Inwido AB (publ)

STO:INWI

Earnings Call Transcript 2018-Q1

[Operator]

Ladies and gentlemen, thank you all for standing by and welcome to today's Inwido Q1 report conference call. [Operator Instructions] I must advice you all that this conference is being recorded today, Thursday, 26th April, 2018. I'd now like to hand the conference over to your first speaker for the day, Mr. Hakan Jeppsson. Please go ahead, sir.

[Håkan Jeppsson, Chief Executive Officer and President]

Thank you very much, and good morning to you all out there. My name is Hakan Jeppsson, I'm the CEO of Inwido and together with me here is Peter Welin, our CFO. We will guide you through this slightly complicated quarter with all the winter effects coming up.So let's start to Slide 2, and talk a little bit about the highlights in the quarter. I would first like to say that strategically our actions are overall in line with our plans and I would say that we continue to do what we say in our plan and in our strategy and what has been communicated before.First of all, we are glad to see that we are holding up sales in a difficult low season. I mean, normally the first quarter is low season as always and much, much lower quarter than the other quarters of the year, of course, but the long, harsh and late winter of course cost us some challenges in this quarter.I'm also glad to say that Inwido has never been the bigger as a company and after quarter 1 of 2018, we have reached our biggest level ever according to sales. But there is the winter effect both on sales and order intake, and we are coming back to that of course. We launched efficiency programs late last year in Q3 and Q4, and they are running according to plan. So we are aiming at saving from various activities around SEK 100 million. We are taking the last restructuring cost in this quarter of that program, around [ SEK 19 ] million for closure of one of the factories in Sweden.I'm also glad to say that we have launched a lot of new products with big potential in several of our markets. Actually, I don't think that during my time we have had so many product launches coming up, both in windows, doors and also for the smart home, and basically all our markets are included in the launches. New slim dimensions, more energy efficient products and more digital solutions also for -- for the more efficient and comfortable homes.We are consolidating our leading e-commerce position with the acquisition of Bedst & Billigst, B&B. We closed it for April 1, so from second quarter of 2018 you will also -- we will also include figures for that company. And we have also taken full control during February of our acquisition outlook. In Denmark, that has been in our figures a couple of years, but we have now complete ownership of the company since February. The winter caused rather unfavorable segment mix, a new built increased. New built is more steady over the year. The construction companies continue to build also during the winter time, whereas consumers are normally more hesitant during December, January, February, and they are always -- or normally, I think it's waiting for spring and this happened also this year.We also see -- as we have also guided on before some unrest I would say in raw material markets, and I've seen that also from other companies reporting the last couple of days, that there is a very high capacity utilization in many areas. And we can also see the first signs of inflation when it comes to raw material. What normally is not a big challenge for us. We have a trend of passing the raw material price increases onto our customers normally.Turning to Slide 3, talking about the market development, you will hear the words, late winter and probably also the words cold and long several times during this presentation and we have seen those effects in all our markets, it seems to be all over Europe, the colder, winter than normal. And the big problem for us is that the winter came late. I mean it's not a big problem for us when we have winter in December or January, February, but when winter is turning up rather late in March and even beginning of April when our season is due, it's a bigger challenge for us to plan production and to get the orders in. So it has been tougher than usual. And we must also remember that the winters -- the last couple of years, and also in Northern Europe has been rather mild and that has also been very positive for Inwido. That, if you can remember, we have a very strong start of last year when we had basically no winter in big parts of Europe.So the adverse weather conditions affect both volumes and competition and prices, lower volumes, lower order intake in general, I would say. It doesn't mean that is a change in the real underlying demand, but because of the cold times we get less orders in, because customers and consumers are waiting. This also cause harder competition and lower prices to great extent, because we see more campaigns from competitors and from customers to fill up production and sales. And we have seen more winter price campaigns than I think I've ever seen during my 9 years in the company. So it's been harder competition to get business and therefore I'm still glad that we have been able to hold up sales as well as we have been during the quarter.Consumer confidence, seems to be leveling out of dropping a little bit. It's still on high level in general, but it's -- especially in Sweden, I would say, impacted by the real estate markets probably and, of