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Earnings Call Transcript

Earnings Call Transcript
2018-Q4

from 0
Operator

Hello, and welcome to the Boozt Q4 2018 report. Today, I am pleased to present CEO Hermann Haraldsson; and CFO Allan Junge-Jensen. [Operator Instructions] Gentlemen, please begin.

H
Hermann Haraldsson
Group Chief Executive Officer

Good morning. This is Hermann speaking. I think we just start by going to the first slide, the key highlights. If we look at the key highlights, there is basically not much new since our announcement about 4 weeks ago. We had a quite strong end to the quarter with a 39% net revenue growth and a better-than-expected EBIT margin due to scale effects and also because gross margins did not deteriorate as we had feared. The growth was supported by Boozt.com with 37% and Booztlet with 77%. And then currency had a 4 percentage points impact in Q4. The decline in the adjusted EBIT margin in Q4 compared to last year was driven by, one, the lower gross margin; and then also the investments in the physical stores. We could offset the decline in gross margin due to scale effects in marketing and admin and other costs, but we couldn't fully recoup the extra costs in the physical stores.For '18, growth was 38%, which is in line with expectations of more than 36%. And the adjusted EBIT was 2.3%, so exceeding our last or latest expectations of 1.5% to 2%, however, 0.1% lower than last year mainly or only because the entry into offline beauty was more costly than expected. Boozt.com and Booztlet EBIT margin was in line with the original expectations. We were quite pleased to see that the 2.7% points gross margin deterioration was offset by improved cost ratios, so that's -- overall, that was quite good to see.And for '19 outlook, we expect to grow more than 27% and also that our adjusted EBIT margin will improve compared to 2018.So then, by that, if we go to the next slide, I will hand over to Allan Junge.

A
Allan Junge-Jensen

Thank you, Hermann. We brought this slide to illustrate the decision-making process back when we released the Q3 report of 2018. By that time, we had realized a growth in the quarter which was below 30%. And if we anticipated a total growth in full Q4 of 32%, which would lead to just surpassing the 36% for the full year, our interim model suggested that we would deliver approximately an adjusted EBIT margin of 1.8% for the full year. And this was the reason for the revised target at that time of an adjusted EBIT margin between 1.5% and 2.0%. As we now know, the growth realized at 39% for the quarter, which primarily was caused by a well-executed Black Friday and a very strong growth in December. Best illustrated in the graph to the right, the growth pattern you see here has never been realized in any previous Q4s of the past. So moving on to the next slide.

