Ladies and gentlemen, welcome to the Inwido Q1 telephone conference for the year 2020. Today, I'm pleased to present CEO, Henrik Hjalmarsson, and CFO, Peter Welin. For the first part of this call, all participants have been in listen-only mode, and afterwards there will be a question-and-answer session. Speakers, please begin.
Thank you very much. Good morning, everybody, and welcome to this presentation of Inwido's first quarter 2020 results. My name is Henrik Hjalmarsson. I am the President and CEO, and with me I have Peter Welin, CFO and Deputy CEO. I'm going to take you through some highlights in the quarter, a short update on the COVID-19 status, an update by business area, and then a short summary of the business outlook.
Peter will then go through the detailed financials, and I will wrap up with a summary. There will, as usually, be plenty of time at the end for questions. Next page, please. Page two. Just starting off with a brief summary of Inwido, for those of you who are new to us. Inwido is the largest window group in Europe and one of the leading door manufacturers.
We are a clear market leader in the Nordic region with a strong position in the U.K. and Ireland, as well as a niche position in Poland and an emerging e-commerce position in Germany. We are about 4,400 employees in 11 countries, and we market and sell all the spectacular brands you'll see at the bottom part of this slide.
Next page, please. Page three. Starting off with some of the highlights of the quarter. Given the turbulent situation with regards to COVID-19, we are relatively happy to report a quarter with modest sales growth, and particularly that it's the fourth consecutive quarter of strength and margins for Inwido. We saw increased order intake 9% up and strength in order backlog at the end of the quarter, 12%, and particularly pleasingly, we saw an order intake turnaround in Business Area Scandinavia.
E-commerce continued to grow nicely at 19% in the quarter, with a strong order backlog at the end of the quarter. I'll come back to that. We saw continued strong performance in the larger Danish units with nice growth as well as profit developments. A positive development in the largest unit in Finland, with good efficiency and good cost control.
As I'll come back to later, U.K. was the key geography where we saw COVID-19 impact, particularly at the back end of the quarter there. Next page, please. Page four. If we look at the quarter in numbers, we saw modest sales growth of SEK 5 million to SEK 1.448 billion. Organically, that was 1% down. Our operating EBITDA strengthened with SEK 3 million to SEK 48 million, which means that the operating EBITDA margin strengthened by 20 basis points to 3.3%.
Order intake was 9% up and pleasingly, as I said before, not only South continued nice growth, but also North, Business Area Scandinavia, started growing their order intake. The order backlog at the end of the quarter then was 12% up. We had a nice operating cash flow of 33 million SEK, which is slightly below the 60 million SEK of last year, but we also had a more challenging working capital position to start with.
I'm overall pleased with that performance. All in all, that means that the net debt versus operating EBITDA came in at 2.3x versus 2.8x a year ago. That means that we continue to work with strengthening our balance sheet. That's a slight increase versus the end of the year. That's, as Peter will come back to, mainly driven by currency effects on our lending. Next page, please. Page five.
If we look at COVID-19 and the impact on the group. First of all, very pleasingly, we have very few cases where employees have been sick enough to be forced to seek care and thereby be confirmed COVID-19 positive. Our priorities have been to protect the health and wellbeing of our employees, to limit the spread of the virus, but also importantly, to keep the businesses running. I think this testament to the fact that we've done that pretty well.
We've seen some mixed customer activity in the quarter, but nothing that we would consider to be material yet. The consumer direct installation business model in Finland has been impacted by the measures taken by the Finnish government. Basically at the back end of the quarter, the U.K. market activity came to a halt following the government directives with regards to the battle of the virus.
All factories are running except for three in the U.K. that we were forced to close following government decision. Those three represent roughly 5% of the group's production capacity. Next page, please. Page six. We have seen some disturbances in material supply so far, but nothing that I would consider to be material. It's been linked to Northern Italy and China. As I said, nothing material yet. We monitor the situation daily on a business unit level.
We have detailed plans for a rapid cost out if and when the demand development requires that on a business area and a business unit level. The fact that we have a good track record of adapting our cost levels to fluctuations in demand, which is then further supported by our decentralized operations model, gives us a good possibility to manage the situation. Next page, please. Page seven.