course, as earlier also in U.K. and on the Brexit effects that we don't have more energy to talk about any longer, I guess. But the other markets are around stable, but not increasing anymore, but standing on higher levels.As stated raw material prices in an upward trend. We are looking at aluminum, we are looking at glass, timber to some extent and we have seen very high prices for aluminum in the London Metal Exchange, as high as around USD 2,500 per ton during last week. Because of the Russian sanctions, of course, and also the threat of trade wars and tariffs for sending material to U.S., has also cost some unrest in the raw material markets. And it's also impacted by the strong economic cycle, where capacity utilization is very, very high in many industries and trading some bottlenecks, but I think we have it under control, then I will come back to that later.So some winter effect and some supply effects right now in the market development, but at the same time very high GDP growth in general. We see strong economies, [ reeling time ] is increasing, very low interest rates, low unemployment rate, and it seems like house owners are very well off right now in most markets. So the healthy underlying demand still exists. There is lack of dwellings. There is need for innovation and there is high wish for new smart solutions and better and more well designed houses out there. So we don't see a shift in the healthy underlying demand at this stage.Turning to Slide 4, talking about our performance in Q1, again affected by the long, late and cold winter. Holding up sales plus 2%, only I would say minus 2% organically, including [ whole ] currency effects. So we have never been larger as a company and actually Inwido has grown by almost 50%, since the first quarter 2014. So, the steady development becoming a bigger and more profitable company continues, also during very tough conditions. It was also a -- as usual these days, a quarter where the months differed quite substantially, where January was okay, February started off rather well and with the harsh winter, there was a downturn at the second half of the quarter and especially in the month of March.Quarter 1, 2018 was actually the second-best quarter ever for Inwido with an operating EBITA of SEK 56 million and this was still impacted by a weaker and the worse segment in customer mix for us. I would say too much industry sales, still holding up sales and consumer is very hesitant, especially I would say in Sweden and Finland. This created also lower volumes than expected and also what we have or had anticipated and what we had capacity for, and this also put some pressure on our margins. On top of that, we've got tougher competition and some price pressure as I talked about before. And then on top of all this, there is also this Easter effect. Last year we had Easter in Q2 and this year we had Easter in Q1. And that also is something you have to take into consideration, when you compare figures and also looking into sales in the quarter, but also order intake for that coming quarter.Still, I think that we have strengthened our position in the Nordics and also in U.K. during the quarter. We haven't all the figures yet, but in the markets where we can see the overall market development, it's quite clear that Inwido is a stronger company and more well positioned today than 1 or 2 quarters ago. Order intake minus 6%, organically minus 10% must be seen in the light of the vary length and hard winter, of course.Denmark continues the positive development, a very strong market there. We are strong and we think that 2018 will continue in that way in Denmark. Also very positive with Emerging Business Europe with e-commerce business unit having, the business area EBE improves both sales and earnings development and we can see that the cost savings and restructuring is paying off in several of the markets there. And we actually reached break-even for the first time in a Q1 in EBE and that is something that tends to come in Q2 normally. E-commerce continues to grow by 10% in the quarter and is now almost 7% of total group sales including the newest acquisitions. So we are absolutely the leading player in e-commerce in our industry in Europe.Going through the business areas. Turning to Slide 5, talking about Sweden and Norway, where I think we have seen challenges, of course, and the difficult times from the weather perspective, created a changed segment in customer mix and affected our margins negatively and actually our consumer share in the individual markets Sweden was as low as below 50% in Q1, because of the hesitance from the consumers. And we expect that to come back in the quarters to come, of course.Consumer confidence, however is declining somewhat. Consumers are hesitant from all restrictions they have been -- they have seen in the last couple of years, when it comes to lower subsidies, demand for amortizations and lending restrictions, of course. New builds seems to be easing off a little bit and we see from all official statistics that there will be fewer dwellings to build in the coming years, but house manufacturers are still very positive and have a good order intake and full order books for at least 2018. So, all in all, it seems like the market is more or less the same situation as it has been the last couple of years.Again mix, prices and order intake in the wrong direction to some extent because of the weather. We could also see that the construction material went down