Good morning, ladies and gentlemen. Thank you for standing by, and welcome to today's Inwido Q2 report. At this time, all participants are on a listen-only mode. There will be a presentation followed by a question-and-answer session, at which time if you wish to ask a question, you'll need to press star one on your telephone and wait for your name to be announced. I must advise you that this conference is being recorded today, Monday the 17th of July 2018, and now I'd like to hand the conference over to your first speaker today, Håkan Jeppsson. Please go ahead, sir.
Thank you very much, welcome to the presentation of Inwido's second quarter 2018, we go directly to slide two, talking about the highlights for the second quarter. Winter effects were impacting Q2 negatively, as you all understood. The late winter across Northern Europe delayed the season start, with four to six weeks lead time from order to delivery, we had no chance to fully recover within the quarter. Still, with that in mind, it's an okay result for Inwido in Q2 according to the expectations after the winter there in March. Competition is sharpening everywhere, I must say, to a great extent because of the late winter. All companies in the sector trying to fill production and created some price pressure. We still think that the price pressure has now eased off with the starting season. Denmark continues to deliver extraordinary results.
EBE, the European business, is also on track and improving. Inwido Finland is gearing up and improving performance. Still, we have not at all yet reached our potential in the Finnish market as I see it. Swedish market is the biggest challenge for us currently. Big changes in the market and still hesitant consumers. However, within the business area Sweden-Norway, Norway is now back in black in the second quarter, that is, of course, very positive for us. The business unit e-Commerce is delivering according to plan and growing continuously. Now we also, in the second quarter, add Bedst & Billigst to the e-Commerce with another around SEK 130 million of sales in yearly turnover. Today, e-Commerce is around 8% of total sales in the group, that is, of course, a very positive development for us.
First of July, we closed the acquisition of Profin in Finland, the leading supplier of Panorama sliding doors and windows. They have, in 2017, a yearly turnover of around EUR 12 million. Turning to slide three, talking about the second quarter Inwido performance. Sales overall holding up well at SEK 1.7 billion, reported plus 3% and adjusted for currency and acquisitions, minus 2%, still an okay figure under the circumstances. Finland and e-Commerce growing in the quarter, and that was impacted by the late season start, of course. The operating EBIT at SEK 184 million was 4% lower than last year. Again, orders came late because of the weather, and that impacted quite a lot. Sweden hurt most by hesitating consumers on top of that because of the situation we have in Sweden with all the discussions around the dwelling sector and the real estate prices.
Still, profit improvements in all business areas and units, Sweden, Denmark, and e-Commerce performing really well. Division Norway is back in black in the second quarter. The reported order intake was 5%+ in Q2, organic slightly above zero, around +1%. Towards the end of the quarter, the segment mix turned for the better and overall consumer share was almost 75% in Q2 all in all, that was also a positive sign for the future. Turning to slide four. Looking at the first six months, again, has very much been impacted by the late winter, of course. Sales and profits were on a lower level than we originally planned for. Reported sales first half-year were +3% compared to last year at SEK 3.1 billion.
Operating EBITA dropped to SEK 240 million from SEK 274 million of last year, especially impacted by tough comparison figures in the first quarter. As stated, we have concluded two acquisitions, Bedst & Billigst e-Commerce based in Denmark from April 1, and Profin in Finland was signed in June and will be in our books from quarter three 2018. On top of that, we also finalized the acquisition of Outrup Vinduer & Døre in Denmark by taking over 100% of the shares in February this year. So far this year, we have launched many new promising products and concepts for better energy utilization, security, and comfort. So far, those launches look very promising in most of the markets where we operate. Turning to slide five, starting to go through the various business areas, starting with Sweden-Norway, where we really have a conversion in progress.
The conditions in the Swedish market are certainly the most challenging issue for Inwido currently, we are taking several initiatives to improve results going forward. We have launched new products for energy, light, comfort, security. We are strengthening the organization with increased customer focus. We are doing cost savings across the board to improve efficiency and to keep our competitiveness. New concepts have also been launched for most important customers like retail, house manufacturers, and construction companies. A heavy program rolling in Sweden to secure our leading position there. Towards the end of the quarter, we could see some effects in terms of better segment mix and strengthening margins, especially in Sweden, but also Norway. However, a weaker demand with lower volumes offset some of the improvements. Consumers are still hesitant, activity in new builds started to ease off after strong growth latest years.