If you look at the development in Business Area South, we saw good growth and a strong order backlog. The larger Danish units, as I said, continue to deliver well with nice growth and good profit developments. E-commerce grew by 19% in the quarter, which means that they were 10% of group sales.
Order intake grew by 38%, so very nice to see. As I said, the U.K. business units were forced to a shutdown at the back end of the quarter, thanks to government directives. We saw continued good development in Ireland, albeit held back slightly at the back end of the quarter by COVID-19 development. As you can see in the chart on the top right-hand side, sales grew by 9% to SEK 603 million.
As you can see in the chart on the bottom right-hand side, the EBITDA margin grew by 10 basis points to 11.0%. The order backlog at the end of the quarter was 17% up versus the same time last year. Next page, please. Page eight. If we look at Business Area North, it was really pleasing to see the order intake turnaround in the quarter.
We saw a good profit recovery, as I said, in the largest Finnish unit. We had good work in terms of efficiency and cost control. The largest Swedish units were held back by a weak order backlog at the start of the quarter, but we had a strong order intake and hence, at the end of the quarter, a strong order backlog in both Sweden and Finland, partly fueled by a slight continued recovery in the industrial markets.
The consumer direct installation businesses in Finland were impacted by COVID-19 negatively, as were, at the back end of the quarter, the Norwegian business unit. As you can see in the chart on the top right-hand side, sales were 5% down to 801 million SEK, and as you can see on the bottom right-hand side, the reported operating EBITDA margin shrunk slightly by 0.5 percentage points to minus 0.2%.
The order backlog at the end of the quarter was plus 9% versus the same time last year. Next page, please. Page nine. If you look at the business outlook, we obviously enter quarter two with a good order backlog, but I would say that the outlook is more uncertain than I think it's ever been, thanks to the COVID-19 situation.
Consumer demand will be impacted by rising unemployment, but a lot of other factors such as government stimuli, house prices, potential changes in behavior. We already see a dispersed, I would say, development of the consumer intake, and the exact way this is going to impact us going forward is too early to say.
We've seen some continued signs of industry market recovery in Sweden and Finland, but the continued outlook is very dependent on the outcome of the COVID-19 spread, which will impact likely the financial situation, but also logistics and access to labor. We see that an extended shutdown in the U.K. will impact the time of recovery there. We see an underlying demand in Ireland, which does create market potential, but obviously will be impacted by COVID-19.
We do, however, see an e-commerce segment where we expect to continue growth after the nice development we had in the first quarter. Next page, please. Page 10. If we look at the short-term focus, it will, for us, be about managing our way through the COVID-19 impact. We will continue with proactive and aggressive cost management in the face of potential changing demand.
We will continue to strengthen the balance sheet, as we've done successfully in 2019 to create resilience if the turbulence and the market impact increases. We will continue our investment in e-commerce growth to capture an increased potential in this situation and also build on the nice momentum we have coming out of the first quarter. We will also work to take the opportunity to strengthen our positions in our key geographies and key segments through this dynamic market.
In essence, I would say that we are preparing for the worst, but we're obviously hoping for the best. Next page, please. Page 11. With that, I'm going to hand over to Peter, who's going to go through the financials. Take it away, Peter.
Okay. Thank you, Henrik. We go to page 12, please. On this page, we can see the income statement for Q1 this year and also Q1 last year. To the right, we can see the income statement for the latest 12 months. Sales was +SEK 5 million compared to last year, organically -1%, organic means that we have them adjusted for currency impact.
We have a slight decrease in the gross margin from 22.3% down to 21.9%. However, we have been able to compensate this lower gross margin by lower overhead costs, thereby operating EBITDA has been improved from SEK 45 million to SEK 48 million, an improvement by 6%. Margins from 3.1% to 3.3%, 20 basis points improvement.
EBITDA was +7%, whereas operating EBITDA is +6%, and the reason for that is that we have in Q1 this year a minor positive restructuring cost from adjustments from last year. If we look further down at income statement, we can see that profit after tax and earnings per share, the EPS, is down by 83%, and the reason behind this is the currency impact.