H
Hermann Haraldsson
Group Chief Executive Officer

Yes. Thank you, Allan. Going a bit to the KPI section. This is the most important KPI is customer satisfaction. And as you will see both on Trustpilot and NPS, our customers are happy. And this is the best sign to see if they are going to come back. So moving on to the next slides. On the order development slides, you can see that number of orders in the quarter grew by 33% and for the full year 31%. And the average order value increased slightly in the quarter as well as for the full year. And if you adjust for the currency, it is around 1% lower than in '17 or more or less stable, which is good because it's stable on a solid high level.Going on to the next slide, on the cohort developments. You will see that, in '18, we had almost 1.4 million customers. They bought on average 2.4 times, up from 2017. And finally, the true frequency, where you can see that the true frequency is up versus last year, 6.8 versus 6.3. So that means that the customers that bought in Q4 '17, they bought more frequently, meaning 6.8 times than the customers who bought in Q4 '16. So that's again telling us that we are getting a higher share of wallet of our customers. So again very encouraging for us.Turning to the next slide. And this slide is quite important for us because it's quite important for us to highlight that the online business is progressing according to plan. We are keeping the high growth rates. You can see that the online stores in '18 grew by 39%. And we are constantly improving the EBIT with a combined EBIT of the 2 online stores of 3% in 2018. And we're actually quite encouraged to see that we have increased the online EBIT in a year where gross margin has declined by 2.7 percentage points. So this tells us that the online business is strong and is actually growing and developing fully according to our original plans.Turning to the next slide, cohort development. And the reason for the high growth and the increased EBIT in the online shops is that the cohorts continued the positive developments that we've seen from the previous years. We can see that the first year churn is there, losing around 35%, 40% of the first year's revenue, but then we see an increased cohort revenue. And we've talked about before. So we -- after the initial -- during the year, we see no leaky buckets. On the contrary, we see an increased revenue level, and in a few years, the revenue from the cohort is actually at the same level as the first year. So this means that if you look at the graph that for '19 that we more or less maintain the revenue base for '18. And the growth is very much based on our ability to get revenue from new customers. So this is not a case we have to start the year by finding a lot of new revenue to get at the same level but to focus on building this strong customer experience. It's because we know that the customer base is there. And we'll start, more or less, on the base of last year revenue. So this is why we can see that the online shops are progressing according to plan and why we still are quite optimistic for the shop.Turning to the next slide. We have been asked a lot what happens to CLV, customer lifetime value, if gross margin keeps going down. If you look at the graph, the graph illustrates that if gross margin permanently goes down, then the customer lifetime value is lower, and then obviously your maximum customer acquisition costs will go down. Our general approach to customer acquisition costs is that over the time we have allowed the CAC to slightly increase as we have seen the value of the customers increase over time. Our strategy for '19 is to keep the CAC level stable, but obviously if we see that the gross margin development or deterioration continues and if gross margin goes below 40%, we will have to evaluate the CAC and if we are -- if we need to reduce the customer acquisition costs. Internally, what we think is good for us is that the local scale and a lean cost structure is key to absorb any gross margin or any negative gross margin development. And this also I will say that we feel quite fit because we're strong in local scale and we have a very lean and efficient cost structure.Turning to the next slide, and that's my final slide, before I hand it over to Allan. We have been asked a lot why beauty stores and why are we investing in beauty at all. And then I think it's quite important for us to highlight or emphasize that we are investing in beauty for the long-term potential. If you look at the pros, we have very strong online KPIs. At the end of the year, as expected, share of Beauty -- of orders with Beauty was more than 5%. And we also still see that it's very much mixed baskets with around 65% of the Beauty baskets being mixed. It's a very attractive sector to be in because you have very low returns. And also this increases frequency with a lot of customers because they need to replenish beauty products. And then finally, it fits into our current automation infrastructure.The cons, obviously, is that the entry into online beauty because of the physical stores turned out to be more expensive than expected. We estimate that the losses in the Other segment will continue and will be around SEK 20 million in '19 and -- but down to a single digit in 2020. And this is also because it takes time for us to build awareness around Boozt.com being a beauty destination. Nevertheless, the offline investment is bigger than expected, and of course, we have taken some actions to lower the deficit in Beauty by Boozt. We have changed some management. We have reduced staff costs and also adjusted operating hours to when the customers are passing by. We also can see that the conversion rates slowly are increasing. Our conversion rates in '18 were painfully low, but we have seen in the year so far that our conversion rates in the store are going up and in general are evaluating the future strategy for the offline stores. You can say that in general we have a lot less showroom and a lot more retailers with regards to the physical stores. But for the segment, we expect to have a breakeven in the Beauty segment as a whole in 2020. So that was my last slide. So I will hand over to Allan for the financial update.