in the retail segment in the full market of Sweden by 10% in the month of March. It meant that Q1 was more or less 0% for all materials in the first quarter in the Swedish market. So it was a weakening demand towards the end of the quarter there.Norway, we see with a positive profitability trends. The new organization is more slim one and combined with the Swedish administration is now paying off and that is of course very positive and we are hopeful that this will continue over the year. Reported sales with Norway minus 3%, same figure organically. Order backlog per end of quarter minus 18%. And of course this is affected by the lower order intake especially in the month of March. So we expect order intake in consumers to come back with spring coming around the corner.Turning to Slide 6, looking into Finland, where we have seen sales growth, but in less margin favorable channels. It's more or less the same development as we have seen in Sweden and Sweden-Norway. And a much lower consumer share of total sales actually far below 70% and that is not something we are used to in the Finnish market. Still GDP development and consumer confidence is still on high level in Finland and the Finnish economy seems to be very strong, so no worries there. The higher share of industry sales of course affected our margins and our profitability negatively in the period and we have expectations that we will regain strength and higher margins with also milder weather in Finland. Very, very tough competition in Finland, I would say to get orders. Price pressure because of the -- also in Finland much, much tougher winter than normal, put pressure on our gross margins.Actually January to February, there were 6 to 7 days all-in-all where we could do no installation at all, because of the very, very low temperatures and that is rather unusual. Actually the output in the Finnish window industry in the first quarter was as low as minus 18% and this is I would say only because of the tough weather conditions. Some competitors in Finland in financial distress and that also means that some of them are chasing orders rather hard and we have to be very, very -- put some attention to this and protect the market shares that we do have and I think that we have been able to protect our market shares also both in Q4 and in Q1 of 2018. Reported sales plus 7%, a lot of currency effect in that, 2% organically adjusted for currency and positive that we have been able to grow even though the growth has come from new build and industry sales mostly. Order backlog per end of quarter plus 1% at the end of March.Turning to Slide 7, and looking at Denmark, the bright star that we do have in our company had a good quarter again in a stable market. Consumer share is very high. It's almost 100% in Denmark. We see strong market indicators and very high and unchanged consumer confidence in Denmark, but also here the long, late and cold winter affected volumes. We had less snow in Denmark, but unusually cold. But we could also see that orders are very fast picking up in April, when temperature started to rise. So we have no worries about the Danish development this year. So continued positive margin development also in the quarter. Our Danish operation is very efficient and with some extra new effects from the restructuring efficiency program that we launched and are now implementing, we could also see that, that is paying off on our margins. Reported sales minus 3% organically and including currency effects, minus 7%. I would say, nothing to worry about from that respect, it's because of the low figures in March. Order backlog per end of quarter minus 16%, also because of that tough comparable figures when you compare to 2017, but with shorter delivery times there I'm not worried about that figure at all at this stage.Turning to Slide 8, talking about EBE. EBE, Emerging Business Europem, all the business outside the Nordics and including the e-commerce, we had a reasonable start of the year and our e-commerce business continues to grow in a profitable way. Actually e-commerce grew by 10% in the quarter in a falling market to be noted and with the acquisition of B&B as I said we are approaching more than 7% of total group sales pro forma. So we are really happy about that development even though we can see that competition is also sharpening in e-trade channel at this stage. More players are of course, coming. We are not alone seeing the development in that channel as it is in many other industries of course.We have seen the efficiency measures in U.K. and in Austria paying off and they are coming according to plan. So break even in the first quarter is positive. We can also see good development in the lower priced window market in U.K., where we sell our PVC windows, it's developing in a positive way. Ireland is very strong. Poland is a strong market and we have developed there quite positively over the last couple of years and this continues in the first quarter. However, as I said consumer confidence to some extent in U.K., not surprisingly is turning down a bit and you could not expect otherwise. Reported plus 4% more or less unchanged sales organically and currency adjusted in the first quarter. And order backlog per end of quarter also minus 12% affected by the same thing, same weather effects that we have seen in all other markets during late February and March.So Slide 9. Looking into the outlook, we still see that the underlying conditions are very healthy. The need