Sales were -7% down, the order backlog -11% compared to one year ago. Turning to slide six, talking about Finland. The market demand in Finland seems to be rather stable, even though also here the harsh winter impacted with several days during the first half year where we couldn't operate because of the cold weather. Consumer confidence is on a historical high level and rather stable, even though it has leveled out a little bit towards the end of the quarter. Several competitors in the Finnish market are struggling with volumes and results and trying to fill production with low prices. We have handled it, continue to grow, with slightly lower margins than expected. Sales were +9% in Q2 and +2% organic. Inwido continues to invest in the sales organization in Finland to be able to capture the right share of the market.
This can be noticed in higher costs. We are now working to stabilize this while capturing sales, and we see some promising signs in the second quarter. Order backlog by June 30 was -2% compared to last year. Slide seven, Denmark. Inwido Denmark continues to deliver strong results in a rather healthy market. In Q2, profitability was even better than last year, despite very tough comparison figures. Several new products and concepts have been launched that help to increase orders by 4% in the quarter. The order backlog has therefore approached the level of last year after the drop in Q1 2018. Denmark is really performing and seems to be in a stable mode towards a strong and good year again. Turning to slide eight, Emerging Business Europe. Initiatives taken within BA EBE are leading to a healthy development in all units.
U.K. has turned into profit in the second quarter, despite the uncertainties in the U.K. market caused by all the Brexit discussions. Business unit e-Commerce with Internet trade directly to consumers is growing fine both in sales and profits. Order intake was +20% in the second quarter, and the newly acquired Bedst & Billigst will add further going forward. e-Commerce is now more than 8% of total group sales as of the second quarter 2018. All in all, reported sales in Europe were +16% higher, with a healthy order intake of +7% organically in Q2. The order backlog was 16% higher at quarter end. Turning to slide nine, describing the market outlook. As always, it varies quite a lot between the individual markets, of course, especially in such fragmented markets as those where Inwido operates.
The consumer confidence is average still on rather high levels, with highest insecurity in the U.K. and the Swedish housing market. New build markets are leveling out from very high levels, and this affects Inwido in Sweden and Finland, where we have the new build sector. In the other business areas and business units, we have very low level of new build and industrial business. The underlying demand and need is high in general. The consumers in Sweden are continuing to hesitate, and the renovation market there is not really growing at this stage. After the late and hard winter and somewhat lower market growth than earlier, competition has sharpened with increased price pressure in most markets. We expect and have in general seen prices stabilizing with a stronger season and since compensation is needed for higher raw material prices in basically all markets.
Slide 10, where to focus near term. Inwido's financial management ambition is to increase operating EBIT on average by 10% yearly. In order to achieve that in the next six to 18 months, we need to, first of all, stabilize and improve the performance in Sweden with the measures earlier described. Secondly, profitability before volume and compensating for slightly higher raw material costs are crucial, as well as continuing to strive for the right segment mix. Thirdly, we try to focus on our profitable business as well as acquiring companies with the right prerequisites to build for future profitable growth. Fourthly, further cost and efficiency improvements are needed to secure performance and competitiveness. Last but not least, Inwido companies must always strive to have leading-edge product and concepts, especially within Internet of Things, that we really think is a vital part of the future assortment for our group.
We invest quite heavily in those areas to have a vital assortment and the right concept. That concludes my overall presentation of the situation, I hand over to our CFO, Peter Welin, who will now go through a little bit more in detail the figures for the first six months and the second quarter.
Thank you so much, Håkan. We turn page to page 12. This picture shows the results for Q2 as well as the results for year-to-date Q1 and Q2. As Håkan mentioned, the season started late, and that affected sales beginning of the quarter. Total sales, including acquisitions, grew by 3% in the quarter compared to last year, and adjusted for acquisitions as well as currency, sales declined by 2%. Gross margin was improved in the quarter compared to last year, whereas operating EBITDA as well as EBITA ended some SEK million behind last year, SEK 184 million compared to SEK 193 million last year, due to investments in IT and the digitalization, as well as new product launches. The operating EBITDA and the EBITA margin was 10.6% compared to 11.5% last year.