A
Allan Junge-Jensen

Thank you, Hermann. And if we move to the next slide, group results. We mentioned it before, but we see here that the net revenue increased with 39% in the quarter and 38% for the full year. We see that the gross margin was down 1.8 percentage points in the quarter and 2.7 percentage points for the full year. And the adjusted EBIT margin was down 1.7% from last year's Q4 but only 0.1 percentage points down for the full year.If we move to the next slide, Boozt.com. In the quarter, we increased the growth by 37%. And we realized an adjusted EBIT margin of 7.2%, slightly down from last year's 8.3%. For the full year, we realized a growth of also 37% and an adjusted EBIT margin of 2.7%, up from last year's realized 2.3%. The quarter was characterized by growth in all categories where particularly Sports and Beauty had a very strong end to the year. The quarter was also characterized by aggressive pricing, which all in all impacted the gross margin development. And further, we took deliberate access -- actions to purchase some campaign goods, which also has led to a higher inventory position end of the year.If you want to highlight some of the biggest growth, you can see here that for Boozt.com Sweden was the country where we only grew around 24%.If we move on to the next slides, Booztlet.com. In the quarter, we realized a growth of 76% and adjusted EBIT margin of 10.3%, which was up from last year's 8.6%. For the full year, we realized a growth of above 100%, more precisely 116% and an adjusted EBIT margin of 11.5%, again up from last year's realized 10.4%. The quarter was characterized by limited offers on Black Friday as we deliberately chose to have all the good offers made available on Boozt.com. This is also the reason for the higher adjusted EBIT margin in the quarter versus last year.For Booztlet, we are very optimistic for 2019, and we aim also here to have a very strong growth. We also took actions to make direct purchases for Booztlet.com and this is also what will fuel the growth for 2019.If we move on to the next slides, the Other segment. It was, as Hermann mentioned, impacted by a difficult retail environment, deliberate clearance sale in our Booztlet store and flag store. And we had some inventory write-downs across the stores. As of today we have, as Hermann mentioned, taken actions to limit the losses in the Other segment by reducing staff and opening hours in the flagship store in Copenhagen. But we do, however, expect to have a loss of around SEK 20 million in the Other segment in 2019, although improving as we go along.If we move to the next page, cost ratios. In the quarter, we saw a decline of the gross margin of 1.8 percentage points. Unfortunately, this was not offset by improvements in the fulfillment cost ratio as we saw the impact of surcharges from distributors surrounding Black Friday and Christmas period. Marketing and admin cost ratio improved in line with expectations, but ultimately the adjusted EBIT margin decreased with 1.7 percentage points versus last year in the quarter.For the full year, gross margin was down 2.7 percentage points, but they are fully offset by gains in the 3 major cost ratios, leaving the adjusted EBIT margin only 0.1 percentage points behind last year.The graph to the right illustrates the development over the past 8 quarters, which has developed downwards, in line with expectations. And as you can see here, it's only the fulfillment cost ratio which has small spike upwards in this Q4.If we move on to the next slides, key financials.First topic, net working capital. Here you will see an increase in the working capital ratio to last 12 months net revenue. It is impacted by 1 more red day end of December this year versus last year. And if you take this into account and adjust for the approximately SEK 40 million, then the working capital-to-revenue ratio is in line with the level from last year. CapEx developed as expected with the buildout of the AutoStore phase 2 in Q4 and now in phase -- now, our AutoStore is in place now at the beginning of 2019 with 2 fully equipped AutoStores.Operational cash flow was also impacted by lack of 1 banking day end of December, but we also had some deliberate increases in goods inventory, as mentioned before, for these opportunistic campaign goods bought in the fourth quarter. For the full year, operational cash flow was slightly negative, but remember also here that comparison figures is the year of the group's IPO. It's impacted operational cash flow at that time.Moving on to the next slides, capacity expansion and automation.In the beginning of 2019, we are expanding the AutoStore with what we refer to as phase 3 as planned. And fully build out during 2019, this will accommodate approximately SEK 4 billion to SEK 5 billion in net revenues. In addition to the AutoStore, we are planning to automate 2 separate areas of the warehouse, bulk area for storage and we have this special storage room for Beauty flammable products. And both automation exercises is to increase the efficiency in the warehouse. All in all, we expect to have approximately SEK 150 million in tangible CapEx for 2019. And you should expect approximately 1% of net revenue in intangible CapEx for 2019.If we move on to the next slides, the outlook. I know that Hermann has mentioned it, but I just want to highlight net revenue outlook for the year is to increase or to be above 27% and to improve the realized adjusted EBIT margin in 2018. We maintain our medium-term target of a revenue growth between 25% to 30%, and we also maintain the adjusted EBIT margin to be above 6% in 3 to 5 years after the IPO.So this concludes our presentation, and I'd now like to hand it over to the operator.

Operator

[Operator Instructions] And we go straight over to the line of Niklas Ekman of Carnegie.

N
Niklas Ekman

Yes. First of all, I'm curious to hear if you could elaborate a bit more on what happened in December here. What was behind this significant improvement? What happened in the market? What it was with your performance and also if this has any read across here going into 2019 and the current trading at the start of Q1, whether this trend has at all continued or if you were seeing a performance more in line with the guidance here that you provided of 27% growth and slight margin expansion. That's my first question.

H
Hermann Haraldsson
Group Chief Executive Officer

Yes. This is Hermann. Each December, basically it sounds easy, but we had -- the weather turned winter-ish so people started to buy winter clothes. We saw that people had been holding back until it got colder, probably waiting for the Black Friday. And then when you saw more normal activity, they came back. We saw that also in the amount of new customers. So I think it was kind of a -- this wave waiting to come that just came because of the fundamentals in the market were right. Going into '19, current trading, it is actually as we have guided and expected. So we don't see any behavior or abnormal behavior. Things seem to develop as we expect at the moment.