for our products, we feel is strong. There is a need for new dwellings. There is a need for a lot of renovation in many markets for the new segments and people wish for new designs, new concepts for a more healthy and comfortable home and living, and hopefully expect -- we expect this to turn into healthy demand going forward also in 2018.Inwido is very well positioned also within digital. We have a lot of new smart home and connected products. And we are also implementing digital solutions internally and also in the cooperation with our partners, both up and downstream the value chain. So we are comfortable in that. We are on the right path there also. We are the clear market leader in e-commerce in Europe and we continue to grow in a profitable way and that is something we have the absolute ambition to continue to do going forward.As I said before, many new products launched in many markets for new designs, for digital solutions lower energy values and it goes for Sweden, Norway, Finland, Denmark, Poland and we are also soon launching some new interesting products in the U.K. market. So we are well positioned, when it comes to the product launches and concept launches going forward. Challenges, we've seen is of course the late winter and I hope that the late and harsh and cold winter is now over, but it will be impacting the beginning and part of Q2, because we've got too few orders too late. It's not a change in the underlying demand, but it's just because customers and consumers waited too long. And of course with 4 to 5 to 6 weeks of the lead time producing the made-to-order product, it will have an impact on the Q2 sales, especially in the beginning of the quarter. Even if we can see that order intake clearly picking up in April of course with the warmer and more sunny weather that we are now seeing.There are more uncertainty in some markets than last few quarters. It's not a huge shift or a huge change, but Sweden, Norway and U.K., we can see that the house market discussions and debate about the real estate sector house prices et cetera is -- to some extent impacting the consumers. And then of course as well other companies and all other industries, we see the same financial and political risks. And to some extent also right now, rather high valued stock markets that could also be a risk that share prices will come down to low levels and that could impact consumers to some extent. Uncertainty in some raw material supplies could impact our product cost in the coming quarters. There is some bottlenecks in supply chain in general, right now, not in Inwido. But we can clearly see that we have to be on our toes towards our big partners within timber, glass, aluminum coating et cetera, so that we secure our lead times and our production efficiency, and we are right now not in any trouble at all, but we see that there are many companies reporting bottlenecks in various parts of the economy. When it comes to aluminum, what is the biggest share of our products right now, and continuously increasing, we have secured our supplies over at least Q2, and we think we are really well positioned there. But of course, with the great moments we have seen in that market, we have to continue to be very, very alert, and make sure that we handle the aluminum supplies in a good way also for the fall.Going to Slide 10, talking about the focus areas near-term, obviously the pricing and the segment mix is very important for us. We have to make sure that we compensate ourselves for those potential raw material price increases that we see. We would like to bring in more consumer sales going forward and it's very clearly that we -- very clear that we prioritize profitability before volume to make sure that we have the right profitable gross margins also going forward that we have seen over the last couple of years within the Inwido system.We would continue to consolidate and normalize the supply chain after some of the challenges we had last year and we are glad that we are now back on track, but we should also continue to improve continuously, the efficiency, the lead times, and the security in our deliveries can always be improved, so that we meet our customers' expectations in a good wayA very clear target for us is to continue to create organic and acquisition based growth. We continue to work on the target list when it comes to further acquisitions to be able to -- to some extent consolidate European, very fragmented landscape within windows and doors, and we have a very focused work with this -- within this also going forward, right now, we spend a lot of time on that issue, of course.Number 4, efficiency and cost improvements, we have our program running. We now should make sure to generate those effects that we have promised ourselves and the market, but also to improve competitiveness going forward of course, and we see that program coming on very well, right now.And the fifth focus area is, of course, to continue to launch interesting attractive products concepts, but also processes to improve efficiency and this goes especially within what we call e that goes for internal production and supply chain processes, digital products for consumers and customers, but also the interaction with partners up and downstream the value chain, where we can continuously of course, improve and we spend time, effort and money to improve ourselves there. By that, I hand over to Peter, so he can guide you through the figures of the first quarter of 2018.

