Byggmax Group AB

STO:BMAX

Earnings Call Transcript 2018-Q1

[Operator]

Hello, and welcome to the Byggmax Q1 report 2018. [Operator instructions] Just to remind you, this conference call is being recorded. Today, I'm pleased to present Mattias Ankarberg, CEO. Please go ahead with your meeting.

[Mattias Ankarberg, CEO & President]

Thank you so much, and welcome everybody to this conference call. I will talk of the presentation for the quarter, go through the update. Pernilla will go through the financial part, and then I'll come back with an outlook and the summary.But starting with the highlights on Page 2. As we have already communicated earlier, our net sales decreased by 15% in this Q1. We are a seasonal business with a big weather impact, and we've had a long and cold winter, which has delayed the outdoor season start in the Nordic countries. We feel positive to the operational improvements we're doing to the business with good effect.Our gross margin increased by 1.7 percentage points, happy about that. We continue to have a good cost management, and we have good growth in our online exclusive assortment at over 20%.EBITDA decreased in the quarter, ended up at SEK 58 million, down from SEK 24 million last year, and it's driven by the decreased sales, which is of course driven by weather. And we do have non-recurring items of SEK 9 million, which we will get back to also in the quarter; positive impact, SEK 9 million.In general, we have a strategy we communicated in June last year. We're continuing to execute it according to plan, and the initiatives to ramp up Byggmax growth are on track and the transformation of Skånska Byggvaror has started well in the quarter.Financial highlights on the next page. We covered most things, but net sales again, down 15.0%. Gross margin ended up at 32.0%, which is an up-tick of 1.7 percentage point increase in both of our segments, and we continue to have good cost control, a bit more about that later. And EBITDA then down to minus SEK 58 million, and in percentage points, the margin is down to 8.6% or 10.0% adjusted compared to the last year.Speaking about our biggest segment, segment Byggmax. About 85% of the Group in terms of revenue [Audio Gap] will come back to that. Byggmax decreased 11.5%. Very outsourced project-oriented businesses, as you know. Season start has been later in at least over a decade. Also for this segment, good gross margin, good cost control.We continue with our initiatives, which include stepping into the garden market. We launched 2 Garden departments in summer last year, and we are planning to launch 10 this year. Out of those 10, we opened 7 by Easter time, so just the end of March, now totaling 9. We have good growth in our online exclusive assortment.Having fixed the profitability in Q3 and Q4 last year for Byggmax e-Commerce, we now can turn to growth, and online exclusive assortments grew by over 20 percentage points. EBITDA dropped for the Group. It's mainly coming from Byggmax, which is 85% of the business. And it decreased by -- to sort of SEK 28 million, driven then by the lower sales. Also here a positive non-recurring effect that Pernilla will go through later on.Maybe just to step a little bit into the weather effects and explain the seasonality of our business once again, 1 or 2 pages on that. The Page 5 called "Seasonal Business by Nature" is the same page we presented in the Capital Markets Day in June, for those who follow us. And as you probably are aware, quarter 1 is our -- the smallest quarter, it's 14% historically, last 5 years of the sales, and we are very heavily dependent on spring and summer with 2/3 of our selling or thereabouts coming from Q2 and Q3.And on the next page, we try to illustrate what we mean with the delayed outdoor season start. Obviously, from Q1 into the much bigger Q2, we typically ramp up, and March being the spring month up here in the Nordics, March is typically the month where it ramps up. And for black line in the graph, it indicates the season start sales pattern for us. Over the last 12 years, 13 years, there has been some other late season starts, although none as late as this year with a record winter, but you can see the curve basically shifts out to the right and then picks up when the season starts again.The effect is clearly the biggest in March, which is again the spring month. And it's important to note that in history when we've had late season starts, it doesn't always mean that the year has to have the negative sales development. It's again small quarter for us in total.Also for us, importantly, we have seen good selling of indoor categories, whereas the outdoor business has been really slow. So we feel that so far, the consumer interest for DIY project