Profit after tax was on the other side improved compared to last year due to lower net financial items and less tax costs. The lower financial items were a consequence of positive translations differences in the quarter. Year-to-date, sales grew by 3%, where the organic growth was -2% and operating EBITDA declined by 13%, from SEK 276 million to SEK 240 million in 2018. Late start of the season with lower consumer sales as a consequence, has, together with the lower volume, reduced the operating EBITDA margin in 2018 from 9.1% to 7.1%. However, as Håkan also mentioned, the share of consumer sales was improved end of the second quarter. EBITA was SEK 220 million compared to SEK 274 million for 2018. Inwido has in 2018 had restructuring cost of SEK 20 million in Q1, as previously communicated in the Q1 report as well as the Q4 report last year.
Profit after tax was year-to-date 4% behind last year due to lower financial net and somewhat lower tax. Once again, the lower financial item year-to-date is a consequence of positive translation differences. If we turn page to page 13. With this picture, we would like to show that the negative deviation in operating EBITDA compared to last year for our second quarter is due to the performance of Inwido, Sweden and Norway, or to be more precise, it is due to Sweden. The result of Norway has been improved, and Norway made a positive result now in the second quarter, meaning the negative deviations when comparing to last year is related to Sweden. The other business areas are performing better than last year when translating their results to SEK.
The main reason behind the recent development in Sweden is the lower volume, as Håkan mentioned before. If we turn to page 14. On this page, you can see sales to the left for 2016, 2017, and 2018 for the second quarter, and to the right, you can see the order intake for the same years. Sales was, as previously mentioned, +3% in total sales for 2018 compared to 2017. Organic growth, meaning we take away acquisitions, we adjust acquisitions and we adjust for currency, the organic growth was -2%. The total order intake was +8% for the quarter. After adjusting the order intake for the acquisitions, the order intake was +5% compared to last year. Also adjusting for the currency, the order intake was slightly higher than last year.
If we turn to page 15, this page 15 shows the order backlog from Q2 2013 until Q2 2018, the order backlog in SEK millions. The order backlog per end of June 2018 is an all-time high level for Q2, +1% when comparing to last year. However, the backlog of 2018 includes the acquisition of Bedst & Billigst. When adjusting for the acquisition, the backlog is 1% compared to last year. When also adjusting for currencies, the backlog is some further percentage lower compared to last year. If we turn to page 16. This page shows operating EBITA and the EBITA margin. To the left, you find the quarter, April to June, and to the right you find operating EBITA and operating EBITA margin year to date for 2016, 2017, and 2018.
The operating EBITA margin for Q2 was behind last year due to the performance in Sweden, as previously mentioned, and also due to investments in IT and digitalization, as well as new product launches. From 11.5% last year to 10.6% this year. When comparing to 2016 to a margin of 14.2%, the main reason behind the lower margin this year is lower degree of consumer sales in this quarter compared to second quarter 2016. This is both for the margins development when compared to 2016, it's both related to the quarter as well as to year-to-date. Year-to-date, the margin was 9.7% in 2016, 9.1% last year, and now 7.7% this year. Looking at operating EBITDA in millions, it was SEK 250 million this year compared to SEK 276 million last year and SEK 245 million in 2016.
If we now turn to page 17. This is the final page before we open up for questions. This page shows net debt in SEK millions, the stables, and net debt versus operating EBITDA, the line. The net debt has increased in Q2 due to acquisitions, dividend, and normal seasonal working capital increase. The acquisition of Bedst & Billigst was closed in the beginning of the quarter, and the payment of the share was made at that time. The total net debt versus EBITDA was 3.2 per end of June. The red line to the right and the stable to the right, shows the net debt and net debt versus EBITDA, excluding the acquisition of Bedst & Billigst. Net debt versus EBITDA has increased during 2018, especially now in Q2 due to the acquisition.