[Peter Welin, Chief Financial Officer]

Thank you, Hakan. And then we turn page, and we go to Page #12. On this page, Page #12, you can see the results for Q1 2018 to the left as well as the results for Q1 2017. And as Hakan said before, sales was up 2% in reported figures, and adjusted for currency as well as for acquisition, sales were down 2%. So the organic growth in the quarter was negative by 2%. Gross margin declined due to high degree of industry sales and the longer winter affected mainly consumer sales, whereas the industry sales had a positive growth in the quarter. And a higher degree of industry sales means negative impact on gross margin, as well as on operating margin in the quarter.Operating EBITA ended at SEK 56 million compared to SEK 83 million last year, a deviation of 33%. Inwido had a restructuring cost of [ SEK 19 million ] in the first quarter, and this [ SEK 19 million ] was communicated in the Q4 report, and the [ SEK 19 million ] is then connected to a closure in Sweden, and -- of a factory in Sweden, and it's included in the cost saving program that was launched in last year. We had also positive net financial effects due to positive currency impacts on our loans, reducing the differences compared to last year on profit after tax. So profit after tax was SEK 33 million in the quarter, compared to SEK 45 million last year, a deviation of 27%.If we then turn page to Page #13. On this page you can see to the left, reported sales for '16, '17, '18 in Q1, and to your right, you can see the order intake for '16, '17 and '18. As I said before reported sales was plus 2% compared to 2017, and adjusted for currency and acquisitions, sales was down by 2%. The order intake was minus 6% in the reported figures and this was adjusted for currency, the order intake was minus 10%. The order intake was -- as well as sales had a positive growth in January, so the year started well. Also the first week in February [ was ] good. But then the longer and colder winter affected especially order intake in February and March. The deviation was mostly in March, but also Easter had a negative impact when comparing to last year.If we then turn page to Page #14. On this page, you can see the result in Q1 for operating EBITA result in Q1 for 2013 to 2018. You can also see the gross operating EBITA margin for Q1 during these years. Q1 last year was a historic strong quarter with high degree of consumer sales, 72%, and there was no Easter impact in the first quarter of 2017. Due to the seasonality within this business, the Q1 result is always the lowest result for Inwido, and normally the result margin is the breakeven or close to 3%. I think you can see on this chart, you can see that we had a negative result in 2013, in '14 we had a breakeven, and then in '15, '16, we were just on a margin around 3% and if you go further down into the history, we can see the same results. So last year was a really strong result with SEK 83 million in profits, and the margin close to about 6%. And this year, you can see that the result for Q1 this year is above the average for the last year. And the main reason behind the margin decline compared to last year is lower degree of consumer sales in Sweden, Norway and also in Finland. The total consumer share dropped from 72% in Q1 last year to 69% this year.If we then turn page to Page #15. This page shows the order backlog at end of each quarter from 2013, Q1 until Q1, 2018. As I said before the year started well with a positive order intake in January and then the order intake declined, especially in the second half of February and March and therefore the backlog declined as a consequence. The backlog is 8% behind last year in Swedish Krona, and if we adjust it for a currency impact, the backlog is 12% behind last year. The lower backlog end of March will have a negative impact on sales in the beginning of the second quarter when comparing to last year, due to our lead times in our production. Still the backlog is above 2016, and in historic perspective, it's still a strong backlog, if you're not only comparing to 2017.If we then turn page, to Page #16. On this page, you can see operating EBITA and an operating EBITA margin for Q1 '16, '17 and '18. As I said before, the result this year was SEK 56 million compared to SEK 83 million, and the margin was 4% compared to 6.1% last year. And as I said before, the longer winter, lower degree of consumer sales has made an impact when it comes to margins and a lower volume has also then impacted the margin, when compared to 2017. However, when compared to 2016, we can see a positive development when it comes to operating EBITA in Swedish Krona as well as on the margins, 4% this year compared to 3.5% in 2016.If we now turn page, to the last page before we open up for question, to Page #17. This page shows net debt for each quarter and also net debt versus operating EBITDA rolling 12 months. The net debt has increased in Q1 compared to Q4, and this is normal due to above seasonality. We have always increasing net debt in Q1, compared to Q4. However, this year has increased a bit more, due to the currency. We have several loans in other currencies than Swedish Krona and this means that when consolidating we have a higher degree of net debt due to -- of this weaker Swedish Krona end of March compared to end of December.We have also increased the working capital in the Q1, especially inventory. We have today a little bit higher safety inventory as a consequence of the production disturbances we had last year. So [ a little more safe to _____4129___ ] inventory in our factory and also somewhat low -- higher inventory, due to lower volume than expected at end of the first quarter. So the net debt versus EBITDA ended at SEK 2.5 million, rolling 12 months.This was the presentation and we now open up for questions.