remains high, but the weather has impacted their ability to do that kind of work outside.Our second segment, Page 7, Skånska Byggvaror, is in a transformation mode for this year towards what we call Garden Living, complex buildings for the garden, conservatories, greenhouses, et cetera, where we have decided to focus on the core and to reduce activities and sales of other non-core categories. This impacted the selling quite a lot. We were down by 22% in Q4. It's down now 36% in Q1, affected by weather, yes, but primarily the shift towards the Garden Living and our choice to decrease the sales of other less profitable non-core categories.Positive increase in gross margins Skånska Byggvaror, significantly so, due to less promotional activity and mix effects towards the core business. EBITDA decreased a little bit; underlying or excluding non-recurring, decreased about SEK 5 million, and positively affected by [ extraordinarily ] from the divestiture of the Danish business Pavillon to about SEK 4 million.We -- looking a little bit to the activities in the business. Store openings in quarter 1, small for us. We opened 1 store in Finland, but we have communicated the target to open 20 stores for this year, and we continue to plan to open 20 target -- 20 stores for this year. We have communicated further 9, I believe, planned openings, and Q2 will be an intense quarter for us, the local store opening. We have also again added garden concepts to 7 stores throughout Q1.Market development is, of course, tied a lot to the weather effects and there is typically national statistics, but they're not available for March yet, and some of them are also maybe not as pure consumer focused as our business, but we have data from our internal data sources, consumer panels, et cetera.And as members of the European DIY Retail Association, we get information about the market developments, and based on this, we can see that the market has decreased somewhere between 10% to 20% in the first quarter, including March, driven by the weather, particularly strong in March. Particularly tough in Norway, as it was the longest and the toughest winter in Norway compared to the other Nordic countries, and that's the view of market.Looking at our strategic plan. We did say on Page 10 that in June last year; 2 important elements for us; 2 heading; "simplify and increase the efficiency in our operating model" and "grow and grow focus based on our strengths." We believe that can take us to more financial -- sorry, more ambitious financial goals than we have delivered previously, but it takes a while to get there and we have outlined an 18-month to 24-month strategic plan that we are executing with potential to reach our new goals by next year.And for those of you remember Q4, participated, we then said that the Byggmax segment has reached its highest profitability in over 5 years and that for 2018 therefore, there next step is to turn to ramp up growth.Looking at Page 11, our growth initiatives are on track for Byggmax. We are again planning to open 20 new stores for this year and communicated 9 so far. We will expand our Garden concepts, which we tested or piloted in Q4 of last year to 10 more this year, 7 are opened already and we will now focus our e-Commerce, which is now profitable on growth. And again, the online exclusive assortments grew over 20% in Q1.So we feel we are tracking well on our strategic initiatives and same goes for Skånska Byggvaror. Agenda there is to transform the business towards this core Garden Living. We've done several things which we are happy about. We have divested the Danish Pavilion business, generating a small positive non-recurring financial effect, but maybe more importantly, over time simplified the business that we have focusing on the other market.We have gotten gross margins back to the historically high levels for Skånska Byggvaror already now in Q1. And we did take a lot of restructuring actions in Q4 and restructuring costs in Q4 that we are now implementing and we'll start to see the cost effects in Q2, maybe not the full effects but start to see the cost effects in Q2. So, we are well on track with the transformation we agreed.And as we've outlined earlier, this execution of strategic plan of course come with some financial effects, which we believe is positive overtime, but as we are, we will decrease revenues in Skånska Byggvaror, for example, and take some extra cost in Byggmax to ramp-up for growth. But all in all, we are pleased with the development of our execution and development of our strategic initiatives and happy about the operational improvements we've done in quarter 1.And with that, I hand over to Pernilla to go through the financials in a little bit more detail.