Inwido has several loans in other currencies than SEK, and with a weaker Swedish krona at the end of the quarter, we had an income adjustment from a currency impact, and the impact in Q1 this year was SEK 0.59 per krona per share. Thereby we have a lower earnings per share this year compared to last year. If we look to the right, we can see the rolling 12 months or the latest 12 months.
Net sales was SEK 6.6 billion, operating EBITDA SEK 648 million, and the margin is 9.8% now. Small improvement compared to end of last year. We had 9.7%. Earnings per share has then been reduced to SEK 7 per share, and the decrease comes then from the currency impact. If you then turn page, we go to page 13.
On this page, we can see the sales development in Q1 2018, 2019, 2020 to the left, and we can see the order intake in Q1 2018, 2019, and 2020. Sales was then plus SEK 5 million compared to last year. As I said before, slightly above last year, and organically, meaning adjustment for the currency impact, sales is down by 1%.
North has a negative sales growth of 5%, and if adjusted with currency, North had a negative sales growth of 6%, whereas South has an improved sales growth of 9% in a quarter. If adjusted with a currency impact, it was plus 7%. If you look at the order intake to the right, we can see the order intake has been improved in this year compared to last year, plus 9%. Here we are very glad to see that both
North and South have a positive order intake compared to last year. North has shown negative growth last quarters, now in Q1 2020, we have a positive growth in North by 7% compared to last year. Mainly driven by the industry markets, although the consumer market also shows some growth this year compared to last year.
South, +12% order take this year compared to last year. Here, the e-commerce was the main driver behind the improved order take compared to last year. If you then turn page, we go to page number 14. This page shows the order backlog from Q1 2015 until Q1 2020. We can see that order backlog has been improved this year compared to last year.
Due to the higher order intake in Q1, we can see the order backlog is now +12% compared to last year. If you then adjust for the currency impact, the order backlog is still positive. It is positive by 8% compared to last year. As Henrik said, we have positive order backlog compared to last year, both in North as well as in South.
Business Area Scandinavia has a positive order backlog of 9% compared to last year, and Business Area South has a positive order backlog of 17% compared to last year. The backlog of Business Area Scandinavia is driven by the industry market, but we also have a higher backlog on consumer sales in Business Area Scandinavia, whereas the backlog of Business Area South is mainly driven by the consumer markets.
Inwido has now higher backlog compared to last year, which then, of course, is positive because the latest six quarters, we have shown lower backlog compared to last year. This means that we have a little bit better start in Q2 this year compared to last year. If you then turn page, we go to page number 15. On this page, we can see the margin, operating EBITDA margin and operating EBITDA for Q1 for 2018, 2019, and 2020.
We can see the margin improvement this year compared to last year, 3.3% compared to 3.1%, although we are below the level of 2018 of 4%. This year, we have a negative growth in Q1, organic growth of 1%. Despite the negative growth and lower volume, we have been able to improve the margins. We have lower gross margin.
We also have lower overhead costs, and that has compensated the lower gross margin, and also compensated the lower volume. Thereby, we have a result improvement of SEK 3 million compared to last year, SEK 48 million compared to SEK 45 million. An improvement by 20 basis points looking at the margins. Inwido has now been able to improve the margins four quarters in a row, even though volume has been lower during these quarters. If you turn page, we go to page number 16.
This page shows to the left net debt and net debt versus EBITDA, and to the right, you can see the cash flows from the operating activities in Q1. Net debt has increased now in Q1 compared to Q4. This is normal. Our net debt is always at the lowest level in Q4 due to the seasonality. Working capital is always at the lowest level.
Now in Q1, net debt has increased by SEK 120 million due to the working capital, but also due to the currency impact from a weaker Swedish krona. Net debt has increased from SEK 1.7 billion end of Q4 to SEK 1.8 billion end of March this year. However, comparing to last year, we've seen improvement. We can also see that net debt plus EBITDA is now 2.3 compared to 2.8 last year.
An improvement by 50 basis points compared to end of March last year. To the right, we can see the cash flows from operating activities in Q1. We have slightly lower cash flows this quarter compared to 2019. However, if we compare our cash flows from operating activities to previous years, we can see that we are above the level of 2017 and also above the level of 2018.