Although our assessment is that our strong cash flows in the second half of the year will reduce the net debt versus EBITDA. This was the presentation, and we now open up for questions.
Thank you, ladies and gentlemen. We now begin the question and answer session. As a reminder, if you'd like to ask a question, please press star one on your telephone and wait for your name to be announced. If you wish to cancel your request, please press the hash key. Once again, it's star one for any questions. The first question comes from the line with Johan Dahl from SEB. Please ask your question.
Yes. Hi there. A couple of questions from me. Could you just elaborate a bit on the order book, the way it looks now, especially with regards to customer mix? You talked about 75% residential in Q2. If you compare what the order book looks like today, does that improve further in terms of consumer sale or does it deteriorate?
When comparing the order book end of June compared to last year, we had somewhat higher degree of consumer sales in the order book this year compared to last year.
Okay, very clear. Thanks so much. Can you elaborate also a bit the cost you're taking below gross profit? You talked about IT, digitalization investment, product development. Could you explain a little bit what the framework looks like for this investment? How much will it impact you in the current year, next year, and what do you expect to benefit from those investments?
If we take the IT cost, we're looking about the benefits going for the future, and not so much for 2018. When it comes to product launches, we can see some effects now in 2018, but most effects beginning then of next year. When it comes to digitalizations, we are working with this. We are launching new products. We should not calculate with too much impact in 2018. It's more connected for the future.
How much are these investments? You made a very interesting comparison looking at Q2 earnings this year compared to two years ago, and it seems to be that only half of that delta is due to gross margin and the remainder seem to be investments like the ones you're taking currently. Are these three-digit numbers or how much is it?
The investment in value is not so high when you're comparing to in relation to sales. When you compare to 2016, we also then make adjustments for acquisitions we have made since Q2 2016. It's not so hard just to make an easy comparison compared to 2016 at that level. When it comes to investments, they are increasing, especially when it comes to developments and IT costs. In percentage of sales, it's not so materialized
Before getting back in line, can you just talk a little bit why growth isn't better in Finland? How can you say you weren't entirely happy with the performance in Finland? What's going on?
I think the Finnish market, there is some unrest absolutely. It was quite clear that Finland, for the first time, I think during my time in the company, has also been impacted by the winter, actually. You normally expect winter in Finland, but it was harder this time, that created harder competition. We also have at least one major company, the number 2 in Finland, has also been restructured, with getting rid of 92% of the debt in the company, they are pretty aggressive in the Finnish market. The Finnish market has been extremely volatile this year. All the signs are positive, I would say. Consumer confidence is high. Maybe new build is a little bit leveling out. All in all, it looks good, it seems to be rather volatile.
It was absolutely impacted by the late winter also, getting even further into the second quarter than what we expected. It's hard to say where it's going. I think we saw that the produced volume in Finland in the first quarter was actually as much as 18% down compared to one year ago. That was very much driven by the harsh winter, of course. We gained market share in the first quarter. With the organization and with the setup we have now and with the normalizing market, we really see that we would capture more sales and the right market share also for the rest of this year. It remains to be seen, of course.
Thank you.
Thank you. Next question comes Line of Predrag Savovic from Nordea. Please ask your question.
Thank you very much. The situation in Sweden-Norway, you have talked about this for a couple of quarters, but has it improved or worsened compared to Q1? What is the delta from here?
I think the demand has been, I would say, and I think we have talked about this all the way back to 2016, that the retrofit market, the renovation market, has really started to ease off, actually late 2015 or early 2016. Then it got even more stable or stabilized by all the new demands on house owners, so to speak. Then that was, to some extent, of course, compensated by the really strong new build market. Now we can clearly see that the new build market is, to some extent, leveling off, and the consumer market is stable or rather slightly decreasing. It's no drama at all, but it's not a fast-growing market. Of course, with all the debate we have in the market with real estate prices, lending bubbles, et cetera. That is what we see.
We see a rather stable market with a slightly slower growth in the new build right now, and that causes demand to weaken a bit compared to what we have seen in the last quarters. I see no reason to believe that the Swedish market suddenly would change. I think there is an election, there is a lot of insecurity in the market when it comes to house prices, and there are debates and articles almost every day in the papers impacting how people think about their investments in their homes. I think this market will continue the way it is. The renovation market will be rather stable and a major part of the market, and we will grab some shares in the renovation market going forward and with all the measures we are taking. That is what you can expect going forward.
