Is that deliberate in terms of joint dark store ambitions when it comes to Stockholm? To start with, is Apohem also included in those plans?
No, I think if you look at the offers that is out there, you have some of the dry items within this kind of offer. Obviously we have not built out the full range yet. Our aim is to become a relevant pharmacy online provider.
Okay, the perception might be changing.
The perception in the beginning a little bit, I would agree to that.
Yeah. Okay. More sort of a long-term question, when it comes to the store expansion and you've seen this online growth, of course, and everyone is searching for the answer where the online penetration will go in Sweden. If you come back to your beliefs and the store expansion on the other side when it comes to Willys, what should we expect? Could you say anything more about that in the coming few years?
Well, I think if you look at the store expansion program, I commented that on the previous quarter, that we will be in the lower range. We have seen some stores that is moving to 2019, we also, as I mentioned today, we have one store that's going to be reopened 2020. We will have more stores coming into the pipeline in 2019 and 2020 again. We still see positive opportunities for open physical stores for Willys. The same time, we also are very pleased to see the development every time we open up for online for Willys, as an example, we're getting a very positive response. We are also, I think, having a very high click-and-collect rate, which is obviously positive for us, which leads to that we can open up online outside the largest cities in Sweden, Stockholm, Gothenburg, Malmö.
Would you say that your ambitions and the money and the approach that you allocate to finding those new store locations hasn't really changed in the past year?
I think it has changed as we are obviously following. We are very cautious. We are not looking for in terms of format, it's not the larger format, it's more the smaller formats in general terms. We're also looking at opportunities to add the full omni-channel service into the format. Also to be flexible is a key ingredient. Again, coming into the development, of course, if we are seeing a positive where we can gain market share, still online is 2% of the total market. Even we expect that it will grow for sure, and it will continue to grow, but still the large part of our business for the coming years will be in stores.
Thank you. That was all.
Thank you. Our next question comes from the line of Fredrik Ivarsson from Kepler Cheuvreux. Please go ahead. Your line is now open.
Thank you. Hi, guys. First, congrats on the strong results. The first question on Hemköp, you mentioned fewer large refurbishments and obviously a positive effect on profitability from that. Should we expect similar positive effects on profitability in Hemköp looking into the second half of the year as well? That's my first question. The second one is on transportation costs. We've seen recently some significant increases in fuel prices in Sweden. Can you maybe give some color on what you see in terms of those transportation costs going forward and how this might be affecting profitability ahead?
If I start with the first one, rightly so that if you look at one large impact we had last year was Hemköp City that was opened up in the later part of Q3 last year. You will get the positive effects out of that. We still have a refurbishment program in Hemköp. We'll continue to do that. Part of that will continue while the large one, Hemköp City, will also be in effect for the first part of Q3, not Q4. Transport. Yes, we see an increased cost for transport also. We already seen that in this quarter. Even if we are, as I pointed out with Dagab, we've been able to maintain this margin. You have that in the number already today, but we expect to continue to see larger fuel prices.
If I read you right, we shouldn't expect accelerating costs from the higher transportation?
It all depends, of course, where the fuel price will go. I think we've so far been able to What you can say, everything the same, you will not see any significant changes on the margins due to that.
That's very clear. Back to the first question, the larger store refurbishments, that was mainly the Hemköp City. It's not a general thing in Hemköp.
Well, we had almost 50 refurbishment last year. The large one, which one was closed, was large. Now this year, we also have refurbishment that will be more in the same of the smaller ones. We'll have one little bit larger. It will be somewhat slower pace in terms of refurbishment in Hemköp this year versus last year.
Perfect. Yeah, that's very clear. Thanks. That's all from me.
Thank you.
Thank you. I'll remind you, if you wish to ask a question, please press zero one on your telephone keypad. There will be a further pause while more questions are being registered. Our next question comes from the line of Niklas Pettersson from Carnegie. Please go ahead. Your line is now open.
Thank you. I just wanted to ask, given that you've touched upon the problems on the supply side due to the weather. You've touched upon this several times in the presentation. I was just curious if you expect this could have any material impact on your sales or earnings in the third quarter. Are you expecting a material impact to volumes? If so, do you think that you can mitigate this through price hikes? I know that in the past, when you do see these kind of issues, you tend to be quite good at compensating for it. I was just wondering, since you mentioned it several times in the presentation, if there's anything different in the magnitude this time?
It's a good relevant question. Obviously what we have seen, and I comment that from the Q2 perspective, it's been a more volatile part for logistic and supply due to the demand. It's been different. It's been very up and down versus in certain categories. Of course that is challenging, but I think we can handle that. My point right now is that if you talk with everyone at least, that's just more due to the recent event development the last few weeks in terms of the extreme weather condition that we start to see and how that is impacting the farmers. It's just that we are working with them, and we need to flag that there is an uncertainty in this area. How big and what that will do, I have to say we don't know.
Obviously, most likely we'll see some impacts and perhaps also some differences in the supply. As an example, the meat will probably an overcapacity that we need to secure and handle, while some other areas will be a lack of supply for it. Why I'm addressing it is, of course, that we have a large part of our business in Swedish food production, and we want to continue with that, and therefore we want to support and work with the situation that has come up. How that will evolve, it's difficult and we're addressing more or less. We need to follow this closely.
Okay. At the moment, you don't see a reason why earnings should be significantly negatively impacted?
No.
Okay. That's very clear. Thank you. That's all my questions.
Thank you. Our next question comes from the line of Fredrik Skoglund from Landshypotek. Please go ahead. Your line is now open.
Hi. I had a short question on the refrigerator side. As you mentioned, you are trying to lower the refrigerators and also with the new EU regulations taking out more harmful refrigerators. How do you see your investment needs going forward? How much have you changed already in terms of your refrigerators in the stores? Yeah, that's the question really.
No, as I tried to present there is that we have worked with this since several years. We have changed and as we are doing a refurbishment of our stores, we have changed to the new better equipment that handles the regulation. We see that we are all actually on a good path to be able to handle it up till 2020 or for the remaining part, we can sort that out with the temporary solution. We will do this within the normal investment levels that we currently have for the store refurbishment program. My point is that we are well in line with the new regulation, and is working that as well in line with the normal refurbishment program.
Can you say just how much have you changed already, and are you going for the CO2 cooling, or what kind of cooling fluid do you use?
Yeah. We are slightly above 50%, and we are going for the You need to help me on what this is called CO2, or it's the new that is covering the new regulations.
That is CO2.
Yeah. CO2, yeah.
Okay. Thank you.
If you want to, we can contact you separately if you want to have more details exactly on what we are changing to, since I'm a bit vague on the exact formulation there. My point is that since this is a big topic for us from a sustainability point of view, and there is also a regulation in it that we are working with this, we've done it for some years, and we are converting as we move along in line with when the regulation fulfills in 2020.
Okay. Thank you.
Thanks.
Thank you. There are no further questions at this time, I'll hand the call back to you, Klas.
Well, with that then I thank you for listening, and I wish you a great summer, and we'll be in touch, if not before, in October. Thanks.
This now concludes our conference call. Thank you all for attending. You may now disconnect your lines.