The main reason for that is our improvements when it comes to working capital. Cash flows and working capital has been a focus area of Inwido last year, and we have improved our cash flows, and we have improved our working capital. As you can see, we are on positive cash flows in Q1. If you compare to the 2017 and 2018, we had negative operating cash flows in Q1.
I'm very glad to see that we are gaining from our activities when it comes to our cash flows improvement. If we compare the cash flow this year compared to last year, we must say that the working capital was too high in end of 2018, and thereby the improvement was larger in the beginning of 2019 compared to the beginning of 2020.
Still, we are above the level of 2017 and 2018, which is very positive. If we turn page, we go to page number 17. This is the same page we showed on the capital market day in November last year. This page shows the main bank loans we have within Inwido. Our main banks are Nordea, Handelsbanken, and Svensk Exportkredit. We also have some minor local loans within the group, but the main loans are these three.
As you can see, Nordea will expire earliest as 2024, whereas Handelsbanken and Svensk Exportkredit will expire in 2022, both of them. It means that Inwido doesn't have to go out to the financial market and make a refinance until year 2022. No refinance this year or next year. If we look at the liquidity, we can say that we have a very strong liquidity.
Available funds, including the unutilized credit facilities, is just above SEK 1.6 billion end of March this year. We have a strong financial situation when it comes to our liquidity. I thereby go over to page number 18, and Henrik will make a summary, and thereafter we will open up for questions.
Thank you. If we look at page 18, a short summary of the quarter. I think it's fair to say that COVID-19 will have long-lasting consequences for all industries, also for the window and door industry, but exactly how that will impact us is too early to say. We continue to monitor and follow the recommendations from local authorities, and we continue to prioritize the health and well-being of our employees, contributing to limiting the spread of the virus, but also importantly, keeping our businesses running.
Quarter one has given us a good start with improved margins for the fourth consecutive quarter, as well as good order intake and an improved order backlog, and now both in Business Area South and business area north. We have developed detailed plans by business unit and by business area, by site, for rapid cost out, if and when demand development so requires.
Importantly, we have a good track record as a group of adopting our cost levels to fluctuations in demand, and that's even further supported by the decentralized business model. With that, we thank you very much, and we open up for questions. Operator, please.
Thank you. Ladies and gentlemen, if you wish to ask a question, please press zero one on your telephone keypad. The first question we have is from the line of Adela Gaete from Handelsbanken. Please go ahead.
Hi, good morning, everyone. A couple of questions from me. First of all, you highlighted in the outlook section of the earnings release that you're prepared to initiate cost reduction measures if demand falls as a result of the virus. Could you give us some more information on what we can expect those actions to potentially look like if we reach that point?
Well, Henrik here, I'll start and Peter can fill in. I think it's important to note that already at the back end of the quarter, we initiated considerable cost activities. Actually, a rough calculation that says that at the back end of the quarter, given the situation in the direct sales to consumer businesses in Finland and the development of the U.K., we've taken out something in an annualized pace, something like 9% of our overhead cost and about 5% of our production cost. That's all in all, it's probably in the order of magnitude of SEK 200 million of cost that started to come out.
Obviously, we do this by business unit and by business area, so it's very difficult to go into specifics, but we've developed plans whereby we can adopt the production capacity and all the direct labor and production costs associated with that, but also the overhead cost by business unit. We have to say that the decisions and the possibilities given by local governments, obviously, with the temporary layoffs, et cetera, is something that we then use to adopt our cost base to weather through any areas where we have impact.
Okay. Did you start to see the benefits of that already in Q1, or do you expect the majority of it to come in the second quarter of 2020?
The majority of that will come in the second quarter of 2020. Also, these measures have been primarily taken in the areas where we have the most considerable impact of the COVID-19 spread. In the U.K., we've taken out the vast majority of our costs. Also, we've taken out basically all deliveries at the moment. It's really to compensate for the state of the deliveries where we're working to take out the corresponding amount of cost. Once again here, very small amount in Q1. It will come from Q2 and further.
Okay, good. On the consumer renovation market, especially in the Nordics, it's tough to ignore the coronavirus effect here, especially since the majority of your sales come from this specific segment. What are you doing to mitigate the risk for a further decline in the consumer sales?
I mean, overall, are you talking specifically? I didn't catch, are you talking specifically about Business Area North, or was that in general?