N
Niklas Ekman

Okay. That's very clear. And then secondly here, the inventory. As you talk about here, the opportunistic buying and inventory up 72% year-over-year. What kind of products are you buying? And is this mainly for Booztlet? Or is it for Boozt? And is this something that could be gross margin accretive? Or are you expecting campaigns here and that this will be a sales driver rather than a margin driver?

A
Allan Junge-Jensen

Thank you. Allan here. Thank you, Niklas. Yes, the opportunistic purchases of campaign goods is for both segments Boozt.com and Booztlet.com. It is -- it served actually 2 purposes. One is to drive the revenue expectation but also as a margin preservation. All in all, we believe that this is what also can steer the 2019 development in line with our expectations, also gross margin-wise, which is expected to be around the level of 2018.

N
Niklas Ekman

Sorry. Can you repeat that again? You expect the gross margin to be in line with -- in '19 to be in line.

A
Allan Junge-Jensen

No, around -- yes, in '19 around same level as 2018.

N
Niklas Ekman

Okay. Very good. And can you elaborate a bit here on the CapEx as well? SEK 150 million is a fairly significant step-up. How much of this is related to phase 3 of the distribution center? How much of this is the headquarter move? If you could just give some more details on what you expect.

A
Allan Junge-Jensen

Yes, of course. The AutoStore phase 3 is approximately SEK 100 million of the SEK 150 million. The warehouse -- sorry, the headquarter move is approximately SEK 15 million, and the rest is for the 2 automation projects as indicated.

N
Niklas Ekman

Okay. And phase 3, if you could give some details there as well, what kind of expansion are we talking about. Is it similar to phase 1 and phase 2? Or is this a bigger buildout?

A
Allan Junge-Jensen

No, it's the same size, but -- although separately from a buildout from AutoStore 1 and 2.

N
Niklas Ekman

Okay, excellent. I think...

A
Allan Junge-Jensen

So it's a bit same size. Yes, same size as 1 of those 2 modules.

N
Niklas Ekman

Yes. Exactly. That's very clear.

Operator

Okay, so we're now over -- Danske Bank and Daniel Schmidt.

D
Daniel Schmidt
Research Analyst

Yes. Hermann and Allan, coming back to the guidance a bit that you gave this morning. And I think you, Allan, you said that you expect the gross margin to be around the same level as in 2018. And then of course we've seen fulfillment costs coming up a bit in late 2018 into '19 given what some of your distributors have done with the pricing. It clearly comes down to that the leverage will be quite a lot than marketing spend. Could you shed some more details on your thinking there?

A
Allan Junge-Jensen

Yes, your analysis is correct. The leverage will primarily be in the marketing cost ratio for 2019. Also expect that's slightly in the admin and other cost ratio, but it is true that the fulfillment cost ratio all in all should not be expected to have a lot of leverage on account of particularly the risk of price pressure on distribution.

D
Daniel Schmidt
Research Analyst

And given that marketing spend is, of course, something that you quite a lot control yourselves, maybe not the pricing in the market but your budget, of course, could you give us some more details on your thinking on offline and online and how this is going to play out on a quarterly basis given your plans right now?

A
Allan Junge-Jensen

Well, I don't want to comment on the quarterly. You should expect the same seasonality swings as you probably saw in 2018, but what we can disclose is, as we have done before, is the fact that much of the leverage comes from us having more or less a fixed budget for all the offline media which is fixed at the 2018 level. So what you will see is primarily an increase in the marketing cost ratio associated with the online media group.

D
Daniel Schmidt
Research Analyst

All right. And if I remember correctly, the offline budget is around half of the [ entire ] sort of marketing budget. And if that's fixed to 2019 at the same level as '18, are you then expanding the online in line with top line? Or is there also going to be some leverage there?

A
Allan Junge-Jensen

That's too early to conclude, so I don't want to speculate about that.

D
Daniel Schmidt
Research Analyst

Okay, okay. But that's quite clear what -- well, sort of where the leverage is coming from then. Then just secondly coming into the Other segment and the Beauty segment, and you had total losses of SEK 20 million last year and now you're I think guiding for the same amount of losses in 2019. I do think that you actually said in connection with Q3 that you were expecting a run rate of minus SEK 4 million per quarter. It sounds -- that it's a bit more now. Has anything dramatically changed? Or why is it a bit higher?