Thank you. The level of fixed cost in Sweden or annually, could you remind us what that is approximately?
We don't talk about fixed costs, Sweden-Norway is really an efficient business for us, where we are around, let's say, 11%-12% of sales is what we call sales, marketing, administration, and development. That is really efficient business. Still, we think there are more things to do to organize it in a smarter way, that is also what we're working on, and we have all these programs running right now.
Okay, thank you. On the investments in the sales force in Finland, how much of that is affecting EBITA for Q2? Is that a recruitment of new sales personnel? Could you tell us what that could bring us for?
Yeah, Finland is to some extent different than all the other markets since such a big share of the Finnish business is direct sales. That means that you really have to have a good organization up and running with a lot of field sales and back office sales or indoor sales. If you lose capacity or competence in that area, you also lose orders because you don't get orders if you don't knock the door, so to speak. Sometimes when we report our quarters, it can be a little bit unbalanced between when we recruit people and when we take orders. Right now we have been building organization to come back to the level where we would like to be, to make sure that we really keep our leading position in Finland.
We have managed in the second quarter to improve results in Finland, we are now building for the future and hope for even better quarters going forward.
Could you tell us a little bit about the order intake so far in Q3, how this has progressed? A little bit of a hint.
In Finland?
Overall for the group.
Overall, there is a slight growth. Organic order intake growth is 1%. We report 8%, but in reality it's organically 1%. It's because of the acquisitions, of course, but also because of the vast currency effects we are seeing right now. You can say that Denmark and all the markets in Europe are growing fine, especially e-Commerce is really growing in a nice and neat way. We increased orders in our e-Commerce directly to consumers by almost 20% in the second quarter. If you talk about Finland and Sweden-Norway, they are around zero in order intake for the second quarter. They are more or less on the same level as last year. With the effects we saw, and with the delay we had from March to April, I think that is rather okay at this stage.
That's all from me. Thank you very much.
Thank you.
Thank you. Next question comes line of Rasmus Engberg from Handelsbanken. Please ask your question.
Yes, hi. I wanted to start with Sweden-Norway. Considering the negative mix you have and the negative organic growth, it seems to me that you're doing really well. Were you surprised with either is it the mix or the synergies that does this, and did this come as a bit of a surprise to you?
We are never surprised by our own success. Just kidding. No, I think we are doing a pretty good job. Sweden is absolutely one of the more difficult markets because there are so many components, new competitors, weaker demand, and I think also digitalization, meaning that new ways of marketing, new ways of sales, changing also a lot of the channels in the market. There are many things to handle. I think so far our organization in Sweden and Sweden-Norway is doing really well, and we have seen some progress when it comes to the mix, going forward with our new organization. We're also compensating, I would say, really well for raw material price increases, et cetera. I think we are not pleased with the development overall. We want to do more, but we shouldn't be too depressed either.
We are coping, and we are keeping up so far in Sweden-Norway.
The synergies, is that something that would sort of help you offset negative sales growth also in the third or maybe the fourth quarter even?
I think so far the synergies that we're talking about and referring to are more for the Norwegian business.
Yes
Where we are now back in black, I see no reason that shouldn't continue in the third and the fourth quarter. We have also, I would say, a much better mix in the Norwegian business this year compared to last. It's a combination of lower fixed cost and better mix in the business with better prices.
Okay.
Yeah, it looks promising. Sweden is a bit of a different story because we have a completely different position in Sweden, and it takes a bit of a longer time to adjust. Hopefully we will see better performance going forward also in Sweden.
Just a final question for Peter. The payments for acquisitions in this quarter, what does that include? It seemed like a fairly large figure. What is included in that figure?
We paid for acquisitions of Bedst & Billigst in the beginning of April.
Yeah.
That included total because it was a net cash payment.
Mm-hmm. It's only that in that figure?
For Q2, yes.
Is that right, that you paid then about 3x sales for that company?
Roughly, yes.