[Pernilla Walfridsson, Chief Financial Officer]

Thank you. EBITDA margin decreased by 7% compared with the preceding year and that's [ often ] driven by the weaker sales. Earnings for the quarter were positively impacted by non-recurring item of SEK 9 million. The non-recurring item is related to reversal of close down costs for the 4 stores in Finland and the capital gain on the divestment of Skånska Byggvaror's Spanish subsidiary, Pavillon.Sales in the first quarter decreased by 15%. Net sales for comparable store was down almost 17% and we had an active decision to reduce unprofitable sales in Skånska Byggvaror and that affected like-for-like negative, non-comparable stores and others are negatively affected by the stores we closed in Finland, but on the other hand, the new stores affected positively.The weakest sales month of the quarter was March and the weather effect was particularly strong in March as the typical ramp up in the high season is delayed in line with the late arrival of spring.Gross margin increased 1.7% and the gross margin improved for both the Byggmax segment and for Skånska Byggvaror and the gross margin was positively affected by purchasing improvements, price and mix effect, but on the other hand, currency effect impacted the gross margin negatively.Operating expenses rose almost SEK 17 million and the increase in expenses was mainly driven by cost associated with new stores opened after the first quarter of 2017. Cost for comparable stores were unchanged in the quarter, despite increased cost of snow removal and the fact that comparable cost decreased last year rather a lot. Total cost increase was impacted by preparation for this year's addition of garden departments and the planned double expansion pace. Operating expenses had a positive impact of SEK 5 million from the reversal of closure cost for the 4 stores in Finland.Net financial items increased SEK 3 million and net financial items were positively impacted by exchange rate effect. The cash flows and operating activities decreased by SEK 1.4 million. The cash flow is positively affected due to the distribution inventory decreased during the quarter.Let me hand over to Mattias again.

[Mattias Ankarberg, CEO & President]

Yes, thank you, Pernilla. Just to round it off with a bit of outlook. Page 20, I think if we look at the markets and our position in the market, we get the local questions about it, particularly, I guess where there's been strong weather effects. And although there may be some uncertainty around the economy in the Nordic countries, the decrease in the first quarter is clearly driven by weather effects. We particularly feel happy about that our indoor category sales has developed well, which we take as an indication that consumer interest in DIY projects continues to be high. And also, importantly for us, we feel we're very well positioned in the market.We have a low price concept which we have sharpened further for both stores and e-Commerce and feel that markets may develop differently throughout quarters and years, but we are well positioned to take share in this market going forward.Summarizing the quarter on the next page, Page 21, very simplified. I mean, a delayed season start has driven sales decrease of minus 15% and this is our smallest quarter. We have done operational improvements that have got good effects for gross margin, the cost control and for e-Commerce growth. And we are on track with our growth initiative for Byggmax and transformation of Skånska Byggvaror.So that concludes our, I guess, presentation and we can hand over to operator to manage question and answers.

[Operator]

[Operator Instructions] And our first question comes from the line of Niklas Ekman from Carnegie.

[Niklas Ekman]

A couple of questions and I'll start with the weather impact here. This Slide 6 that you are showing over the -- the normal development in Q1, I'm curious, you don't have a scale here, but I'm just trying to determine the size here of the different months. And based on your comments here that there was a weather impact of 10% to 20% on the quarter, that seems to indicate if this was all derived by March, that a normal March month for you is about 50% greater than a January or a February month, is that a reasonable assumption just to determine the size of the actual weather impact here?

[Mattias Ankarberg, CEO & President]

Thank you, Niklas, good question. And I guess it will be a couple of questions around weather today. So it's good to start it off by clarifying that, appreciate that. So let's see how we can explain it. First of all, we -- our view is that the market in -- the Nordic consumer DIY market has decreased 10% to 20% in quarter 1, driven by the weather. So that's how we see the market based on the statistics that we have from industry and our own. The weather effect is primarily affecting March. I mean we -- to get maybe a size of the effect under different months, you could flip back to page and look at the Q1, Q2, where you see that Q2 was about double the size of Q1 and Q3 a little bit bigger even. So draw a bell curve and I think you get it pretty right. But you're completely right that January and February is very small. We typically sell indoor projects, few winter things and may be a tiny bit of outdoor in the -- if weather is good in Southern parts of Sweden, for example where typically in March it's much bigger and March is where spring usually starts and you start to see consumer DIY work also in outdoor, which is our main business. So, it's absolutely right that March is a lot bigger than the previous 2 months.