[Operator]

[Operator Instructions] Your first question comes from the line of Predrag Savinovic.

[Predrag Savinovic, Analyst of Consumer Goods]

Can you talk a little bit more about the backlog and what we should expect in Q2? Is it only winter sales effect? Could we see some catch up effect or timing effect here where you regain some lost business and also maybe the order intake is that a good representation on where we should see sort of the organic level for Q2?

[Håkan Jeppsson, Chief Executive Officer and President]

I think obviously we will regain some business that was not done in the -- towards the end of quarter 1. To talk about catch up effect, I don't know if you should talk about catch up effects, but we can clearly see that orders are not coming with the mild weather or the milder weather. It's cold today in Stockholm, I guess, but the milder weather. I mean the time is to some extent our enemy. I mean, when we get the orders and we -- if we get too many orders at the same time, we have the capacity, we have short-term to regain everything. So you should expect that there could be an impact on top line in the second quarter, because of the late, so to speak order intake. If we get orders now in mid-April or second half of April because what happened earlier, then of course -- it would be difficult then to get back fully on track in the second quarter. I don't see that as being a shift in the market though. So it will be more a tiny effect for us.

[Predrag Savinovic, Analyst of Consumer Goods]

Speaking of the order intake gain, could you maybe give us some hint as to how Q2 have started so far?

[Håkan Jeppsson, Chief Executive Officer and President]

I think, I did give a hint. It's -- there is a mix between the market. They are all in [indiscernible] of course, but you also have to remember that when we have winter effect or Easter effect, there is a short-term effect or mid-term effect both on sales and order intake and last year we had Easter, if I remember it right, in the middle of April. So, the comparison figures for us now is quite weak. So we see very good development in some markets and they are all in a positive mode right now without the exceptions. So we are coming back on track. It's very, very hard to predict exactly how this will -- I mean be fulfilled through the whole quarter, but right now it looks good.

[Predrag Savinovic, Analyst of Consumer Goods]

Right. And you have talked about improving consumer sales, especially in Sweden I think, but yet -- I mean new building seems to be increasing every quarter. And could you just maybe tell us a bit more on this strategy going forward as to how to increase the consumer share of sales?

[Håkan Jeppsson, Chief Executive Officer and President]

Yes, I think we do a lot of different things. We have strengthened the organization. We have launched a lot of new products in several markets also in Sweden and Norway. We are coming closer to the customers and consumers in various ways and I think the effect that we see in towards the end of Q4, but especially in Q1 is more related to only the winter effect, I would say. I can't see that we are continuing to losing out on the consumer side from more structural reasons, it's about the weather. But we should also remember that competition has sharpened, that some of our big retail customers have more suppliers. So competition is also tougher for us and it's quite clear that for us a general rule is always profitability before volumes. So we're not chasing volumes in the consumer sector, just to get orders in our factories. But it's the combination of a lot of measures and there will be more measures going forward and I'm quite optimistic that we will come back on track and especially now with the winds are gone we can clearly see that orders are now coming back in the consumer sector much, much more than they are in the industry sector.

[Predrag Savinovic, Analyst of Consumer Goods]

In the report, you also write that, you had some increased market shares in 2017. Could you give us just an update on where you stand here in the respective countries right now?