Yeah. Okay, good. The payment for Profin will be in the third quarter. That, I guess it's a different kind of multiple, I suppose.
Yes.
Yeah. Good. Just wanted to get that sorted out. Thank you.
Thank you once again. If you'd like to ask a question, please press star one on your telephone keypad. Your next question comes to line of Kenneth Toll from Carnegie. Please ask your question.
Yeah, thank you. I was a little bit curious about this restructuring program that you launched last year. Do you still have a lot of ongoing activities there, or are those activities mainly done? Also where we are in terms of savings of the SEK 100 million, what's the phase of those savings, please?
I will not comment on a specific figure. We have the earliest and the fastest effects we got in EBE in Europe because of some major restructuring, and that has really paid off. We can now clearly see that EBE is approaching the profitability levels that we're expecting. When it comes to Sweden-Norway, especially, and also in Finland, it takes a longer time. It's a big organization, it's more complicated initiatives, and they are still rolling, and we hope to see more effects during the second half of the year than in the first half of the year. It should be fully integrated in 2019, as we stated also when we launched the program.
Okay. Also for the Swedish operations, if we look into next year, you're saying now that the new build activities are leveling off, renovation or slightly negative maybe. When we go into next year, the new build activities should drop quite significantly since housing starts dropped quite a lot in the end of last year. How are you planning to meet that drop?
With all these things that we do already, with the cost-saving initiative, with a slightly changed organization from that respect to be even more customer-focused in various ways, with all the new concepts that we have launched, that we also keep and maybe even further strengthen our position in the Swedish market. I think those are the things we can do, and of course, adjusting capacity in the factories. As a matter of fact, we also already this year have closed one factory in Sweden and integrated with the other factories. We have continuously ongoing initiatives, and I'm not actually so really worried about that.
That the consumer share of the total market also is increasing is also helping us a little bit because some of our core customers, because of that, also have to focus a little bit more on the segments where we think it's important to be, and that would also help us going forward. No guarantees, but I think we are on our way towards a better balance and a more efficient organization coming into 2019.
Okay. Very good. Thank you.
Thank you. Next question comes from the line of Emmanuel de Figueiredo from [DNB]. Please ask your question.
Yes, good morning. This is Emmanuel from LBV Asset Management . I have two questions. The first is, you mentioned in your report, new competitors. I was just wondering if you can give us some color about the profile of these new competitors. Namely, are they doing something different to you from the selling, maybe using more the internet? Do they have a different cost structure? That would be the first question. I'll take the second afterwards, please.
First of all, in the last couple of years, if we talk about especially the Swedish market, it's quite clear that we have also some of the market leaders are stronger than historically, but they are more traditional companies like ourselves. We also see some new entrants, to some extent, with production in low-cost countries, like in the Baltic States or in Eastern Europe. I wouldn't say that they are grabbing a huge market share, but they are, to some extent, annoying the market and trying to offer very low prices in some cases. Some of it is also new internet concepts. We are also investing ourselves in the e-Commerce, and it's growing fine.
We meet that challenge in a good way, I would say. I think that some of the new players coming in, they also try to utilize the winter season by offering lower prices and trying to win some advantages because of that. I think this will also ease off going forward because you have to compensate the profitability levels that some of the players are working on is not sustainable. Clearly, we have seen more competition the last couple of years, and also this winter.
Okay, thanks. My second and last question is on the second half of this year. I know you don't like to give specific guidance. I was just wondering whether what I'm going to say to you sounds reasonable, which is given that you're guiding for a stable market with new build, maybe slightly weaker, and given that you had all the production problems in the second half of last year. When I compare second half to second half, would it be reasonable to assume that you should be able to do a small improvement or an improvement, let's say, in profit, in EBITDA for the second half? Would that be reasonable, or you'd rather not comment?
No, I cannot, because if I start guiding on how we will perform, then I have to do it for the rest of my life. I can't comment on that. I think you will have to calculate yourself on what you believe.
Okay. Thank you.
Thank you. There are no further questions at present.
Okay. Thank you for listening. Take care. Bye-bye.
Thank you. That does conclude our conference for today. Thank you for participating. You may now disconnect.