[Niklas Ekman]

And I'm also curious if you could elaborate here a bit on the difference between your sales and the statistics we've been getting from Byggmaterialhandlarna, and I know we only have January, February there. But for a while now, we've seen quite strong statistics from Byggmaterialhandlarna and there has been -- seems to have been a clear decoupling of your sales, I would say, over the past 18 months or so. Is there any particular reason why?

[Mattias Ankarberg, CEO & President]

Yes, it's a good question and maybe it's a question also we should ask Byggmaterialhandlarna, but I think we are, of course, in contact with them. And then you have completely correct observation regarding the differences in the developments. And as you say, first of all, March is not it, but Byggmaterialhandlarna, if you look at the members that constitute the index that they based it on, it's B2B companies. And B2B market, we feel, has developed quite differently from B2C, definitely in the quarter, but probably also during last year, and I think there was even an article in Svenska Dagbladet by or sort of where they interviewed [indiscernible] they communicated exactly this, and I think you can look at other publicly traded DIY companies as well here in the Nordics and see that the market is developing very differently for the consumer side of things in this quarter. But the B2B focus versus B2C focus is the main difference between the development, is our view.

[Niklas Ekman]

And turning to the gross margin, can you say something more about the strong improvement here, what were reasons behind it? You talk about price mix effects, for instance. And how much did the strategic change here in Skånska Byggvaror, where you are discontinuing or at least cutting back on campaigns for not the non-core assortment, how much has that impacted the gross margin and what else have been the key drivers behind this rather strong gross margin improvement?

[Mattias Ankarberg, CEO & President]

Good question, happy to. And you are, again, picking up a lot of the important points already. I mean gross margin increased in both of the segments. For Skånska Byggvaror, it's increased the most. And as you say, the execution of the strategy is the driver of it, so focus on the core business where we do have good gross margin and reduce selling or at least sharply cut back on promotions on other non-core assortment has been the biggest driver of the improvements of the gross margin for Skånska Byggvaror, and that is a big improvement, but it's still 15% of the company -- of the Group, sorry. So there is also an improvement in Byggmax, and I guess 3 components into that. First one is still some purchasing improvements, which carry on also into Q1 from last year -- continued from last year, sorry; some pricing and mix effect, I think, stemming both back to its assortment improvements where we have -- had that effect now for 3, 4 quarters; introducing new assortments which are slightly -- basically going from good products to introducing some good and better products, which are slightly margin expansive for us. So continued good assortment and buying work on the Byggmax side and the strategic shift on the Skånska Byggvaror side, in summary.

[Niklas Ekman]

And turning to the OpEx side, it's rising, I get it, to some 7% increase year-over-year, and this is despite that you've had quite weak sales and that you've had some store closures. I'm curious, given that you are ramping up the store rollout, should we expect a fairly significant OpEx increase going into Q2 and Q3 considering you're looking to ramp up your stores with the garden format, et cetera and also hopefully better sales, which I assume might also imply slightly higher OpEx? So just your views there.

[Mattias Ankarberg, CEO & President]

Also again, another good point, and you're right, OpEx increases in the quarter in total. If we look at it the way that sort of we run it, we look at being a little bit more efficient every day, every quarter, every year, and we are -- a good metric for us is comparable stores. Cost in comparable stores this quarter was flat versus last year, decreased quite a lot last year. We got couple of extra million costs from snow removals in the quarter. We introduced garden concept in some existing stores in the quarter. So there is some negative stuff there, so we feel quite -- I mean, as a retailer, you always want to cut costs as much as you can when sales drop, even if it's external effects. But we feel quite pleased with the cost control. I mean, we managed to offset negative impacts [ that were ] from snow, et cetera, and met quite tough cost numbers from last year on comparable stores and still we came out flat. Then the increase is driven by, basically these growth initiatives and the biggest part as you -- I think we said it's SEK 15 million something, is from new stores. We have opened some stores late last year and we are planning to open as many stores in Q2 as we did all of last year for Byggmax, and of course we take some costs for that already with people employed et cetera, plus the 7 Garden concept coming in. So it's driven by our expansion pace and yes, as we continue to then keep our target of 20 stores for this year, you should expect that the costs related to new stores will continue to be higher than they've been in previous years. That was a long answer. You can clarify if you like, Niklas, but that's the view on the market.