A
Allan Junge-Jensen

No. I think this is the cushion we are allowing ourselves to have because we, in the short term, we haven't seen the effects that we wanted to. So optimistically, yes, you could aim for SEK 4 million. But remember that the Other segment is also impacted by the performance of the Booztlet store and [ flag store ] . And if that goes better than expected, then you will most likely reach the SEK 4 million, but it is on par. Right now, we estimate around SEK 20 million in loss.

D
Daniel Schmidt
Research Analyst

Okay, so you're conservative in that sort of guidance. Is that fair to say?

A
Allan Junge-Jensen

I think it's on par with expectations.

D
Daniel Schmidt
Research Analyst

Okay. And then of course I think you answered the current trading question already, but at the same time you are also saying and writing and as you did also in the preannounced press release that you're entering '19 in a better shape than ever. And you were quite upbeat on Booztlet's top line and you should grow more than 27%. You sort of -- you have beaten top line guidance a couple of times since you came to the stock market. Is there anything different in your guidance for '19 when you look at what you can be able to achieve? Or is that sort of the very low end of what you should achieve? Or how should we view that guidance?

H
Hermann Haraldsson
Group Chief Executive Officer

Daniel, this is Hermann here. I think that -- I think the answer must be it depends. You only [ get a guide ]. We know the history. We know the customer behavior and you must say now you were -- we are aiming for the moon. And so you are turning the big levers, right? And seasonality has impacts. We can see -- I think the key thing is to look at the cohorts. If you go and look at the cohorts slide that we know that we more or less bring the '18 revenue with us into '19 and then kind of our ability to get new customers. But of course, we are confident and saying that we will grow above 27%. I don't want to guide. Does that mean 28%, 29%, 30%. I think the answer must be that it depends. But I think the main -- the key thing is that we still see the migration from offline to online. Our customers are more happy than ever. So -- but also that is a big number. So -- but we are still quite bullish on the case.

D
Daniel Schmidt
Research Analyst

Okay. All right. And just coming back to Allan again. Sorry for many questions. You said on the campaign goods that there was a gross margin preservation. Does that mean that you need to have more of those to keep the gross margin steady as you get into the summer and autumn of this year? Of course, it's difficult, the visibility, but do you catch my drift?

A
Allan Junge-Jensen

Yes, I catch your drift. And I think it's too early to say anything in relation to the second half of 2019. The campaign goods served 2 purposes to, so as I mentioned, to increase revenue but also to be -- to have preservations for the gross margin, meaning it's a fantastic hedging tool. Also if you want to make use of higher discounts to clear all the items in your goods [ and mutual composition ] . So in that respect, it's not a margin booster but more preservation too.

D
Daniel Schmidt
Research Analyst

Okay, good. And then finally, you said also that Beauty was around 5% of orders towards the end of '18. What -- could you give us the final number in terms of share of total sales for the full year. Is that 3% or no?

H
Hermann Haraldsson
Group Chief Executive Officer

No, we can't. No, we don't do that Daniel. But of course, in Q4, in December especially that's where all -- women will buy beauty for women because we don't have any imagination to -- or creativity. But we -- it was more than 5% and -- but it's progressing quite steadily and looking quite good. But we don't want to disclose yet the specific numbers for the Beauty segment.

Operator

We're now over to the line of Michael Benedict at Berenberg.

M
Michael Benedict
Analyst

Just two for me. Firstly, a lot of growth in the rest of Europe certainly was particularly strong. Is there any change in your strategy in respect to this? And is it likely to become more of a focus for you? Secondly, is the full range of adidas and Reebok now in place? I think you said last time around that it will be [ dropping ] in Q1. And how are sales progressing? And are there any other similar brands to be launched?

H
Hermann Haraldsson
Group Chief Executive Officer

Yes. This is Hermann here. If you look at Rest of Europe, it's been growing, [ improves a lot ] , and the growth continues. We're -- actually we haven't changed our strategy for Rest of Europe. And luckily, there seem to be a lot of consumers in Germany, in the Netherlands, in France that like Nordic fashion and have found the best Nordic fashion store in Europe. So they come to us and they actually continue to do that. So we -- we also see that in '19 that we continue to grow. So we are not [indiscernible]. As we've said before, we are very cautious with regards to expanding into outside the Nordics. We believe that the key in our industry is to have local scale and be the local champion, and we believe that we are getting there in the Nordics. So we will still sell to everyone outside the Nordics that want to buy. But we won't make any big bets on that. With regards to adidas and Reebok, we still haven't the full assortment. That's coming in now. We started in Q4 with an --- I wouldn't say a limited, maybe the half the full assortment. And it actually was a very, very big success. So -- but these are due in next month, you will see more or less the full range of adidas and Reebok coming in I guess you're asking now is Nike coming? And I can tell you, no, they're not. No news from that part. But we have -- and an interesting thing is that a lot of other very interesting stores and lesser brands have actually approached us, want to be a part of the game. So we are seeing a small, a lesser category growing a lot with a very interesting brand portfolio. So I guess, when we stop calling Nike, they might start calling us.