[Håkan Jeppsson, Chief Executive Officer and President]

Yes, I think we increased market share dramatically, I would say in Norway, but that was not so difficult, we came from a low level. We are more or less even in Sweden, I would say. Finland is increasing dramatically. We have never been in a stronger position than right now in Finland and when it comes to Denmark, we have continuously over the last, I would say, 6 to 7 year strengthened our market shares even organically, but also with the acquisitions we have done. So all in all, in the Nordic region I think we are in a stronger position right now. It's not -- I mean, it's not giant leaps we are taking, but we had consolidated our position and we are stronger now than we used to be at least one year ago. So it looks optimistic. When it comes to the European markets, the statistics are not that valid and it's hard to measure. But I'm quite sure that we have increased our position in the mid-medium to low-price segment in U.K. with the PVC, where we are continuously growing. And we have also strengthened our position in the timber segment in Poland, for sure. So, right now it looks positive also in Europe. But it's, of course, a very, very tiny figures we have in the European markets and with -- not very secure statistics to lean on.

[Operator]

Your next question comes from the line of Johan Dahl.

[Johan Dahl, Analyst]

Hakan, you talked about the increased price competition, I think you mentioned Sweden and Finland for example --

[Håkan Jeppsson, Chief Executive Officer and President]

Yes.

[Johan Dahl, Analyst]

-- To what extent do you believe that is sort of driven by the temporary winter effects and to what extent is it sort of structural, as if you're facing some of this markets probably slowing demand?

[Håkan Jeppsson, Chief Executive Officer and President]

I think it's actually both. I think, but the extended price pressure and the harder competition we see, we always see that clearly in the winter season because of the winter campaigns and there are many of our competitors running out of orders and they try to fill up the factories to just make them run. And with this harsh winter, we have clearly seen that much more than normal I would say. And also, we see some of the competitors in some of our markets, I would say especially Finland struggling a little bit financially and we have seen that many times before, that when you are struggling, you have a tenancy that you go even lower to secure money into the company and orders into the factory. So clearly, most of what we have seen in the first quarter has been winter effect, I would say and to some extent structural effects also in Finland, not negative for us, but for some of the other players, I would say. But long term, there has been an increased general competition I would say in the Nordic region and I would say especially in Sweden. The Swedish market has over the last 6 to 7 years actually, we have seen increasing amount of so-called bigger players, trying to create stronger positions and being more active and more aggressive in some of the key segments. We can also see clearly that the big retail chains with [ infrastructure ] material today also work with more suppliers in our area and that's also means that we face more competition also in our -- some of our core channels. So it's both. I think the shift or the change that you see in this report is not that the structural competition has increased further, it's much more, or basically only connected to the late and cold winter.

[Johan Dahl, Analyst]

Did you mention that you are rolling out record number of innovations? I think you have mentioned. What is the -- can you put any sort of numbers to that? What do you expect the impact to be for the Group due to that?

[Håkan Jeppsson, Chief Executive Officer and President]

No, I won't give you any impact on that, it's very hard to calculate. I think, we have some years back -- I mean we almost had no sales of the new developed products and we measure this very clearly now. I think we -- at the latest report, we had between 7% and 8% of total sales was actually newly launched products and increasing very, very fast and this is a high figure in our industry and we have a clear targets there and that does not really include the newest launches. So I expect that figure to increase quite dramatically going forward. So this looks very positive. It's taken some years to come there, but now we'll clearly roll-out much more interesting products for the markets and that will have an impact. To measure that and to give you a forecast on that or to guide you on that is not something we will do.

[Johan Dahl, Analyst]

Just on production in Sweden-Norway, how concerned should we be that you repeat sort of the problems last year as orders are now pushed in late for delivery in Q2 and do you have the strain, which you talked about in the supply chain, could you just elaborate a bit on how you look on that?

[Håkan Jeppsson, Chief Executive Officer and President]

Yes. I'm quite sure that the mistakes -- some of the mistakes we did on our own, we will not repeat that I am quite sure of. What happens in this supply markets, with the big materials is something that we, of course, try to prevent from happening. There are clearly some risks that there will be bottlenecks within the big material supplier because they deliver to many different industries. A lot of materials and with the economic boom that we see right now in many industries, of course, we cannot guarantee that we are not effected by that, but right now, it looks quite promising. Our production is running smooth and fine and I can't really foresee that we should run into dramatic problems this year again, that is what we can see for now. And our factories are actually now back on track and with very -- or rather good figures from all aspects when it comes to lead time delivering the right amount, on time, et cetera, et cetera. So, I'm right now more -- I'm quite calm from that perspective, but it can change quickly, of course.