[Niklas Ekman]

No, that was very clear. I assume you can't quantify what that effect will be, but, of course, it should be a much higher OpEx growth in Q2. Everything else sounds -- will be strange, given how many stores you are launching now.

[Mattias Ankarberg, CEO & President]

Yes, that's absolutely right. And I actually think Pernilla can comment, but we have, for quite a long time, broken out the cost impact of new stores. So we can either direct you to the quarterly reports or share those numbers with you afterwards, [ you have it in] the release.

[Niklas Ekman]

And finally, I was just curious about this strategic plan that you presented last June where you talked about 10% to 15% sales growth. And given that you have now, in the past 3 quarters or aggregate at least, you are -- we've seen a negative sales development. And I know you talk about this -- that this is on an 18 to 24 month basis of restructuring, but how should we see this? Is it -- are you looking at 10% to 15% from the base of June 2017 or is it from the base towards the end of 2018 or how should we view this? Are you expecting a very strong sales recovery or are you basically here seeing a sharp decrease initially and then 10% to 15% from that new much lower level, if you understand my question?

[Mattias Ankarberg, CEO & President]

Yes, I understand your question and it's a good question. It's something which we are happy to clarify. And I think what we communicated in June is that we believe that this company has some really unique strengths and the potential to be a company that delivers strong growth and good margins and actually stronger growth and better margins than for the years prior to 2017. So, that's -- we can tune up the engines here a little bit on both the profitability and the growth side, is what we had tried to say, then completely right. We also said it's going to be an 18 to 24 months journey to fix things on the efficiency side and on the platform-for-growth side, so to speak. So you are then -- we hadn't planned for some negative weather effects, et cetera, but that's a seasonality of the business. But we feel that we are on track to build a company that can annually deliver better margins and higher organic growth rates than what we have done previously. And I guess that's how you should see it.

[Operator]

[Operator Instructions] And our next question comes from the line of Nick Fhärm from SEB.

[Nicklas Fhärm, Country Head of Sweden Research & Analyst]

Could I start by asking you, when it comes to Buildor, is that being recorded as part of Byggmax segment or the SKBV segment?

[Pernilla Walfridsson, Chief Financial Officer]

It's recorded as segment Other.

[Nicklas Fhärm, Country Head of Sweden Research & Analyst]

Okay. So -- because I have 2 questions. So obviously then Buildor had decreasing sales in Q1 as well?

[Mattias Ankarberg, CEO & President]

Well, the Other segment is constituted by quite a few smaller parts of the Group and internal distribution company and Buildor and some other things that maybe Pernilla can go through. It's too small for us to break out, basically.

[Nicklas Fhärm, Country Head of Sweden Research & Analyst]

I understand. But most importantly, the Buildor also recorded sales decrease in Q1 phase.

[Mattias Ankarberg, CEO & President]

Well, we haven't communicated Buildor specifically in any quarter on the number side. So I think we'll stick to that statement, but the -- of course Buildor, as anybody else, is affected by weather. But we are -- if there was a big deviation of any kind for Buildor, we would of course comment on it, but we are fine with Buildor.

[Nicklas Fhärm, Country Head of Sweden Research & Analyst]

And then, looking at the SKBV segment, now we get, I guess, some sort of feel for I guess just a mix here of everything from weather, calendar and structural changes that you're trying to perform in Skånska Byggvaror and I'm just wondering, to what extent the Q1 or how much of the Q1 sales decline is actually your deliberate decision to take out volumes et cetera?