Generally for the consumer sales specifically.
Yeah. I think in terms of the consumer sales. The number one key activity is actually to continue to bolster the e-commerce activity. We saw really good development in the e-commerce segment with 19% growth in the first quarter, and a strong order intake of +38%. That's actually probably driven by a strengthened consumer renovations sentiment. The development is different by geography, we have to admit that.
What we're continuing to do is actually leveraging the activities we've done before, not only in e-commerce, but also in, for example, the installation proposition that we've developed with Elitfönster Plus in Sweden and the consumer direct sales activities in Finland. In some areas, those activities are held back because of COVID-19 restrictions. To face that, we focus on taking out and mitigating with cost until we can come back and work under normal circumstances again.
Okay. Finally, if I may just ask about your outlook on acquisitions. I assume that's not number one on your priority list at the moment. Is it fair to assume that the current situation may result in further opportunities to buy companies that have taken a harder hit than you have due to the virus outbreak?
I think fundamentally, M&A, given the situation, is off the table at the moment, and we're focusing on creating resilience in our balance sheet. I think it's fair to say that the overall industry across Europe will be impacted by this. I would be surprised if we don't see some bankruptcies even in some of our key geographies. We will also likely see more targets come available at the back end of this. As I said, at the moment, that's not a priority for us.
Okay. That's all I had. Thank you guys so much.
Thank you. The next question we have is from Carl Ragnerstam from Nordea. Please go ahead.
Hi, it's Carl from Nordea. Thank you for taking my questions. First of all, looking at your order intake, it seems quite decent as you said. Can you give some comment on both the North and South on the order intake in April?
No. It's too early to say anything about April at the moment. We were happy about the state where we closed the quarter, and order intake weathered well on a total level, all the way through the back end of March as we closed the quarter. We're obviously working to continue to leverage that, but the situation going forward is, as I think everybody will testament to at the moment, is very uncertain.
Okay, perfect. I guess April is significantly weaker than the numbers we have seen in Q1, right?
As I said, on the comments here, we're focused on the first quarter, it's actually too early also to say anything conclusive about April. The momentum coming out of March was still strong. What we have in April is we have an Easter impact, which came earlier than last year, and hence we're actually not going to see the overall situation for April until we close the month. It's a bit too early to say.
Okay. Regarding Denmark, the order seems also quite nice. Did you see any lockdown effect in Q1 in Denmark? What have you seen in that market when exiting the quarter?
From an overall perspective, not really, no. Demand has held up well. Consumer demand has held up maybe in Denmark better than almost any other geography, actually. The market has been stable for us through this, both on the e-commerce sales side, but also on the traditional businesses side. We obviously did see some impact from the lockdown with higher sick leaves impacting operations, but nothing from a material or from a market perspective.
Okay, perfect. Thank you.
Thank you. The next question we have is from Kenneth Toll from Carnegie. Please go ahead.
The order book was pretty strong, I think, in the end of the quarter. How has the order intake developed compared to the traditional seasonality? I'm particularly interested in the second two weeks, call it, in March. Did you have a much slower order intake then, or was it still strong in the end of the quarter?
The order intake versus sort of a traditional profile held up pretty well all the way through to the end of March. Also March was positive in terms of the order development. What we have seen is we have seen a slight continued recovery of the industry market, which is also, as Peter said, both to a particular business area north. Versus a normal profile, the order intake situation held well all the way through till the last couple of weeks of March.
You're not getting any signal from the industrial markets that constructions are being delayed or that they have problem on their side, so to say?
The one area where we have been impacted is the U.K. and also Ireland. Particularly in Ireland, we have some industry market exposure, and there actually construction activity has been halted. In the other geographies, none so far. I think it's also too early to say. Operation has been kept going and the sites have worked.
What is going to happen in the long run is more difficult to say. Where we have seen positive impact actually, and almost considerable positive impact, is on the apartments, so really the condo side. Condo renovations and sales to condo associations has been strong in the quarter. Whether that's due to available capacity to actually do these renovations now that the industry market in Sweden and Finland has been a bit softer, I don't know, but there we've had a positive impact in the quarter.