[Johan Dahl, Analyst]

But the fact is that had problems last year, are they currently in full swing or --

[Håkan Jeppsson, Chief Executive Officer and President]

Yes, now the problems are not in full swing I hope. The problems are more or less gone. But, we are made-to-order. We make a couple of million windows and doors every year, in 29 or today I would say 31 factories with 2 newest acquisitions. And, of course, we've made-to-order, you have to be very humble and follow the situation very, very careful. This is not the -- a steel mill or anything else running, this is very made-to-order and your plan your orders and your production with a lot of different models every-every day. So, but right now, it is working as it has before -- has done before the challenge that we had in Q2 and Q3 last year. So I'm -- I sleep well at night.

[Johan Dahl, Analyst]

Okay, just finally, the SEK 100 million savings program, can you just update us where you stand on that, the progress you're making and confidence in realizing it?

[Håkan Jeppsson, Chief Executive Officer and President]

We are rather confident. We are realizing that the savings. We are following the program and I am today rather sure that we will fulfill that program completely with the full-year 2019 as we have promised before.

[Operator]

Your next question comes from the line of Emmanuel de Figueiredo.

[Emmanuel de Figueiredo, Chief Investment Officer]

This is Emmanuel from LBV Asset Management. I really just had a question on the Aluminum and input prices. Can you -- because of what's happening to Aluminum, can you just help us a little bit with some sensitivity, so namely how much is Aluminum costs in your production base? And if the aluminum prices stay elevated for longer, basically would we start seeing some pressure in your margins in the second half?

[Håkan Jeppsson, Chief Executive Officer and President]

We work very closely to the big players in aluminum. Of the raw material cost, aluminum is 10% of the total cost. So it's a minor impact and that means that it's around 5% of the sales costs. So it's, of course, and it's increasing, because aluminum is more and more put on our products in most markets. So it's increasing. We are securing the aluminum supply and the prices, a couple of quarters ahead. So we are secured now for the first half and the second quarter and partly also already in the third quarter. So we have always time to adjust. But, of course, if they'll continue to be such, I mean dramatic volatility as we have seen, you cannot rule out that we will be to some extent impacted. And then, of course, we have to push price increases or cost increases to our customers. But right now, it seems like the situation is rather under control and since they -- one of the Russian guys with this company rural, he was off the list or he actually left control of that business. You could also see that he could be off the list may be from the sanctions are not impacting at least the aluminum market and that also meant the prices came down. But there is some unrest in the aluminum market right now and for various reasons. So we have to be very-very -- on our toes to make sure that we handle it in a good way.

[Emmanuel de Figueiredo, Chief Investment Officer]

And just a follow up on that, so, since listing in 2014, you've consistently had an EBITDA margin in excess of 13%, with the exception of last year for the production issues you've commented in numerous occasions. Do you think it's reasonable with the amount of information we have today and in April to think that in 2018, we can go back to the, let's say 13% plus EBITDA margin on a full year basis?

[Håkan Jeppsson, Chief Executive Officer and President]

We don't give usually any forecast. We try to guide on what we're doing and how we see the market develops. But I mean -- I think what I've just said about our position in our key markets, that has been strengthened over the last couple of years and our efficiency improvements in our factories except -- with the exception of the --I mean extraordinary challenge we had last year for various reasons. I think there is reason to believe that we will continue to deliver very good results. Then, of course, it depends on how the channels, how the segments develop, the general demand will of course have an impact on what kind of margin we can take out. But we don't see a dramatic shift this year in comparison to '16 and '17 from other aspects and those that we have discussed earlier in this call.

[Operator]

No further questions at this time. Please continue sir.

[Håkan Jeppsson, Chief Executive Officer and President]

Okay then, we think this conference call is over and we wish everybody a happy day, happy week and happy life. Thank you very much.

[Operator]

Thank you. This concludes our conference today. Thank you all for participating. You may all disconnect. Have a good day everyone.