[Mattias Ankarberg, CEO & President]

That's a really good question and I'm happy you're asking that Nicklas. I completely resonate with the fact that it must be a little bit difficult to see the Skånska Byggvaror transformation from the outside, but we'll try to lay it out for you a little bit. I mean what we try to -- if we start with the sales side, what we try to do with the commercial offer is to focus on the core and reduce the other stuff. The other stuff is the products that weigh higher in Q4 and Q1. We believe that the core is the Garden concept -- sorry the Garden Living concept with the conservatories, greenhouses et cetera which has the peak in Q2 and Q3. So Q4 and Q1 is where you would see the biggest negative effect of the conscious decisions. Q4 decreased 22% in sales. If I remember correctly, it was 23%, and now in Q1, it was 36%. And we started executing the plan during Q4, so we really didn't get full effects in Q4 of our conscious choices, but we came pretty far. So somewhere -- and then there is the weather effect, but somewhere between 22% and 36% I guess is a good estimate on the sales side, in Q4 and Q1, in the low seasons.

[Nicklas Fhärm, Country Head of Sweden Research & Analyst]

My third question would be, how much of your sales is actually related to sawn timber? And I also note that the sawn timber price index is up about 8% in the beginning of this year; year-on-year 5% up on a trailing basis, 12-months trailing basis. And my follow-up question would be of course to what extent do you think you may be able pass that on to customers?

[Mattias Ankarberg, CEO & President]

Another great question and a question for our core business. It's a -- not sure we have come up with a public number, but it's a big part of our business. I mean, timber or lumber is our biggest product category seen over the full year. You're completely right. You're also completely right that the raw material prices is ticking up, low supply, local export, currency effect, et cetera. And our pricing strategy is, as you know that we are the lower priced option in the market and we match competitors and we have price guarantees for that. So we follow the markets basically. Historically, what we have seen is that we are able to pass on the increase to the consumer, but with a little bit of time lag. So it may not be in the same quarter, but over time the market has -- the consumer market has developed according to the supply market basically.

[Nicklas Fhärm, Country Head of Sweden Research & Analyst]

And, sorry, I probably asked too many questions now, but I'll try a few more. When you're going back to the earlier question there, guidance in terms of like-for-likes, I mean now you have pretty clear idea of what you need to do in Skånska Byggvaror. You have -- even if it's small, you have Buildor there and obviously you are very much on top of things in Byggmax, your core [indiscernible]. But I was wondering how would -- your like-for-like guidance, how does that actually build up from sort of a volume price mix perspective?

[Mattias Ankarberg, CEO & President]

It's a good question and it's a complicated question with all the changes we're making to the Group. But I think you're right in your -- how you structure the question Nicklas and trying to look at it segment-by-segment. And I think if you start with the Byggmax, I mean obviously a big negative weather effect in Q1. I mean compare that to -- there aren't that many years we had this late season starts and definitely not a publicly traded environment. But in 2013 it was also late, not as late, but a bit late. And then in '13 Byggmax like-for-like was minus 9% in Q1 and minus 0.7% for the full year. So I think the recovery, actually I think in that year not in Q2, but in Q3 and Q4. So I think you should probably think about what your view is about the Byggmax segment on the market with all that entails for the rest of the year. For Skånska Byggvaror, you should see the biggest sales decline in Q4 and Q1 and for other [Audio Gap] there are some other things in there. So I wouldn't focus, to be frank, too much on analyzing that sub-segment. It's, what 1%, 2% or 2.5% maybe of the total Group. So I think if you do the analysis based on Byggmax and Skånska Byggvaror, we get pretty close and it seems like you're asking the right questions.

[Nicklas Fhärm, Country Head of Sweden Research & Analyst]

And as a final nitty-gritty, because I just had to. Where exactly do you include capital gain in Q1, is that on the other income line?

[Pernilla Walfridsson, Chief Financial Officer]

It is included in the Skånska Byggvaror segment on other income.

[Nicklas Fhärm, Country Head of Sweden Research & Analyst]

All right. And also on the consolidated level, of course, on other income, yes. And are there any -- do you think that you need to reverse any more reserves or provisions going forward? Or do you have a pretty good grip now in the process?

[Pernilla Walfridsson, Chief Financial Officer]

I mean, we are in the middle of restructuring Skånska Byggvaror. So I think we need to come back when we have a [ sense ] in that.