Okay. Do you believe the market has been as strong, or do you have a feeling that you take market shares?
Yeah. Our feeling is that most particularly on the order intake side, we've been taking shares, and we think also as we actually don't have the numbers reported from the different associations yet for the quarter. Our feeling is that we've taken some share in the quarter. We have experience from before that in a dynamic situation like this, we as the leading player in Europe and a strong market leader in the Nordics, it's a stable place to go to for your deliveries in turbulence. We think that we have an opportunity to take some share.
Also, in Finland, you said that the sales and marketing model where you basically knock doors to sell and install windows have come to a halt. I would guess that the industrial side is still running in Finland. Is there another way to get to the consumers in Finland at the moment? Could you try to push e-commerce or change the business model, or is it just a stop?
I think we're working across all the geographies to leverage the fact that we have, in all our strong markets, we have positions in all the channels and routes to market. If we take the example of Finland, we have seen a challenge in terms of the home installation and direct-to-home sales model. On the other hand, we've seen improvements in the retail business there because we've done more of that business to retailers instead.
We've also seen some other activity compensate for that. Also the channel to the market, the middlemen or the installers are then actually going to other types of activities, and that could be part of the explanation for the strong development on the condo association sales, for example.
Okay. Finally, one issue you usually have now in the spring is that you have to plan your manning in your plants, maybe in January, February or so, and then you sort of hope that the orders come in in the right levels, so you have the excuse me, manning in the plants to cater for the volumes. Do you feel that your planned manning for next two months or so is appropriate, or do you have too many or too few?
Well, I think in general, I'm going to take the opportunity to actually compliment the senior leaders and the managing directors. The business units have done a really good job in staying incredibly close to the situation, and even more so than normally. If we normally plan on a monthly and weekly basis, almost daily take an activity.
I think at the moment we have actually probably at the moment some pockets of too low capacity, and in particular, you've seen that the e-commerce order intake and e-commerce business develop nicely. We're straining those production sites at the moment. The industry development, for example, the project business in Sweden has been doing nicely. We're straining those capacities. Overall, I'd say that we are in line with where we wanted to be to meet the current demand.
Okay, great. Thanks. That's all for me.
Thank you. As a reminder, ladies and gentlemen, if you wish to ask a question, please press 01 on your telephone keypad. There'll be a short pause to see if we have any final questions. We have a question from Roland Könen from Value-Holdings. Please go ahead.
Good morning from my side. Thanks for taking my questions, there are two of them. First question is with regard to your industry segment. If you look at your order intake, do you see any kind of stocking of your customers or securing doors and windows? The second question would be on your dividend. Have you discussed the possibility to pay later this year a dividend if everything hopefully calm down, or do you think for this year there will be no dividend? Thanks a lot.
Please just repeat, which segment were you referring to in your first question? I didn't quite catch that.
To the industry segment. I think the customer of the industry may be doing a stocking of their inventory to be secure that they have the windows and doors on board.
To answer those questions. To question number one, no. We haven't seen that. In general, all the products that we sell, basically 99% are made to order. It's designated for the individual project. That's where it's supposed to be installed.
In basically all cases, our customers on the project sites have no ability to store the products, really. We haven't really seen any effect like that. Whether there's been an impact in terms of how they plan their projects, so they've done window installations earlier or later, and that might have impacted, we don't really know. That's hard to say. If you look at the dividend question, the board made the call in relation to the AGM to change the recommendation or the suggestion for a dividend.
Whether there will be a discussion later in the year in the board, depending on the development for an extraordinary dividend, I don't know at the moment. Actually, I would say it's too early to even have that discussion because now we're focusing on creating resilience in our balance sheet and weathering through the situation the best way we can. We'll get to the best way to create that shareholder value with the board when that's appropriate.
Okay, many thanks for the answers. All the best, stay healthy, and congrats for the results in Q1. Thanks a lot.
Thank you very much, Roland.
Thank you.
Thank you. At this time, we have no further questions in queue. I'd like to hand back to the speakers.
Okay. With that, thank you very much for listening in. We thereby close this call. Thank you. Bye-bye.
Thank you, ladies and gentlemen, this concludes your call for today. We thank you very much for joining and ask that you disconnect your line. Have a great day ahead.