Operator

Okay, we're now over to Ludvig Kapanen at ABG.

L
Ludvig Kapanen
Analyst

Ludvig Kapanen here with ABG. So a couple of questions from me. We've talked about the top line guidance before, and 27 -- above 27% is a quite accurate number. So could you provide some details how we get to that? Is it mainly based on this cohort explanation that you show?

H
Hermann Haraldsson
Group Chief Executive Officer

Yes. This is Hermann. Yes, it's based on the cohorts. Again, as I said, we know that more or less we have the '18 base in place. And again we're saying that we expect to grow above 27%. That doesn't mean that we expect to grow 27.5%. But again, it's in a -- in this high growth environment, it's a bit [ shaded ] to be exact. Is it 28%? Is it 29%? Because you are shooting with the big guns. And we are going into new categories like Sports where we're doing buys that we basically don't know how big it's going to be. So there will be a lot of tests and experiments. So this is why we're saying that we can see that based on the current customer base, we'll grow more than 27%. And then depending on the category performance, we can see how much more than 27% we can grow.

L
Ludvig Kapanen
Analyst

Okay. And also if you look at the wording on your margin guidance, you say this year that you want an improvement versus last year versus a slight improvement versus last year that you said last year. What does that imply?

H
Hermann Haraldsson
Group Chief Executive Officer

Now it's just -- you could be asking for '19 what the phrasing and wording. It's -- of course, we expect to improve gross margin. No, no, the EBIT margin compared to last year. And it's probably a bit more than slight. That's the only answer I can give to you.

L
Ludvig Kapanen
Analyst

So you can't quantify slight improvement versus improvement.

H
Hermann Haraldsson
Group Chief Executive Officer

It's -- no. It's a bit silly again with, when we talk these growth rates today, is it 0.1, 0.2, 0.3, 0.4, 0.5. But we said last year a slight improvement. Now we say an improvement, so obviously we expect to make an improvement in EBIT margin and not only a slight improvement.

L
Ludvig Kapanen
Analyst

Okay. And about inventory levels in the industry. Last time, in conjunction with the Q3, you talked about continued high inventory and potential markdown pressure into '19. How is the inventory level like now in the industry?

A
Allan Junge-Jensen

It's difficult to speculate for the full industry, but our revenue or our goods inventory level is higher than you would normally see at this point in time. But remember here that it is a deliberate action we took a couple of months ago where we decided to get this opportunistic approach to try and get as much leverage from campaign goods as possible going into 2019. We have done this in the past with success. And we are willing to sort of also take the risk from a working capital perspective to increase the inventory levels as we have a very, I wouldn't say -- but we have a very loyal customer base and we know more or less their behavior. And then if we have the right offers to them, then we can definitely sell the products.

Operator

[Operator Instructions] And we go back for a final question from Niklas Ekman at Carnegie.

N
Niklas Ekman

Just a real quick one here, if you could say anything on the tax outlook here for 2019. Obviously a big correction here in Q4 and I assume that was due to revaluation of a tax loss carryforward. Well, what's your best estimate for tax rate in 2019?

A
Allan Junge-Jensen

Allan here. Yes, we had a reestimation of the Swedish tax, but that was actually done in Q2. The reason for the much higher tax is that we don't account for any deferred tax asset in the Danish subsidiaries. So that's the reason. But I don't want to speculate about the tax levels for 2019. I'm just stating that they're probably going to be higher than the corporate tax level in Sweden as we don't account for any deferred tax assets in the Danish subsidiaries.

Operator

In fact, that was the final question on today's call, so gentlemen, may I please pass it back to you for any closing comments at this stage.

H
Hermann Haraldsson
Group Chief Executive Officer

Okay. This is Hermann. Thank you. And I hope you have a good day. Thank you. Bye-bye.

Operator

This now concludes today's call, so thank you all very much for attending. And you can now disconnect your lines.