[Operator]

[Operator Instructions] And our next question comes from the line of Niklas Ekman from Carnegie.

[Niklas Ekman]

Yes, 2 quick follow-ups here. I was curious about the online business. You say that this is growing 20% again and I think you're referring here to the online only business, so kind of a drop shipping business. And I'm curious here because you shifted the strategy there or at least that's what you communicated last year that you were looking at profitable growth. So I was curious, is this a segment that is now profitable? And I guess both from a profit contribution margin, but also from an EBIT margin perspective and if you think that this is a business that can sustainably grow strongly even if you have a focus on profitability. That's my first question.

[Mattias Ankarberg, CEO & President]

A very good question. So let's see, yes, you're completely right that we did say in summer that we would like to run a profitable e-Commerce business, and I think we did say in Q4 that during autumn, we had changed around the e-commerce set up and business to achieve profitability. So that was checked in Q4 and now we're seeing the growth coming. And we're growing at profitability which we're really happy about and you're completely right again that the sort of online exclusive or the drop-ship part that is representing the majority of the growth and that is profitable and adds profit money to the bottom line. And it is, as I also believe was said earlier, less profitable than our average business for the Group. So it's not -- I guess is margin dilutive from that sense. Also then, again doesn't tie up any working capital as -- with the payment structure working as it does. So overall, we're quite happy with the profitability level we have reached with our e-Commerce and we are now happy to see that the growth starts to come.

[Niklas Ekman]

And my second question was really regarding Skånska Byggvaror and this shift that you are doing to and back to Garden Living. And you are now basically dismantling a rather significant number of SKUs where you are, it looks like you're gradually just decreasing your exposure there, maybe cutting several different categories. And I'm just curious with the sales impact we're seeing from this and the fact that you have goodwill and intangibles adding up to close to SEK 1 billion. And this category obviously has developed in terms of sales much weaker than it was at the time when you acquired it. So I'm still curious that you're still not saying anything about any needs to make a goodwill write-down to this. So I'm just curious if you could elaborate a bit on the kind of tests that you do on this business.

[Pernilla Walfridsson, Chief Financial Officer]

I mean we have a new forecast for this business and as we sit here following that in a good way now. And we're also depreciating customer relation and brand, SEK 40 million a year. So the amounts that we're testing are decreasing all the time. So right now we don't see any further needs to write down on goodwill. Of course, things can change, but right now I think we will follow the plan.

[Niklas Ekman]

Can you say anything about the assumptions behind that test that you do, because I'm just curious given that the sales are much lower now than they were at the time of the acquisition, have you then based that...

[Pernilla Walfridsson, Chief Financial Officer]

The information that we can give regarding that you will find in our annual report and more information than that, I'm sorry, I definitely cannot.

[Niklas Ekman]

Okay. I was just curious if you have assumed that that margins will be much higher in the end compared to what they were at the time of acquisition and if that's the way that you justify the goodwill?

[Mattias Ankarberg, CEO & President]

Sorry Niklas, it's Mattias here. Just to jump in, but I think -- I do understand it's difficult to follow from the [indiscernible]. I think it hopefully will be a little bit clear after Q2 and Q3 where we have seen high season for Skånska Byggvaror. But you're completely right, sales is a lot lower, but even though sales dropped 36% in the quarter largely due to conscious decisions from our side, we lose SEK 5 more million in the quarter, not a lot. So I think that, to a little bit, demonstrates that we are trying to go back to the core that we're good at, where we have [Audio Gap] and good gross margin. And again, we've taken a cost restructuring expense in Q4 that we will now gradually see start kicking-in in Q2 and forward. So we -- yes the business is a lot smaller particularly in the tiny Q1 but the other things are moving in the right direction and it's the bottom line that we are the most concerned about.

[Operator]

Thank you. And as there are no more questions registered, I now hand back to you speakers, for closing comments.

[Mattias Ankarberg, CEO & President]

Thank you very much for this presentation. And talk to you again, by latest Q2 report. Have a good day.

[Operator]

This now concludes our conference call. Thank you all for attending. You may now disconnect your lines.